Securities Law Commons^™

Protecting Whistleblowing (And Not Just Whistleblowers), Evan J. Ballan

Michigan Law Review

When the government contracts with private parties, the risk of fraud runs high. Fraud against the government hurts everyone: taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. To combat fraud, Congress has developed several statutory frameworks to encourage whistleblowers to come forward and report wrongdoing in exchange for a monetary reward. The federal False Claims Act allows whistleblowers to file an action in federal court on behalf of the United States, and to share in any recovery. Under the Dodd- Frank Act, the SEC Office of …

Revitalizing Motive And Opportunity Pleading After Tellabs, Marvin Lowenthal

Michigan Law Review

Congress passed the Private Securities Litigation Reform Act of 1995 ("PSLRA") to prevent frivolous lawsuits that had been draining resources from businesses. This legislation included provisions for heightening the pleading requirements for the scienter, or state of mind, requirement for securities law violations. Many circuit courts debated whether the motive and opportunity test for scienter, applied initially by the Second and Third Circuits, survived the passage of the PSLRA. This Note argues that while the motive and opportunity test has been discounted by numerous circuits, it not only remains viable for pleading scienter under the PSLRA, but it accomplishes the …

Standing Up To Wall Street (And Congress), Richard W. Painter

Michigan Law Review

In 1992, Arthur Levitt co-chaired a fundraising dinner for William Clinton. The dinner raised $750,000 (p. 7). Clinton was elected President, and Levitt got the job he wanted: Chairman of the Securities and Exchange Commission. Levitt, a former Chairman of the American Stock Exchange and a connected Democrat, was well qualified for the job. His, however, became a pyrrhic victory when accountants, issuers, broker-dealers, and other special interests used their own political connections to frustrate just about everything he sought to do. Levitt tells the story of his struggle against these well-funded interests in Take on the Street. One of …

The Applicability Of Section 2462'S Statute Of Limitations To Sec Enforcement Suits In Light Of The Remedies Act Of 1990, Catherine E. Maxson

Michigan Law Review

This Note argues that section 2462's limitations period reaches all SEC civil suits for monetary fines but not those SEC actions seeking equitable relief. Part I interprets section 2462 and, in the process, demonstrates that the statute controls SEC enforcement suits for civil penalties. Part II argues that SEC actions requesting injunctions or disgorgement of profits, unlike those seeking monetary fines, are not subject to the time bar. Finally, Part III asserts that SEC administrative enforcement proceedings should not be immune from the statute of limitations found in section 2462 of title 28 because exempting administrative proceedings would be tantamount …

The Obsolescence Of Wall Street: A Contextual Approach To The Evolving Structure Of Federal Securities Regulation, Joel Seligman

Michigan Law Review

As a matter of analytical style, this article illustrates a contextualist approach. For a considerable period of time, the dominant analytical style in corporate and securities .law has been a variant of economic, or law and economics, analysis. The virtue of this type of analysis is that it focuses on what its authors deem to be crucial variables and reaches conclusions derived from the core of a specific legal problem. The defect of this type of analysis is that so much is assumed or often assumed away.

Insider Trading Deterrence Versus Managerial Incentives: A Unified Theory Of Section 16(B), Merritt B. Fox

Michigan Law Review

Part I of this article assesses the social costs of a crude rule of thumb. Because section 16(b) applies to a given class of paired transactions, it deters both transactions based on inside information and transactions not so based. Each time section 16(b) is stretched to include a class of paired transactions, it deters some additional innocent transactions. This side effect will take the form of officers' and directors' purchasing fewer shares in their own companies and refusing to accept as large a portion of their compensation in a form based on share price. There are strong theoretical and empirical …

A Banker's Adventures In Brokerland: Looking Through Glass-Steagall At Discount Brokerage Services, Michigan Law Review

Michigan Law Review

Several banks have recently entered or announced their intention to enter the discount brokerage business, and the Federal Reserve Board is considering a rule listing discount brokerage as an acceptable bank holding company activity. The securities industry has contested this entry, asserting that the Glass-Steagall Act requires separation between investment and commercial banking. Though the Act does mandate some division between the two lines of business, this Note argues that bank discount brokerage services do not violate the Act. Part I examines the competing "accommodation" and "agency" interpretations of the relevant statutory sections, concluding that the agency interpretation, which permits …

Standing Under Rule 10b-5 After Blue Chip Stamps, Michigan Law Review

Michigan Law Review

The purpose of this Note is to analyze the opinion in Blue Chip and to ascertain the content of the Birnbaum rule as it exists today. It will first discuss the opinion of the Court in Blue Chip itself and delineate the primary policy considerations upon which the majority focused. It will then apply these policy considerations to the major categories of case law that have arisen subsequent to Birnbaum and analyze the validity of this case law in light of Blue Chip.

Foreign Bribes And The Securities Acts' Disclosure Requirements, Michigan Law Review

Michigan Law Review

The Securities Act of 1933 and the Securities Exchange Act of 1934 require most major corporations to disclose to investors all material information concerning company operations. Although they were not intended to regulate the conduct of business, these disclosure obligations can have a deterrent effect upon improper corporate activities. The recent revelation that a significant number of corporations have been making bribes and similar payments abroad has created interest in the feasibility of employing the disclosure requirements to curtail this practice. This Note will show that, despite recent pressures for change, the Securities and Exchange Commission has continued to view …

Private Causes Of Action Under Section 206 Of The Investment Advisers Act, Michigan Law Review

Michigan Law Review

This Note examines the propriety of implying a cause of action for damages under section 206. Upon concluding that such an implication is appropriate, it then suggests a scope for section 206 actions that implements the Act's underlying purposes.

Insider Liability For Short-Swing Profits: The Substance And Function Of The Pragmatic Approach, Michigan Law Review

Michigan Law Review

This Note will discuss the inquiries encompassed by the "possibility of abuse" test. It will also evaluate whether the test is properly employed only in determining that an unorthodox transaction is or is not a "purchase" or "sale" or whether the test could better be used as a threshold inquiry in all cases.

Intrastate Offerings Under Rule 147, J. William Hicks

Michigan Law Review

In an effort to publicize administrative and judicial interpretations of the exemption, to protect investors, and to provide more certainty in determining the parameters of section 3(a)(ll), the SEC has adopted rule 147. This Article, in three parts, will examine that rule. Part I is devoted to an explanation of the rule; it will indicate how the rule differs from earlier interpretations of section 3(a)(ll) and discuss the problems that the rule leaves unanswered. Part II will consider the interrelationships among the various sections of the rule, as well as interpretative issues that have not yet arisen under section 3(a)(ll). …

An Analysis Of Recent Proposals For Reform Of Federal Securities Legislation, William H. Painter

Michigan Law Review

Today the securities industry is in the midst of rapid change. Indeed it has been for at least the past decade, but in recent years the pace of change has increased, and its emphasis has shifted. Legislative and administrative reforms that could not have been anticipated a decade ago are likely in the near future, and it is still impossible to predict accurately the shape of the markets of tomorrow or the rules by which they will be governed. It is the purpose of this Article to focus on these recent developments, to summarize and evaluate various proposals for reform, …

Income Tax--Capital Gains Tax--Meaning Of "More Than 80 Percent In Value Of The Outstanding Stock" Under Section 1239, Michigan Law Review

Michigan Law Review

The sale of property by a taxpayer to a corporation which he controls has been a frequently attempted method of tax reduction for more than thirty years. Such a transaction has the advantage of maintaining ownership of the property in virtually the same hands, while at the same time resulting in a substantial mitigation of tax liability. For instance, in the post-World War II period, when property values were generally increasing, a taxpayer could sell to his controlled corporation at a gain depreciable property with a basis lowered by adjustments for prior depreciation allowances. The gain was immediately taxable at …

The Expanding Jurisdiction Of The Securities And Exchange Commission: Variable Annuities And Bank Collective Investment Funds, John W. Erickson

Michigan Law Review

The Securities and Exchange Commission is presently attempting to assert jurisdiction over certain aspects of two industries traditionally exempt from federal securities regulation-insurance and banking. The SEC claims that two recently developed investment vehicles-variable annuities in the insurance field and pooled funds of managing agency accounts in the banking field-are virtually the same as mutual funds, which are subject to SEC regulation under the Investment Company Act of 1940. (A mutual fund is essentially a fund (usually in corporate form), the participants' contributions to which are collectively invested in a portfolio of securities, each participation representing a pro rata interest …

Securities Exchange Act Of 1934--Cml Remedies Based Upon Illegal Extension Of Credit In Violation Of Regulation T, Robert G. Lane

Michigan Law Review

Following the stock market crash of 1929, there was considerable agitation for the regulation, and even the elimination, of the purchasing of securities on credit. Indeed, the extension of credit for the purchasing of securities became an issue in the 1932 presidential campaign and finally, in 1934, came under direct federal control. Although the federal regulations were intended to eliminate the hazards associated with the extension of credit for the purchasing of securities, all the available evidence indicates that the substantial amount of credit in the stock market was a significant factor in pushing up prices during the bull market, …

Antitrust Laws- Judicial Relief For Violations Of Section Seven Of The Clayton Act - Disenfranchisement In United States V. E. I. Du Pont De Nemours & Co., Barbara B. Burt S. Ed.

Michigan Law Review

This comment will approach section 7 relief questions and solutions primarily in the light of du Pont's unique facts, which included a vertical stock acquisition made thirty years before the judicial proceeding plus the complicating factors of vast financial interests, numerous innocent investors and several corporate interrelationships. Thereby were posed complex problems regarding (1) parties to the relief determination, (2) interests to be affected by the decree and (3) the manner of affecting those interests.

Constitutional Law - Due Process - Retroactive Application Of Uniform Principal And Income Act, Thomas E. Kauper S.Ed.

Michigan Law Review

The trustee of a trust created prior to the 1957 enactment of the Uniform Principal and Income Act petitioned for instructions as to whether a stock dividend received by it subsequent to the passage of the act should be allocated to principal or income. The Uniform Act provides a rule for the treatment of stock dividends contrary to the judicial rule previously adopted in Wisconsin, and is expressly made applicable to trusts existing on its date of enactment. The county court, finding the act could not be constitutionally applied to trusts created prior to its enactment, ordered the allocation of …

Loss & Cowett: Blue Sky Law, Homer D. Crotty

Michigan Law Review

A Review of Blue Sky Law. By Louis Loss and Edward W. Cowett.

A New Deal For Fiduciaries' Stock Transfers, Alfred F. Conard

Michigan Law Review

For nearly one hundred years, executors and administrators have been struggling with the excessive documentation which corporations demand as a condition of recording stock transfers. For almost as long, legislatures have been passing laws in the hope-generally vain-of alleviating the burden.

In 1957, at least three states (and possibly four) opened a door through which estate representatives can emerge from their long bondage. For the first time, identical acts were passed in different states, and interstate recognition of simplification measures began. For the first time acts were passed which get to the root of the transfer agent's problem.

Securities - Inter Vivos Gifts To Minors, Stephen C. Bransdorfer S.Ed.

Michigan Law Review

A statute recently enacted in twelve states and expected to be considered by seven other states this year, authorizes a new method for making gifts of securities to minors and for administering such gifts. The statute provides: (1) that irrevocable gifts of securities may be made to minors by use of statutory registration or deed of gift forms; (2) for the creation of a new type of fiduciary termed a custodian; (3) that the custodian shall have powers and duties over the minor's securities including authority to manage, sell, reinvest the proceeds from the sale and administer the securities for …

Securities Legislation - Limitations Upon The Scope Of Rule X-10b-5, Cyril Moscow

Michigan Law Review

A syndicate attempted to acquire all of the outstanding stock in a bridge corporation pursuant to a plan to transfer the stock to a bridge commission and realize substantial returns. The price offered for the stock was well over the market price but the resale plan was not disclosed. After control of 80 percent of the stock was obtained, the syndicate's purchasing agents were installed as officers and directors. They continued to purchase the stock without revealing the plan and the anticipated profits. Upon the completion of the plan, former stockholders in the corporation brought a class action against the …

Securities Legislation - Fraud Of Corporation Officers As Violation Of Securities And Exchange Act Of 1934, Douglas Peck S.Ed.

Michigan Law Review

The plaintiffs brought a stockholders' derivative suit in a federal district court, claiming that defendant directors had violated section 10 (b) of the Securities and Exchange Act of 1934 and rule X-10B-5 of the Securities and Exchange Commission. It was alleged that defendants who controlled as majority of the capital stock of the Algoma Coal and Coke Co., had purchased for the Algoma Company stock in two other corporations which they had formed and had manipulated the affairs of the Algoma Company so that business profits were diverted to those other corporations, thereby securing profits to themselves at the expense …

Corporations - Reclassification Of Securities As A Purchase Under Section 16 (B) Of The Securities And Exchange Act, Eric E. Bergsten

Michigan Law Review

Plaintiff, a minority stockholder in the Old Town Corporation, brought action on behalf of the corporation to recover alleged "shortswing" profits made by defendants, who were officers, directors and large shareholders of Old Town, on the sale of 45.9 percent of the outstanding stock of the corporation. The corporation had, with the approval of 78 percent of the owners in interest, reclassified the 320,402 outstanding shares of $5 par common stock as 320,402 shares of $1 par common and 320,402 shares of 40¢ cumulative preferred stock of $7 par value. This reclassification was done for the frank purpose of increasing …

Corporations - Right Of Shareholder Under Uniform Stock Transfer To Have Shares Transferred Contrary To Corporation By-Laws, Lawrence N. Ravick S.Ed.

Michigan Law Review

The defendant, a Michigan corporation, adopted a "constitution" (by-laws) which contained the following provisions: " ... no member shall be allowed to own more than five shares of stock at any one time." This restriction was not written into the articles of incorporation or printed upon the stock certificates. Plaintiff was at one time the president and director of the defendant corporation. While an officer, he acquired twenty-five shares of stock, having at the time full knowledge of the by-law provisions. When he was no longer an officer, plaintiff purchased an additional share of defendant's capital stock and requested the …

Arbitration-Enforceability Of Arbitration Agreement In Action By Investor Under The Securities Act Of 1933, Rinaldo L. Bianchi

Michigan Law Review

Plaintiff sustained a severe loss in the resale of securities bought from the defendant. Alleging fraud he sued under section 12(2) of the Securities Act of 1933, which provides for liability when prospectuses or oral communications sent through channels of interstate commerce falsely state or omit a material fact so as to render the statement misleading. Pursuant to the Federal Arbitration Act, defendant moved for an order staying proceedings until arbitration had been had in accordance with an agreement between the parties. The district court denied the order, saying that the non-waiver clause of the Securities Act voided a waiver …

Loss: Securities Regulation, Arthur H. Dean

Michigan Law Review

A Review of SECURITIES REGULATION. By Louis Loss.

Federal Procedure-Jurisdiction-Determination Of Amount In Controversy In Class Actions Under Federal Rule 23, James W. Callison

Michigan Law Review

Plaintiff owned 50 shares of common stock valued at $950. She brought an action in behalf of herself and all other stockholders to enjoin a sale of unissued stock by the corporation to its president, claiming a violation of her preemptive right. The district court ruled on the merits. On appeal, held, the plaintiff's interest was but a small fraction of the $3,000 required to invoke the jurisdiction of the federal courts. Although the action was representative, the claims of other stockholders in a like situation could not be cumulated. Ames v. Mengel Co., (2d Cir. 1951) 190 …

Conflicts Of Law-Negotiable Instruments-Situs Of Bearer Bonds, Paul M.D. Harrison S.Ed.

Michigan Law Review

By a Vesting Order, the Alien Property Custodian vested in the Attorney General property of an enemy alien which consisted of a "certain debt or other obligation" underlying bonds issued by the defendant corporation. The defendant corporation was ordered to cancel the said bonds and deliver the proceeds of the redemption and accrued interest to the Attorney General. Upon the trial of the action brought by the Attorney General to enforce these demands, it appeared in evidence that the bond certificates had last been located in the Russian sector of Berlin, Germany, and were there seized by the occupying authorities. …

Mccormick: Understanding The Securities Act And The S.E.C., Michigan Law Review

Michigan Law Review

A Review of UNDERSTANDING THE SECURITIES ACT AND THE S.E.C. By Edward T. McCormick.