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Full-Text Articles in Securities Law
Direct And Derivative Claims In Securities Fraud Litigation, Richard A. Booth
Direct And Derivative Claims In Securities Fraud Litigation, Richard A. Booth
Working Paper Series
In the typical securities fraud class action under Rule 10b-5, the plaintiff class consists of buyers who seek damages equal to the difference between the price paid for the stock during the fraud period and the lower price that prevails after corrective disclosure. The argument here is that this claim is really an amalgam of direct and derivative claims and that the derivative claims should result in recovery by the corporation for the benefit of all stockholders. There are three types of losses that arise in the typical stock-drop action. First, part of the loss may be attributable to lower …
Five Decades Of Corporation Law - From Conglomeration To Equity Compensation, Richard A. Booth
Five Decades Of Corporation Law - From Conglomeration To Equity Compensation, Richard A. Booth
Working Paper Series
This brief essay recounts developments in corporation law over the last fifty years. It begins with the rise of finance capitalism and the conglomerate corporation which was followed by the emergence of hostile takeovers in the late 1970s and 1980s. One of the key events in this saga was the February 1, 1983 decision by the Delaware Supreme Court in Weinberger v. UOP, Inc. that effectively permitted the at-will elimination of minority stockholders through cashout mergers. Takeovers were also facilitated by two major financial developments: (1) the growth of institutional investors coupled with the growing taste of diversified investors for …
Taking Certification Seriously – Why There Is No Such Thing As An Adequate Representative In A Securities Fraud Class Action, Richard A. Booth
Taking Certification Seriously – Why There Is No Such Thing As An Adequate Representative In A Securities Fraud Class Action, Richard A. Booth
Working Paper Series
Securities fraud class actions (SFCAs) arising under Rule 10b-5 are well established as a feature of the legal landscape, but they are a vestige of a largely outdated view of investor behavior and preferences. In the 1960s, most investors were undiversified stock pickers. Today, most investors hold stock through well diversified institutions. As a result, most investors are net losers from SFCAs. Moreover, it is arguable that it is irrational for most investors not to be diversified. A passive investor who fails to diversify assumes unnecessary risk for the same expected return that diversified investors enjoy. Given that federal securities …
The Use Of The Corporate Monitor In Sec Enforcement Actions, Jennifer O'Hare
The Use Of The Corporate Monitor In Sec Enforcement Actions, Jennifer O'Hare
Working Paper Series
This paper addresses the SEC’s recent use of the corporate monitor as ancillary relief in its enforcement actions. The corporate monitor represents the latest example of the SEC seeking to shift its enforcement responsibilities to the public companies it regulates. Focusing on the role played by the corporate monitor imposed by the SEC in its enforcement action brought against WorldCom, this paper considers some of the dangers posed by the use of the corporate monitor, such as the whether the appointment of a corporate monitor constitutes impermissible overreaching by the SEC. The paper recognizes that the corporate monitor can be …
The Paulson Report Reconsidered: How To Fix Securities Litigation By Converting Class Actions Into Issuer Actions, Richard A. Booth
The Paulson Report Reconsidered: How To Fix Securities Litigation By Converting Class Actions Into Issuer Actions, Richard A. Booth
Working Paper Series
This short essay considers the findings and recommendations of the Paulson Report relating to securities fraud class actions under the 1934 Act and Rule 10b-5. While the report exposes numerous problems with securities litigation in the United States, it understates the problems inherent in stock-drop actions. As a result, the report fails to propose an effective fix. As the report recognizes, diversified investors gain nothing from stock-drop actions: Because the corporation pays, holders effectively reimburse buyers and sellers keep their gains. In other words, the system suffers from circularity akin to a game of musical chairs in that stock-drop actions …
Going Public, Selling Stock, And Buying Liquidity, Richard A. Booth
Going Public, Selling Stock, And Buying Liquidity, Richard A. Booth
Working Paper Series
It is a well known anomaly of corporation finance that initial public offerings (IPOs) tend to be underpriced. That is, it appears that shares tend to be offered at a price that is below what the market would bear. Scholars have offered several explanations, most of which focus on various sorts of underwriter opportunism (and insider acquiescence therein). But it is difficult to believe that competition among underwriters does not force offerings to be made at the highest possible price, particularly in view of the numerous alternatives to traditional underwriting methods that have arisen in recent years. The persistence of …
What Is A Business Crime?, Richard A. Booth
What Is A Business Crime?, Richard A. Booth
Working Paper Series
Criminal prosecution has been used with increasing frequency recently in connection with a variety of business failures and other financial offenses. Indeed, it appears that there are few such offenses that cannot be prosecuted criminally even though they also give rise to civil remedies. While some such offenses seem to be quite serious frauds, others seem to be as minor as getting the accounting rules wrong. Thus, the question addressed in this essay is how to define a business crime and what should be the proper role of criminal prosecution in connection with business offenses. I start with the proposition …
Retail Investor Remedies Under Rule 10b-5, Jennifer O'Hare
Retail Investor Remedies Under Rule 10b-5, Jennifer O'Hare
Working Paper Series
This paper assesses the private remedies available under Rule 10b-5 to retail investors who have been defrauded by false corporate disclosures. After comparing the treatment received by retail investors to the treatment received by institutional investors, I identify several areas in which the federal securities laws disfavor retail investors who have been defrauded by false corporate disclosures, including the creation of a two-tiered system of investor remedies for securities fraud. Institutional investors are permitted to pick and choose which law and forum offers them the most attractive chance for recovery, but retail investors typically do not have this opportunity. They …
The Missing Link Between Insider Trading And Securities Fraud, Richard A. Booth
The Missing Link Between Insider Trading And Securities Fraud, Richard A. Booth
Working Paper Series
In a recent article, I argued that diversified investors - the vast majority of investors - would prefer that securities fraud class actions under the 1934 Act and Rule 10b-5 be dismissed in the absence of insider trading or similar offenses during the fraud period. See Richard A. Booth, The End of the Securities Fraud Class Action as We Know It, 4 Berk. Bus. L. J. 1 (2007), http://ssrn.com/abstract=683197. In this article, I draw on the classic case, SEC v. Texas Gulf Sulfur Company, to show that the federal courts originally viewed securities fraud as inextricably connected to insider trading …
Give Me Equity Or Give Me Death - The Role Of Competition And Compensation In Building Silicon Valley, Richard A. Booth
Give Me Equity Or Give Me Death - The Role Of Competition And Compensation In Building Silicon Valley, Richard A. Booth
Working Paper Series
In this essay, I argue that the preeminence of Silicon Valley as an incubator of technology companies is attributable to equity compensation. Ronald Gilson, relying on the work of AnnaLee Saxenian and others who have noted the tendency of Silicon Valley employees to job hop, has suggested that California law prohibiting the enforcement of non-compete agreements was a major factor in the rise of Silicon Valley (and the demise of Route 128). I extend this line of thought by suggesting that California employers may have relied on equity compensation as a substitute way to bind employees. I argue further that …
Using Spread And Net Trading Range To Measure Risk In Suitability Cases, Richard A. Booth
Using Spread And Net Trading Range To Measure Risk In Suitability Cases, Richard A. Booth
Working Paper Series
Suitability is one of the most common issues that arises in securities arbitrations. Yet it is also one of the most difficult issues to resolve. Up to now there has been no easy and reliable way to compare the risk of one stock or portfolio with another stock or portfolio measured as of the time the investment decision in question was made. As I argued in an earlier article, spread is potentially a promising way to measure risk in real time as perceived collectively by competing market makers. But with the advent of decimal quotes and other recent changes in …
Preemption Under The Securities Litigation Uniform Standards Act: If It Looks Like A Securities Fraud Claim And Acts Like A Securities Fraud Claim, Is It A Securities Fraud Claim?, Jennifer O'Hare
Working Paper Series
This Article addresses the removal and preemption provisions of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In SLUSA, Congress preempted class actions alleging “an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security.” SLUSA clearly applies to preempt the typical state securities fraud action, forcing plaintiffs into federal court where they will be subject to the rigorous procedural requirements of the Private Securities Litigation Reform Act of 1995. Preemption of false corporate publicity cases was expected and, in fact, intended by SLUSA. However, many courts have also extended …