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Surveillance and Control: Internal, External and Governmental Monitoring of Corporate Insiders After Sarbanes-Oxley,” Michigan State Law Review 2004(2):327-440.

ABSTRACT: This essay explores consequences flowing from the imposition of increasingly significant governmentally directed and enforced surveillance obligations on private actors within the economic sphere. The emerging public-private regime, exemplified by the Sarbanes-Oxley Act, has more clearly revealed its character: surveillance and control of the market and the firm by government in the name, and on behalf, of the private stakeholders traditionally charged with the development and protection of their economic arrangements. Surveillance is privatized — outside directors, auditors, outside counsel, and corporate employees now increasingly serve as the eyes and ears of the state. Enforcement is nationalized. In lieu of private action by stakeholders, the state offers ‘fair funds’ reimbursements and state enforcement. The focus will be on the observer (who is required to survey), the observed (who must be monitored), the purpose of the surveillance (what must be monitored), and the persons or entities to whom the monitors must report. The essay then sets out three sets of archetypal factual narratives, the consequences of which are being currently litigated. The first relates to Chancellor Corp., the second to Solucorp Industries, Ltd., and the third to part of the Enron litigation. Using these as archetypal narratives, the essay extracts a series of norms for behavior applicable to both observer and observed. These are the beginnings of a system of standards ultimately governed by and beholden to the state. The essay then turns to an examination of the state, lying at the very center of this web of surveillance. First it analyzes the role of the state as enforcer as evidenced by the state’s role in the cases considered. It considers the state as source of redress to stakeholder and market as evidenced by the SEC’s campaign to widen its legislative authority to seek damages from wrongdoers and return the recovered funds to investors. Second, it examines the impact of SOX in the context of post-September 11, 2001 policies. In particular, it suggests that the elevation of monitoring as a significant state policy after September 11, 2001, may explain certain parallels between SOX and the anti-terrorism provisions adopted in 2001 and 2002. The essay ends with a preliminary consideration of the consequences of the construction of this great panoptic system of disclosure, in which individuals, firms and markets form the periphery and government lies at its center, and suggests that what may be emerging is a system of surveillance mercantilism.


DOWNLOAD ARTICLE HERE: 2004MSULRev327(2004)SurvandControl


“The Duty to Monitor: Emerging Obligations of Outside Lawyers and Auditors to Detect and Report Corporate Wrongdoing Beyond the Federal Securities Laws,”  St. John’s Law Review  77(4):919-1018 (2003), reprinted 53(4) Defense L.J. 671 (2004).

ABSTRACT: Recent legislation – Section 10A of the Securities Exchange Act of 1934 for auditors and Section 307 of the Sarbanes-Oxley Act for lawyers – has imposed on corporate outsiders certain duties to monitor unlawful activity within a corporation, and to report that activity to designated corporate actors. It is generally understood that the monitoring obligations of lawyers and auditors extend to corporate activity which might constitute a violation of federal securities law and state fiduciary duty standards. But do the monitoring and reporting obligations extend to unlawful activities beyond the securities laws — for example to violations of the laws prohibiting racial, religious, ethnic, age and sex discrimination? This article suggests that a strong set of arguments exist to support the answer – yes. The article first demonstrates that the monitoring rules create a broad obligation to detect and report that extends to any violation of law that could have a direct or indirect material effect on the financial condition of the corporation. The article then suggests that the nature of the detection and reporting obligation is active — requiring auditors and lawyers to implement procedures for detecting violations. The failure to comply with the detect and report obligations can contribute, under certain circumstances to auditor or lawyer liability as a principal under the securities laws, for liability as a principal under the discrimination laws, and for greater exposure to discovery from plaintiffs. The article ends with an extended hypothetical involving outside counsel, auditors and a client corporation engaging in potentially discriminatory conduct.


DOWNLOAD ARTICLE HERE: 77StJohnsLRev919(2003)Monitors


Cuban Corporate Governance at the Crossroads: Cuban Marxism, Private Economic Collectives, and Free Market Globalism, Transnational Law & Contemporary Problems 14(2):337-418 (2004).

ABSTRACT: Sooner or later, Cuba will have to engage with globalization. This article considers whether it will be possible for Cuba to remain true to its Marxist-Leninist principles of political and economic organization, and simultaneously embrace the emerging system of economic globalization. China appears to have accomplished this goal, and Cuba could follow China’s example. Despite all of the potential benefits to Cuba, a number of factors may make it impossible for Cuba to successfully implement a Cuba-appropriate version of the Chinese model of engagement with globalization. This paper considers six of the strongest arguments against adopting the Chinese model in Cuba. First, it is not clear that the Chinese model of global economic engagement has actually worked as advertised in China. Second, the Chinese model may not translate well to the Cuban context. The sort of engagement consistent with Maoist understandings of Marxist-Leninist theory may be impossible in the context of Cuba’s more Stalinist system of politico-economic organization–at least without what in Cuba would be viewed as a substantial shift in the nature of the governing ideology. Third, neither Cuba nor China has solved the core foundational problem of economic development through independent collectives, legal entities that are not an integral part of the state apparatus controlled by the Communist party. Neither China’s Maoist Marxist-Leninist theory, nor Cuba’s Stalinist version have satisfactorily solved the central contradiction of Marxist-Leninist engagement–the privatization of economic activity essentially directed by autonomous economic collectives regulated by the state. Fourth, Cuba continues to actively resist integration into global patterns of capital. Fifth, Cuba is in a poor position to compete globally–its labor is expensive, its products overpriced, and its infrastructure in need of development in comparison to other developing states. Last, and most perversely, the subjective and highly emotive ‘special relationship’ between Cuba and the United States limits objective consideration of alternatives and thereby constrains choice. The paper concludes by suggesting that despite the problems, there are significant elements in the Chinese model worth adopting, elements that are already, to some extent, present in the current Cuban approach to engagement with globalization.


DOWNLOAD ARTICLE HERE: 14TransLawContempProbs337(2004)