Securities Law Commons^™

Attack On The Spac: The Push To Regulate Special Purpose Acquisition Companies As Investment Companies Under The Investment Company Act, Sean Meyer

University of Cincinnati Law Review

No abstract provided.

The Systemic Risk Paradox: Banks And Clearinghouses Under Regulation, Felix B. Chang

Faculty Articles and Other Publications

Consolidation in the financial industry threatens competition and increases systemic risk. Recently, banks have seen both high-profile mergers and spectacular failures, prompting a flurry of regulatory responses. Yet consolidation has not been as closely scrutinized for clearinghouses, which facilitate trading in securities and derivatives products. These nonbank intermediaries can be thought of as middlemen who collect deposits to ensure that each buyer and seller has the wherewithal to uphold its end of the deal. Clearinghouses mitigate the credit risks that buyers and sellers would face if they dealt directly with each other.

Yet here lies the dilemma: large clearinghouses reduce …

Can Behavioral Economics Inform Our Understanding Of Securities Arbitration, Barbara Black

Faculty Articles and Other Publications

This paper contributes to the ongoing debate over FINRA arbitration by invoking behavioral economics principles to understand why PDAAs in securities arbitration continue to resist powerful market and political forces calling for their elimination.

Part II of the paper sets forth background information to put the issue in context. It first describes several important distinctions between securities arbitration and other forms of consumer arbitration. It next summarizes pertinent economic theory, first classical economic theory in support of PDAAs and then behavioral economics principles that challenge the classical approach.

Part III poses three questions regarding the staying power of PDAAs and …

Lying And Getting Caught: An Empirical Study Of The Effect Of Securities Class Action Settlements On Targeted Firms, Lin (Lynn) Bai, James D. Cox, Randall S. Thomas

Faculty Articles and Other Publications

Private suits have long been championed as a necessary mechanism not only to compensate investors for harms they suffer from financial frauds but also to enhance the deterrence of wrongdoing. But many critics have claimed that there is a hidden dark side to the successful prosecution of a securities class action. In this paper, we shed light on these issues by examining whether the revelation of earlier misstatements, the initiation of private suit, and the payment of a substantial settlement, weaken the defendant firm so that the firm is permanently worse off as a consequence of the settlement.

We find …

Do Differences In Pleadings Standards Cause Forum Shopping In Securities Class Actions?: Doctrinal And Empirical Analyses, James D. Cox, Randall S. Thomas, Lin (Lynn) Bai

Faculty Articles and Other Publications

Federal appellate courts have promulgated divergent legal standards for pleading fraud in securities fraud class actions after the Private Securities Litigation Reform Act (PSLRA). Recently, the Supreme Court of the United States issued a decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd. that could have resolved these differences, but did not do so. This Paper provides two significant contributions. We first show that Tellabs avoids deciding the hard issues that confront courts and litigants daily in the wake of the PSLRA's heightened pleading standard. As a consequence, the opinion keeps very much alive the circuits' disparate interpretations of …

The Uptick Rule Of Short Sale Regulation: Can It Alleviate Downward Price Pressure From Negative Earnings Shocks?, Lin (Lynn) Bai

Faculty Articles and Other Publications

This paper empirically examines the effect of the uptick rule (including the bid test applicable to NASDAQ stocks) of short sale regulations on stock prices and short selling activities immediately after negative earnings surprises that occurred during the period of May to November 2005. It compares price paths and short selling activities of stocks restricted by the uptick rule with stocks that were exempted from the rule as a result of the SEC's Pilot Program. The study has not found any evidence that prices of stocks subject to the rule declined at a slower speed than prices of exempted stocks …

Working Toward Fair Treatment For Retail Investors, Barbara Black

Faculty Articles and Other Publications

Twenty years ago, in Shearson/American Express, Inc. v. McMahon, the Supreme Court held that brokerage firms could require their customers to arbitrate all their disputes in industry-sponsored fora - a decision that had great significance for the law of arbitration as well as securities regulation. In 1996, a blue-ribbon task force released its report, assessing the securities arbitration process at National Association of Securities Dealers, Inc. (NASD), the principal securities arbitration forum, and the report led to several symposia on the topic coinciding with the tenth anniversary of McMahon. Since then, arbitration scholars and practitioners have intensified the debate over …

There Are Plaintiffs And...There Are Plaintiffs: An Empirical Analysis Of Securities Class Action Settlements, James D. Cox, Randall S. Thomas, Lin (Lynn) Bai

Faculty Articles and Other Publications

In this paper, we examine the impact of the PSLRA and more particularly the impact the type of lead plaintiff on the size of settlements in securities fraud class actions. We provide insight into whether the type of plaintiff that heads the class action impacts the overall outcome of the case. Furthermore, we explore possible indicia that may explain why some suits settle for extremely small sums - small relative to the "provable losses" suffered by the class, small relative to the asset size of the defendant-company, and small relative to other settlements in our sample. This evidence bears heavily …

Brokers And Advisers-What’S In A Name?, Barbara Black

Faculty Articles and Other Publications

The article addresses two recent developments - the adoption by the SEC of a rule that allows brokerage firms to market fee-based accounts without registering as investment advisers and the increase in brokerage advertising that promotes the image of the broker as a trusted family friend and financial adviser. Professor Black argues that as a result of these developments investors are likely to be misled into believing that their brokers are investment advisers, with the fiduciary obligations the law requires of them, instead of brokers, whom the law generally treats as salespersons. She proposes two recommendations: (1) that brokers should …

Entering The U.S. Securities Markets: Regulation Of Non-U.S. Issuers, Barbara Black

Faculty Articles and Other Publications

The U.S. securities markets offer the greatest opportunities for businesses that wish to raise additional capital or expand their shareholder base. Large non-U.S. corporations regularly tap the U.S. market for infusions of capital, and the securities of many non-U.S. corporations are listed on the New York Stock Exchange or traded on NASDAQ. Smaller non-U.S. entities, however, may be deterred from entering the U.S. markets because of concerns about the burdens of U.S. securities regulation. These concerns are legitimate: a decision to enter the highly-regulated U.S. securities markets should not be made lightly. For non-U.S. private issuers, perhaps the greatest difficulty …

The Irony Of Securities Arbitration Today: Why Do Brokerage Firms Need Judicial Protection?, Barbara Black

Faculty Articles and Other Publications

In 1987 the securities industry achieved a major victory. Until then, because of the Supreme Court's 1953 holding in Wilko v. Swan that agreements to arbitrate federal securities claims contained in customer agreements were unenforceable, customers could sue brokerage firms and their salespersons in court, frequently before juries amenable to sizable verdicts, including punitive damages.

Illustrating a classic example of “be careful what you wish for,” brokerage firms no longer find arbitration entirely to their liking. Increasingly they turn to the courts to resist arbitration, to interfere with ongoing arbitration, or to undo the results of arbitration.

Unfortunately, both federal …

Economic Suicide: The Collision Of Ethics And Risk In Securities Laws, Barbara Black, Jill Gross

Faculty Articles and Other Publications

The first part of this article looks at whether there are any legal principles derived from regulation or the case law to support an "economic suicide" claim. The second part of the article reviews arbitrators' awards to determine whether arbitrators do, in fact, decide favorably on economic suicide claims. The article also looks at some arbitrators' awards that appear to recognize an economic suicide claim to identify any factors that may lead arbitrators to award damages to the claimant. Finally, in the third part, we address whether policy considerations support an extension of recognized brokers' duties to include a duty …

Hong Kong's Reformed Broker Contribution Rules, Lin (Lynn) Bai

Faculty Articles and Other Publications

Lynn Bai of the Hong Kong Securities and Futures Commission outlines the new risk-based calculation method for brokers' contributions to the stock clearing fund.

Establishing A Securities Arbitration Clinic: The Experience At Pace, Barbara Black

Faculty Articles and Other Publications

In the fall of1997 Pace University School of Law established one of the first law school clinics to provide student assistance to small investors who have disputes with their broker-dealers. What follows is a brief account of the clinic's educational objectives, an analysis of the initial organizational issues, and a report on the clinic's operation during its first two years. I am writing this in the hope that it will provide guidance and assistance to other law schools that contemplate establishing a securities arbitration clinic.

This is a nuts-and-bolts article written from the perspective of an experienced law professor who …

Strange Case Of Fraud On The Market: A Label In Search Of A Theory, Barbara Black

Faculty Articles and Other Publications

Part I of this Article will briefly discuss fraud on the market as a label attached to different factual situations, analyzing Blackie v. Barrack and Shores v. Sklar as two paradigms of the label's application. Part II will discuss the Supreme Court's recent decision in Basic. It concludes that the Court did not analyze definitively fraud on the market, thus leaving open the possibility that a pure causation approach is an appropriate explanation of fraud on the market. The treatment and application of fraud on the market in the lower courts is next analyzed in three groups: those applying Blackie, …

The Second Circuit's Approach To The "In Connection With" Requirement Of Rule 10b-5, Barbara Black

Faculty Articles and Other Publications

This Commentary examines the evolution of the "in connection with" requirement within the Second Circuit, focusing on cases decided in the 1985-86 term. It attempts to illustrate the direction the Circuit has taken in dealing with complex issues of securities fraud.

Racketeer Influenced And Corrupt Organizations (Rico)—Securities And Commercial Fraud As Racketeering Crime After Sedima: What Is A "Pattern Of Racketeering Activity"?, Barbara Black

Faculty Articles and Other Publications

Congress enacted the Racketeer Influenced and Corrupt Organizations Act (RICO) in 1970 in order to stem the infiltration and corruption of legitimate businesses by organized crime. During the 1970's, civil litigants virtually ignored the statute, but in the 1980's the utility of RICO's civil provisions has come to be generally recognized. Attorneys representing the victims of securities and commercial fraud now routinely add a claim alleging a RICO violation. Ii It is the attractiveness of the remedy - the successful plaintiff's recovery of treble damages and attorney's fees - that has led to this ever increasing use of RICO.

To …

Fraud On The Market: A Criticism Of Dispensing With Reliance Requirements In Certain Open Market Transactions, Barbara Black

Faculty Articles and Other Publications

The still-developing fraud on the market theory is the primary method by which securitiesf raudp laintiffs have attempted either to relax or eliminate the troubling reliance and causation requirements. Professor Black examines this emerging theory and suggests that the traditional common-lawfraud concepts that focus on reliance and causation still have validity and continue, even in this context, to offer appropriate
limitations on liability. The Article analyzes cases that have reduced or ignored this reliance element and explains why the legal concepts from which the fraud on the market theory evolved demand stricter adherence to reliance in certain markets but not …

Application Of Respondeat Superior Principles To Securities Fraud Claims Under The Racketeer Influenced And Corrupt Organizations Act (Rico), Barbara Black

Faculty Articles and Other Publications

Part I of this article outlines RICO's statutory scheme, reviews the common law doctrines under which a principal may be liable for the acts of its agent and the policies behind these doctrines, and examines RICO decisions raising the issue of vicarious liability. Part II examines non-RICO federal cases and identifies relevant factors determining the appropriateness of applying respondeat superior and agency principles to federal statutes. Finally, Part III analyzes the specific provisions of RICO in light of the factors identified in Part II. The article concludes that these factors do not support the imposition of liability on defendants other …

Is Stock A Security? A Criticism Of The Sale Of Business Doctrine In Securities Fraud Litigation, Barbara Black

Faculty Articles and Other Publications

This Article criticizes the use of the sale of business doctrine in securities fraud litigation. The Article first discusses the Supreme Court's efforts at defining a security, from its early investment contract analysis in SEC v. W.J. Howey Co., to Forman and other recent opinions. Part II analyzes the leading federal cases on the sale of business doctrine and examines problems in applying the doctrine. Next, part III examines alternative bases, within established Rule 10b-S jurisprudence, for dismissing the claims of purchasers of stock in close corporations. Finally, the Article asserts that, because the sale of business doctrine is inconsistent …