Errata ERRATA Volume 2008, Number 3, of the Columbia Business Law Review contained three errors. First, on pages 934-35, the table of contents for the article entitled Mutual Fund Investors: Divergent Profiles was numbered incorrectly. Second, on page 1021, the biographical note for author James Carlson was inaccurate. Third, on page 1111, the biographical note for author Blake Smith was also inaccurate. A corrected version of the affected pages follows. The editors apologize for the error. MUTUAL FUND INVESTORS: DIVERGENT PROFILES Alan R. Palmiter & Ahmed E. Taha* I. Introduction ................................................................ 937 II. The Mutual Fund Market .......................................... 940 III. Industry's Portrait of Fund Investors: Sophisticated and Informed ....................................... 945 A. ICI Survey of (Some) Fund Investors ................. 946 1. Survey Findings .............................................. 947 2. Summary and Analysis .................................. 948 B. ICI Statements Regarding Fund Investors ........ 948 1. Investors Are Sensitive to Fund Costs .......... 949 2. Investors Access Large Amounts of Fund Inform ation ..................................................... 952 3. Summary and Analysis .................................. 956 IV. SEC's Portrait of Fund Investors: Capable (With Som e H elp) .................................................................. 956 A. SEC Regulation of Fund Disclosure .................... 957 1. Streamlined Disclosure .................................. 958 2. Standardized Disclosure ................................ 964 3. Plain English Disclosure ................................ 967 4. Summary and Analysis .................................. 968 B. SEC Regulation of Fund Advertising ................. 968 1. Required W arnings ......................................... 968 2. Standardized Performance Data ................... 970 3. Summary and Analysis .................................. 970 C. SEC Efforts to Educate Investors ....................... 971 1. Warnings About Past Performance ............... 971 2. Warnings About Fees and Expenses ............. 972 3. Summary and Analysis .................................. 974 V. Academic Literature's Profile of Fund Investors: M ostly Clueless .......................................................... 974 * Professors of Law, Wake Forest University School of Law. The authors thank Andrew Heiden ('09), Clay Scheffel ('09), and Bue McNeally ('10) for their research assistance. We also appreciate comments by participants at the Law & Markets Workshop at Duke Law School. A. Investors Are Ignorant of Basic Fund Characteristics ..................................................... 975 B. Investors Are Inattentive To Risk ...................... 978 1. Indifference to Risk Measures ....................... 978 2. Only Weak Reliance on Risk Ratings ............ 979 3. Summary and Analysis .................................. 980 C. Investors Pay Insufficient Attention to Fees and Expenses ....................................................... 980 1. Surveys of Fund Investors ............................. 981 2. Other Studies of Investor Behavior ............... 982 3. Evidence from Index Funds ........................... 985 4. Summary and Analysis .................................. 989 D. Investors Increasingly Pay Attention to Loads.. 990 1. Studies of Loads .............................................. 990 2. Studies of 12b-1 Fees ...................................... 992 3. Summary and Analysis .................................. 993 E. Investors Chase Past Returns ............................. 994 1. Investor Surveys and Experiments ............... 994 2. Other Studies of Investor Behavior ............... 995 3. Summary and Analysis .................................. 997 F. Financial Advisers Provide Little Help .............. 998 1. Widespread Use of Financial Advisers .......... 998 2. Survey of Financial Advisers ......................... 999 3. Advisers' Effects on Investor Behavior ........ 1000 4. Summary and Analysis ................................ 1003 G. Advertising Does Not Benefit Investors ........... 1003 1. Importance of Advertising to Investors ....... 1003 2. Benefits and Harms of Advertising ............. 1004 3. Summary and Analysis ................................ 1007 VI. Fixing a Dysfunctional Market ............................... 1008 A. Facilitating Investor Access to Important Fund Inform ation ........................................................ 1008 B. Inducing Investors to Pay Greater Attention to Fund Expenses ................................................... 1010 C. Encouraging Investors to Pay Less Attention to Past Perform ance .......................................... 1013 D. Having the SEC Pay Attention to the Academ ic Literature .......................................... 1014 V II. C onclusion ................................................................ 1018 No. 3:9341 MUTUAL FUND INVESTORS TO ASSIGN, OR NOT TO ASSIGN: RETHINKING ASSIGNEE LIABILITY AS A SOLUTION TO THE SUBPRIME MORTGAGE CRISIS James Carlson* I. Introduction .............................................................. 1022 II. B ackground ............................................................... 1025 A. Subprim e Lending ............................................. 1025 B . Securitization ..................................................... 1030 III. Current Legal Landscape ........................................ 1034 A. Federal Solutions: The Weak Federal A pproach ............................................................ 1037 B. State Solutions: The Problem of Regulatory C apture ............................................................... 1038 IV. Conceptualizing Assignee Liability ......................... 1040 A. The Costs and Uncertainties of Due Diligence R eview ................................................................ 1042 B. Requiring Solvency: Practical and Legal O bstacles ............................................................ 1043 C. Litigation Barriers: Assignee Liability and Obstacles to Enforcement .................................. 1046 V. Empirical Analysis of Assignee Liability ................ 1048 A. A Note on the Data ............................................ 1049 B. Past Empirical Research ................................... 1050 C. Contributions to the Empirical Study .............. 1052 1. Propensity Score Matching .......................... 1052 2. Using Rate Spread Instead of Subprime Lender List .................................................... 1055 3. Comparing Assignee Liability Provisions ... 1056 4. State-Specific Focus ...................................... 1057 * J.D. Candidate 2009, Columbia University School of Law; B.A. Economics and History 2006, Case Western Reserve University. The author wishes to thank Professor Ronald Mann for his guidance, and the staff of the Columbia Business Law Review for its editing assistance. COLUMBIA BUSINESS LA W RE VIE W D. Theoretical M odels ............................................. 1059 E . R esults ................................................................ 1060 1. Full Sam ple ................................................... 1060 a. Rate Spread: Interest Rate on Subprime L oans ....................................................... 1060 2. High Cost: Probability of Originating a H igh Cost Loan ............................................. 1062 3. State Sample: Probability of Securitization 1064 F . D iscussion .......................................................... 1064 VI. The Great Misconceptualization of Subprime L ending ..................................................................... 1065 V II. C onclusion ................................................................ 1068 I. INTRODUCTION No city better epitomizes the subprime crisis than Cleveland. In 2006, the Census Bureau declared Cleveland the poorest big city in America-with 32% of its population living below the poverty level.' Expectedly, nearly 30% of loans originating in the Cleveland region during this time were subprime, many undoubtedly on predatory terms.2 When the subprime crash engulfed the region, nearly 24,000 people lost their homes, leaving 10,000 abandoned buildings.' By contrast, one of the more devastated regions of New Orleans, in the wake of Hurricane Katrina, lost about 13,700 homes.4 The mortgage foreclosure crisis and subprime meltdown hardly needs further introduction. From 1994 to 2006, the value of all subprime loans increased from $30 billion to $640 billion.5 In 2007, subprime loans plummeted to $50 billion, ' Thomas Ott, Real Estate's Perfect Storm, CLEVELAND PLAIN DEALER, Jan. 20, 2008, at Al. 2 See id. 3 Id. 4 Id. ' See Ted Frank, Prime Target, WALL ST. J., Apr. 25, 2007, at A15. [Vol. 2008 PROXY ACCESS AND THE INTERNET AGE: USING ELECTRONIC SHAREHOLDER FORUMS TO IMPROVE CORPORATE GOVERNANCE Blake Smith* 1. Introduction .............................................................. 1112 II. Legal Developments Concerning Shareholder Proxy A ccess ............................................................. 1113 A. Shareholder Proxy Access ................................. 1113 B. AFSCM E v. AIG ................................................. 1114 C. The SEC Responds to the AIG Decision ........... 1116 D. Debate over the Merits of Proxy Access ........... 1117 III. Development and Use of Electronic Shareholder F oru m s ...................................................................... 112 1 A. Previous Experience and Commentary on Electronic Shareholder Forums ........................ 1124 1. Open Forums and Investor Message Boardsl124 2. Independently Conducted, Shareholder Sponsored Forum s ........................................ 1125 3. Corporate Instituted Electronic Forums ..... 1128 4. Opposition to Shareholder Forums ............. 1129 5. Proponents of Shareholder Forums ............. 1130 IV. Shareholder Participation in Corporate Governance through Electronic Forums ................. 1131 A. Introducing Electronic Forums Into The Proxy A ccess D ebate ..................................................... 1132 1. W aste and Disruption .................................. 1132 2. Empowering Special Interests ..................... 1134 3. Short-Term ism .............................................. 1135 4. Impact on Recruiting Directors ................... 1136 * J.D. Candidate 2009, Columbia University School of Law; B.A. English, Pomona College. The author wishes to thank his family, Professor Harvey Goldschmid for his guidance, and the staff of the Columbia Business Law Review for its editing assistance. COLUMBIA BUSINESS LA W REVIEW 5. Effective Shareholder Participation in Corporate Elections ...................................... 1138 6. An Overview of the Shareholder Franchise in Electronic Forum s .................................... 1139 B. General Forum Use ........................................... 1140 V . C onclusion ................................................................ 1141 I. INTRODUCTION On November 28, 2007, the SEC voted to amend federal proxy rules in two ways. The first amendment clarified the SEC's stance that corporations may exclude shareholder proposals for nominees to the company's board of directors from the company's proxy materials. The second amendment was designed to encourage the use of electronic communications between companies and investors. These SEC actions constituted a partial response to a longstanding debate concerning the role of shareholders in corporate governance. This Note argues that innovative uses of web-based technology could resolve many contentious issues concerning shareholder participation in corporate elections and ultimately improve the quality of corporate board elections from the perspective of corporate boards and shareholders. Despite their early state of development, electronic shareholder forums present corporations with the clear opportunity for low-cost, beneficial interaction with shareholders. Web-based technology can be molded to fit a company's individual needs. With a proper investment of time and due consideration, electronic communications with shareholders stand to improve corporate performance without dramatically altering structures of corporate governance. Part II of this Note reviews the legal developments and academic debate concerning the merits of shareholder participation in corporate elections from the angle of shareholder access to corporate proxy materials. Part III traces the development and use of electronic shareholder 1112 [Vol. 2008