Securities Law Commons^™

Are Investors’ Gains And Losses From Securities Fraud Equal Over Time?, Alicia J. Davis

Alicia Davis

Leading securities regulation scholars argue that compensating securities fraud victims is inefficient because diversified investors that trade frequently (generally, institutional investors) are as likely to gain from trading in fraud-tainted stocks as they are to suffer harm from doing so. In other words, institutional investors have no expected net losses from fraud over the long term and are effectively hedged against fraud risk. Moreover, individual investors can protect themselves from fraud, as well, by investing through diversified institutional intermediaries. In this Article, I demonstrate, using both probability theory and observational and computer-simulated trading data, that the argument of the compensation …

Extraterritoriality As Standing: A Standing Theory Of The Extraterritorial Application Of The Securities Laws, Erez Reuveni

Erez Reuveni

This Article contends that the current treatment of the extraterritorial scope of the 1934 Securities Exchange Act as a question of subject matter jurisdiction is wrong. Although the Act is silent as to its extraterritorial application, for over forty years courts have analyzed the Act’s extraterritorial scope as a question of subject matter jurisdiction, relying on the so-called “conduct” and “effects” tests. Because courts apply these tests in an ad hoc, case-by-case manner, they are inherently unpredictable and unnecessarily complicated. This state of affairs has become particularly troublesome in recent years, as so-called “foreign-cubed” securities fraud lawsuits - lawsuits filed …

• The Credit Crisis And Subprime Litigation: How Fraud Without Motive ‘Makes Little Economic Sense’, Peter Hamner

Peter Hamner

The recent collapse of the financial markets spurred numerous lawsuits seeking a faulty party. Many plaintiffs argue that market participants committed securities fraud. They claim that deficient subprime loans caused the financial crisis. These risky loans were allegedly originated by banks to be sold off to third parties. The subprime loans were securitized and spread throughout the financial markets. The risk these loans presented was allegedly not disclosed to the buyers of the loans and securities on the loans. As these deficient loans and securities began to default the financial markets came to a halt. This article argues that securities …

The Investor Compensation Fund, Alicia J. Davis

Alicia Davis

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation.

The interest in compensation, however, should be advanced by better means than are …