Law Commons^™

Rediscovering The Economics Of Loss Causation , Richard Kaplan, Madge Thorsen, Scott Hakala

ExpressO

Abstract This article explores the economic principles and theories underlying loss causation in the context of securities fraud litigation. It explains the difference between “investment loss” and recoverable “inflationary loss” and posits that the latter consists of the difference between inflation in stock prices caused by the fraud at the time of purchase and inflation in the price at the time of sale. It reviews scenarios in which inflationary loss due to fraud may occur and would be recognized as a matter of economic theory as well as a matter of law. It urges that Dura v. Broudo Pharmaceuticals, 125 …

Accounting Fraud: Pleading Scienter Of Auditors Under The Private Securities Litigation Reform Act, Gideon Mark

ExpressO

This paper examines the current judicial approach to assessing the scienter of auditors under the Private Securities Litigation Reform Act. The paper concludes that the current approach is inadequate and should be modified.

Tracing, Peter B. Oh

ExpressO

Tracing is a method that appears within multiple fields of law. Distinct conceptions of tracing, however, have arisen independently within securities and remedial law. In the securities context plaintiffs must “trace” their securities to a specific offering to pursue certain relief under the Securities Act of 1933. In the remedial context victims who “trace” their misappropriated value into a wrongdoer’s hands can claim any derivative value, even if it has appreciated.

This article is the first to compare and then cross-apply tracing within these two contexts. Specifically, this article argues that securities law should adopt a version of the “rules-based …

Casenote: Killing Life Partners: Why Viatical Settlements Constitute Securities – In Light Of The Sec V. Mutual Benefits Corporation And Other Recent Cases Explicitly Rejecting Life Partners, Brian Levin

ExpressO

No abstract provided.

Fighting Fraud On Faith: Federal Securities Regulation And The Limits Of Disclosure, Shannon R. Selden

ExpressO

In the past ten years, Congress passed three major reform acts to address two diametrically opposed concerns: It first restrained what it believed was an excess of securities fraud litigation, then responded to an explosion of securities fraud. This Article contends that despite the competing provocations and ambitions of the reforms, they share an unwarranted adherence to the principle of disclosure as the best means to attack market malfeasance: The Article examines the basis for and consequences of that undeserved legislative fidelity. Applying behavioral economics and cultural theory to the recent legislation and its underpinnings, the Article concludes that a …

Markets For Markets: Origins And Subjects Of Information Markets, Miriam A. Cherry, Robert L. Rogers

ExpressO

No abstract provided.

Breaking The Bank: Revisiting Central Bank Of Denver After Enron And Sarbanes-Oxley, Celia Taylor

ExpressO

No abstract provided.

Is The Dutch Auction Ipo A Good Idea?, Anita I. Anand

ExpressO

The Google IPO raised the question of whether Dutch auctions are preferable to the traditional bookbuilding method of financing. Some argue that Dutch auctions make public offerings more efficient in terms of price discovery by leaving less money on the table. They further argue that Dutch auctions are more fair, since underwriters do not allocate securities to preferred clients, thereby allowing for a more equitable allocation among institutional and retail investors. I suggest that the Dutch auction is not necessarily more fair and may in fact lead to less efficient capital markets. I argue that reform of the current system …

Can Regulation Of Insider Trading Be Effective?, Alexandre Padilla

ExpressO

While there is a very prolific literature showing that the regulation of insider trading is by and large ineffective when it comes to discourage individuals from trading on non-public information, almost no work has been done on whether insider trading regulation can be effective. This paper attempts to fill that gap by investigating whether the regulation of insider trading can be effective. First, we show why insider trading regulation cannot be effective. Second, we see to what extend the empirical studies are consistent with our analysis.

What Makes Asset Securitization "Inefficient"?, Kenji Yamazaki

ExpressO

Despite the damage caused by the recent Enron scandal , the asset securitization market has been vibrant and has become a popular financing alternative . A number of academics emphasize its merits and suggest that it is a more favorable way of financing, and Congress’s proposal to make sales of asset in securitization immune from characterization as secured transactions under the Bankruptcy Reform Act of 2001 (the “Reform Act”) almost materialized when the Enron scandal hit the scene. Conversely, there have been accusations that securitization is not a legitimate way of financing because, for example, it fosters fraudulent transactions.

Why …

Voluntary Vs Mandatory Corporate Governance: Towards An Optimal Regulatory Framework, Anita I. Anand

ExpressO

This article fills a gap in the legal literature by comparing mandatory corporate governance regimes to voluntary corporate governance regimes. It encourages market participants, including regulators, to acknowledge that firms have incentives to adopt enhanced governance practices voluntarily and to make disclosure about the same. The article argues that an optimal governance regime is a hybrid one in which adoption of best practice guidelines is voluntary but disclosure of corporate governance practices is mandatory. Such a regime is optimal because it balances the benefits and costs to all stakeholders, particularly issuers and investors. The cost analysis should be completed by …

Insider Trading: Hayek, Virtual Markets And The Dog That Did Not Bark, Henry G. Manne

ExpressO

This Essay briefly reexamines the great debates on the role of insider trading in the corporate system from the perspectives of efficiency of capital markets, harm to individual investors, and executive compensation. The focus is on the mystery of why trading by all kinds of insiders as well as knowledgeable outsiders was studiously ignored by the business and investment communities before the advent of insider trading regulation. It is hardly conceivable that officers, directors, and controlling shareholders would have remained totally silent in the face of widespread insider trading if they had seen the practice as being harmful to the …

Insider Trading: Hayek, Virtual Markets, And The Dog That Did Not Bark, Henry G. Manne

ExpressO

This Essay briefly reexamines the great debates on the role of insider trading in the corporate system from the perspectives of efficiency of capital markets, harm to individual investors, and executive compensation. The focus is on the mystery of why trading by all kinds of insiders as well as knowledgeable outsiders was studiously ignored by the business and investment communities before the advent of insider trading regulation. It is hardly conceivable that officers, directors, and controlling shareholders would have remained totally silent in the face of widespread insider trading if they had seen the practice as being harmful to the …

Price, Path & Pride: Third-Party Closing Opinion Practice Among U.S. Lawyers (A Preliminary Investigation), Jonathan C. Lipson

ExpressO

This article presents the first in-depth exploration of third-party closing opinions, a common but curious – and potentially troubling -- feature of U.S. business law practice. Third-party closing opinions are letters delivered at the closing of most large transactions by the attorney for one party (e.g., the borrower) to the other party (e.g., the lender) offering limited assurance that the transaction will have legal force and effect.

Hundreds, if not thousands, of legal opinions are delivered every week. Yet, lawyers often complain that they create needless risk and cost, and produce little benefit. Closing opinions thus pose a basic question: …

The Legal Status Of “Dump & Sue”: Should Plaintiffs And Their Attorneys Be Prohibited From Trading The Stock Of Companies They Sue? – A Law And Economics Approach, Moin A. Yahya

ExpressO

There is some evidence that plaintiffs and their attorneys are profitably short-selling the stock of the companies they intend to sue. The status of such short sales is undecided in the law. Lawsuits against companies can cause large drops in market value, and hence such an action by the plaintiff should cause concern. Plaintiffs, however, are not traditional insiders, and they do not owe the shareholders any fiduciary duties. They can therefore consent to their attorneys also short-selling the stock of the defendant corporation. The attorneys need to receive such permission to avoid misappropriating the information concerning their client’s decision …

Shareholder Bylaws, Shareholder Nominations, And Poison Pills, Brett H. Mcdonnell

ExpressO

Shareholder bylaws limiting or directing board action raise a tough and fascinating question of statutory interpretation under state law as well as an important policy question. In particular, over the last decade shareholders have sought to use bylaws to limit poison pills and to grant shareholders access to the corporate proxy materials to nominate directors. This paper argues that an expansive, although not unlimited, shareholder power to enact bylaws is both a plausible interpretation of Delaware’s statutory scheme and desirable as a policy matter. Shareholder bylaws that set general rules of corporate governance and procedure should be valid unless more …

The "Duty" To Be A Rational Shareholder, David A. Hoffman

ExpressO

How and when do courts determine that corporate disclosures are actionable under the federal securities laws? The applicable standard is materiality: would a (mythical) "reasonable investor" have considered the disclosures important. As I establish through empirical and statistical testing of 500 cases analyzing the materiality standard, judicial findings of immateriality are remarkably common, and have been stable over time. Materiality's scope results in the dismissal of a large number of claims, and creates a set of cases in which courts attempt to explain and defend their vision of who is, and is not, a "reasonable investor." Thus, materiality provides an …

The Corporation As God, Douglas Litowitz

ExpressO

No abstract provided.

Regulation Nms: Has The Sec Exceeded Its Congressional Mandate To Facilitate A “National Market System” In Securities Trading?, Dale A. Oesterle

The Ohio State University Moritz College of Law Working Paper Series

The SEC is currently holding hearings on sweeping changes to the micro-structure of the country's securities trading markets - modifying the trade through rule, for example. Professor Oesterle argues that the SEC should not be in the business of so structuring the country's securities markets in the first place. In the piece he chronicles the SEC's expansive interpretation of its power under Congress's 1975 National Market System Amendments to the 1934 Securities and Exchange Act and questions whether Congress intended to grant the SEC such a mandate.