The scandals of the past decade, which have been discussed exhaustively ad nauseam in corporate offices by corporate attorneys, and in accounting firms, led to the passage of significant congressional enactments that affect finance. These include the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010. When this author attended law school in the late 1950s, criminal law was given very low priority, consisting of a two-credit course that mainly covered acts of violence by poor individuals living in slum-like conditions. There was no discussion of white-collar crime inasmuch as such behavior almost never resulted in prosecution and/or imprisonment. The enactment of the Sarbanes-Oxley Act, with its very significant provisions of 20-year imprisonment for certain offenses, and the conviction of Enron’s chief executive officer (CEO) and other senior executives who did receive or faced such terms, finally caught the attention of corporate executives.

The lengthy terms of imprisonment, which constituted almost a life sentence for older executives; the vigorous enforcement of securities and other laws; the demise of a major accounting firm; the spread of anticorruption enactments beyond the United States; and the protection of and significant financial incentives given to whistle-blowers mandate that executives become aware of the laws affecting their activities. They must not only become experts in managerial, marketing, accounting, and/or financial aspects of the corporation but they must also pay attention to actual or perceived wrongdoings within a firm. Executives can no longer leave it to “legal” and ignore the laws that pertain to their daily activities. The CEO and the chief financial officer (CFO) may no longer be able to hide behind the “I didn’t know” defense, blaming wrongful conduct on lower-level employees or other third parties. It may be beyond the competence of corporate attorneys to salvage the tortious or criminal behavior of executives.

This text is designed to acquaint students, both graduate and undergraduate, as well as corporate executives and other interested parties of the legal aspects of the world of finance. Specific advances in the law tend to be emphasized at different times. Thus, there were many changes in criminal law following numerous rulings by the U.S. Supreme Court (Warren Court) in the 1960s that continue to greatly have an impact to the present day (e.g., the Miranda Rule). Employment law changed dramatically in the 1960s and early 1970s with the passage of the Equal Pay Act of 1963, Title VII in the Civil Rights Act of 1964, the Age in Discrimination Employment Law of 1967, and other employment-related legislation. Marital law took a giant leap forward in the 1980s with the enactment of equitable distribution laws in many states as well as with the liberalization of the grounds for a divorce. Entirely new areas of the law, such as cyberlaw, which had its dramatic upswing in the 1990s and early 2000s, sprung up thereafter. After such sudden bursts, persons affected, including practitioners and judges, go about interpreting and enforcing these areas of the law, which then become more staid with few dramatic changes.

Great advances are being made in the law of finance due to the statutory and regulatory changes in the legal landscape. It is anticipated that this area of the law is and will continue to be “hot” over the next decade with the likelihood of additional legislative enactments. It is incumbent upon all students entering the business world to have at least an awareness of the law affecting their activities. Senior officers are now required, in most instances, to ensure that there are systems in place to detect fraud and other wrongful acts or omissions in which they have been personally involved or whose existence they know of.

The first volume (this text) is entitled Corporate Governance and Finance Law. It is divided into two sections; the first section covers corporate governance, which includes a detailed examination of securities laws. Included in the discussion are an introduction to the outline of the text; a review of the basic forms of doing business; a discussion of corporate governance; an examination of the impact of recent federal legislation particularly as they affect corporate governance; and an examination of other basic forms of corporate governance globally. In this chapter, the basic legal forms of doing business are reviewed. We begin briefly with individual proprietorships, and then proceed to general partnerships and their later evolution to limited partnerships, limited liability partnerships, and even limited liability limited partnerships. Thereafter, we examine in greater detail the types of corporations and recent additions of hybrid forms such as the limited liability company.

In chapters 2 and 3, we examine corporate governance within the United States and some of the varied forms thereof in other countries. As the reader will note, corporate governance differs substantially from country to country and from continent to continent. It continues to evolve as businesses and the legal regimes of many countries seek to find the forms of business that will maximize the welfare and betterment of corporate entities and their stakeholders. Thus, for example, Japanese companies, which had their own unique form of corporate governance that included lifetime employment for employees, have been compelled to adopt some aspects of “Western” corporate governance.

Thereafter, we review securities laws and regulations that have undergone seismic changes. In Chapter 4, we commence the discussion with a brief overview of the major statutes affecting securities—the focus, however, is on the Securities Act of 1933. In Chapter 5, we continue with a discussion of the Securities Exchange Act of 1934, as well as a brief discussion of comparable legislation in the European Union (EU) and in the People’s Republic of China. Chapter 6 contains a discussion of swaps, which was one of the areas of concern during the financial crisis of 2007–2009 and continues to be a subject of major importance to the present day. In addition, we examine U.S. and international efforts to combat corruption of foreign persons by business personnel.

In the second volume entitled Laws and Regulations in Global Financial Markets, we continue with a discussion of laws and regulations affecting the many areas of finance. In Chapter 1 of the second volume, we examine in depth the rules and regulations affecting investment advisers In Chapter 2 thereof, we review the issues affecting broker-dealers and how they are regulated both within the United States and abroad. A discussion of mergers and acquisitions including a discussion of the antitrust implications thereof follows in Chapter 3. In Chapter 4, we discuss bankruptcy, particularly reorganization, which permits the filing of plans that enabled many companies to rid themselves of contractual and other obligations that prevented them from being competitive in the global marketplace. Thereafter, we review the very important changes in the law and regulations affecting banks and credit ratings organizations in Chapter 5.

In Chapter 6 of the second volume, we discuss new rules governing real estate financing. Many observers have placed the blame for the financial crisis of 2007–2009 on the collapse of the real estate market, which was caused by a near-total refusal by lending institutions to observe fundamental rules that assure repayment of mortgage loans by borrowers. In Chapter 7 we review insurance topics of major concern today including the controversial Patient Protection and Affordable Care Act. In Chapter 8 we conclude with personal finance and the related federal statutes, as well as the promotion of financial literacy especially among consumers. The international developments in each of the subject areas are also discussed. Large corporate entities have not been purely domestic for many decades. Many of them lost their national identities because of greater opportunities abroad especially in Asia; tax avoidance; the cost of doing business; stability within the nation-state; or a myriad other reasons.

The laws and regulations of the EU are reviewed at the end of most chapters. The reason for this arbitrary selection is that the EU consists of 27 member states, most of which have advanced economies. We have also added the rules and regulations of the People’s Republic of China (hereinafter China), which is the second largest economic power in the world today and will likely surpass the United States in the near future. The addition of China came about when I was teaching the Law of Finance to a graduate class for the first time at my university. Almost all the students in my class were from China and all but one of the students from China were women. I have observed the immense growth of China since I had the honor of teaching courses therein, including at the University of Shanghai, over the past few decades. There are substantial similarities among the rules and regulations adopted by the various nations with respect to the topics covered in this text. China, for example, did not have to “reinvent the wheel” but rather reflected upon and enacted laws and regulations that emulate Western legal concepts with some changes that reflect its tradition and mores. Although the EU and the United States have much in common with respect to cultural and social norms, there are variations especially in the area of common accounting standards and principles. Attempts to unify auditing and other accounting norms globally continue to the present day, but a deep divide due mainly to the unwillingness of the SEC and other governmental and non-governmental bodies to adopt to global standards in place of the current U.S. generally accepted accounting standards.

There may be legal requirements such as the collection of sales taxes, licenses, and other local obligations for the sale of products or the provision of services to consumers. Federal, state, and local taxes may be imposed on earnings from the business. Tax avoidance of business profits is common to such enterprises because of the difficulty in ascertaining the actual receipts and expenditures of small enterprises. This form of business is abhorrent to the attorney who often suggests the use of a corporate form to lessen the possible personal liability that is attendant to individual enterprises. Nevertheless, and especially if the business has little risk, this form of doing business may be appropriate, especially if one possesses few assets that may be seized in the event of business losses. If the individual wishes to use an assumed or trade name such as “Mary Smith d/b/a/Smith’s Stylish Dress Shop,” he or she may have to file a certificate with the local county clerk’s office or other such documentation or office as the state or local governmental entity may require.