Securities Law Commons^™

What Would We Do Without Them: Whistleblowers In The Era Of Sarbanes-Oxley And Dodd-Frank, Sean Griffith, Jane A. Norberg, Ian Engoron, Alice Brightsky, Tracey Mcneil, Jennifer M. Pacella, Judith Weinstock, Jason Zuckerman

Fordham Journal of Corporate & Financial Law

No abstract provided.

Perfect Hedge: Adding Precision To The Proposed Sec Rule On Investment Company Use Of Derivatives With A Hedging Exception, David Miller

Boston College Law Review

Derivatives are complex financial instruments that derive their value from an underlying asset. Used and valued by commercial and financial institutions, derivatives are booming. Indeed, the growing $600 trillion derivative market dwarfs the $67 trillion stock market. Yet, the magnification effect of derivative leverage on losses has well-documented ties to the 2008 Financial Crisis when AIG, Lehman Brothers, and other financial institutions found themselves indebted on hundreds of billions of dollars in derivative transactions. Since the crisis, investment companies and funds constrained by the Investment Company Act to protect unsophisticated and vulnerable investors have increased their use of derivatives. In ...

Securities Fraud Embedded In The Market Structure Crisis: High-Frequency Traders As Primary Violators, Stanislav Dolgopolov

William & Mary Business Law Review

This Article analyzes approaches to attaching liability for securities fraud to high-frequency traders as primary violators in connection with the current market structure crisis. One of the manifestations of this crisis pertains to inadequate disclosure of advanced functionalities offered by trading venues, as exemplified by the order type controversy. The Article’s analysis is applied to secret arrangements between trading venues and preferred traders, glitches and gaming, and the reach of the doctrine of market manipulation, and several relevant issues are also viewed from the standpoint of the integrity of the trading process. The Article concludes by arguing for a ...

Reputational Economies Of Scale, Daniel M. Klerman

University of Southern California Legal Studies Working Paper Series

For many years, most scholars have assumed that the strength of reputational incentives is positively correlated with the frequency of repeat play. Firms that sell more products or services were thought more likely to be trustworthy than those that sell less because they have more to lose if consumers decide they have behaved badly. That assumption has been called into question by recent work that shows that, under the standard infinitely repeated game model of reputation, reputational economies of scale will occur only under special conditions, such as monopoly, because larger firms not only have more to lose from behaving ...

Making A Market For Corporate Disclosure, Kevin S. Haeberle, M. Todd Henderson

Faculty Publications

It has long been said that market forces alone will result in a problematic under-sharing of information by public companies. Since the 1930s, the main regulatory response to this market failure has come in the form of the massive mandatory-disclosure regime that sits at the foundation of modern securities law. But this regime—especially when viewed along with its speech-chilling antifraud overlay—no doubt leaves society without all the corporate information from which it would benefit. The typical fix offered to the problem has been more of the same: add to the 100-plus-page list of what firms must disclose, often ...

Insider Trading Law And The Ambiguous Quest For Edge, A. C. Pritchard

Michigan Law Review

A review of Sheelah Kolhatkar, Black Edge.

Universal Proxies, Scott Hirst

Faculty Scholarship

Contested director elections are a central feature of the corporate landscape, and underlie shareholder activism. Shareholders vote by unilateral proxies, which prevent them from “mixing and matching” among nominees from either side. The solution is universal proxies. The Securities and Exchange Commission has proposed a universal proxy rule, which has been the subject of heated debate and conflicting claims. This paper provides the first empirical analysis of universal proxies, allowing evaluation of these claims.

The paper’s analysis shows that unilateral proxies can lead to distorted proxy contest outcomes, which disenfranchise shareholders. By removing these distortions, universal proxies would improve ...

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 Shadow Of Free Enterprise: The Unconstitutionality Of The Securities & Exchange Commission’S Administrative Law Judges, Linda D. Jellum, Moses M. Tincher

Journal of the National Association of Administrative Law Judiciary

Six years ago, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), for the first time giving the Securities and Exchange Commission (SEC) the power to seek monetary penalties through its in-house adjudication. The SEC already had the power to seek such penalties in federal court. With the Dodd-Frank Act, the SEC’s enforcement division could now choose between an adjudication before an SEC Administrative Law Judge (ALJ) or a civil action before an Article III judge. With this new choice, the SEC realized a significant home-court advantage. For example, in 2014, the SEC’s enforcement ...

Unicorns, Guardians, And The Concentration Of The U.S. Equity Markets, Amy Deen Westbrook, David A. Westbrook

Journal Articles

No abstract provided.

Public And Private Enforcement Of Corporate And Securities Laws: An Empirical Comparison Of Hong Kong And Singapore, Wai Yee Wan, Christopher C. H. Chen, Say Hak Goo

Research Collection School Of Law

No abstract provided.

Selective Disclosure And Insider Trading, Michael Guttentag

Florida Law Review

Determining when the selective disclosure of material nonpublic information should trigger insider trading liability is a deeply problematic aspect of insider trading doctrine.

The current rule is that a selective disclosure can only trigger insider trading liability if “the insider [making the selective disclosure] personally will benefit, directly or indirectly, from his disclosure.” Dirks v. SEC introduced this “personal benefit” test in 1983 to balance four competing rationales for determining when a tip should trigger insider trading liability. Two developments since Dirks have made problems with this personal benefit test insurmountable. First, the SEC’s enactment of Regulation Fair Disclosure ...

High‐Frequency Trading And The New Stock Market: Sense And Nonsense, Merritt B. Fox, Lawrence R. Glosten, Gabriel V. Rauterberg

Articles

The stock market has been transformed during the last 25 years. Human suppliers of liquidity like the NASDAQ dealers and NYSE specialists have been replaced by algorithmic market making; stocks that once traded on a single venue now trade across twelve exchanges and a multitude of alternative trading systems. New venues like dark pools, and new participants like high‐frequency traders, have emerged to take on prominent roles. This new market has had more than its share of controversy and regulatory scrutiny, particularly in the wake of Michael Lewis’s bestseller Flash Boys. In this article, the authors analyze five ...

Insider Tainting: Strategic Tipping Of Material Nonpublic Information, Andrew Verstein

Northwestern University Law Review

Insider trading law is meant to be a shield, protecting the market and investors from unscrupulous traders, but it can also be a sword. Insofar as we penalize trading on the basis of material, nonpublic information, it becomes possible to share information strategically in order to disable or constrain innocent investors. A hostile takeover can be averted, or a bidding war curtailed, because recipients of such information must then refrain from trading. This Article offers the first general account of “insider tainting,” an increasingly pervasive phenomenon of weaponizing insider trading law.

Mom Approval In A World Of Active Shareholders, Edward Rock

New York University Law and Economics Working Papers

Majority of Minority (MOM) approval is a common mechanism used in many jurisdictions to control conflicts of interest in related party transactions. Recently, in M & F Worldwide, the Delaware Supreme Court held that MOM approval in a controlling shareholder freezeout shifted the standard of review from Entire Fairness to Business Judgement Rule. In this article, I investigate how MOM approval functions in the presence of active shareholders (both hedge funds and actively managed mutual funds).

After reviewing the potential benefits and problems with MOM approval, I review the use of MOM provisions in controlling shareholder freezeouts in the U.S. between 2010 and 2017. I combine this with three case studies involving MOM approval: the Dell MBO; the Oracle/NetSuite merger; and the unsuccessful effort by the Dolan family to take Cablevision private in 2007. I then briefly consider a quite different sort of MOM approval: the EU Takeover Directive’s requirement that conditions mandatory freezeouts on achieving a very high level of ownership (90-95%), typically through a tender offer.

The principal lessons of this investigation are ambiguous. First, I do not find significant evidence that the use of MOM conditions in ...

The Risk Of Regulatory Arbitrage: A Response To Securities Regulation In Virtual Space, Wendy Gerwick Couture

Washington and Lee Law Review Online

In Securities Regulation in Virtual Space, Eric. C. Chaffee explores the potential applicability of the securities laws to virtual transactions based on virtual activity and argues that, although many of these transactions likely qualify as “investment contracts” under S.E.C. v. W.J. Howey Co., they should be excluded under the context clause because, among other reasons, application of the securities laws would stifle creativity within this innovative space. This Response proposes a reframing of the Howey test as a response to the risk of regulatory arbitrage, argues that the context clause should only exclude transactions that do not ...

The Regulation Of Trading Markets: A Survey And Evaluation, Paul G. Mahoney, Gabriel V. Rauterberg

Book Chapters

This chapter was prepared for a conference exploring the desirability and structure of a new special study of the securities markets. Our objective is not to resolve all of the questions that commentators have raised about the new equity markets, but to lay the groundwork for a new special study by surveying the state of market regulation, identifying issues, and offering preliminary evaluations.

Investors' Paradox, Anita K. Krug

Articles

For the first time in an era, new investment products for smaller ("retail ") investors are emerging. These products are mutual funds that engage in the types of trading and investment activities that have long been the province of sophisticated investors. Accordingly, the new funds (called "alternative funds") promise to reduce the gulf between retail investors and their sophisticated counterparts, in terms of portfolio diversification and investment results.

This Article describes the complex mix of factors that spawned alternative funds and critically evaluates the funds' potential, the first scholarly work to do so. It additionally unearths the paradox that impedes the ...

Comment On Whistling Loud And Clear: Applying Chevron To Subsection 21f Of Dodd–Frank, Sarah C. Haan

Washington and Lee Law Review

No abstract provided.

Opacity, Fragility, & Power: Lessons From The Law Enforcement Response To The Financial Crisis, Gregory M. Gilchrist

Brooklyn Law Review

Review of Mary Kreiner Ramirez and Steven A. Ramirez, THE CARE FOR THE CORPORATE DEATH PENALTY: RESTORING LAW AND ORDER ON WALL STREET (New York 2017) The Case for the Corporate Death Penalty, by Mary Kreiner Ramirez and Steven A. Ramirez, argues that the limited law enforcement response to the 2008 financial crisis represented an unprecedented failure of the rule of law. It further maintains that the weak response by law enforcement was caused by the economic and political power of the largest financial institutions and those who run them. It concludes that the failure to vigorously prosecute the people ...