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Full-Text Articles in Securities Law
Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan
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 to vote proxies while …
Reforming Sec Alj Proceedings, Joanna Howard
Reforming Sec Alj Proceedings, Joanna Howard
University of Michigan Journal of Law Reform
This Note considers the current constitutional challenges to SEC administrative proceedings and suggests process reforms to enhance fairness for respondents. Challenges have developed since the Dodd-Frank Act expanded the SEC’s ability to use administrative proceedings. Arguments that there is a pre-existing flaw in the method of appointing administrative law judges provide the most potential for success. The Tenth Circuit’s December 2016 decision against the SEC in Bandimere has created a split, diverging from the D.C. Circuit’s analysis of that question in Lucia. Resolution by the Supreme Court may be inevitable. Even if the challengers do ultimately succeed, this will …
Public Pensions And Fiduciary Law: A View From Equity, T. Leigh Anenson
Public Pensions And Fiduciary Law: A View From Equity, T. Leigh Anenson
University of Michigan Journal of Law Reform
Controversies involving fund management may be the next frontier of public pension litigation. Recent scandals involving fraud, bribery, and corruption of public pension officials and other third parties have drawn the public eye toward the management of retirement assets. Individual and entity custodians, including pension boards of trustees, are charged with making investment and other decisions relating to pension funds. Unlike private pensions, there is no federal oversight of asset managers or others in control of retirement funds. Yet these funds hold more than three trillion dollars in assets. Until now, the guardians of these monies have operated almost invisibly …
No More Quid Pro Quo: Abandoning The Personal Benefit Requirement In Insider Trading Law, Shannon Seiferth
No More Quid Pro Quo: Abandoning The Personal Benefit Requirement In Insider Trading Law, Shannon Seiferth
University of Michigan Journal of Law Reform
A circuit split between the Second Circuit’s 2014 decision, United States v. Newman, and the Ninth Circuit’s 2015 decision, United States v. Salman, illustrates problems in insider trading law dating back over thirty years to the Supreme Court’s decision in Dirks v. SEC. Dirks held that when a corporate insider provides information to an outside party who then trades on the information, it must be shown that the insider received some form of a personal benefit for providing the information in order to impute liability. The courts in Newman and Salman disagreed on the sort of evidence …
Fraud Is Already Illegal: Section 621 Of The Dodd-Frank Act In The Context Of The Securities Laws, Nathan R. Schuur
Fraud Is Already Illegal: Section 621 Of The Dodd-Frank Act In The Context Of The Securities Laws, Nathan R. Schuur
University of Michigan Journal of Law Reform
In the aftermath of the financial crisis, lawmakers and the public focused on abuses in the securitization industry. Abacus, a Synthetic CDO created by Goldman Sachs & Co., became a symbol of what many felt was a corrupt system when it became known that Goldman and Fabrice Tourre, a Vice President at its Correlation Trading Desk, had assisted a hedge fund in designing the security to fail. Perceived failings of the securities laws to prevent transactions like Abacus spurred Congress to enact Section 621 of the Dodd-Frank Act, which prohibits conflicts of interest in asset-backed securitizations. But the law is …
Admit Or Deny: A Call For Reform Of The Sec's "Neither-Admit-Nor-Deny" Policy, Priyah Kaul
Admit Or Deny: A Call For Reform Of The Sec's "Neither-Admit-Nor-Deny" Policy, Priyah Kaul
University of Michigan Journal of Law Reform
For four decades, the SEC’s often-invoked policy of settling cases without requiring admissions of wrongdoing, referred to as the “neither-admit-nor-deny” policy, went unchallenged by the courts, the legislature, and the public. Then in 2011, a harshly critical opinion from Judge Jed Rakoff in SEC v. Citigroup incited demands for reform of this policy. In response to Judge Rakoff’s opinion, the SEC announced a modified approach to settlements. Under the modified approach, the Commission may require an admission of wrongdoing if a defendant’s misconduct was egregious or if the public markets would benefit from an admission. Many supporters of the neither-admit-nor-deny …
Reconciling Tax Law And Securities Regulation, Omri Marian
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 …
Federal Discovery Stays, Gideon Mark
Federal Discovery Stays, Gideon Mark
University of Michigan Journal of Law Reform
In federal civil litigation, unless a discretionary stay is granted, discovery often proceeds while motions to dismiss are pending. Plaintiffs with non-meritorious cases can compel defendants to spend massively on electronic discovery before courts ever rule on such motions. Defendants who are unable or unwilling to incur the huge up-front expense of electronic discovery may be forced to settle non-meritorious claims. To address multiple electronic discovery issues, Congress amended the Federal Rules of Civil Procedure in 2006 and the Federal Rules of Evidence in 2008. However, the amendments failed to significantly reduce costs and failed to address the critical issue …
Moving Toward A Clearer Definition Of Insider Trading: Why Adoption Of The Possession Standard Protects Investors, Lacey S. Calhoun
Moving Toward A Clearer Definition Of Insider Trading: Why Adoption Of The Possession Standard Protects Investors, Lacey S. Calhoun
University of Michigan Journal of Law Reform
In recent years, insider trading has become a publicized focus of securities law enforcement. The definition of insider trading has emerged slowly through case law, and the term has been clarified by new theories of liability. The use and possession tests are two standards of liability used to judge the treatment of inside information. The use standard offers a defense to insider trading liability while the possession standard premises liability on mere possession of inside information. This Note argues that courts should adopt the possession standard because this standard better protects investors, a primary goal of the Securities Exchange Act …
Decreasing The Costs Of Jurisdictional Gridlock: Merger Of The Securities And Exchange Commission And The Commodity Futures Trading Commission, Mark Frederick Hoffman
Decreasing The Costs Of Jurisdictional Gridlock: Merger Of The Securities And Exchange Commission And The Commodity Futures Trading Commission, Mark Frederick Hoffman
University of Michigan Journal of Law Reform
Jurisdictional conflict exists between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), primarily due to the language of the 1974 CFTC Act. This Act grants the CFTC exclusive jurisdiction to regulate certain financial instruments which, given the increasing complexity and "hybrid" nature of such instruments, might simultaneously be subject to SEC regulation. This Note first explores the history of the two agencies and the statutory language giving rise to the jurisdictional conflict. This Note then examines several instances of jurisdictional conflict that resulted in extensive costs for the respective agencies and the United States' financial …
A Failure Of Communication: An Argument For The Closing Of The Nyse Floor, Gerald T. Nowak
A Failure Of Communication: An Argument For The Closing Of The Nyse Floor, Gerald T. Nowak
University of Michigan Journal of Law Reform
Part I of this Note describes and analyzes the stock exchange communication process as it has existed in the past and as it currently exists, paying particular attention to the role of the floor broker and the stock specialist.'" Part II examines certain alternatives, evaluating such systems as to their potential as a replacement for the physical exchanges. Part III suggests an SEC rule granting specific exemption from exchange reporting requirements to low-volume automated systems in the hope of spurring innovation in the business of trading securities.
Beyond Managerialism: Investor Capitalism?, Alfred F. Conard
Beyond Managerialism: Investor Capitalism?, Alfred F. Conard
University of Michigan Journal of Law Reform
Capitalism, in most large public corporations, has been subtly transformed from a system of dominance by the suppliers of capital to a system of dominance by the managers, dubbed "managerialism." In many respects, managerialism is beneficial to investors and other enterprise constituencies, since managers' rewards typically grow with the profitability of the enterprise. But managerialism permits drastic wastes of resources when managers hang on to their jobs after they have become inefficient or spend lavishly to defend themselves against takeover bids. Derivative suits, shareholder proposals, independent directors, and other prescriptions have failed to stifle managerial abuses. This is the message …
Updating The Trust Indenture Act, Howard M. Friedman
Updating The Trust Indenture Act, Howard M. Friedman
University of Michigan Journal of Law Reform
Holders of publicly distributed debt securities are, in essence, parties to contracts of adhesion. There is no opportunity for a purchaser of a debt security to negotiate the terms of his loan to the issuer. In addition, because there are a large number of geographically scattered small lenders, each of them is placed in a particularly vulnerable position. While lenders traditionally have numerous methods of protecting their interests, creditor protection is ineffective unless responsibility for enforcement is centralized. Widely scattered security holders find it difficult to police compliance with covenants in the loan agreement and to coordinate legal action in …
Shareholder Derivative Actions: A Modest Proposal To Revise Federal Rule 23.1, Robert A. Kessler
Shareholder Derivative Actions: A Modest Proposal To Revise Federal Rule 23.1, Robert A. Kessler
University of Michigan Journal of Law Reform
The purpose of this article is to suggest the addition of two words, "if necessary"-or better yet, the phrase "if necessary under the law of the forum state"-to clause (1) of Federal Rule of Civil Procedure 23.1. This Rule sets forth the requirements for a shareholder's derivative action in the federal courts.
Financial Statement Insurance: A New Approach To Ivestor Protection, Stephen Z. Surridge
Financial Statement Insurance: A New Approach To Ivestor Protection, Stephen Z. Surridge
University of Michigan Journal of Law Reform
The accounting profession rapidly is moving toward a crisis in liability. Members of the investing public are suing accountants with mounting frequency and success. This article will analyze briefly the origin and present dimensions of the crisis, and then propose a plan for replacing court-imposed liability with insured liability through the offering of financial statement insurance. The essentials of the plan can be simply stated. Insurance would be offered by accountants to investors on a voluntary basis in conjunction with purchases and sales of corporate stock and securities. Individual investors would be able to purchase from the auditors of a …