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The Myth Of Morrison: Securities Fraud Litigation Against Foreign Issuers, Robert Bartlett, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon 2018 University of California - Berkeley

The Myth Of Morrison: Securities Fraud Litigation Against Foreign Issuers, Robert Bartlett, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

Using a sample of 388 securities fraud lawsuits filed between 2002 and 2017 against foreign issuers, we examine the effect of the Supreme Court’s decision in Morrison v. National Australia Bank. We find that the description of Morrison as a “steamroller” substantially ending litigation against foreign issuers is a myth. Instead, we find that Morrison did not substantially change the type of litigation brought against foreign issuers, which both before and after Morrison focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. While dismissal rates rose post-Morrison we find no evidence that ...


Disgorgement In Insider Trading Cases: Fy2005-Fy2015, Verity Winship 2018 University of Illinois College of Law

Disgorgement In Insider Trading Cases: Fy2005-Fy2015, Verity Winship

SMU Law Review

For about 50 years—at least since Texas Gulf Sulphur—the SEC has ordered defendants to disgorge their profits from transactions that violated the securities laws. Despite disgorgement’s long history, in its 2017 opinion in Kokesh v. SEC, the U.S. Supreme Court put two aspects of the remedy on the table. It applied a five-year statute of limitations to disgorgement. It also reopened old questions about agencies’ power to seek remedies not specified in statute. This article provides data to inform these debates over the agency’s use of disgorgement and the effects of Kokesh. It reports the ...


A Birthday Toast To Texas Gulf Sulphur, Manning G. Warren III 2018 University of Louisville Brandeis School of Law

A Birthday Toast To Texas Gulf Sulphur, Manning G. Warren Iii

SMU Law Review

This article commemorates the fiftieth anniversary of the Second Circuit’s Texas Gulf Sulphur decision by examining the impact of the case on insider trading law in the United States. The author begins by discussing the SEC’s opinion, In the Matter of Cady, Roberts & Co., which laid the foundation for the Texas Gulf Sulphur decision by creating a federal duty to disclose material nonpublic information or abstain from trading securities. The author then posits that the SEC, in its Cady, Roberts decision, rejected judicially developed common law fiduciary duty to disclose based on trust and confidence, and, by administrative ...


The Coasian Firm And Insider Trading, Revisited, James C. Spindler 2018 University of Texas Law School

The Coasian Firm And Insider Trading, Revisited, James C. Spindler

SMU Law Review

I present an economic model of insider trading building upon Haddock & Macey’s classic analysis of trading by the manager of a Coasian firm (i.e., a firm in which agency costs do not exist). Due to current shareholders’ status as expected sellers of shares, Coasian insider trading allows shareholders to expropriate outsiders via the managerial proxy and any signaling value of insider trading is eliminated by shareholders’ biased incentives. Adverse selection results. If a system of credible disclosure exists, an insider trading ban results in more disclosure, more efficient prices, and lower illiquidity costs. While the case for insider ...


Unintended Consequences: The Link Between Judge Friendly’S Texas Gulf Sulphur Concurrence And Recent Supreme Court Decisions Misconstruing Rule 10b-5, Margaret V. Sachs 2018 University of Georgia School of Law

Unintended Consequences: The Link Between Judge Friendly’S Texas Gulf Sulphur Concurrence And Recent Supreme Court Decisions Misconstruing Rule 10b-5, Margaret V. Sachs

SMU Law Review

In his Texas Gulf Sulphur concurrence, Judge Henry J. Friendly coun- seled the federal district courts concerning the numerous pending satellite class actions that had been filed under Section 10(b) of the Securities Ex- change Act and Rule 10b-5. In the course of so doing, he argued forcefully that private Rule 10b-5 litigation should be curtailed. Finding his argument convincing, the Supreme Court issued four major decisions restricting the Rule between 1975 and 1994, while nonetheless expanding it in Basic Inc. v. Levinson. Congress responded by blessing both aspects of the Court’s jurisprudence – imposing its own set of ...


Texas Gulf Sulphur And The Genesis Of Corporate Liability Under Rule 10b-5, Adam C. Pritchard, Robert Thompson 2018 University of Michigan Law School

Texas Gulf Sulphur And The Genesis Of Corporate Liability Under Rule 10b-5, Adam C. Pritchard, Robert Thompson

SMU Law Review

This Essay explores the seminal role played by SEC v. Texas Gulf Sulphur Co. in establishing Rule 10b-5’s use to create a remedy against corporations for misstatements made by their officers. The question of the corporation’s liability for private damages loomed large for the Second Circuit judges in Texas Gulf Sulphur, even though that question was not directly at issue in an SEC action for injunctive relief. The judges considered both, construing narrowly “in connection with the purchase or sale of any security,” and the requisite state of mind required for violating Rule 10b-5. We explore the choices ...


The Statutory Authority For Court-Ordered Disgorgement In Sec Enforcement Actions, Donna M. Nagy 2018 Indiana University Maurer School of Law

The Statutory Authority For Court-Ordered Disgorgement In Sec Enforcement Actions, Donna M. Nagy

SMU Law Review

What empowers the U.S. Securities and Exchange Commission to seek, and federal district courts to order, the disgorgement of ill-gotten gains from securities law violators? The short answer, which stood virtually un- challenged for nearly forty-six years, is that federal courts may award disgorgement, at the request of the SEC, pursuant to the broad equitable powers that Congress conferred in the jurisdictional provisions of the federal securities laws. During the 2017 oral argument in Kokesh v. SEC, however, five Justices of the U.S. Supreme Court interjected statements ex- pressing varying degrees of skepticism. The tenor of the questions ...


Taming Rule 10b-5-1: The Unfinished Business Of Texas Gulf Sulphur, Daniel J. Morrissey 2018 Gonzaga Law School

Taming Rule 10b-5-1: The Unfinished Business Of Texas Gulf Sulphur, Daniel J. Morrissey

SMU Law Review

Insider trading has shaped both the evolution of the Securities Exchange Commission (SEC) and the current state of securities law. The injustice of insider trading, especially as felt by everyday shareholders and investors, mandated action by government regulators. Consequently, the SEC enacted Rule 10b-5—a prohibition and prosecution on any corporate officials’ use of material, non-public information for private profit. In SEC v. Texas Gulf Sulphur Co., Rule 10b-5 grew into the sanction on insider trading that it is known as today. As case law whet Rule 10b-5’s reach on in- sider trading, corporate executives became increasingly concerned that ...


Martoma And Newman: Valid Corporate Purpose And The Personal Benefit Test, Jonathan R. Macey 2018 Yale Law School

Martoma And Newman: Valid Corporate Purpose And The Personal Benefit Test, Jonathan R. Macey

SMU Law Review

The law of insider trading in the United States is fundamentally grounded on a theory of property rights in information. Those to whom property rights in information have been allocated may trade without violating the prohibitions on trading contained in § 10(b) of the Securities Ex- change Act. Similarly, those who use material, nonpublic information for a valid corporate purpose have not violated the law. On the other hand, those who pilfer for personal gain material inside information belonging to a corporation do so at their legal peril. Those with property rights in inside information may authorize others to trade ...


Thinking Fast And Slow About The Concept Of Materiality, Mark J. Loewenstein 2018 University of Colorado, Boulder

Thinking Fast And Slow About The Concept Of Materiality, Mark J. Loewenstein

SMU Law Review

Determining whether, for securities law purposes, a misrepresentation or omission is material raises interesting questions. The Court of Appeals in SEC v. Texas Gulf Sulphur Co. provided some guidance on materiality, and the U.S. Supreme Court has weighed in several times in the past 50 years. This article first discusses what Texas Gulf Sulphur contributed to the doctrine of materiality, then briefly considers other dimensions of the doctrine, and finally moves to its thesis: The doctrine of materiality should take into account important psychological insights and heuristics that may affect the way that a fact finder decides whether a ...


From Texas Gulf Sulphur To Chiarella: A Tale Of Two Duties, Donald C. Langevoort 2018 Georgetown Law

From Texas Gulf Sulphur To Chiarella: A Tale Of Two Duties, Donald C. Langevoort

SMU Law Review

This short essay tells the story of two distinct journeys begun in SEC v. Texas Gulf Sulphur—one dealing with insider trading, the other with corporate liability for false corporate publicity. The first involves the “equal access” principle planted therein and then harshly discarded by the Supreme Court twelve years later in Chiarella v. United States. My claim is that marketplace egalitarianism never had much traction in the period from TGS to Chiarella, and was largely dead by the time the Court officially extinguished it. By that time, it played mainly a boogeyman role. The second journey had a different ...


From Texas Gulf Sulphur To Laudato Si’: Mining Equitable Principles From Insider Trading Law, Michael J. Kaufman 2018 Loyola University Chicago, School of Law

From Texas Gulf Sulphur To Laudato Si’: Mining Equitable Principles From Insider Trading Law, Michael J. Kaufman

SMU Law Review

In SEC v. Texas Gulf Sulphur, the Second Circuit declared that all investors trading on impersonal exchanges should have equal access to material information, and therefore anyone who possesses material inside information must either turn it over to the investing public or not trade. The broad reach of that insider trading prohibition sent shock waves throughout the financial markets and encountered significant judicial resistance from the Supreme Court.

Although the Supreme Court initially rejected the insider trading prohibition announced in Texas Gulf Sulphur, the fundamental equitable trading principles underlying that decision have endured. This article shows that TGS was more ...


Will Fifty Years Of The Sec’S Disgorgement Remedy Be Abolished?, Roberta S. Karmel 2018 Brooklyn Law School

Will Fifty Years Of The Sec’S Disgorgement Remedy Be Abolished?, Roberta S. Karmel

SMU Law Review

SEC v. Texas Gulf Sulphur was the first case holding that equitable relief, and specifically disgorgement, can be obtained by the SEC in a federal court action for an injunction against insider trading. Such ancillary equitable relief has been obtained in numerous cases during the fifty years since Texas Gulf was decided. But, the continued availability of the remedy of disgorgement has been thrown into question by the recent Supreme Court case of Kokesh v. SEC, in which the Supreme Court held disgorgement to be a penalty for purposes of the federal statute of limitations. The Court identified, but expressly ...


Insider Trading, Tamar Frankel 2018 Boston University School of Law

Insider Trading, Tamar Frankel

SMU Law Review

This article focuses on the nature and position of corporate insiders. The discussion leads to a suggestion that one punishment of insiders who misappropriated what is not theirs—the information—is to disqualify them for a position of corporate power.


Personal Benefit Has No Place In Misappropriation Tipping Cases, Merritt B. Fox, George N. Tepe 2018 Columbia Law School

Personal Benefit Has No Place In Misappropriation Tipping Cases, Merritt B. Fox, George N. Tepe

SMU Law Review

The Supreme Court’s decision in Salman v. United States left unanswered an important issue concerning the reach of Rule 10b-5’s prohibitions with respect to trades based on a tip of material inside information: in cases based on the misappropriation theory, is it necessary to show that the tipper enjoyed a personal benefit of which the trader was aware? The personal benefit test was originally developed in the context of tipping cases based on the classical theory of insider trading. The Supreme Court in Salman explicitly said that it was not reaching the matter of whether the test should ...


Constructive Ambiguity And Judicial Development Of Insider Trading, Jill E. Fisch 2018 University of Pennsylvania Law School

Constructive Ambiguity And Judicial Development Of Insider Trading, Jill E. Fisch

SMU Law Review

The Texas Gulf Sulphur decision began what has become a fifty-year project of developing U.S. insider trading regulation through judicial law- making. During the course of that project, the courts developed a complex, fraud-based approach to determining the scope of liability. The approach has led, in many cases, to doctrinal uncertainty, a result that is reflected in the recent decisions in Newman, Salman, and Martoma.

In the face of this uncertainty, many commentators have called for a legislative solution. This article argues, however, that the true challenge of insider trading regulation is a lack of consensus about the appropriate ...


From Equality To Duty: On Altering The Reach, Impact, And Meaning Of The Texas Gulf Legacy, Lisa M. Fairfax 2018 George Washington University Law School

From Equality To Duty: On Altering The Reach, Impact, And Meaning Of The Texas Gulf Legacy, Lisa M. Fairfax

SMU Law Review

As the first federal court decision to hold that insider trading represented a violation of the federal securities laws, the historical importance of SEC v. Texas Gulf Sulphur Co. is clear. However, its current relevance may not be so clear. This is because while there are some aspects of Texas Gulf that have endured and remain a fixture of federal insider trading jurisprudence, the Supreme Court has firmly repudiated the normative rationale for in- sider trading articulated by Texas Gulf. This essay contends that this repudiation has important descriptive and normative implications. Perhaps most importantly, this essay contends that Texas ...


Texas Gulf Sulphur And Information Disclosure Policy, Onnig H. Dombalagian 2018 Tulane University Law School

Texas Gulf Sulphur And Information Disclosure Policy, Onnig H. Dombalagian

SMU Law Review

Texas Gulf Sulphur’s bold ultimatum—"disclose or abstain”— enjoys an enduring place of prominence in discussions of insider trading law be- cause of the intuitive simplicity with which it asserts the expectations of investors in securities markets. As the law of information dissemination has developed into a distinct subset of federal securities law over the past fifty years, however, it is equally important to reflect on how the Texas Gulf Sulphur opinion has shaped the views of courts and regulators in crafting rules and guidelines for information disclosure. Indeed, Texas Gulf Sulphur anticipated—and continues to inform—contemporary debates ...


Seeking An Objective For Regulating Insider Trading Through Texas Gulf Sulphur, James D. Cox 2018 Duke Law School

Seeking An Objective For Regulating Insider Trading Through Texas Gulf Sulphur, James D. Cox

SMU Law Review

Data summarized in the opening of this article document shows that in- side trading is a growth industry. And, as deals get ever bigger, the growth curve becomes steeper as more the data confirms intuition that the more who know about a good thing the more who will seek to harvest its bene- fits. Even though insider trading appears to have thrived during the fifty years after Texas Gulf Sulphur, we gather in this symposium to celebrate the decision. But why? As developed below, the Second Circuit’s landmark decision gave way to the Supreme Court’s erection of a ...


Texas Gulf Sulphur: A Case Study On Responding To Market Rumors, Wendy G. Couture 2018 University of Idaho College of Law

Texas Gulf Sulphur: A Case Study On Responding To Market Rumors, Wendy G. Couture

SMU Law Review

This essay uses Texas Gulf Sulphur as a case study on an issue that companies continue to face today: whether, and how, to respond to market rumors. This essay analyzes the countervailing incentives that influence whether companies respond to market rumors, applies those pressures to the facts of Texas Gulf Sulphur, and concludes that counsel today would likely advise similarly situated companies to remain silent rather than respond to market rumors. Drawing therefrom, this essay argues that silence is not the socially optimal response and that the dueling pressures on companies should be adjusted to incentivize companies to respond to ...


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