Faculty Focus

Merritt B. Fox

International Securities Regulation

As a leading expert on the application of U.S. securities law to transnational transactions, Professor Merritt Fox breaks down complicated international business law concepts for both students and fellow academics

By Joy Y. Wang

Winter 2010

In Professor Merritt B. Fox’s office, 3-inch thick binders and heavy books fill shelves running the length of two walls, and economic journals sit in pillar-like stacks against his desk. The publications have titles such as “U.S. Regulation of the International Securities and Derivatives Market” and The American Economic Journal: Macroeconomics. This environment likely intimidates some first-year law students every now and then, but those familiar with Fox’s corporate securities classes know that he serves as an interpreter of the surrounding material, shedding light on complex business law concepts and making them more readily understandable.

Fox, the Michael E. Patterson Professor of Law, has been teaching for more than three decades, but he says that imparting knowledge to students is still what requires the most energy from him on any given day. “I don’t take teaching as a routine act,” says Fox, who also holds an appointment as the NASDAQ Professor for Law and Economics of Capital Markets. “In the time before a class, I prepare very intensively.”

Fox is an expert in securities law, particularly regarding the application of U.S. securities law to transnational transactions. He is currently working on an article about U.S. law–based fraud-on-the-market suits against foreign issuers—cases brought by purchasers of the foreign issuers’ shares based on the claim that the issuers’ misstatements inflated share prices. 

“Foreign issuers are frequent targets of these suits,” explains Fox. “Two out of six of the largest securities litigation payouts in history—these are multibillion-dollar payouts—have been by foreign issuers.” He also cites a recent class-action lawsuit brought against French media giant Vivendi. Tried in a New York federal court, the case centered on allegations that Vivendi’s executives intentionally failed to disclose the company’s large debts, thereby inflating its share prices. In late January, the jury found Vivendi liable to investors who purchased at these inflated prices. The judgment could potentially amount to as much as $9.3 billion. 

Fox notes that a downside to allowing share purchasers to bring fraud-on-the-market suits against foreign issuers is the possibility that the issuers might be deterred from making offerings or listing on U.S. markets. His own view is that a more fine tuned approach is needed, but Fox warns against “throwing the baby out with the bath water.” He adds that: “The United States has a much bigger stake in the behavior of its issuers than in that of foreign issuers. Relief for foreign issuers in order to improve our capital market competitiveness may well make sense.” The case for regulatory and litigation relief for U.S. issuers must stand on its own merits, he says, not hide behind concerns about competitiveness.

It’s possible to make such a case, Fox allows, but he urges caution. “The U.S. has the most effective disclosure regulation of any country in the world, which may explain why many indicators suggest it has the highest quality corporate governance and most liquid capital markets,” he says. 

Fox is currently teaching a capital markets course with Columbia Business School Professor Lawrence Glosten. The professors were awarded a grant from the NASDAQ OMX Education Foundation to develop a program in the law and economics of capital markets. It includes a course open to both law and business school students, as well as a series of workshops attended by leading capital market participants, practitioners, academics, and regulators. The workshops have covered such diverse topics as short-selling regulations, market-to-market accounting, European regulatory reactions to the financial crisis, market manipulation, and money market regulation. As part of the grant, Fox and Glosten are also creating a treatise on capital market regulation that uses a law and economics approach, and that could be the basis of courses taught elsewhere.  

“Involvement in all aspects of the program helps me stay up-to-date on ideas and how rules change,” says Fox. “Teaching absolutely informs my scholarship all the time.” His own exposure to the rigors of academic life stretches back to his childhood: Fox’s parents were both professors of international relations, and his father taught at Columbia University for three decades. “As a child, I remember being in his office and wondering what he really did,” Fox recalls with a laugh. At the time, he assumed his father held a role much like his second-grade teacher, except the students were “bigger.”

Now, armed with his own extensive teaching experience, Fox has a clear grasp of the responsibilities his father shouldered, and the various challenges that came with each one. “Teaching is the most intense activity, although writing is the activity that comes with the deepest thinking,” he says. Fox enjoys having to balance the two pursuits, though. “That’s the wonderful thing about this job,” he says, after pausing to offer up a grin. “It’s never boring.”