Law Commons^™

Analyst And Broker Dealer Liability Under 10(B) For Biased Stock Recommendations, Ann Morales Olazabal

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In the aftermath of the turn-of-the-millennium Wall Street scandals, class action suits have been brought by thousands of investors against securities analysts and their broker-dealer employers, based upon stock research and recommendations that were allegedly biased by such conflicts of interest as analysts' ownership interest in researched stocks or other relationships between analysts and issuers, and the fact analysts’ compensation was tied to their ability to generate investment banking business from issuers. This work exhaustively analyzes federal 10(b) liability for misleading representations and omissions in this context, through the prism of existing general securities fraud precedent, scant existing authority in …

Expensing Isn't The Only Option: Alternatives To The Fasb's Stock Option Expensing Proposal, Benjamin A. Templin

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This paper reviews the arguments for and against the Financial Accounting Standard Board's (FASB) proposal to require that corporations expense options. It identifies two major goals of the proposed rule -- 1) clarity in financial statements and 2) a reduction of corporate fraud by removing the incentive of options. To address these two goals, I adopt a framework of Information Reforms v. Rules of the Game Reforms. The article starts with a history of FASB Statement No. 123 Accounting for Stock-based Compensation and also analyzes the Congressional legislation that attempts to block the measure, the Stock Option Accounting Reform Act. …

A Model Financial Statement Insurance Act, Lawrence A. Cunningham

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No abstract provided.

Revisiting The Role Of The Future In Accounting Reform, Lawrence A. Cunningham

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Overlooked in accounting-reform debate emanating from recent financial reporting scandals is the role of forward-looking disclosure inaugurated in the late 1970s and expanded throughout the 1980s and 1990s. Debate centered on whether accounting concepts developed during this period were too rule-bound. An SEC study largely resolved this debate by characterizing US GAAP as a mix of rules and principles embedded in an objectives-based accounting system. The SEC expressed a slight preference for principles over rules in future accounting standard-setting. Some see this resolution as transformative. This Article considers how it may disguise a false dichotomy likely providing false catharsis. Underappreciated …

Choosing Gatekeepers: The Financial Statement Insurance Alternative To Auditor Liabilty, Lawrence A. Cunningham

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Positioned in a lively current debate concerning how to design auditor incentives to optimize financial statement auditing, this Article presents the more ambitious financial statement insurance alternative. This breaks from the existing securities regulation framework to draw directly on insurance markets and law. Based on upon an evaluation of major structural and policy-related features of the concept, the assessment prescribes a framework to permit companies, on an experimental-basis and with investor approval, to use financial statement insurance as an optional alternative to the existing model of financial statement auditing backed by auditor liability.

The financial statement insurance concept, pioneered by …

Reconsidering The Prohibition Against General Solicitation During Section 3(C)(7) Offerings, Daniel P. Taub

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This paper examines the seventy year history of the general solicitation prohibition during private offerings and then analyzes its continuing relevance as applied to Section 3(c)(7) offerings. The S.E.C. Staff recently issued a report questioning the continuing value of prohibiting general solicitation during private offerings made pursuant to Section 3(c)(7) of the Investment Company Act. If the S.E.C. were to follow the recommendation in the S.E.C. Staff Report, this would have tremendous implications for a growing number of hedge funds, and other investment companies utilizing the Section 3(c)(7) exemption. By allowing general solicitation, the S.E.C. would be reversing a policy …

Securing Truth For Power: Informational Strategy And Regulatory Policy Making, Cary Coglianese

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No abstract provided.

Facilitating Auditing’S New Early Warning System: Control Disclosure, Auditor Liability And Safe Harbors, Lawrence A. Cunningham

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This Article considers the interplay between new auditing standards governing audits of internal control over financial reporting and pre-existing legal standards governing auditor liability for audit failure. The interplay produces skewed liability incentives that, if unadjusted, threaten to impair the objective of this new control-audit regime. The regime’s objective is, in part, to provide an early warning to financial statement users when current financial statements are reliable but control weaknesses indicate material risk of a company’s future inability to produce reliable financial statements. To be meaningful, auditor disclosure of material weaknesses and potential effects is necessary.

While liability rules under …

What Counts As Fraud? An Empirical Study Of Motions To Dismiss Under The Private Securities Litigation Reform Act, Adam C. Pritchard

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No abstract provided.

Gentleman's Agreement: The Antisemitic Origins Of Restrictions On Stockholder Litigation, Lawrence E. Mitchell

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A deeply ingrained, seemingly ineradicable, hostility to plaintiffs’ lawyers and especially to plaintiffs’ lawyers in stockholder suits seems to have existed for most of the past century. This hostility is manifest not only in the tone of judicial opinions but in law review articles, the popular press, and, often, in legislation. This article analyzes the circumstances under which the first security-for-expense statute was adopted in New York in 1944, including the contemporaneous justification for the statute, focusing on the demographics of the New York bar at the time and the ethnic sociology of New York. In so doing, it concludes …

A New Product For The Corporation Law Market: Audit Committee Certifications, Lawrence A. Cunningham

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In the swirling corporate governance reforms led by SOX, the SEC, SROs and PCAOB, Delaware and other states are playing minor roles at best. State absence creates a missing arc in the evolving US corporate governance circle. The circle is drawn as follows: state corporation law charges boards of directors with managing corporations and authorizes board committees; SOX charges audit committees with tasks, including supervising external auditors; SROs require audit committee characteristics like independence and compel disclosure; PCAOB requires external auditors to evaluate audit committee effectiveness. This last step could close the circle except that auditors performing this evaluation generate …

Comparisons Among Firms: (When) Do They Justify Mandatory Disclosure?, Sharon Hannes

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Comparisons among firms play a major role in securities analysis. This essay asks if this fact justifies the mandatory nature of securities regulation. Once a firm approaches the public securities markets, federal securities regulations compel it to disclose financial information to the public. A seminal theory argues that firms would not otherwise commit to maintain optimal disclosure levels, since a disclosing firm bears all disclosure costs but does not gain all disclosure benefits.

This paper examines the robustness of this argument in relation to disclosure benefits which arise from comparisons among firms. Financial data of peer firms allows shareholders to …

Dancing With Wolves: Regulation And De-Regulation Of Foreign Investment In China's Stock Market, Jiangyu Wang

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China’s stock market is the world’s youngest one and the fastest-growing one as well. During the past decade, it has been developed with a variety of unique features, most of which are inconsistent with the concept of a viable market economy. China’s dualist regulatory regime has different sets of rules for domestic participants and foreign investors. For a long period, foreign investment in the stock market was subject to severe restrictions and effectively excluded from all market activities except in the B shares market. Fundamental changes, however, have occurred following China’s accession to the WTO, especially in the last two …