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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 ...


The ‘Berle And Means Corporation’ In Historical Perspective, Eric Hilt Feb 2019

The ‘Berle And Means Corporation’ In Historical Perspective, Eric Hilt

Seattle University Law Review

This Article presents new evidence on the evolution of the business corporation in America and on the emergence of what is commonly termed the “Berle and Means corporation.” Drawing on a wide range of sources, I investigate three major historical claims of The Modern Corporation: that large corporations had displaced small ones by the early twentieth century; that the quasi-public corporations of the 1930s were much larger than the public corporations of the nineteenth century; and that ownership was separated from control to a much greater extent in the 1930s compared to the nineteenth century. I address each of these ...


The Elephant In The Room: Helping Delaware Courts Develop Law To End Systemic Short-Term Bias In Corporate Decision-Making, Kenneth Mcneil, Keith Johnson Oct 2018

The Elephant In The Room: Helping Delaware Courts Develop Law To End Systemic Short-Term Bias In Corporate Decision-Making, Kenneth Mcneil, Keith Johnson

Michigan Business & Entrepreneurial Law Review

Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors ...


Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan Apr 2018

Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan

University of Michigan Journal of Law Reform

With the rise of institutional activist investors in recent decades—including a purported 495 activist campaigns against U.S. corporations in 2016 alone—the role that third-party institutional proxy advisors play in corporate governance has greatly increased. The United States Office of Government Accountability estimates that clients of the top five proxy advisory firms account for about $41.5 trillion in equity throughout the world. For several years, discussions have developed regarding conflicts of interest faced by proxy advisors. For example, Institutional Shareholder Services, the top proxy advisory firm in the world, frequently provides advice to institutional investors on how ...


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.


The Case For Federal Preemption Of State Blue Sky Laws, Rutheford B. Campbell Jr. Jun 2017

The Case For Federal Preemption Of State Blue Sky Laws, Rutheford B. Campbell Jr.

Rutheford B Campbell Jr.

In our market economy, imposing rules on capital formation makes economic sense. Well-constructed rules regarding capital formation can promote the efficient flow of capital to its highest and best use and prevent or ameliorate fraud or unfairness to investors. These rules, however, generate additional offering costs that may retard or in some cases completely choke off the flow of capital from investors to businesses. The problem with state blue sky laws is their registration requirements, which significantly impede efficient capital formation and provide no material economic or societal benefits, such as protection of investors from fraud.


The Case For Federal Preemption Of State Blue Sky Laws, Rutheford B. Campbell Jr. May 2017

The Case For Federal Preemption Of State Blue Sky Laws, Rutheford B. Campbell Jr.

Law Faculty Popular Media

In our market economy, imposing rules on capital formation makes economic sense. Well-constructed rules regarding capital formation can promote the efficient flow of capital to its highest and best use and prevent or ameliorate fraud or unfairness to investors. These rules, however, generate additional offering costs that may retard or in some cases completely choke off the flow of capital from investors to businesses. The problem with state blue sky laws is their registration requirements, which significantly impede efficient capital formation and provide no material economic or societal benefits, such as protection of investors from fraud.


Omnicare V. Indiana State District Council And Its Rational Basis Test For Allowing For Opinion Statements To Be A Misleading Fact Or Omission Under Section 11 Of The Securities Act Of 1933, Brian Elzweig, Valrie Chambers Mar 2017

Omnicare V. Indiana State District Council And Its Rational Basis Test For Allowing For Opinion Statements To Be A Misleading Fact Or Omission Under Section 11 Of The Securities Act Of 1933, Brian Elzweig, Valrie Chambers

Pace Law Review

This article examines when statements in a registration statement, couched as opinion, can and cannot be considered to be misstatements of material fact that could lead to liability under Section 11 (and potentially other sections) of the Securities Act. The rest of this paper is formatted as follows. We review the Omnicare case, followed by the key cases in the Second, Third, Ninth, and Sixth Circuit Courts of Appeals. The Second, Third, and Ninth Circuits have all required that, in order for there to be an actionable claim under Section 11, the plaintiff must plead not only that the statement ...


The Case For Federal Pre-Emption Of State Blue Sky Laws, Rutheford B. Campbell Jr. Mar 2017

The Case For Federal Pre-Emption Of State Blue Sky Laws, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

State blue sky laws—state laws that regulate a company’s offer and sale of securities—are a substantial barrier to businesses’ efficient access to external capital. The registration provisions in state blue sky laws have been especially harmful to small businesses, a vital component of our economy that may account for 30% of the nation’s employment. The costs associated with complying with more than fifty separate and independent obligations to register securities often exceed what small businesses can pay and thus may foreclose small businesses from the capital market. At the same time, requiring small businesses to comply ...


Newsroom: Ap: Chung On 38 Studios Settlement 03-14-2016, Michelle R. Smith, Roger Williams University School Of Law Mar 2016

Newsroom: Ap: Chung On 38 Studios Settlement 03-14-2016, Michelle R. Smith, Roger Williams University School Of Law

Life of the Law School (1993- )

No abstract provided.


Sec Investigations And Securities Class Actions: An Empirical Comparison, Stephen J. Choi, Adam C. Pritchard Mar 2016

Sec Investigations And Securities Class Actions: An Empirical Comparison, Stephen J. Choi, Adam C. Pritchard

Articles

Using actions with both an SEC investigation and a class action as our baseline, we compare the targeting of SEC-only investigations with class-action-only lawsuits. Looking at measures of information asymmetry, we find that investors in the market perceive greater information asymmetry following the public announcement of the underlying violation for class-action-only lawsuits compared with SEC-only investigations. Turning to sanctions, we find that the incidence of top officer resignation is greater for class-action-only lawsuits relative to SEC-only investigations. Our findings are consistent with the private enforcement targeting disclosure violations at least as precisely as (if not more so than) SEC enforcement.


Revisiting The Accredited Investor Standard, Syed Haq Feb 2016

Revisiting The Accredited Investor Standard, Syed Haq

Michigan Business & Entrepreneurial Law Review

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and the Jumpstart Our Business Startups (JOBS) Act provided the impetus for several changes in the financial regulatory regime. In the securities markets, Dodd-Frank included provisions that lifted a ban on general solicitation and mandated a review of the accredited investor standard. These changes, while intended to increase capital formation within our private markets, also brought to light serious investor protection issues. This note advocates for a new accredited investor standard that more accurately reflects the risks associated with investing in the private markets.


Dual-Class Capital Structures: A Legal, Theoretical & Empirical Buy-Side Analysis, Christopher C. Mckinnon Feb 2016

Dual-Class Capital Structures: A Legal, Theoretical & Empirical Buy-Side Analysis, Christopher C. Mckinnon

Michigan Business & Entrepreneurial Law Review

“The advantage of a dual-class share structure is that it protects entrepreneurial management from the demands of ordinary shareholders. The disadvantage of a dual-class share structure is that it protects entrepreneurial management from the demands of shareholders.” Issuing dual classes of stock has become hotly debated since two major events transpired in 2014: (1) Facebook acquired WhatsApp for $19 billion and (2) Alibaba chose to list its shares on the New York Stock Exchange (NYSE) instead of the Hong Kong Exchange. Because dual-class managers, like those at Facebook and Alibaba, retain a controlling voting block, their decisions are immune from ...


The Historical Basis Of Securities Arbitration As An Investor Protection Mechanism, Jill I. Gross Jan 2016

The Historical Basis Of Securities Arbitration As An Investor Protection Mechanism, Jill I. Gross

Pace Law Faculty Publications

Why do broker-dealers fear a legal system in which the firms' customers have a unilateral right to demand arbitration of disputes? That scenario would return the industry to the pre-McMahon years, when, because the enforceability of PDAAs with respect to federal securities laws was in doubt, most brokerage customers had such a unilateral right. In fact, the pre-McMahon history of securities arbitration, written about only sparsely, reveals that, today, the primary stakeholders in the process--investors and brokerage firms--have lost sight of the original reason why the securities industry heavily relied on arbitration to resolve industry disputes. While offering a speedy ...


In Praise Of Investor Irrationality, Gregory La Blanc, Jeffrey J. Rachlinski Dec 2014

In Praise Of Investor Irrationality, Gregory La Blanc, Jeffrey J. Rachlinski

Jeffrey J. Rachlinski

How should a market filled with investors who chronically make bad investments, but is nevertheless efficient, be regulated? A growing body of evidence suggests that this is the state of most securities markets; investors rely on cognitive processes that produce systematically bad choices, and yet the market remains largely efficient. In fact, cognitive errors might be essential to their efficient operation. Even investors who make systematic errors also often possess real and unique information that can contribute to accurate pricing of securities. If such investors became mindful of their limited ability to distinguish between real information and erroneous information, they ...


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

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

Michigan Business & Entrepreneurial Law Review

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 investors ...


Broker-Dealers And Investment Advisers: A Behaviorial-Economics Analysis Of Competing Suggestions For Reform, Polina Demina Dec 2014

Broker-Dealers And Investment Advisers: A Behaviorial-Economics Analysis Of Competing Suggestions For Reform, Polina Demina

Michigan Law Review

For the average investor trying to save for retirement or a child’s college fund, the world of investing has become increasingly complex. These retail investors must turn more frequently to financial intermediaries, such as broker-dealers and investment advisers, to get sound investment advice. Such intermediaries perform different duties for their clients, however. The investment adviser owes his client a fiduciary duty of care and therefore must provide financial advice that is in the client’s best interests, while the broker-dealer must merely provide advice that is suitable to the client’s interests—a lower standard than the fiduciary duty ...


Market Efficiency And The Problem Of Retail Flight, Alicia J. Davis Nov 2014

Market Efficiency And The Problem Of Retail Flight, Alicia J. Davis

Articles

In 1950, 91 % of common stock in the U.S. was owned directly by individual inves­ tors. Today, that percentage stands at only 23%. The mass exodus of retail investors and their investment dollars has negative implications not only for capital formation and investor protection, but also for market efficiency. Individual investors are often assumed to be noise traders who distort stock prices and harm market functioning. Therefore, some argue that their withdrawal from the market should be of little concern; indeed, it should be celebrated. Recent empirical evidence calls this assertion of retail noise trading into doubt, and this ...


Reverse Cross-Listings - The Coming Race To List In Emerging Markets And An Enhanced Understanding Of Classical Bonding, Nicholas C. Howson, Vikramaditya Khanna Oct 2014

Reverse Cross-Listings - The Coming Race To List In Emerging Markets And An Enhanced Understanding Of Classical Bonding, Nicholas C. Howson, Vikramaditya Khanna

Articles

Studies have found that when a U.S. issuer lists abroad on a foreign exchange, its shares exhibit negative abnormal returns. This negative movement may be because the market expects that the foreign listing will facilitate undetectable insider trading on the foreign exchange or other conduct impermissible in the United States.


Reconciling Tax Law And Securities Regulation, Omri Marian Sep 2014

Reconciling Tax Law And Securities Regulation, Omri Marian

University of Michigan Journal of Law Reform

Issuers in registered securities offerings must disclose the expected tax consequences to investors investing in the offered securities (“nonfinancial tax disclosure”). This Article advances three arguments regarding nonfinancial tax disclosures. First, nonfinancial tax disclosure practice, as the Securities and Exchange Commission (the SEC) has sanctioned it, does not fulfill its intended regulatory purposes. Currently, nonfinancial tax disclosures provide irrelevant information, sometimes fail to provide material information, create unnecessary transaction costs, and divert valuable administrative resources to the enforcement of largely-meaningless requirements. Second, the practical reason for this failure is the SEC and tax practitioners’ unsuccessful attempt to address investors’ heterogeneous ...


Insider Trading And Other Securities Frauds In The United States: Lessons For Chile, Dante Figueroa Jan 2014

Insider Trading And Other Securities Frauds In The United States: Lessons For Chile, Dante Figueroa

Michigan Business & Entrepreneurial Law Review

This Article is a comparative analysis of insider trading law in the United States and Chile. The study summarily reviews the historical, political, and legal foundations of insider trading regulation in both jurisdictions, identifying areas of convergence, as well as areas in which the Chilean securities market could benefit vis- ` a-vis the more advanced experience of the considerably larger American securities market. The Article also highlights the axiological closeness between both jurisdictions concerning the protection of inside corporate information and the fiduciary role of those who intervene in securities markets in their various capacities (as investors, shareholders, corporate officers, consultants ...


Legally "Strong" Shareholders Of Japan, Gen Goto Jan 2014

Legally "Strong" Shareholders Of Japan, Gen Goto

Michigan Business & Entrepreneurial Law Review

Foreign investors often criticize Japanese corporations for not paying enough attention to the interests of their shareholders. It might surprise these critics, then, to learn that shareholders’ legal rights under the Japanese Companies Act are actually quite strong. Indeed, many of the rights that shareholders’ rights advocates often support, including shareholders’ power to alter a corporate charter without board consent, shareholders’ power to control dividend payments, majority voting for board elections, shareholders’ power to replace the board of directors, and shareholder access to a corporate ballot—all of which are strongly debated elsewhere— are already effective in Japan. Moreover, derivative ...


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 ...


The Future Of Securities Class Actions Against Foreign Companies: China And Comity Concerns, Dana M. Muir, Junhai Liu, Haiyan Xu Jun 2013

The Future Of Securities Class Actions Against Foreign Companies: China And Comity Concerns, Dana M. Muir, Junhai Liu, Haiyan Xu

University of Michigan Journal of Law Reform

In Morrison v. National Australia Bank Ltd., the U.S. Supreme Court limited the application of U.S. securities fraud law in transnational situations. The Supreme Court noted that its decision was influenced by international comity considerations. In this Article, we evaluate the availability of class actions in China in cases involving alleged securities fraud. Because we find that the availability of those actions is too limited to fully protect U.S. shareholders, we argue that U.S. investors should be permitted to bring securities fraud class actions against non-U.S. companies whose securities are traded on a U.S ...


Securities Violations In 140 Characters Or Less: Social Media And Its Growing Impact On The Securities Industry, Kevin Etzel May 2013

Securities Violations In 140 Characters Or Less: Social Media And Its Growing Impact On The Securities Industry, Kevin Etzel

Touro Law Review

As social media continues its rapid ascent, the law must be able to keep pace. The securities industry is where one area that must keep pace. This Comment demonstrates the drastic effects, both positive and negative, that social media has on securities regulation.


Merrill Lynch, Pierce, Fenner & Smith, Inc. V. Curran: Establishing An Implied Private Right Of Action Under The Commodity Exchange Act, Howard E. Hamann Feb 2013

Merrill Lynch, Pierce, Fenner & Smith, Inc. V. Curran: Establishing An Implied Private Right Of Action Under The Commodity Exchange Act, Howard E. Hamann

Pepperdine Law Review

In the case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, the United States Supreme Court held that there is an implied private right of action under the Commodity Exchange Act, as amended. As a result of this holding, a private party may maintain an action for damages caused by a violation of the Commodity Exchange Act. In this article, the author examines the Supreme Court's analysis and explores the future impact of the decision in light of the role the judiciary has in legislative matters.


The Cost Of Securities Fraud, Urska Velikonja Jan 2013

The Cost Of Securities Fraud, Urska Velikonja

Faculty Scholarship

Under the dominant account, securities fraud by public firms harms the firms’ shareholders and, more generally, capital markets. Recent financial legislation—the JOBS Act and the Dodd-Frank Act—as well as the influential 2011 D.C. Circuit decision in Business Roundtable v. SEC reinforce that same worldview. This Article contends that the account is wrong. Misreporting distorts economic decision-making by all firms, both those committing fraud and not. False information, coupled with efforts to hide fraud and avoid detection, impairs risk assessment by providers of human and financial capital, suppliers and customers, and thus misdirects capital and labor to lower-value ...


Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard Jan 2013

Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard

Articles

My thesis is that the transition between private- and public-company status could be less bumpy if we unify the public-private dividing line under the Securities Act and Exchange Act. The insight builds on Cohen's thought experiment where Congress first enacted the Exchange Act. My proposed public-private standard would take the company-registration model to its logical conclusion. The customary path to public-company status is through an IPO, typically with simultaneous listing of the shares on an exchange. There is nothing about public offerings, however, that makes them inherently antecedent to public-company status. What if companies became public, with required periodic ...


The Cost Of Securities Fraud, Urska Velikonja Sep 2012

The Cost Of Securities Fraud, Urska Velikonja

Urska Velikonja

Under the dominant account, securities fraud by public firms harms the firms’ shareholders and, more generally, capital markets. Recent financial legislation—the JOBS Act and the Dodd-Frank Act—as well as the influential 2011 D.C. Circuit decision in Business Roundtable v. SEC reinforce that same worldview. This Article contends that the account is wrong. Misreporting distorts economic decision-making by all firms, both those committing fraud and not. False information, coupled with efforts to hide fraud and avoid detection, impairs risk assessment by providers of human and financial capital, suppliers and customers, and thus misdirects capital and labor to lower-value ...


A Very Quiet Revolution: A Primer On Securities Crowdfunding And Title Iii Of The Jobs Act, Thaya Brook Knight, Huiwen Leo, Adrian A. Ohmer Jan 2012

A Very Quiet Revolution: A Primer On Securities Crowdfunding And Title Iii Of The Jobs Act, Thaya Brook Knight, Huiwen Leo, Adrian A. Ohmer

Michigan Business & Entrepreneurial Law Review

This essay introduces the complex regulatory regime that governs the public sale of all securities, no matter how small the offeror. It is intended as a rudimentary roadmap for the start-up or its counsel and will, hopefully, help to illuminate the traps for the unwary while providing an overview of the regulatory universe in which securities crowdfunding will operate.