Choice of Law and Jurisdiction In an Age When Some Companies Flee Regulation ?
Remember that law school class time many thought wasted when focusing on choice of law and jurisdiction issues ? Today, the class time could be far more interesting if professors and books are covering the impacts of globalization and modern corporate behavior. One example, covered in this post about a book by Prof. Lynn LoPucki, involves the Delaware bankruptcy courts trying to attract litigation through a "race to the bottom" that resulted in lousy but predictable outcomes in chapter 11 cases. And, this prior post covered examples of Australian and US corporations moving from county to country in search of more favorable law and lower taxes.
Today, the topic arises again because of new examples. Thus, the SEC has recently proposed regulations aimed at reigning in compensation payments for executives at hedge funds. Meanwhile, the UK’s FSA last week released this new report on systemic risks posed by hedge funds, with some thoughts on regulation. On the other hand, however, some hedge funds are fleeing regulation, as illustrated by this recent Financial Times article by Sam Jones on hedge funds fleeing London to move to Malta to obtain lesser regulation and lower taxes. Set out below are two excerpts from Mr. Jones’ article. The article illustrates the point that some hedge funds are in fact fleeing regulation. Should that be legal ? How do governments effectively make it "illegal?"
" David Butler, founder of the consultancy Kinetic Partners, which advises hedge funds on their domicile and tax arrangements, said: “It’s dozens, rather than hundreds, that are moving there at the moment, but opening an office there gives managers flexibility. [They] are sitting in London, saying: ‘I have too much country risk here – the tax rate is through the roof, the regulations are too intrusive’.”
The Maltese financial regulator, the MFSA, has meanwhile been keen to ape the kind of “light touch” regulation of the hedge fund industry once propounded by the UK’s FSA – one of the foundations of London’s success as Europe’s main hedge fund centre.