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Articles 1 - 30 of 159
Full-Text Articles in Securities Law
Shareholder Primacy Versus Shareholder Accountability, William Wilson Bratton
Shareholder Primacy Versus Shareholder Accountability, William Wilson Bratton
Articles
When corporations inflict injuries in the course of business, shareholders wielding environmental, social, and governance ("ESG") principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability expands out of its historic collectivized frame to become an internal subject matter-a corporate governance topic. As a result, shareholder accountability surfaces as a policy question for the first time. The Big Three index fund managers, BlackRock, Vanguard, and State Street, responded to the accountability question with ESG activism. In so doing, they defected against corporate legal theory's central tenet, shareholder primacy. Shareholder primacy builds …
Pricing Corporate Governance, Albert Choi
Pricing Corporate Governance, Albert Choi
Articles
Scholars and practitioners have long theorized that by penalizing firms with unattractive governance features, the stock market incentivizes firms to adopt the optimal governance structure at their initial public offerings (IPOs). This theory, however, does not seem to match with practice. Not only do many IPO firms offer putatively suboptimal governance arrangements, such as staggered boards and dual-class structures, but these arrangements have been gaining popularity among IPO firms. This Article argues that the IPO market is unlikely to provide the necessary discipline to incentivize companies to adopt the optimal governance package. In particular, when the optimal governance package differs …
Giving Shareholders The Right To Say No, Albert H. Choi, Adam C. Pritchard
Giving Shareholders The Right To Say No, Albert H. Choi, Adam C. Pritchard
Articles
When a public company releases misleading information that distorts the market for the company’s stock, investors who purchase at the inflated price lose money when (and if) the misleading information is later corrected. Under Rule 10b‑5 of the Securities Exchange Act of 1934, investors can seek compensation from corporations and their officers who make materially misleading statements that the investors relied on when buying or selling a security. Compensation is the obvious goal, but the threat of lawsuits can also benefit investors by deterring managers from committing fraud.
Just Say No? Shareholder Voting On Securities Class Actions, Albert H. Choi, Stephen J. Choi, Adam C. Pritchard
Just Say No? Shareholder Voting On Securities Class Actions, Albert H. Choi, Stephen J. Choi, Adam C. Pritchard
Articles
The U.S. securities laws allow security-holders to bring a class action suit against a public company and its officers who make materially misleading statements to the market. The class action mechanism allows individual claimants to aggregate their claims. This procedure mitigates the collective action problem among claimants, and also creates potential economies of scale. Despite these efficiencies, the class action mechanism has been criticized for being driven by attorneys and also encouraging nuisance suits. Although various statutory and doctrinal solutions have been proposed and implemented over the years, the concerns over the agency problem and nuisance suits persist. This paper …
Taming Unicorns, Matthew Wansley
Taming Unicorns, Matthew Wansley
Articles
Until recently, most startups that grew to become valuable businesses chose to become public companies. In the last decade, the number of unicorns—private, venture-backed startups valued over one billion dollars—has increased more than tenfold. Some of these unicorns committed misconduct that they successfully concealed for years. The difficulty of trading private company securities facilitates the concealment of misconduct. The opportunity to profit from trading a company’s securities gives short sellers, analysts, and financial journalists incentives to uncover and reveal information about misconduct the company commits. Securities regulation and standard contract provisions restrict the trading of private company securities, which undermines …
Whose Debt Is It Anyway?, Luís Calderón Gómez
Whose Debt Is It Anyway?, Luís Calderón Gómez
Articles
Every year, companies issue hundreds of billions of dollars of debt with a feature carrying unclear tax consequences. So do individuals, who frequently tie their most significant financial asset to this type of instrument. Yet this instrument is not an exotic or innovative financial derivative, but is simple vanilla debt with two or more borrowers, or “co-obligated debt”. Co-obligated debt poses a conceptual problem for the law because it does not fit neatly into the simple and dyadic legal framework underlying the law’s conception of debt, where one creditor lends money to one borrower in exchange for a direct promise …
Is Bitcoin Prudent? Is Art Diversified? Offering Alternative Investments To 401(K) Participants, Edward A. Zelinsky
Is Bitcoin Prudent? Is Art Diversified? Offering Alternative Investments To 401(K) Participants, Edward A. Zelinsky
Articles
Whether 401(k) plans’ investment menus should feature “alternative” investments is a fact-driven inquiry applying ERISA’s fiduciary standards of prudence, loyalty, and diversification. Central to this fact-driven inquiry is whether the alternative investment class in question is broadly accepted by investors in general and by professional defined benefit trustees in particular. A similarly salient concern when making this inquiry is the financial unsophistication of many, perhaps most, 401(k) participants. Accounting for these considerations, this Article concludes that REITs, private equity funds, and hedge funds can, with limits, today be offered as investment choices to 401(k) participants, but that cryptocurrencies (including Bitcoin), …
Nontraditional Investors, Jennifer S. Fan
Nontraditional Investors, Jennifer S. Fan
Articles
In recent years, nontraditional investors have become a major player in the startup ecosystem. Under the regulatory regime of U.S. securities law, those in the public realm are heavily regulated, while those in the private realm are largely left alone. This public-private divide, which is a fundamental organizing principle of securities law, has eroded with the rise of nontraditional investors. While legal scholars have addressed the impact of some of these nontraditional investors individually, their collective impact on deal terms, deal timelines, due diligence, and board configuration has not been discussed in a holistic manner; neither has their impact on …
The Sec's Fight To Stop District Courts From Declaring Its Hearings Unconstiutional, Linda Jellum
The Sec's Fight To Stop District Courts From Declaring Its Hearings Unconstiutional, Linda Jellum
Articles
Can the Securities and Exchange Commission (SEC) unilaterally deny a United States citizen the right to challenge the constitutionality of the agency's administrative hearings in district court? The SEC thinks so, but it makes no sense for these constitutional challenges to be brought in the very proceeding that allegedly, and likely, violates the U.S. Constitution. The appellate courts mostly agreed with the SEC, until recently when the Fifth Circuit held that the district courts should hear these claims. Given this circuit split, this issue will soon reach the Supreme Court, making this Article extremely timely. The Securities Exchange Act of …
Taking Misappropriation Seriously: State Common Law Disgorgement Actions For Insider Trading, Jeanne L. Schroeder
Taking Misappropriation Seriously: State Common Law Disgorgement Actions For Insider Trading, Jeanne L. Schroeder
Articles
In two recent cases, Kokesh v. SEC, and Liu v. SEC, the U.S. Supreme Court cut back substantially on one of the Securities and Exchange Commission’s most important enforcement powers. This is the ability to seek disgorgement from persons who violate the federal securities laws, depriving them of their ill-gotten gains.
Previously, the Supreme Court had developed a largely property-based theory of insider trading. Why is insider trading evil? Because material nonpublic information is property that the trader has fraudulently obtained and must not use for his own purposes
In this article I bring these thoughts together. I …
The Future Of Securities Law In The Supreme Court, Adam C. Pritchard, Robert B. Thompson
The Future Of Securities Law In The Supreme Court, Adam C. Pritchard, Robert B. Thompson
Articles
Since the enactment of the first federal securities statute in 1933, securities law has illustrated key shifts in the Supreme Court’s jurisprudence. During the New Deal, the Court’s securities law decisions shifted almost overnight from open hostility toward the newly-expanded administrative state to broad deference to agency expertise. In the 1940s, securities cases helped build the legal foundation for a broadly enabling administrative law. The 1960s saw the Warren Court creating new implied rights of action in securities law illustrative of the Court’s approach to statutes generally. The stage seemed set for the rise of “federal corporate law.” The Court …
The Growth & Regulatory Challenges Of Decentralized Finance, Aaron J. Wright
The Growth & Regulatory Challenges Of Decentralized Finance, Aaron J. Wright
Articles
Proceedings of the 2021 Spring Conference: The Impact of Blockchain on the Practice of Law Panel 1: The Growth & Regulatory Challenges of Decentralized Finance
The Rise Of Decentralized Autonomous Organizations: Opportunities And Challenges, Aaron J. Wright
The Rise Of Decentralized Autonomous Organizations: Opportunities And Challenges, Aaron J. Wright
Articles
The Author explores the nature of DAOs and highlights several areas where states and regulators can adapt existing legal regimes to potentially accommodate DAOs. Part of the Blockchain & Procedural Law seminars (Max Planck Institute Luxembourg for Procedural Law).
The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg
The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg
Articles
This Symposium Article examines how the public/private divide works today and maps out some of the potential implications for major issues in securities law. Classic debates in securities law were often predicated on the idea that public companies are a coherent class of firms that differ markedly from private companies. For more than fifty years after the adoption of the federal securities laws, this view was justified. During that period, the vast majority of successful and growing private firms eventually accepted the regulatory obligations of being public in order to access a wider and deeper pool of capital, among other …
High Seas Governance: Gaps And Challenges, Bernard H. Oxman
High Seas Governance: Gaps And Challenges, Bernard H. Oxman
Articles
No abstract provided.
Working Hard Or Making Work? Plaintiffs' Attorneys Fees In Securities Fraud Class Actions, Stephen J. Choi, Jessica Erickson, A. C. Pritchard
Working Hard Or Making Work? Plaintiffs' Attorneys Fees In Securities Fraud Class Actions, Stephen J. Choi, Jessica Erickson, A. C. Pritchard
Articles
In this article, we study attorney fees awarded in the largest securities class actions: “mega- settlements.” Consistent with prior work, we find larger fee awards but lower percentages in these cases. We also find that courts are more likely to reject or modify fee requests made in connection with the largest settlements. We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, but to help justify large fee awards—“make work.” The results of our empirical tests are consistent with plaintiffs’ attorneys investing more time in litigation against larger companies, with …
Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar
Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar
Articles
A key question at the intersection of state and federal law is whether corpo- rations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Secur- ities Act of 1933 (“1933 Act”). The decision held that the internal affairs doc- trine, which is the bedrock of U.S. corporate law, does not permit charter …
A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William Wilson Bratton, Adam J. Levitin
A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William Wilson Bratton, Adam J. Levitin
Articles
This Article takes stock of post-financial crisis regulatory developments to tell a tale of two markets within a political economy of financial regulation. The financial crisis stemmed from excessive risk-taking and dodgy practices in the subprime home mortgage market, a market that owed its existence to private-label securitization. The pre-crisis boom in private label mortgage-backed securities could never have happened, however, without financing from an array of structured products and vehicles created in the capital markets-CDOs, CDO2 s, and SIVs. It was these capital markets products that magnified mortgage credit risk and transmitted it into the financial system's vulnerable nodes. …
Shapeshifting Securities, Wendy Gerwick Couture
Abolish Ice . . . And Then What?, Peter L. Markowitz
Abolish Ice . . . And Then What?, Peter L. Markowitz
Articles
In recent years, activists and then politicians began calling for the abolition of the United States’s interior immigration-enforcement agency: U.S. Immigration and Customs Enforcement (ICE). Many people have misinterpreted the call to “Abolish ICE” as merely a spontaneous rhetorical device used to express outrage at the current Administration’s brutal immigration policies. In fact, abolishing ICE is the natural extension of years of thoughtful organizing by a loose coalition of grassroots immigrant-rights groups. These organizations are serious, not only about their literal goal to eliminate the agency, but also about not replacing it with another dedicated agency of immigration police. Accordingly, …
Strengthening The Passivity Default, Ian Ayres, Edward Fox
Strengthening The Passivity Default, Ian Ayres, Edward Fox
Articles
In The Prudence of Passivity, Bryon Harmon and Laura Fisher (hereafter HF) argue that "passive management become the default approach for the investment of trust funds, to be abandoned only when circumstances specifically dictate the use of active management."' In this comment we argue that their thesis could be strengthened (i) by more clearly distinguishing between default law and default investment practices, (ii) by more clearly articulating their favored altering rules.
Alpha Duties: The Search For Excess Returns And Appropriate Fiduciary Duties, Ian Ayres, Edward Fox
Alpha Duties: The Search For Excess Returns And Appropriate Fiduciary Duties, Ian Ayres, Edward Fox
Articles
Modern finance theory and investment practice have shifted toward “passive investing.” The current consensus is that most savers should invest in mutual funds or ETFs that are (i) well-diversified, (ii) low-cost, and (iii) expose their portfolios to age-appropriate stock market risk. The law governing trustees, investment advisers, broker–dealers, 401(k) plan managers, and other investment fiduciaries has evolved to push them gently toward this consensus. But these laws still provide broad scope for fiduciaries to recommend that clients invest instead in specific assets that they believe will produce “alpha” by outperforming the market. Seeking alpha comes at a cost, however, in …
Blockchain-Based Token Sales, Initial Coin Offerings, And The Democratization Of Public Capital Markets, Jonathan Rohr, Aaron Wright
Blockchain-Based Token Sales, Initial Coin Offerings, And The Democratization Of Public Capital Markets, Jonathan Rohr, Aaron Wright
Articles
Best known for their role in the creation of cryptocurrencies like bitcoin, blockchains are revolutionizing the way technology entrepreneurs finance their business enterprises. In 2017 alone, tech entrepreneurs raised over $6 billion through the sale of blockchain-based digital tokens, with some sales lasting mere seconds before selling out. In a token sale, also referred to as an “initial coin offering” or “ICO,” organizers of a project sell digital tokens to members of the public to finance the development of new technological platforms and services. After the initial sale, cryptocurrency exchanges scattered across the globe list tokens for trading and facilitate …
Principles For State Prosecution Of Securities Crime In A Dual-Regulatory, Multi-Enforcer Regime, Wendy Gerwick Couture
Principles For State Prosecution Of Securities Crime In A Dual-Regulatory, Multi-Enforcer Regime, Wendy Gerwick Couture
Articles
This article proposes principles for the exercise of prosecutorial discretion when prosecuting securities crime under state law. Securities transactions in the United States are subject to a dual-regulatory, multi-enforcer regime. Securities are dually regulated by the federal government and the states, with each regulatory scheme including both civil and criminal enforcement provisions. Those laws are multi-enforced at each level by a regulator, private parties, and prosecutors. And yet, the role of state prosecution of securities crime within this regime is undertheorized, and there is little guidance for state prosecutors about how their prosecutorial decisions affect this regime. This article, drawing …
Cyan, Reverse-Erie, And The Pslra Discovery Stay In State Court, Wendy Gerwick Couture
Cyan, Reverse-Erie, And The Pslra Discovery Stay In State Court, Wendy Gerwick Couture
Articles
No abstract provided.
Prosecuting Securities Fraud Under Section 17(A)(2), Wendy Gerwick Couture
Prosecuting Securities Fraud Under Section 17(A)(2), Wendy Gerwick Couture
Articles
No abstract provided.
Three Against Two: On The Difference Between Property And Contract And The Example Of Deposit Accounts In Bankruptcy, Jeanne L. Schroeder, David G. Carlson
Three Against Two: On The Difference Between Property And Contract And The Example Of Deposit Accounts In Bankruptcy, Jeanne L. Schroeder, David G. Carlson
Articles
In Citizen's Bank v. Strumpf (1995), Justice Scalia announced that deposit accounts are not "property". Five years later, the Uniform Commercial Code was amended to make deposit accounts collateral for the depositary bank maintaining the account, thereby crowding the field previously occupied by the common law right of setoff. Security interests attach to personal "property." Security interests attach to deposit accounts. Deposit accounts, by syllogistic logic, are property. Does this mean that the UCC has overruled the Supreme Court? We argue not. A deposit account is a mere contract in the two-person universe that contract law presupposes. A deposit account …
Securities Law In The Sixties: The Supreme Court, The Second Circuit, And The Triumph Of Purpose Over Text, Adam C. Pritchard, Robert B. Thompson
Securities Law In The Sixties: The Supreme Court, The Second Circuit, And The Triumph Of Purpose Over Text, Adam C. Pritchard, Robert B. Thompson
Articles
This Article analyzes the Supreme Court’s leading securities cases from 1962 to 1972—SEC v. Capital Gains Research Bureau, Inc.; J.I. Case Co. v. Borak; Mills v. Electric Auto-Lite Co.; Superintendent of Insurance v. Bankers Life & Casualty Co.; and Affiliated Ute of Utah v. United States—relying not just on the published opinions, but also the Justices’ internal letters, memos, and conference notes. The Sixties Court did not simply apply the text as enacted by Congress, but instead invoked the securities laws’ purposes as a guide to interpretation. The Court became a partner of Congress in shaping the securities laws, rather …
Texas Gulf Sulphur And The Genesis Of Corporate Liability Under Rule 10b-5, Adam C. Pritchard, Robert B. Thompson
Texas Gulf Sulphur And The Genesis Of Corporate Liability Under Rule 10b-5, Adam C. Pritchard, Robert B. Thompson
Articles
This Essay explores the seminal role played by SEC v. Texas Gulf Sulphur Co. in establishing Rule 10b-5’s use to create a remedy against corporations for misstatements made by their officers. The question of the corporation’s liability for private damages loomed large for the Second Circuit judges in Texas Gulf Sulphur, even though that question was not directly at issue in an SEC action for injunctive relief. The judges considered both, construing narrowly “in connection with the purchase or sale of any security,” and the requisite state of mind required for violating Rule 10b-5. We explore the choices of the …
Citing Counsel's Opinion About The Merits Of Legal Proceedings In Sec Filings, Wendy Gerwick Couture
Citing Counsel's Opinion About The Merits Of Legal Proceedings In Sec Filings, Wendy Gerwick Couture
Articles
No abstract provided.