Securities Law Commons^™

Disclosure's Limits, Usha Rodrigues, Mike Stegemoller

Scholarly Works

Special purpose acquisition companies (SPACs) have exploded in popularity, luring both adventurous retail investors and sophisticated institutional investors. In a SPAC, a publicly traded shell corporation acquires a private target, thereby taking it public in a manner that circumvents the rigors of a traditional initial public offering (IPO). Proponents vaunt SPACs’ ability to simplify the process of accessing the public markets and democratize capitalism, but in their current form they pose risks to retail investors and to the market as a whole. Using a hand-collected dataset, this Article fills a gap in the literature by providing new empirical data regarding …

Embrace The Sec, Usha Rodrigues

Scholarly Works

Securities law traditionally only permits corporations that have registered with the Securities and Exchange Commission (SEC) and completed an initial public offering (IPO) to sell equity to the general public—often a long, expensive process. Initial coin offering (ICOs) emerged in 2013 as a fundraising tool for non-public blockchain-based companies to raise billions of dollars while circumventing the SEC and public offering process altogether. But their early success brought the attention of the SEC, and in 2017 the SEC asserted the right to regulate ICOs. Since then, U.S. ICO promoters have struggled to avoid the SEC’s assertion of jurisdiction, contorting their …

Financial Contracting With The Crowd, Usha Rodrigues

Scholarly Works

Equity crowdfunding is broken. The current model imposes too many burdens on entrepreneurs in exchange for too little money. For alternative models, this Article looks to the time-tested venture capital financial contract, and the recent experience of initial coin offerings (ICOs). ICOs made headlines over the past two years, as the means by which blockchain technology companies raised billions of dollars to launch new cryptocurrency ventures. Although their novelty as a monetary and investing device is well known, ICOs also presented significant, unappreciated insights into financial contracting.

ICOs furnished an unprecedented experiment into how bargains would look if entrepreneurs raised …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

Spacs And The Jobs Act, Usha Rodrigues

Scholarly Works

The law has long confined the average investor to trading in public securitieswhile allowing wealthy—or “accredited”—individual investors access to a panoply of private securities, including investment vehicles such as hedge funds and private equity funds. Nevertheless, pressure to let the general public into private equity has been growing. Two forces have contributed to this mounting pressure. First, public investors are eager to try their hand at investing in private enterprise. Second, private firms need capital. In the face of these forces, the sharp line that has long separated public and private firms has become increasingly blurred

Consider the story of …

Materiality And Social Change: The Case For Replacing "The Reasonable Investor" With "The Least Sophisticated Investor" In Inefficient Markets, Margaret V. Sachs

Scholarly Works

The current materiality standard for federal securities fraud is a mid-twentieth-century construct that fails to accommodate certain twenty-first century realities. This Article argues that its reach should be restricted to preserve it for the many circumstances in which it continues to function well.

The current standard measures materiality from the standpoint of "the reasonable investor," a savvy person who grasps market fundamentals. This standard has a fatal flaw: its inability to protect unsophisticated investors who are duped by implausible falsehoods in inefficient markets. This flaw can no longer be ignored given Internet and telemarketing securities fraud and its many unsophisticated, …

Commercial Arbitration In The U.S.: The Arbitrability Of Disputes Arising From Statute-Based Claims, Sylvie Frankignoul

LLM Theses and Essays

A leading contemporary expert in arbitration has explained: "The concept of arbitrability determines the point at which the experience of contractual freedom ends and the public mission of adjudication begins. In effect, it establishes a dividing line between the transactional pursuit of private rights and courts' role as custodians and interpreters of the public interest." 1 A major part of the arbitrability doctrine deals with the kind of claims that can fall within the scope of agreements for private dispute resolution. Arbitration clauses are an integral part of the parties' transactions. Nevertheless, the American judiciary historically has refused to enforce …

Freedom Of Contract: The Trojan Horse Of Rule 10b-5, Margaret V. Sachs

Scholarly Works

Before the late 1980s, traditional contract law played virtually no role in private litigation under section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5. The reason was perceived incompatibility. The 1934 Act is regulation intended to supersede “the philosophy of caveat emptor,” whereas traditional contract law promotes bargaining free of regulation. In the late 1980s, however, the tide turned. Since that time, private rule 10b-5 litigation has become riddled with the vocabulary of traditional contract jurisprudence – the statute of frauds, merger clauses, attorneys' fees clauses, choice of law clauses, releases, and the formation of an agreement. …

The French First Demand Guarantee And The Standby Credit: A Comparative Study, Muriel Charreton

LLM Theses and Essays

Since World War II new security devices have evolved in both France and the United States. In France, the new device is known as the first demand guarantee. In the United States, it is called standby letter of credit. The underlying market forces which caused these devices to be developed are the same. But the label applied to the devices and the bodies of existing doctrine with respect to which they are formulated is different. In the French view, the difference between the two instruments is just a matter of different labels. But in the American view, the distinction between …

Are Local Governments Liable Under Rule 10b-5? Textualism And Its Limits, Margaret V. Sachs

Scholarly Works

Whether state and local governments can be sued for damages is a question that cuts across subject-area boundaries. This question, which has long confounded courts in the areas of both antitrust and civil rightslaw, now has arisen in a new area: section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5. The thesis of this Article is that a local government is an inappropriate rule 10b-5 defendant, regardless of whether it is the issuer of the securities in question or an alleged participant in a scheme involving corporate securities. The only appropriate rule 10b-5 defendants are private actors.

The Relevance Of Tort Law Doctrines To Rule 10b-5: Should Careless Plaintiffs Be Denied Recovery?, Margaret V. Sachs

Scholarly Works

Private litigation under section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5 is at present riddled with tort law doctrines. Familiar tort concepts such as aiding and abetting, respondeat superior, plaintiff's duty of care, in pari delicto, and contribution have been imported into the rule 10b-5 private action by a number of lower federal courts. The United States Supreme Court had not addressed the relevance of any of these doctrines until its decision this year in Bateman Eichler, Hill Richards, Inc., v. Berner. By disallowing a defense of in pari delicto on statutory enforcement grounds, Bateman plainly …

Protection Available To A U.S. Citizen Who Buys Securities From Foreigners: Relief In The U.S. For Sales At Home And Abroad; Protection Under U.K. And Thailand Laws, Narestr Kesaprakorn

LLM Theses and Essays

This paper will examine regulations relating to transactions by foreigners in the United States securities markets and compare with investor protection in the U.K. and Thailand. It will also examine the manner in which the U.S. seeks to control extraterritorial securities transactions.