The market of a successful financial centre must be efficient, orderly, and fair, which requires that investor protection rules be enforced effectively. While a substantial literature exists promoting privately driven enforcement of investor protection rules, there is a growing consensus that enforcement action by public bodies is likely to be more important for most markets than privately initiated litigation. Hong Kong exemplifies this point. In Hong Kong, public authorities carry almost the entire burden of enforcing corporate and securities laws. Yet Hong Kong functions at a high level of quality globally despite operating a market in which most companies are foreign-incorporated—often originating from jurisdictions with reputations for governance that are middling at best—and trading takes place in multiple currencies. To revisit the debate on the determinants of effective corporate and securities law enforcement, this paper evaluates the enforcement of investor protection laws in Hong Kong. The paper first examines the institutional context, presenting key corporate and securities regulation and explaining avenues for private and public actions. It looks at the powers and competencies of the relevant supervisory authorities, including the stock exchange, which has a quasi-public role in regulating the market. Then, using publicly available data supplemented through interviews with agency staff, the paper presents Hong Kong’s enforcement “inputs” (funding and staffing) and “outputs” (actions and sanctions) for the main public enforcers. We find evidence that the Hong Kong public enforcement model effectively disciplines even its dangerous environment of foreign companies, controlling shareholders, and complex, international groups, and might be able better to do so exactly because of a focus on public, rather than private, enforcement.

This article explores how issuer liability re-allocates fraud risk and how risk allocation may reduce the incidence of fraud. In the US, the apparent absence of individual liability of officeholders and insufficient monitoring by insurers undermine the potential deterrent effect of securities litigation. The underlying reasons why both mechanisms remain ineffective are collective action problems under the prevailing dispersed ownership structure, which eliminates the incentives to monitor set by issuer liability. This article suggests that issuer liability could potentially have a stronger deterrent effect when it shifts risk to individuals or entities holding a larger financial stake. Thus, it would enlist large shareholders in monitoring in much of Europe. The same risk-shifting effect also has implications for the debate about the relationship between securities litigation and creditor interests. Creditors' claims should not be given precedence over claims of defrauded investors (e.g., because of the capital maintenance principle), since bearing some of the fraud risk will more strongly incentivise large creditors, such as banks, to monitor the firm in jurisdictions where corporate debt is relatively concentrated.

This is a case study of the German securities regulator's (BAFin) decision on the Schaeffler case of 21 August 2008, which concluded that the Schaeffler Group's strategy for building up a controlling stake in Continental AG did not violate German disclosure rules. Moreover, it assesses whether the Schaeffler strategy would have been disclosed if the amendments to the German disclosure rules made by the Risk Limitations Act of 21 August 2008 had been in force at the time Schaeffler built up its swap position in Conti. In contrast to BAFin's decision, I hold that Schaeffler's swap long positions prompted disclosure requirements under the ‘holding on behalf’ provision of Article 10(g) of the European Transparency Directive 2004/109 as implemented in German securities and takeover law. While BAFin's decision was subject to the specifics of the case at hand, inadequate enforcement rules help explain why Schaeffler took the risk of regulatory action in the first place. Rather than relying on ex-post enforcement, I argue in favour of developing a self-regulatory, ex-ante enforcement scheme using the model provided by antitrust leniency programmes.

Minorco, S.A., a Luxembourg mining company allegedly controlled by South African interests, commenced a tender offer for Consolidated Gold Fields, PLC (Gold Fields), a British mining company. Gold Fields, together with its partially owned American subsidiary, Newmont Mining Corp. (Newmont), filed suit in U.S. federal district court to enjoin the tender offer. The district court held that Newmont, the affected American subsidiary, had standing to raise an antitrust claim and issued a preliminary injunction restraining the tender offer. The district court dismissed a claim based on alleged violation of U.S. securities laws for lack of subject matter jurisdiction and held that Gold Fields, as the target company, did not itself have standing to raise an antitrust claim. On appeal, the Court of Appeals for the Second Circuit (per Newman, J.) reversed in part and affirmed in part, holding that: (1) Newmont had standing under the U.S. antitrust laws to object to the tender offer; (2) Gold Fields also had antitrust standing (by 2-1); and (3) the U.S. courts did have subject matter jurisdiction over Gold Fields’s U.S. securities law claims. Accordingly, the court of appeals upheld the injunction and returned the case to the lower court for further proceedings. On remand, the district court found that inasmuch as Gold Fields had not demonstrated a likelihood that its U.S. securities law claims would be successful on the merits, those claims did not merit an injunction. The court also ruled that Minorco had failed to demonstrate that its plan to hold separate and sell the assets of Gold Fields posing the possible antitrust problem would provide adequate protection, and so kept the injunction against the tender offer in place. As a result, even though a majority of the Gold Fields shareholders had tendered their shares to Minorco and both British and European Communities regulatory authorities had approved the transaction, Minorco was forced to abandon its tender offer.