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Full-Text Articles in Securities Law

Information Asymmetry And The Protection Of Investors, Kevin S. Haeberle Nov 2019

Information Asymmetry And The Protection Of Investors, Kevin S. Haeberle

Faculty Publications

To some, the reductions in information asymmetry provided by the main securities-specific disclosure, fraud, and insider-trading laws help ordinary investors in meaningful ways. To others, whatever their larger social value, such reductions do little, if anything for these investors. For decades, these two sides of this investor-protection divide have mostly talked past each other.

This Article builds on economic theory to reveal something striking: The reductions in information asymmetry provided by the core securities laws likely impose a long-overlooked cost on buy-and-hold ordinary investors. More specifically, I explain why there is much reason to believe that the reductions take away ...


A New Market-Based Approach To Securities Law, Kevin S. Haeberle Oct 2018

A New Market-Based Approach To Securities Law, Kevin S. Haeberle

Faculty Publications

Modern securities regulation has three main areas, each of which is plagued by a core problem. Mandatory disclosure law leaves society with suboptimal disclosure, as the government calls for too little of some information (for example, management analysis of company prospects) and too much of other information (for example, data about trivial executive perks). Securities fraud law (specifically, its central fraud-on-the-market theory of reliance) yields damages at odds with any reasonable theory of compensation and deterrence. And insider trading law fails to achieve its ends because incentives to police illegal trading and tipping by executives are currently weak.

In this ...


Making A Market For Corporate Disclosure, Kevin S. Haeberle, M. Todd Henderson Apr 2018

Making A Market For Corporate Disclosure, Kevin S. Haeberle, M. Todd Henderson

Faculty Publications

It has long been said that market forces alone will result in a problematic under-sharing of information by public companies. Since the 1930s, the main regulatory response to this market failure has come in the form of the massive mandatory-disclosure regime that sits at the foundation of modern securities law. But this regime—especially when viewed along with its speech-chilling antifraud overlay—no doubt leaves society without all the corporate information from which it would benefit. The typical fix offered to the problem has been more of the same: add to the 100-plus-page list of what firms must disclose, often ...


Financial Exploitation Of The Elderly: An Overview Of Regulatory Action, Christine Lazaro Jan 2018

Financial Exploitation Of The Elderly: An Overview Of Regulatory Action, Christine Lazaro

Faculty Publications

(Excerpt)

Financial exploitation of the elderly is a significant problem, which is only getting worse over time. A study by MetLife estimated that seniors lost $2.9 billion as a result of financial abuse, recognizing that the number was likely low due to underreporting of abuse. Each year, the elder population increases as the baby boomer generation ages. By the year 2050, it is estimated that 83.7 million people will be aged 65 or older, double what it was in 2012.


The Regulation Of Digital Investment Advice, Christine Lazaro Jan 2018

The Regulation Of Digital Investment Advice, Christine Lazaro

Faculty Publications

Digital investment advice, or robo-advice, is a growing trend in the financial services industry. It is expected that by 2022, robo-advisers will manage over $4 trillion in assets. Robo-advice covers a wide range of services, however all involve advice derived from algorithms. This article will discuss what robo-advice is as well as how it is regulated by the SEC and FINRA.


Evaluating Stock-Trading Practices And Their Regulation, Merritt B. Fox, Kevin S. Haeberle Jul 2017

Evaluating Stock-Trading Practices And Their Regulation, Merritt B. Fox, Kevin S. Haeberle

Faculty Publications

High-frequency trading, dark pools, and the practices associated with them have come under tremendous scrutiny lately, giving rise to much hot rhetoric. Missing from the discussion, however, is a principled, comprehensive standard for evaluating such practices and the law that governs them. This Article fills that gap by providing a general framework for making serious normative judgments about stock-trading behavior and its regulation. In particular, we argue that such practices and laws should be evaluated with an eye to the secondary trading market's impact on four main aspects of our economy: the use of existing productive capacity, the allocation ...


Discrimination Platforms, Kevin S. Haeberle Jul 2017

Discrimination Platforms, Kevin S. Haeberle

Faculty Publications

Off-exchange trading today has become defined by its opacity. Indeed, the framing of this symposium on What Happens in the Dark: An Exploration of Dark Pools and High Frequency Trading and its goal of "exam[ing] a portion of the modern market that remains largely outside of the public eye"l is much in line with contemporary thinking in policymaking, academic, and industry circles alike. Yet, off-exchange trading through "dark" pools and the like is far more transparent than thought, and exchange trading the opposite. In fact, much trading through off-exchange platforms is even more transparent than that facilitated by ...


One Size Does Not Fit All: A Contextual Approach To Fiduciary Duties Owed To Preferred Stockholders From Venture Capital To Public Preferred To Family Business, Juliet P. Kostritsky Jan 2017

One Size Does Not Fit All: A Contextual Approach To Fiduciary Duties Owed To Preferred Stockholders From Venture Capital To Public Preferred To Family Business, Juliet P. Kostritsky

Faculty Publications

This Article examines whether corporations should owe fiduciary duties to its preferred stockholders as preferred stockholders across all settings of preferred stock holding. In one context, sophisticated venture capitalists purchase preferred stock after carefully negotiating the stock price, control over the corporate governance, and other key stipulations by contract. Additionally, because the initial preferred stockholder could protect its interests through staged financing or board control, the preferred stockholder might not discount the stock even if it lacked protection since the other protective devices made the lack of such protections inconsequential so the initial holders won’t pay for these added ...


Supervision And Compliance Of Brokerage Firms, Christine Lazaro Jan 2017

Supervision And Compliance Of Brokerage Firms, Christine Lazaro

Faculty Publications

Supervision is a cornerstone of broker-dealer regulation. It serves a number of important goals: primarily ensuring that the firms follow the governing rules and regulations so that investors can have confidence in the firms with which they do business. Unfortunately, FINRA supervision rules often do not set out specifically how a firm is to supervise its brokers. This article will set forth the general supervision rules governing brokerage firms, as well as the rules that govern specific behavior and conflicts.


Regulatory Updates: Finra And Sec Rule Changes And Guidance Of Interest, Christine Lazaro Jan 2017

Regulatory Updates: Finra And Sec Rule Changes And Guidance Of Interest, Christine Lazaro

Faculty Publications

Over the past year, FINRA has proposed and approved new rules and amendments to its existing rules. FINRA has also issued supplemental guidance on existing rules. This article highlights those rule changes and guidance governing sales practice obligations of brokers, as well as the arbitration process. Additionally, this article will cover certain recently adopted SEC and CFTC rules.


Defining "Fiduciary": Differences In Fiduciary Standards Within The Securities Industry, Christine Lazaro Jan 2017

Defining "Fiduciary": Differences In Fiduciary Standards Within The Securities Industry, Christine Lazaro

Faculty Publications

Investment professionals are subject to varying standards of conduct when providing advice to clients. The standards range from providing advice which is suitable to acting consistently with a fiduciary standard.

The article provides a brief history of the applicable securities statutes governing investment advice. It discusses the differences in the enactment of the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Employee Retirement Income Security Act of 1974.

Next, the article discusses how each statute has impacted the standards applicable to brokers and investment advisers. Investment advisers are deemed fiduciaries. Brokers are held to the ...


Supervision And Compliance Of Brokerage Firms, Christine Lazaro Jan 2017

Supervision And Compliance Of Brokerage Firms, Christine Lazaro

Faculty Publications

Supervision is a cornerstone of broker-dealer regulation. It serves a number of important goals: primarily ensuring that the firms follow the governing rules and regulations so that investors can have confidence in the firms with which they do business. Unfortunately, FINRA supervision rules often do not set out specifically how a firm is to supervise its brokers. This article will set forth the general supervision rules governing brokerage firms, as well as the rules that govern specific behavior and conflicts.


Information-Dissemination Law: The Regulation Of How Market-Moving Information Is Revealed, Kevin S. Haeberle, M. Todd Henderson Sep 2016

Information-Dissemination Law: The Regulation Of How Market-Moving Information Is Revealed, Kevin S. Haeberle, M. Todd Henderson

Faculty Publications

No abstract provided.


Sec In-House Tribunals: A Call For Reform, Drew Thornley, Justin Blount Oct 2015

Sec In-House Tribunals: A Call For Reform, Drew Thornley, Justin Blount

Faculty Publications

I IN the aftermath of the 1929 crash of the stock market and during the height of the Great Depression, the federal government took steps to strengthen U.S. securities laws.1 To that end, via the Securities Exchange Act of 1934, the U.S. Congress (Congress) created the U.S. Securities and Exchange Commission (SEC), whose “mission [is] to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”2 As “the primary overseer and regulator of the U.S. securities markets,” the SEC has the power to bring enforcement actions against parties it believes to be ...


Sub-Adviser Fee Litigation: Will Section 36(B) Acquire Teeth?, Francis J. Facciolo, Leland S. Solon Mar 2015

Sub-Adviser Fee Litigation: Will Section 36(B) Acquire Teeth?, Francis J. Facciolo, Leland S. Solon

Faculty Publications

(Excerpt)

Section 36(b) of the Investment Company Act establishes a private breach of fiduciary duty cause of action for shareholders in an investment company, or mutual fund, to challenge the fees charged by the mutual fund’s investment adviser, in recognition of the fact that the adviser or one of its affiliates customarily creates the mutual fund and has a great deal of influence over the composition of the mutual fund’s board of directors or trustees, which negotiates the fees paid to the investment adviser. Under the Gartenberg standard, which was substantially adopted by the Supreme Court in ...


The Enforcers & The Great Recession, Mark Totten Jan 2015

The Enforcers & The Great Recession, Mark Totten

Faculty Publications

No abstract provided.


Bylaw Governance, Ben Walther Jan 2015

Bylaw Governance, Ben Walther

Faculty Publications

No abstract provided.


Stock-Market Law And The Accuracy Of Public Companies’ Stock Prices, Kevin S. Haeberle Jan 2015

Stock-Market Law And The Accuracy Of Public Companies’ Stock Prices, Kevin S. Haeberle

Faculty Publications

The social benefits of more accurate stock prices—that is, stock-market prices that more accurately reflect the future cash flows that companies are likely to produce—are well established. But it is also thought that market forces alone will lead to only a sub-optimal level of stock-price accuracy—a level that fails to obtain the maximum net social benefits, or wealth, that would result from a higher level. One of the principal aims of federal securities law has therefore been to increase the extent to which the stock prices of the most important companies in our economy (public companies) contain ...


Shining Light On Global Supply Chains, Galit A. Sarfaty Jan 2015

Shining Light On Global Supply Chains, Galit A. Sarfaty

Faculty Publications

This Article analyzes the effectiveness of emerging domestic legislation on global supply chain transparency with respect to human rights and labor practices. It draws from a quantitative and qualitative study of the implementation of recent U.S. conflict minerals legislation, section 1502 of the Dodd-Frank Financial Reform Act, which is driving global norms in this area and serving as a guide for comparable domestic legislation abroad. My analysis of section 1502 reveals a due diligence gap among firms, with only about 7% of companies reporting strong due diligence measures in their 2014 Conflict Minerals Reports. I also identify several factors ...


Is The Price Right? An Empirical Study Of Fee-Setting In Securities Class Actions, Michael A. Perino, Lynn A. Baker, Charles Silver Jan 2015

Is The Price Right? An Empirical Study Of Fee-Setting In Securities Class Actions, Michael A. Perino, Lynn A. Baker, Charles Silver

Faculty Publications

Every year, fee awards enable millions of people to obtain access to justice and strengthen the deterrent effect of the law by motivating lawyers to handle class actions. But little research exists on why judges award the amounts they do or whether they size fee awards correctly. The process remains a black box. Through a detailed study of 431 securities class actions that settled in federal district courts from 2007 through 2012, this Article presents the first empirical study to peer inside that black box. In contrast to prior analyses, this study relies on the actual court filings in each ...


Suitability Obligations Applicable To Securities And Annuities, Christine Lazaro, Benjamin P. Edwards Jan 2015

Suitability Obligations Applicable To Securities And Annuities, Christine Lazaro, Benjamin P. Edwards

Faculty Publications

(Excerpt)

Brokers are subject to different regulatory obligations depending on the type of product being recommended to a customer. Generally, brokers are subjected to overlapping oversight and are regulated at both the federal and state level. This oversight becomes even further complicated when a broker sells a product that spans multiple regulatory schemes such as certain annuities, which may be both insurance and securities products.

This article describes a broker’s suitability obligations under the new suitability rule when making recommendations which are covered by that rule. Next, it describes the additional obligations that a broker has when making a ...


Major Investor Losses Due To Conflicted Advice: Brokerage Industry Advertising Creates The Illusion Of A Fiduciary Duty, Joseph C. Peiffer, Christine Lazaro Jan 2015

Major Investor Losses Due To Conflicted Advice: Brokerage Industry Advertising Creates The Illusion Of A Fiduciary Duty, Joseph C. Peiffer, Christine Lazaro

Faculty Publications

(Excerpt)

No national standard exists today requiring brokerage firms to put their clients’ interests first by avoiding making profits from conflicted advice. In the five years since the passage of the Dodd Frank Act, inaction by the Securities and Exchange Commission (SEC) on a fiduciary standard has cost American investors nearly $80 billion, based on estimated losses of $17 billion per year.

Amid encouraging recent signs of possible action from the Department of Labor and the SEC, there is a compelling case to be made for a ban on conflicted advice in order to protect investors. In the absence of ...


Exculpatory Hedge Clauses In Investment Advisory Contracts: Developments Since Heitman Capital, Francis J. Facciolo, Leland Solon Feb 2014

Exculpatory Hedge Clauses In Investment Advisory Contracts: Developments Since Heitman Capital, Francis J. Facciolo, Leland Solon

Faculty Publications

The Investment Company Act of 1940 (ICA) and the Investment Advisers Act of 1940 (IAA) prevent an investment adviser from contractually limiting liability to its advisees through three main routes: statutory anti-waiver prohibitions, the IAA’s anti-fraud provisions, and limitations on indemnification by registered investment companies of their investment advisers. This article focuses on one of these three areas, the IAA’s anti-fraud provisions, and specifically, the SEC’s expansive interpretations of those anti-fraud provisions to cover exculpatory “hedge clauses” – caveats or cautionary statements – by investment advisers purporting to limit their liability to their advisees.


The Peril And Promise Of Preferred Stock, Ben Walther Jan 2014

The Peril And Promise Of Preferred Stock, Ben Walther

Faculty Publications

No abstract provided.


Financial Innovation And Flexible Regulation: Destabilizing The Regulatory State, Cristie Ford Jan 2014

Financial Innovation And Flexible Regulation: Destabilizing The Regulatory State, Cristie Ford

Faculty Publications

The author examines the regulatory failures leading up to the financial crisis, the rise of “flexible regulation,” the effects of financial innovation on regulation, and three different case studies that illuminate the drastic effects of that innovation: the Basel II banking regulations, the Canadian Asset-Backed Commercial Paper market, and the process for writing the Volcker Rule. Finally, she examines the underlying assumptions that should be re-examined in order to create more effective regulatory policies.


A Canadian Model Of Corporate Governance, Carol Liao Jan 2014

A Canadian Model Of Corporate Governance, Carol Liao

Faculty Publications

What is Canada’s actual legal model to govern its corporations? Recent landmark judicial decisions indicate Canada is shifting away from an Anglo-American definition of shareholder primacy. Yet the Canadian securities commissions have become increasingly influential in the governance sphere, and by nature are shareholder-focused. Shareholders’ rights have increased well beyond what was ever contemplated by Canadian corporate laws, and the issue of greater shareholder vs. board control has now become the topic of live debate. The future of Canada's overall model seems to rest on what will be more compelling: the constancy of the corporate statutes and trajectory ...


A Canadian Model Of Corporate Governance: Where Do Shareholders Really Stand?, Carol Liao Jan 2014

A Canadian Model Of Corporate Governance: Where Do Shareholders Really Stand?, Carol Liao

Faculty Publications

This feature article in the Director Journal summarizes the findings from the report, "A Canadian Model of Corporate Governance: Insights from Canada's Leading Legal Practitioners," produced for the Canadian Foundation for Governance Research and the Institute of Corporate Directors (also available on SSRN).

In the report, interviews were conducted with 32 leading senior legal practitioners across Canada to opine on the fundamental principles that are driving the development of Canadian corporate governance. The report found that Canadian common law has made the process of considering stakeholders in the "best interests of the corporation" more overt, well beyond what is ...


National And Coordinated Approaches To Securities Regulation: The Latest Initiatives In Historical Context, David L. Johnston, Kathleen Rockwell, Cristie Ford Jan 2014

National And Coordinated Approaches To Securities Regulation: The Latest Initiatives In Historical Context, David L. Johnston, Kathleen Rockwell, Cristie Ford

Faculty Publications

If securities regulation is any indication, few countries in the world take their federalism as seriously as Canada does. Notwithstanding an increasingly globalised world, the central reality of Canadian federalism will continue to influence the enactment and enforcement of effective capital markets regulation. In the latest development, on September 8, 2014 the federal government and four participating provinces announced draft legislation, including a new uniform provincial act and new federal legislation, to establish a new Cooperative Capital Markets Regulator (CCMR). Some provinces are strongly opposed, including Québec, which has promised to challenge the proposed regime on constitutional grounds. This chapter ...


The Fragmented Regulation Of Investment Advice: A Call For Harmonization, Christine Lazaro, Benjamin P. Edwards Jan 2014

The Fragmented Regulation Of Investment Advice: A Call For Harmonization, Christine Lazaro, Benjamin P. Edwards

Faculty Publications

(Excerpt)

Decades of short-term thinking and regulatory fixes created the bewilderingly complex statutory and regulatory structures governing the giving of personalized investment advice to retail customers. Although deeply flawed, the current systems remain entrenched because of the difficulties inherent in making radical alterations. Importantly, the current patchwork systems do not seem to serve retail customers particularly well. Retail customers tend to make predictable and costly mistakes in allocating their assets. Some of this occurs because many investors lack basic financial literacy. A recent study released by the staff of the Securities and Exchange Commission (the “Commission”) on financial literacy among ...


New Wave Of Cases Involving Investment Adviser Fees, Francis J. Facciolo, Leland Solon Oct 2013

New Wave Of Cases Involving Investment Adviser Fees, Francis J. Facciolo, Leland Solon

Faculty Publications

(Excerpt)

Shareholders challenging fees paid to the advisers of their mutual funds in civil lawsuits under §36(b) of the Investment Company Act face steep substantive and procedural challenges, but a recent decision from the federal district of New Jersey holds promise for private plaintiffs in this area. The central allegation in Kasilag v. Hartford Investment Financial Services was that the defendant investment adviser retained sub-advisers to perform substantially all of the investment management services for the defendant’s client mutual funds, and then charged its fund clients much higher investment management fees than what those services actually cost defendant ...