Securities Law Commons^™

Securities Supervision And Judicial Review [In China], Zhongle Zhan, Fengying Li, Inseon Paik

Washington International Law Journal

Since its founding in 1992, the China Securities Regulatory Commission ("CSRC") has, by the design of the central government of China, become the primary regulator of the Chinese securities market. The CSRC has, however, made some controversial decisions in enforcing its securities regulations. In particular, this article addresses the legal implications of the CSRC's failure to comply with controlling securities regulations in rejecting the Hainan Kaili Central Construction Company's listing application and the ramifications of such selective regulatory enforcement. The article provides an analysis of the current relationship between Chinese administrative and securities law.

Be Careful What You Wish For: How Accountants And Congress Created The Problem Of Auditor Independence, Sean M. O'Connor

Articles

Although corporate fraud is not held in check by our current audit process, in which auditors lack independence from the clients they inspect, numerous attempts to fix this problem have failed. This Article analyzes the history of auditing, which has been neglected in legal scholarship, to argue that the mandatory audit system created the problem of auditor independence. Accountants advocated for the system in order to gain the status of a learned profession; however, they received more than they bargained for. In particular, auditors incurred an obligation to the "investing public," but this undefined group does not actually control the …

Recent Intensification Of Investor Protection In The Korean Securities Market: The Mandatory And Fair Disclosure Systems, Kwang-Rok Kim

Washington International Law Journal

This Article analyzes the Korean fair disclosure system and the Korean mandatory disclosure system under the Korean Securities and Exchange Act ("KSEA"). After the turbulence in the financial markets resulting from the economic crises of late 1997, the South Korean government realized that the Korean economy had failed to keep pace with the world economy. The Korean economy underwent many changes after being offered financial relief from the International Monetary Fund. As part of these changes, the government adopted a series of structural reform measures to improve the standard of corporate governance and enhance corporate management. The KSEA now provides …

Private Enforcement Of Securities Fraud Law In China: A Critique Of The Supreme People's Court 2003 Provisions Concerning Private Securities Litigation, Guiping Lu

Washington International Law Journal

On January 9, 2003, China's Supreme People's Court issued a new ruling with detailed provisions governing private securities litigation involving disclosure of false or misleading information. The new ruling is expected to play an important role in regulating and developing China's securities markets by providing a necessary judicial safeguard against infringement upon investors' interests. The new ruling, however, is unlikely to achieve its expected effect due to various procedural and substantive hurdles to investor access to judicial recourse. The built-in procedural hurdles either make it very difficult for securities investors to bring private actions, or, in some circumstances, deprive them …

The Tender Offer In Korea: An Analytic Comparison Between Korea And The United States, Kwang-Rok Kim

Washington International Law Journal

Even though the tender offer system in Korea was established in 1976, there were very few tender offer transactions until 1997. However, after Korea's economic crisis in late 1997, the Korean government not only took a series of structural reform measures to improve the securities market system, but also widely opened the financial markets to foreign countries by abolishing or amending restrictions on foreign investment. The 1998 reforms to the Korea Securities Exchange Act included significant changes to tender offer regulations, making hostile takeovers more feasible. Since that time, the tender offer has been used as a tool to acquire …

An Outsider's View Of China's Insider Trading Law, Charles Zhen Qu

Washington International Law Journal

China's insider trading law can be found in the country's first unified securities industry law, Securities Law of the People's Republic of China, which came into force on July 1, 1999. The provisions of this law relating to insider trading, however, do not seem to help achieve the legislative purpose of the Securities Law, namely, to protect the interest of investors and promote the development of a socialist economy. The inadequacy of the current regime lies in the overly narrow definitions of "insider" and "inside information," the lack of workability of civil liability provisions, and the failure of China's Securities …

Disappearing Without A Trace: Sections 11 And 12(A)(2) Of The 1933 Securities Act, Hillary A. Sale

Washington Law Review

The judicially created tracing requirement thwarts the remedial sections of the 1933 Securities Act (the "Securities Act") by requiring shareholders to prove the impossible—that their securities were actually issued in the questioned offering. Since 1967, courts addressing this issue have, without question, adopted a requirement for section 11 that plaintiff-shareholders trace their shares to the offering. Recently, courts have expanded it to apply to section 12(a)(2) as well. For any but the first purchases of a share of stock, this requirement has always been virtually impossible to meet. Courts have also used the 1995 opinion in Gustafson v. Alloyd Co. …

Malone V. Brincat: The Fiduciary Disclosure Duty Of Corporate Directors Under Delaware Law, Nicole M. Kim

Washington Law Review

In Malone v. Brincat, the Supreme Court of Delaware significantly broadened the fiduciary disclosure duty of corporate directors under Delaware law. Malone allows shareholders to bring either a direct or a derivative action against directors for the public release of misleading financial statements reported to the Securities Exchange Commission, regardless of whether the alleged misstatements were made in connection with a request for shareholder action. The court also held that a federal preemption statute, the Securities Litigation Uniform Standards Act of 1998, did not preempt the shareholders' action in Delaware state court. This Note argues that the Supreme Court …

United States V. Smith: The Use-Possession Debate In Sec Enforcement Actions Under § 10(B), Oriana N. Li

Washington Law Review

The U.S. Supreme Court has yet to address an underlying issue in the evolution of insider trading law: whether Rule 10b-5 liability should attach when someone trades while "in the possession of" material, nonpublic information, or whether a more stringent standard of having actually used or traded "on the basis of" such information must be met. In United States v. Smith, the Court of Appeals for the Ninth Circuit held that a violation of Rule 10b-5 requires an actual causal connection between the possession of inside information and the decision to trade in securities. This Note argues that the …

Taking Another Look At The Regulation Of Mutual Funds In The Aftermath Of The Asian Financial Crisis, Thomas Krider

Washington International Law Journal

This Comment analyzes the 1997 financial crisis in Asia and its effect on U.S. mutual fund investors. The crisis was most acute in, and this Comment focuses on, the countries of Thailand, Indonesia and South Korea. The lack of transparency in these countries led to substantial losses for U.S. investors whose money was in nontransparent organizations through their ownership of mutual funds. The International Monetary Fund responded to the Asian crisis with aid packages intended to prevent the insolvency of those countries in financial trouble. As part of the IMF's program, one of the primary requirements for receiving aid is …

Should Labor Be Allowed To Make Shareholder Proposals?, Randall S. Thomas, Kenneth J. Martin

Washington Law Review

In this Article, we investigate whether labor unions and related entities should be permitted to continue to make shareholder proposals using Rule 14a-8 of the federal securities laws. We focus on the claim that labor is using the shareholder proposal mechanism to further the interests of workers at the expense of other shareholders. In particular, corporate management groups have suggested that when labor is involved in collective bargaining negotiations with management, it should be barred from submitting shareholder proposals because labor proposals seek to further interests not shared by other security holders of the company. Using data on shareholder proposals …

Regulating The Use Of The Internet In Securities Markets, Jane Kaufman Winn

Articles

As use of the Internet and other new technologies in securities continues to expand, the U.S. Securities and Exchange Commission and self-regulatory organizations (SROs) within the securities industry have continued their efforts to adapt their existing regulations to these developments. Although regulators in the United States have provided guidance to market participants on many issues, many other important questions under U.S. securities law remain unanswered.

Guidance regard to securities law in other jurisdictions is almost non-existent, though transnational organizations, such as the International Organization of Securities Commissions (IOSCO), are working to remedy this situation. I

n 1997 and 1998, the …

Law And Policy Of Securities Regulation In Korea, Sang-Hyun Song

Washington International Law Journal

This Article describes the regulation of securities in Korea, exploring in detail the Securities Exchange Act of 1962. The current system of registration, disclosure, and enforcement is explained, with special attention given to the regulation of market professionals and of international securities offerings. This Article identifies areas in which the current Korean securities laws need improvement, and concludes that laws governing disclosure and international securities transactions must be improved if the Korean stock market is to continue to grow apace with the Korean economy.

Regulation Of Canadian Capital Markets In The 1990s: The United States In The Driver's Seat, Cally Jordan

Washington International Law Journal

This Article looks at the regulatory techniques that have been adopted in a small but developed market, Canada, in response to the increasing integration of the North American economy and internationalization of capital markets. One of the most comprehensive experiments has been the Multijurisdictional Disclosure System (MJDS) implemented in Canada and the United States in 1991. Based on principles of reciprocal recognition, the MJDS has in fact created greater pressures for harmonization of the two regulatory regimes and, on the Canadian side, prompted regulatory innovations which have attempted to keep Canadian markets in the global game.

The Mandatory Disclosure System And Foreign Firms, Joel Seligman

Washington International Law Journal

This Article examines the disclosure requirements for foreign and domestic securities imposed by the Securities and Exchange Commission, paying special attention to the balance between investor protection and the free flow of capital internationally. As the world economy becomes increasingly global, foreign issuers and their governments, who in the past have had to meet more stringent requirements to issue their securities in the United States, are pushing for less restrictive treatment. This Article describes the progress that has been made towards this end.

Rules On Disclosure And Enforcement In The Philippines, Eduardo De Los Angeles

Washington International Law Journal

The Philippines modeled its first securities laws on the U.S. Uniform Sales of Securities Act, Securities Act of 1933, and the Securities Exchange Act of 1934. In terms of disclosure requirements, the early Philippine laws were more lenient than the U.S. acts, but since 1982 the Philippines has improved its disclosure requirements by implementing its Revised Securities Act. The new Act imposes more consistent reporting rules on issuers and insiders, and levies a broad range of sanctions. Nonetheless, the Revised Securities Act could be improved further by requiring fuller disclosure during registration and by toughening the insider trading provisions. Also, …

Regulation Of The Securities Industry In Singapore, Walter Woon

Washington International Law Journal

This Article focuses on the various legal regimes governing securities regulation in Singapore, with an emphasis on the various mechanisms for enforcing anti-insider trading laws and the disclosure requirements connected with those laws. The new regulations promulgated in the wake of the Pan-Electric scandal of 1986, which sent shock waves through the Singapore stock exchange, are much more stringent than the previous ones. The authorities of the Monetary Authority of Singapore, the Securities Industry Council, and the Stock Exchange of Singapore are discussed as they pertain to insider trading, false trading and market rigging, stock market manipulation, dissemination of false …

Insider Trading By An Issuer Under Japanese Law, Misao Tatsuta

Washington International Law Journal

This Article explores the impact of the 1994 amendments to the Commercial Code on the Japanese Securities and Exchange Law, especially as they pertain to insider trading by stock issuers. The Article identifies limited situations, both in tender offer and public stock market contexts, in which companies may purchase their own stocks. Specifically, the Article addresses the issuer's repurchase plan, the necessary elements of disclosure, and the penalties for non-disclosure. The Article analyzes the amendments and questions their effectiveness in addressing the problem of insider trading.

Regulatory Mechanisms Of Securities Trading In Malaysia (With Special Reference To Insider Trading), Mohd. Ishaque Qureshi

Washington International Law Journal

In 1993, Malaysia established a Securities Commission to make the securities markets more secure and efficient, and to better control insider trading. This Article first presents an overview of the structure of the Securities Commission and the responsibilities of the various divisions and officers. Second, it reviews the common law and statutory law on which the Commission and other government agencies must rely to regulate the securities markets.

Securities Regulation In Thailand: Laws And Policies, Pises Sethsathira

Washington International Law Journal

This Article provides an overview of the new regulatory structure governing capital markets in Thailand as instituted by the Securities Exchange Act of 1992 ("SEA"). Special attention is given to the rules embodied in the SEA as they affect public offerings, fraud, securities businesses, and publicly held companies. The SEA introduces several new concepts to Thai regulation of securities, and these concepts are analyzed, to the extent they can be, given the lack of experience under the new Act.

Corporate Versus Contractual Mutual Funds: An Evaluation Of Structure And Governance, Wallace Wen Yeu Wang

Washington Law Review

This Article develops an analytic framework to evaluate the comparative merits of the structure and governance of the two dominant types of mutual funds—the Corporate Fund (the U.S. model) and the Contractual Fund (the German, Japanese and British models). The former is characterized by centralized decision-making functions, while the latter employs a more decentralized structure. The semi-hierarchical structure of the Corporate Fund leads to significant transaction costs such as influence, intervention and collective decision-making costs. Specifically, the board of directors is not effective in negotiating performance-related terms (e.g., fees), and shareholder suits based on fiduciary duties do not adequately address …

Gilding The Iron Rice Bowl: The Illusion Of Shareholder Rights In China, Matthew D. Latimer

Washington Law Review

In the late 1970s, the People's Republic of China (P.R.C.) embarked upon a program of economic reform that has resulted in the issuance of equity securities in previously state-owned enterprises. with the recent advent of national stockmarkets, national securities legislation is emerging to supplement and further define prior local-level regulation. Despite these new laws, however, private investors still lack many of the protections enjoyed by investors in Western financial markets. This Comment examines these disparities and suggests that non-state investors in China's nascent financial markets still lack an effective means of overseeing the policy decisions of State-owned corporations and face …

Introduction To The Financial System And Securities & Exchange System Reform Act In Japan, Hiroshi Naka, Akio Nakamura, Atsushi Yamashita, Scott Siegler

Washington International Law Journal

This translation of an original Japanese language work, by Hiroshi Naka and Akio Nakamura, both of the Japanese Ministry of Finance, details the reforms of Japan's financial and securities & exchange system made under the recently enacted System Reform Act. The major reforms under the Act include: (1) altering the "Glass Steagall" rule (the separation of securities business and banking business) in Japan so that banks and securities companies can engage in each other's business through their subsidiaries; (2) extending securities regulations to some new types of structured finance; (3) amending public offering provisions and providing new articles for private …

Tipper Credibility, Noninformational Tippee Trading, And Abstention From Trading: An Analysis Of Gaps In The Insider Trading Laws, Steven R. Salbu

Washington Law Review

The regulation of insider trading in the United States prohibits only a fraction of the kind of behaviors which the Securities and Exchange Commission sought to curb in the 1930s. This Article explains the problems created by trading on tipper credibility and noninformation, as well as the difficulties associated with insider abstention from trading. These practices are conceptually akin to trading on inside information, yet they fall beyond the purview of existing prohibitions. The Article examines potential vehicles for rendering the regulations more consistent, including authorization of all insider trading, policing of information, the creation of inferences of fraud from …

Defining The Scope Of Broker And Dealer Duties -- Some Problems In Adjudicating The Responsibilities Of Securities And Commodities Professionals, Gregory A. Hicks

Articles

The purpose of this Article is to stress the need for grounding broker-dealer duties in sound, articulated understandings of the investment markets, as well as defensible statements of the responsibilities and expectations of both customers and market professionals. This important need will be demonstrated through the use of several cases illustrating problematical or failed processes by which broker-dealer duties have been established.

This Article will focus primarily on two recent decisions, In re E.F. Hutton & Co., and Wasnick v. Refco, Inc., both of which have been criticized for inappropriately expanding broker and dealer duties. Each decision is …

On "Protecting The Ordinary Investor", Ralph K. Winter

Washington Law Review

In this lecture I propose to differentiate, in a somewhat arbitrary yet analytically helpful way, between four types of investors, and then to consider various issues of corporate and securities law in light of the interests and functions of the different investors. I will style the investors the "Ordinary Investor," the "Speculator," the "Institutional Investor," and the "Entrepreneur in the Market for Management Control." These distinctions are arbitrary because overlap exists between the categories. Moreover, these definitions are not based on how particular investors behave, but on the market functions different kinds of investors perform. Thus, some who consider themselves …

On "Protecting The Ordinary Investor", Ralph K. Winter

Washington Law Review

In this lecture I propose to differentiate, in a somewhat arbitrary yet analytically helpful way, between four types of investors, and then to consider various issues of corporate and securities law in light of the interests and functions of the different investors. I will style the investors the "Ordinary Investor," the "Speculator," the "Institutional Investor," and the "Entrepreneur in the Market for Management Control." These distinctions are arbitrary because overlap exists between the categories. Moreover, these definitions are not based on how particular investors behave, but on the market functions different kinds of investors perform. Thus, some who consider themselves …

Expanding Seller Liability Under The Securities Act Of Washington—Habermann V. Wppss, 109 Wash. 2d 107, 744 P.2d 1032 (1987), Barbara L. Schmidt

Washington Law Review

The Washington Public Power Supply System's ("WPPSS") abandonment of two nuclear power projects led to the largest municipal bond default in American history. This default generated an unprecedented volume of securities litigation. Among the many court decisions handed down in the wake of the WPPSS fiasco was the Washington Supreme Court's decision in Haberman v. WPPSS. The Haberman court significantly expanded the civil liability provisions of the Securities Act of Washington ("WSA"). In Haberman, the court expressly included as a "seller" the bond issuer and implicitly suggested that professional consultants who provide services in conjunction with a bond issuance may …

Expanding Seller Liability Under The Securities Act Of Washington—Habermann V. Wppss, 109 Wash. 2d 107, 744 P.2d 1032 (1987), Barbara L. Schmidt

Washington Law Review

The Washington Public Power Supply System's ("WPPSS") abandonment of two nuclear power projects led to the largest municipal bond default in American history. This default generated an unprecedented volume of securities litigation. Among the many court decisions handed down in the wake of the WPPSS fiasco was the Washington Supreme Court's decision in Haberman v. WPPSS. The Haberman court significantly expanded the civil liability provisions of the Securities Act of Washington ("WSA"). In Haberman, the court expressly included as a "seller" the bond issuer and implicitly suggested that professional consultants who provide services in conjunction with a bond issuance may …

Federal And State Securities Claims: Litigation Or Arbitration?—Dean Witter Reynolds, Inc. V. Byrd, 105 S. Ct. 1238 (1985), Sherrie Kaiser Goff

Washington Law Review

This Note analyzes Byrd in light of the dilemma that occurs when federal and state claims arise in the same action. The Note concludes that, although Byrd may be a step in the right direction, the current state of the law is still not satisfactory. Because arbitration offers several advantages to the investor, this Note argues that both federal and state securities claims should be arbitrated. The Note suggests that either Congress change the law to allow arbitration of the federal claims, as Justice White proposed, or the Court allow arbitration of section 10(b) claims, or even of claims brought …