Law Commons^™

Misappropriation Theory: How The World’S Two Largest Economies Regulate Insider Trading, Thomas Hare

Journal Articles

Prior to the government adopting policies of economic reform in the late 1970s, the People’s Republic of China (“the PRC” or “China”) did not have a formal securities market or an accompanying regulatory scheme. For the most part, it was not operationally feasible for a market to develop and flourish in China because the PRC had a centrally planned economy with state-owned enterprises as the primary form of business ownership. However, economic reform brokered conditions where stock trades casually began in markets located in Shanghai, Shenzhen, Chengdu and several other cities in the early 1980s. This informal trading persisted until …

Insider Trading And Cryptoassets: The Waters Just Got Muddier, John P. Anderson

Journal Articles

The absence of any clear guidance on when a digital asset is a security is a problem that has ramifications far beyond this article’s limited focus on our insider trading enforcement regime. Nevertheless, I have argued that the impending application of our insider trading laws to cryptoassets helps to illustrate why it is unfair and unjust to force market participants to wait much longer for a definitive answer to the question of when a digital asset is a security.

A Tale Of Two Cities: Mark Cuban, David Einhorn, And The Ethics Of Insider Trading Reform, John P. Anderson

Journal Articles

The similarities between the insider trading stories of Mark Cuban and David Einhorn suggest that their circumstances are not uncommon, and the contrasting results also help to illustrate some significant differences between the common law fraud-based insider trading regime in the U.S. and the statutory parity-of-information regime in Europe. And, as Congress and the SEC continue to weigh the merits of reform in the U.S., the examples of Cuban and Einhorn are particularly instructive for the reasons to be developed in the remaining sections of this Article. First, as will be explained in Part II of this Article, contrasting the …

Undoing A Deal With The Devil: Some Challenges For Congress's Proposed Reform Of Insider Trading Plans, John P. Anderson

Journal Articles

The adoption of Rule 10b5-1 was, in a manner of speaking, a deal with the devil that the SEC and some lawmakers now appear to regret having made. The problem is that, as is often the case with such a deal, it cannot be easily undone. I identify challenges presented by the restrictions on Trading Plan use that Congress has proposed in the Corporate Insiders Act. In light of these challenges, I argue that effective Trading Plan reform cannot be accomplished by simply restricting the use of Trading Plans while leaving Rule 10b5-1(b)'s awareness test in place. If there is …

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

Journal Articles

No abstract provided.

Insider Trading And The Myth Of Market Confidence, John P. Anderson

Journal Articles

This Article challenges the validity of the market-confidence claim as a justification for the regulation of insider trading on two grounds. First, insofar as it relies on a sociopsychological claim-that most investors perceive insider trading as economically harmful or morally wrong-it is subject to the problem of false consciousness (i.e., the psychological claim could be true though the shared belief is demonstrably false). Second, even if the problem of false consciousness is set aside, the market-confidence argument's empirical claims of a chilling effect among potential investors must be proven, not simply assumed.

Constraining Monitors, Veronica Root

Journal Articles

Monitors oversee remediation efforts at dozens, if not hundreds, of institutions that are guilty of misconduct. The remediation efforts that the monitors of today engage in are, in many instances, quite similar to activities that were once subject to formal court oversight. But as the importance and power of monitors has increased, the court’s oversight of monitors and the agreements that most often result in monitorships has, at best, been severely diminished and, at worst, vanished altogether.

The lack of regulation governing monitors is well documented; yet, the academic literature on monitorships to date has largely taken the state of …

Solving The Paradox Of Insider Trading Compliance, John P. Anderson

Journal Articles

Regulators demand the impossible when they require issuers to design and implement effective insider trading compliance programs because insider trading is a crime that neither Congress nor the Securities Exchange Commission has defined with any specificity. This problem of uncertainty is then compounded by the threat of heavy civil and criminal sanctions for violations. Placed between this rock and hard place, issuers tend to adopt overbroad insider trading compliance programs, which comes at a heavy price in terms of corporate culture, cost of compensation, share liquidity, and cost of capital. The irony is that, since all of these costs are …

When Does Corporate Criminal Liability For Insider Trading Make Sense?, John P. Anderson

Journal Articles

It is clear that not all insider trading is victimless, and not all employers of insider traders are innocent. But I am convinced that these critics are correct to point out that the current enforcement regime is absurdly overbroad in that it affords no principled guarantee to corporate victims of insider trading that they will not be indicted for the crimes perpetrated against them. The law should be reformed to ensure that corporations are only held criminally liable where they are guilty of some wrongdoing.

Do Conservative Justices Favor Wall Street: Ideology And The Supreme Court's Securities Regulation Decisions, Marco Ventoruzzo, Johannes W. Fedderke

Journal Articles

The appointment of Supreme Court justices is a politically-charged process and the "ideology" (or "judicial philosophy") of the nominees is perceived as playing a potentially relevant role in their future decision-making. It is fairly easy to intuit that ideology somehow enters the analysis with respect to politically divisive issues such as abortion and procreative rights, sexual conduct, freedom of speech, separation of church and state, gun control, procedural protections for the accused in criminal cases, governmental powers. Many studies have tackled the question of the relevance of the ideology of the justices or appellate judges on these issues, often finding …

Anticipating A Sea Change For Insider Trading Law: From Trading Plan Crisis To Rational Reform, John P. Anderson

Journal Articles

The Securities and Exchange Commission is poised to take action in the face of compelling evidence that corporate insiders are availing themselves of rule-sanctioned Trading Plans to beat the market. These Trading Plans allow insiders to trade while aware of material nonpublic information. Since the market advantage insiders have enjoyed from Plan trading can be traced to loopholes in the current regulatory scheme, increased enforcement of the existing rules cannot address the issue. But, simply tweaking the existing rule structure to close these loopholes would not work either. This is because the SEC adopted the current rule as a part …

What’S The Harm In Issuer-Licensed Insider Trading?, John P. Anderson

Journal Articles

There is growing support for the claim that issuer-licensed insider trading (when the insider’s firm approves the trade in advance and has disclosed that it permits such trading pursuant to published guidelines) is economically efficient and morally harmless. But for the last thirty-five years, many scholars and the U.S. Supreme Court have relied on Professor William Wang’s “Law of Conservation of Securities” to rebut claims that insider trading can be victimless. This law is purported to show that every act of insider trading, even those licensed by the issuer, causes an identifiable harm to someone. This article argues that the …

The Role Of Comparative Law In Shaping Corporate Statutory Reforms, Marco Ventoruzzo

Journal Articles

This Essay discusses how comparative law played and plays a role in the statutory development of corporate laws. The influence of laws of other systems on the development of statutory law is common, explicit, and represents a tradition that accompanied legal reforms since the very beginning of the development of legislation.

Focusing on modern corporate law, I argue (but the argument could be extended to many other legal fields) that it is necessary to distinguish two basic ways in which comparative law influences legal reforms in one particular jurisdiction. The first one is through regulatory competition among different systems. In …

Greed, Envy, And The Criminalization Of Insider Trading, John P. Anderson

Journal Articles

In October 2011, a U.S. district court sentenced Raj Rajaratnam to eleven years in federal prison for insider trading. This is the longest sentence for insider trading in U.S. history, but it is significantly less than the nineteen to twenty-four-year term requested by the government. Such harsh prison terms (equal in some cases to those meted out for murder or rape) require sound justification in a liberal society. Yet jurists, politicians, and scholars have failed to offer a clear articulation of either the economic harm or the moral wrong committed by the insider trader. This Article looks to fill this …

Segmented Settlements Are Not The Answer: A Response To Professor Squire’S Article, How Collective Settlements Camouflage The Costs Of Shareholder Lawsuits, Christopher C. French

Journal Articles

In his recent article, Professor Richard Squire offers a provocative theory in which he claims the underlying claimants in shareholder litigation against corporate policyholders are overcompensated due to what he describes as “cramdown” settlements, under which insurers are forced to settle due to the “duty to contribute” that arises under multi-layered directors and officers (“D&O”) insurance programs. He also offers a novel idea regarding how this problem could be fixed by what he refers to as “segmented” settlements in which each insurer and the policyholder would be allowed to settle separately and consider only its own interests in doing so. …

Issuing New Shares And Preemptive Rights: A Comparative Analysis, Marco Ventoruzzo

Journal Articles

The question of whether the corporate law of Europe and America are converging is still largely unanswered. One fundamental area in which the two systems diverge concerns how they regulate the issuing of new shares, in particular preemptive rights, a problem rarely addressed by comparative corporate law scholars. This essay fills that gap by examining the major comparative differences between the approaches followed on the two sides of the Atlantic, and offers some possible explanations for this divergence.

Like Moths To A Flame - International Securities Litigation After Morrison: Correcting The Supreme Court's Transactional Test, Marco Ventoruzzo

Journal Articles

Because of the broad jurisdiction American courts have asserted in cases arising under the Securities Exchange Act of 1934, they have been called a Shangri-la for “foreign-cubed” class actions with little connection to the United States. Over the past forty years, the standards used by American courts to determine their jurisdiction in international securities disputes have evolved, culminating in the U.S. Supreme Court’s Morrison decision of 2010. The new transactional test promulgated in Morrison replaced all of its predecessor tests, from a test measuring whether the conduct in question took place in the United States to a test measuring whether …

Pcaob And The Persistence Of The Removal Puzzle, Patricia L. Bellia

Journal Articles

In Free Enterprise Fund v. Public Company Accounting Oversight Board ("PCAOB"), the Supreme Court invalidated a statutory provision protecting the tenure of members of the PCAOB, a board created to oversee the auditing of public companies subject to the securities laws. The case carried the potential for a major shift in the Court's approach to separation of powers disputes. Although the Court delivered no such result, the PCAOB case provides a fascinating window on the removal puzzle. The case reflects an entanglement of multiple textually derived and nontextual separation of powers principles. One of the central principles on which the …

Happy Talk And The Stock Market, David A. Westbrook

Journal Articles

No abstract provided.

Freeze-Outs: Transcontinental Analysis And Reform Proposals, Marco Ventoruzzo

Journal Articles

One of the most crucial, but systematically neglected, comparative differences between corporate law systems in Europe and in the United States concerns the regulations governing freeze-out transactions in listed corporations. Freeze-outs can be defined as transactions in which the controlling shareholder exercises a legal right to buy out the shares of the minority, and consequently delists the corporation and brings it private. Beyond this essential definition, the systems diverge profoundly.

This gap exists despite the fact that minority freeze-outs are one of the most debated issues in corporate law, in the public media, in a vast body of scholarly work …

The Securities Laws And The Mechanics Of Legal Change, Barry Cushman

Journal Articles

This essay, prepared for the Virginia Law Review symposium marking the 75th anniversary of the Securities Exchange Commission, explores the mechanisms through which the Roosevelt Administration secured the Supreme Court's approval of various features of the New Deal's securities law program.

Takeover Regulation As A Wolf In Sheep's Clothing: Taking U.K Rules To Continental Europe, Marco Ventoruzzo

Journal Articles

Aesop was an optimist. In his cautionary fable that inspired the famous admonition about wolves in sheep's clothing, the predator intentionally dons a sheep's fleece in order to sneak up on a lamb. His disguise, it turns out, is so effective that he ends up being mistaken for the real thing and killed by another wolf. According to Aesop, even the most effective fraud can turn against its perpetrator, and justice be done. The results are not always so salutary with other clandestine predators, including legal rules that appear aimed at protecting vulnerable groups, but instead provide valuable tools to …

Cost-Based And Rules-Based Regulatory Competition: Markets For Corporate Charters In The U.S. And The E.U., Marco Ventoruzzo

Journal Articles

Regulatory competition in corporate law is increasing in Europe and, not differently from what happens in the US, a market for corporate charters is developing in Europe. This article examines the differences between the US corporate law market, and the European one - to the extent that one exists. The basic idea is that, in Europe, there is a stronger competition for the (first) incorporation of rather small, closely-held corporations; while in the US a small closely-held corporation usually incorporates locally, where its shareholders and directors are located, and reincorporates - often in Delaware - when it is growing and, …

Europe's Thirteenth Directive And U.S. Takeover Regulation: Regulatory Means And Political Economic Ends, Marco Ventoruzzo

Journal Articles

Cross-border acquisitions, especially through hostile takeovers, represent one of the most dramatic consequences of the growing integration, both within Europe, and when considering the economic balance of power between the US and the European industries. This Article focuses on the single most important piece of legislation on European takeover law, the Thirteenth Directive of the European Union on Takeover Regulation, which was approved on April, 21 2004 and must be implemented by Member States before the end of 2006.

Passage of the Thirteenth Directive is no minor event. Earlier versions were embroiled in arresting political controversies that generated significant Member …

The Sec And Accounting, In Part Through The Eyes Of Pacioli, Matthew J. Barrett

Journal Articles

As part of a symposium marking the seventieth anniversary of the creation of the Securities and Exchange Commission, this article pulls together two threads, namely Luca Pacioli's prominence in accounting and the importance of the Management's Discussion and Analysis (MD&A) requirements that seek to give investors an opportunity to view a public company through the eyes of management, to evaluate the SEC's record on certain accounting issues. Because writers in legal journals have largely ignored Pacioli's efforts, the article begins by highlighting some of the friar's contributions to accounting precepts. The article next applies some of those precepts in a …

Telling All: The Sarbanes-Oxley Act And The Ideal Of Transparency, David A. Westbrook

Journal Articles

No abstract provided.

Experiments In Comparative Corporate Law: The Recent Italian Reform And The Dubious Virtues Of A Market For Rules In The Absence Of Effective Regulatory Competition, Marco Ventoruzzo

Journal Articles

The article addresses a sweeping Reform of corporate law which was enacted by the Italian government in 2003 and came into effect on January 1, 2004. The new statutory regulation significantly increases freedom of contract in corporate law, relying on the idea that the development of an efficient market for rules will allow the "natural selection" of the rules that better suit the need of the different stakeholders. Together - and to some extent to compensate for - this greater freedom of contract, new protections for minority shareholders have also been implemented. The reform also imports into the Italian legal …

Reforming Securities Class Actions From The Bench: Judging Fiduciaries And Fiduciary Judging, Lisa L. Casey

Journal Articles

The attorneys' fees awarded to plaintiffs’ counsel in securities fraud class actions have generated controversy for years. Critics have claimed that enormous fee awards come at the expense of defrauded investors and simply spur extortionate lawsuits against issuers and other potential deep pocket defendants. Commentators also have raised concerns that plaintiffs' class action lawyers manipulated class representatives, persons who had little incentive to monitor class counsel’s activities.

To address these concerns, Congress enacted the Private Securities Litigation Reform Act ("PSLRA"). Among other things, the statute sought to protect absent class members by giving control of the litigation to lead plaintiffs …

Does Sec Rule 10b-5 Provide An Implied Private Right Of Action For Aiding And Abetting Securities Fraud?, Matthew J. Barrett

Journal Articles

This case concerns the civil liability of persons who aid and abet securities fraud in violation of federal law. First, the Supreme Court will decide if federal securities law recognizes an implied private right of action against those who aid and abet securities fraud. Second, if the Court concludes that there is a private right of action, it is asked to decide if recklessness satisfies the mental-state requirement which lower courts have held is a prerequisite for imposing civil liability.

The Elusive Concept Of Control In Churning Claims Under Federal Securities And Commodities Law, Patricia A. O'Hara

Journal Articles

Account executives—when serving as either a broker or a dealer—stand in a conflict of interest position with their customers. The brokerage house profits through commissions from the execution of the transaction regardless of whether the customer profits on the investment. Account executives who do so, violate the fiduciary duties he owes to a customer in favor of his own self-interest. The customer can bring an action for churning under federal securities and commodities laws if he or she can demonstrate that the broker excessively traded an account over which the broker exercised control in order to generate commissions for himself …