Securities Law Commons^™

Regulation Of Companies With Publicly Listed Share Capital In The People's Republic Of China, Nicholas C. Howson

Articles

Mr. Chairman, colleagues, and friends: It is a great honor for me to be able to address this group of experts and legislators, and many colleagues and friends, on a topic I care deeply about-the regulation of so-called public companies, both outside of China and, since the early 1990s, inside of China. First, and with many of the others invited to participate in this conference today and tomorrow, I thank the Office of Legislative Affairs ("OLA") of the State Council of the People's Republic of China ("PRC") as well as the China Securities Regulatory Commission ("CSRC") for convening this very …

Did The Private Securities Litigation Reform Act Work?, Michael A. Perino

Faculty Publications

In 1995 Congress passed the Private Securities Litigation Reform Act (the PSLRA or the Act) to address abuses in securities fraud class actions. In the wake of Enron, WorldCom, Adelphia, and other high profile securities frauds, critics suggest that the law made it too easy to escape liability for securities fraud and thus created a climate in which frauds are more likely to occur. Others claim that the Act has largely failed because it did little to deter plaintiffs' lawyers from filing nonmeritorious cases. This article employs a database of the 1449 class actions filed from 1996 through 2001 to …

The Sec At 70: Time For Retirement?, Adam C. Pritchard

Articles

As one grows older, birthdays gradually shift from being celebratory events to more reflective occasions. One's 40th birthday is commemorated rather differently from one's 2lst, which is, in turn, celebrated quite differently from one's first. After a certain point, the individual birthdays become less important and it is the milestone years to whch we pay particular attention. Sadly for entities like the Securities and Exchange Commission, it is only the milestone years (the ones ending in five or zero, for some reason), that draw any attention at all. No one held a conference to celebrate the SEC's 67th anniversary. Clearly …

Uncovering A Gatekeeper: Why The Sec Should Mandate Disclosure Of Details Concerning Directors' And Officers' Liability Insurance Policies, Sean J. Griffith

Faculty Scholarship

This Article explores the connection between corporate governance and directors’ and officers’ (D&O) insurance. It argues that D&O insurers act as gatekeepers and guarantors of corporate governance, screening and pricing corporate governance risks to maintain the profitability of their risk pools. As a result, in a well-working insurance market, D&O insurance premiums would convey the insurer's assessment of a firm's governance quality. Simply stated, firms with better corporate governance would pay relatively low D&O premiums, while firms with worse corporate governance would pay more. This simple relationship could signal important information to investors and other capital market participants. Unfortunately, the …

The Corporation As Insider Trader, William K.S. Wang, Mark J. Loewenstein

Faculty Scholarship

No abstract provided.

Institutional Competition To Regulate Corporations: A Comment On Macey, Jill E. Fisch

All Faculty Scholarship

No abstract provided.

Public And Private Enforcement Of The Securities Laws: Have Things Changed Since Enron?, Randall Thomas, James D. Cox

Vanderbilt Law School Faculty Publications

In this paper, we examine how those corporations that have been the targets of SEC enforcement efforts compare in terms of their size and financial health vis-a-vis firms that are targeted only by the private securities class action. We also ask whether the SEC or the private bar systematically proceeds against violators that cause the greatest loss to investors. In this regard, we are intrigued by the most basic question posed by private suits, whether settlements bear any relationship to the losses suffered by the class and whether those losses bear any relationship to the size of either the firm …

What Counts As Fraud? An Empirical Study Of Motions To Dismiss Under The Private Securities Litigation Reform Act, Adam C. Pritchard, Hillary A. Sale

Articles

This article presents the findings of a study of the resolution of motions to dismiss securities fraud lawsuits since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995. Our sample consists of decisions on motions to dismiss in securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2002. These circuits are the leading circuits for the filing of securities class actions and are generally recognized as representing two ends of the securities class action spectrum. Post-PSLRA, the Second …

Demystifying Causation In Fraud-On-The-Market Actions, Merritt B. Fox

Faculty Scholarship

An issuer makes a positive, material misstatement in violation of Rule 10b-5. What must an investor who purchases the issuer's shares on the open market show to establish causation in a "fraud-on-the-market" action for damages? After years of confusion in the lower courts, the Supreme Court recently granted certiorari on the question in the case of Broudo v. Dura Pharmaceuticals.

This Article argues that the confusion in the lower courts has arisen because they have analyzed the issue in terms of the twin concepts of "transaction causation" and "loss causation." They initially developed this bifurcated framework as a way …

Aol Time Warner And The False God Of Shareholder Primacy, Matthew T. Bodie

All Faculty Scholarship

The blockbuster merger between AOL and Time Warner, in the twilight of the dot-com boom, is now characterized as perhaps the worst business combination ever. Shareholders lost over $200 billion in value; the deal's architects were forced out in disgrace; and the surviving executives jettisoned the AOL name as if towipe clean our collective memory. Despite the merger's seismic effects, relatively little has been written about its potential legal ramifications. In this article, I suggest that the collapse of AOL Time Warner is a cautionary tale for those who would advocate greater adherence to the norm of shareholder primacy. Before …

Rule 10b-5 And The "Unfitness" Question, Jayne W. Barnard

Faculty Publications

No abstract provided.

Developing A Law/Business Collaboration Through Pace's Securities Arbitration Clinic, Jill I. Gross

Elisabeth Haub School of Law Faculty Publications

This article details an interdisciplinary collaboration between the Securities Arbitration Clinic at Pace Law School (“SAC”) and the graduate program at Pace University's Lubin School of Business, designed and initiated by the authors. The purpose of the collaboration is to provide a co-curricular learning experience to both J.D. and graduate business students1 while enhancing the pro bono legal services delivered by SAC to its clients. Part I of this article details the history of SAC before the authors initiated the collaboration, and the reasons SAC needed financial expertise. Part II of this article describes models of interdisciplinary collaboration, particularly between …

Realizing The Dream Of William O. Douglas: The Securities And Exchange Commission Takes Charge Of Corporate Governance, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Suitability Claims And Unrecommended Securities Purchases: An Agency Theory Of Broker-Dealer Liability, Frederick Mark Gedicks

Faculty Scholarship

It is well-established that full-service broker-dealers have an obligation to recommend to their customers only the purchase of securities that are "suitable" to the customer's investment objectives and financial situation. There seems to be widespread agreement, however, that a broker-dealer cannot incur liability on suitability grounds unless it first recommends a securities purchase to a customer.

Accordingly, discount broker-dealers argue they are necessarily immune from liability on suitability claims because they act as "order clerks" who merely execute unsolicited customer orders; online discounters have adopted the same position. Full-service broker-dealers similarly argue that although they owe a suitability obligation for …

Lost In Translation: From U.S. Corporate Charter Competition To Issuer Choice In International Securities Regulation, Frederick Tung

Faculty Scholarship

Corporate charter competition among U.S. states has been held out as a model of welfare-enhancing regulatory competition. Proponents of this story also rely on it as a basis for promoting regulatory competition in international securities regulation. Issuer choice proponents argue that an issuer of securities should be permitted to choose the securities regulation of any nation to govern its securities offerings and trading worldwide. This Article challenges the notion that the claimed success of corporate charter competition among U.S. states argues in favor of issuer choice for international securities regulation.

Even granting the assumptions of race-to-the-top advocates and accepting the …

Causation By Presumption? Why The Supreme Court Should Reject Phantom Losses And Reverse Broudo, John C. Coffee Jr.

Faculty Scholarship

Over a quarter of a century ago, Judge Henry Friendly coined the term "fraud by hindsight" in upholding the dismissal of a proposed securities class action. As he explained, it was too simple to look backward with full knowledge of actual events and allege what should have been earlier disclosed by a public corporation in its Security and Exchange Commission (SEC) filings. Because hindsight has twenty/twenty vision, plaintiffs could not fairly "seize [] upon disclosures" in later reports, he ruled, to show what defendants should have disclosed earlier.

Today, a parallel concept – "causation by presumption" – is before the …

Executive Compensation: If There's A Problem, What's The Remedy? The Case For "Compensation Discussion And Analysis", Jeffrey N. Gordon

Faculty Scholarship

High levels of executive compensation have triggered an intense debate over whether compensation results primarily from competitive pressures in the market for managerial services or from managerial overreaching. Professors Lucian Bebchuk and Jesse Fried have advanced the debate with their recent book, Pay Without Performance: The Unfulfilled Promise of Executive Compensation, which forcefully argues that current compensation levels are best explained by managerial rent-seeking, not by arm's-length bargaining designed to create the optimum pay and performance nexus. This paper expresses three sorts of reservations with their analysis and advances its own proposals. First, enhancing shareholder welfare is not, as a …

The Sec At 70: Time For Retirement?, Adam C. Pritchard

Articles

The Article proceeds as follows. Part I explains the pathologies of the SEC and explores the relation between those pathologies and the SEC's status as an independent agency. Part II then outlines an alternative regulatory structure primarily situated within the executive branch. I also argue that such a relocation of authority would enhance regulatory effectiveness while simultaneously reducing the cost of excessive regulation. The Article concludes with some thoughts about the viability of my proposal.

Do Institutions Matter? The Impact Of The Lead Plaintiff Provision Of The Private Securities Litigation Reform Act, Adam C. Pritchard, Stephen J. Choi, Jill E. Fisch

Articles

When Congress enacted the Private Securities Litigation Reform Act in 1995 ("PSLRA"), the Act's "lead plaintiff' provision was the centerpiece of its efforts to increase investor control over securities fraud class actions. The lead plaintiff provision alters the balance of power between investors and class counsel by creating a presumption that the investor with the largest financial stake in the case will serve as lead plaintiff. The lead plaintiff then chooses class counsel and, at least in theory, negotiates the terms of counsel's compensation. Congress's stated purpose in enacting the lead plaintiff provision was to encourage institutional investors-pension funds, mutual …

The Corporation As Insider Trader, Mark J. Loewenstein, William K.S. Wang

Publications

With regard to issuer purchases, some of the traditional policy rationales against insider trading do not apply or apply with less force. Nevertheless, courts, commentators, and the SEC have all stated or assumed that a public corporation violates rule 10b-5 by buying its own shares in the market based on material, nonpublic information. In rule 10b-5 cases involving face-to-face transactions, several circuit courts have ruled that the company may not purchase its own stock based on material information not known to the seller. No good reason exists not to apply these precedents to stock market trades by issuers, especially because …

Do Institutions Matter? The Impact Of The Lead Plaintiff Provision Of The Private Securities Litigation Reform Act, Stephen Choi, Jill E. Fisch, A. C. Pritchard

All Faculty Scholarship

When Congress enacted the Private Securities Litigation Reform Act in 1995 (“PSLRA”), the Act’s “lead plaintiff” provision was the centerpiece of its efforts to increase investor control over securities fraud class actions. The lead plaintiff provision alters the balance of power between investors and class counsel by creating a presumption that the investor with the largest financial stake in the case will serve as lead plaintiff. The lead plaintiff then chooses class counsel and, at least in theory, negotiates the terms of counsel’s compensation.

Congress’s stated purpose in enacting the lead plaintiff provision was to encourage institutional investors—pension funds, mutual …

The New Dividend Puzzle, William W. Bratton

All Faculty Scholarship

No abstract provided.

Understanding Dura, Merritt B. Fox

Faculty Scholarship

On April 19, 2005, the Supreme Court announced its unanimous opinion in Dura Pharmaceuticals, Inc. v. Broudo, concerning what a plaintiff must show to establish causation in a Rule 10b-5 fraud-on-the-market suit for damages. The opinion had been awaited with considerable anticipation, being described at the time of oral argument in the Financial Times, for example, as the "most important securities case in a decade." After the opinion was handed down, a representative of the plaintiffs' bar lauded it as a unanimous ruling protecting investors' ability to sue. A representative of the defendant's bar equally enthusiastically hailed it as …

The Supreme Court, Rule 10b-5, And The Federalization Of Corporate Law, Mark J. Loewenstein

Publications

This Article examines Supreme Court jurisprudence since 1997 under the federal securities laws in light of the Court's earlier securities law decisions and in light of its recent decisions construing the Constitution and federal statutes as they relate to the regulation of business. These post-1977 cases strongly suggest that the much-heralded new federalism philosophy of the Supreme Court is not a factor in securities law cases or in business cases generally. Indeed, the opposite seems to be the case. In this context, new federalism cases appear to be an anomaly, with the reality being that the Court is still as …

Moody Investing And The Supreme Court: Rethinking The Materiality Of Information And The Reasonableness Of Investors, Peter H. Huang

All Faculty Scholarship

This Article critically analyzes the judicial decisions and reasoning of the United States Supreme Court and lower courts accepting certain defenses in securities fraud litigation. This Article develops how and why the core notions of materiality of information and the reasonable investor should be revised in light of recent empirical data, experimental evidence, and theoretical models of moody investing. This Article proposes modifying three recent developments in materiality doctrine to take into account moody investing. In particular, this Article argues that current judicial treatment of puffery is flawed because it neglects the power of puffery to alter moods. This Article …

Private Litigation To Enforce Fiduciary Duties In Mutual Funds: Derivative Suits, Disinterested Directors And The Ideology Of Investor Sovereignty, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This article focuses on independent directors and the processes of mutual fund corporate governance. To be clear, I believe (and research shows) that disinterested directors do add value as a form of shareholder protection, and this fact justifies the SEC's efforts to strengthen their role. But they are far from a panacea. While that point alone is almost trite, exploring some of the unique features of mutual fund governance shows why judges and policymakers should not even try to reason by analogy to governance in other kinds of corporations. Yet that is exactly what Burks and its progeny have done. …

Introduction: The Fifth Annual A.A. Sommer, Jr. Lecture On Corporate, Securities & Financial Law, William Michael Treanor

Georgetown Law Faculty Publications and Other Works

Welcome and Introduction to the Fifth Annual A. A. Sommer, Jr. Lecture on Corporate, Securities & Financial Law, November 9, 2004 at Fordham University School of Law.

Fordham Law School, with the support of Morgan, Lewis & Bockius, inaugurated the A. A. Sommer, Jr. Lecture Series in the fall of 2000 with the timely insights of the Securities and Exchange Commission's (the "SEC" or the "Commission") then-Chair Arthur Leavitt. Since then, the Sommer Lecture has continued to bring to Fordham such heavyweights as Mary Schapiro, President of National Association of Securities Dealers ("NASD") Regulation, Inc., SEC Commissioner Harvey Goldschmid, and …