As explained here (an interview with one of the authors), law professors William Bratten and Adam Levitin think so. The full article is here. Here is the abstract:
Three
scandals have reshaped business regulation over the past thirty years:
the securities fraud prosecution of Michael Milken in 1988, the Enron
implosion of 2001, and the Goldman Sachs “Abacus” enforcement action of
2010. The scandals have always been seen as unrelated. This Article
highlights a previously unnoticed transactional affinity tying these
scandals together — a deal structure known as the synthetic
collateralized debt obligation involving the use of a special purpose
entity (“SPE”). The SPE is a new and widely used form of corporate
alter ego designed to undertake transactions for its creator’s
accounting and regulatory benefit. The SPE remains mysterious and
poorly understood, despite its use in framing transactions involving
trillions of dollars and its prominence in foundational scandals. The
traditional corporate alter ego was a subsidiary or affiliate with
equity control. The SPE eschews equity control in favor of control
through pre-set instructions emanating from transactional documents. In
theory, these instructions are complete or very close thereto, making
SPEs a real world manifestation of the “nexus of contracts” firm of
economic and legal theory. In practice, however, formal designations of
separateness do not always stand up under the strain of economic
reality. When coupled with financial disaster, the use of an SPE
alter ego can turn even a minor compliance problem into scandal because
of the mismatch between the traditional legal model of the firm and the
SPE’s economic reality. The standard legal model looks to equity
ownership to determine the boundaries of the firm: equity is inside the
firm, while contract is outside. Regulatory regimes make inter-firm
connections by tracking equity ownership. SPEs escape regulation by
funneling inter-firm connections through contracts, rather than equity
ownership. The integration of SPEs into regulatory systems
requires a ground-up rethinking of traditional legal models of the firm.
A theory is emerging, not from corporate law or financial economics
but from accounting principles. Accounting has responded to these
scandals by abandoning the equity touchstone in favor of an analysis in
which contractual allocations of risk, reward, and control operate as
functional equivalents of equity ownership, and approach that redraws
the boundaries of the firm. Unfortunately, corporate and securities law
hold out no prospects for similar responsiveness. We accordingly await
the next alter ego-based innovation from Wall Street’s transaction
engineers with an incomplete menu of defensive responses.
