Securities Law Commons^™

Do Institutions Matter? The Impact Of The Lead Plaintiff Provision Of The Private Securities Litigation Reform Act, Adam C. Pritchard, Stephen J. Choi, Jill E. Fisch

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When Congress enacted the Private Securities Litigation Reform Act in 1995 ("PSLRA"), the Act's "lead plaintiff' provision was the centerpiece of its efforts to increase investor control over securities fraud class actions. The lead plaintiff provision alters the balance of power between investors and class counsel by creating a presumption that the investor with the largest financial stake in the case will serve as lead plaintiff. The lead plaintiff then chooses class counsel and, at least in theory, negotiates the terms of counsel's compensation. Congress's stated purpose in enacting the lead plaintiff provision was to encourage institutional investors-pension funds, mutual …

Regulation Of Companies With Publicly Listed Share Capital In The People's Republic Of China, Nicholas C. Howson

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Mr. Chairman, colleagues, and friends: It is a great honor for me to be able to address this group of experts and legislators, and many colleagues and friends, on a topic I care deeply about-the regulation of so-called public companies, both outside of China and, since the early 1990s, inside of China. First, and with many of the others invited to participate in this conference today and tomorrow, I thank the Office of Legislative Affairs ("OLA") of the State Council of the People's Republic of China ("PRC") as well as the China Securities Regulatory Commission ("CSRC") for convening this very …

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

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This article presents the findings of a study of the resolution of motions to dismiss securities fraud lawsuits since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995. Our sample consists of decisions on motions to dismiss in securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2002. These circuits are the leading circuits for the filing of securities class actions and are generally recognized as representing two ends of the securities class action spectrum. Post-PSLRA, the Second …

Gaming Delaware, William Wilson Bratton

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No abstract provided.

Rules, Principles, And The Accounting Crisis In The United States, William Wilson Bratton

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The Sarbanes-Oxley Act and the Securities Exchange Commission move too quickly when they prod the Financial Accounting Standards Board, the standard setter for US GAAP, to move immediately to a principles-based system. Priorities respecting reform of corporate reporting in the US need to be ordered more carefully. Incentive problems impairing audit performance should be solved first through institutional reform insulating the audit from the negative impact of rent-seeking and solving adverse selection problems otherwise affecting audit practice. So long as auditor independence and management incentives respecting accounting treatments remain suspect, the US reporting system holds out no actor plausibly positioned …

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

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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 …

Should Issuers Be On The Hook For Laddering? An Empirical Analysis Of The Ipo Market Manipulation Litigation, Adam C. Pritchard, Stephen J. Choi

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On December 6, 2000, the Wall Street Journal ran a front-page story exposing abuses in the market for initial public offerings (IPOs). The story revealed "tie-in" agreements between investment banks and initial investors seeking to participate in "hot" offerings. Under those agreements, initial investors would commit to buy additional shares of the offering company's stock in secondary market trading in return for allocations of shares in the IPO. As the Wall Street Journal related, those "[c]ommitments to buy in the after-market lock in demand for additional stock at levels above the IPO price. As such, they provide the rocket fuel …

Exchanges Of Multiple Stocks And Securities In Corporate Divisions Or Acquisitive Reorganizations, Douglas A. Kahn, Jeffrey S. Lehman

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If specified conditions are satisfied, the Internal Revenue Code provides nonrecognition for gain or loss realized when stocks and securities of one corporation are exchanged for stocks and securities of another corporation. When the exchange is made as part of a corporate division (a split-off or a split-up), the principal nonrecognition provision is section 355; and when the exchange is made as part of an acquisitive reorganization, the principal nonrecognition provision is section 354. Complete nonrecognition is provided only when stock is exchanged solely for stock and securities are exchanged solely for securities of no greater principal amount. If, in …

The Securities Acts' Treatment Of Notes Maturing In Less Than Nine Months: A Solution To The Enigma, Wendy Gerwick Couture

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No abstract provided.

Justice Lewis F. Powell, Jr. And The Counterrevolution In The Federal Securities Laws, Adam C. Pritchard

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The confirmation of Lewis F. Powell, Jr., to the Supreme Court coincided with a dramatic shift in the Court's approach to securities law. This Article documents Powell's influence in changing the Court's direction in securities law. Powell's influence was the product of his extensive experience with the securities laws as a corporate lawyer, which gave him much greater familiarity with that body of law than his fellow Justices had. That experience also made him skeptical of civil liability, particularly class and derivative actions. Powell's skepticism led him to interpret the securities law in a consistently narrow fashion to reduce liability …

Behavioral Economics And The Sec, Stephen J. Choi, Adam C. Pritchard

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Not all investors are rational. Quite apart from the obvious examples of credulity in the face of the latest Ponzi scheme, there is no shortage of evidence that many investors' decisions are influenced by systematic biases that impair their abilities to maximize their investment returns. For example, investors will often hold onto poorly performing stocks longer than warranted, hoping to recoup their losses. Other investors will engage in speculative trading, dissipating their returns by paying larger commissions than more passive investors. And we are not just talking about widows and orphans here. There is evidence that supposedly sophisticated institutional investors-mutual …

Self-Regulation And Securities Markets, Adam C. Pritchard

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Enron, Arthur Andersen, Tyco, ImClone, WorldCom, Adelphia - as American investors reel from accounting scandals and self-dealing by corporate insiders, the question of trust in the securities markets has taken on a new urgency. Securities markets cannot operate without trust. Markets known for fraud, insider trading, and manipulation risk a downward spiral as investors depart in search of safer investments. Today, many investors are rethinking the wisdom of entrusting their financial futures to the stock market. Absent trust in the integrity of the securities markets, individuals will hoard their money under the proverbial mattress.

Too Busy To Mind The Business? Monitoring By Directors With Multiple Board Appointments, Stephen P. Ferris, Murali Jagannathan, Adam C. Pritchard

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We examine the number of external appointments held by corporate directors. Directors who serve larger firms and sit on larger boards are more likely to attract directorships. Consistent with Fama and Jensen (1983), we find that firm performance has a positive effect on the number of appointments held by a director. We find no evidence that multiple directors shirk their responsibilities to serve on board committees. We do not find that multiple directors are associated with a greater likelihood of securities fraud litigation. We conclude that the evidence does not support calls for limits on directorships held by an individual.

Back To The 1930s? The Shaky Case For Exempting Dividends, Reuven S. Avi-Yonah

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This article is based in part on the author’s U.S. Branch Report for Subject I of the 2003 Annual Congress of the International Fiscal Association, to be held next year in Sydney, Australia (forthcoming in Cahiers de droit fiscal international, 2003). He would like to thank Emil Sunley for his helpful comments on that earlier version, and Steve Bank, Michael Barr, David Bradford, Michael Graetz, and David Hasen for comments on this version. Special thanks are due to Yoram Keinan for his meticulous work on the EU regimes (see Appendix). All errors are the author’s. In this report, Prof. Avi-Yonah …

A Repo Opera: How Criimi Mae Got Repos Backwards, Jeanne L. Schroeder

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The article argues that repurchase agreements (repos) should be treated as true sales rather than secured loans under bankruptcy law to maintain financial market stability. It critiques the *In re Criimi Mae* court for misapplying the "Debtors Equity Test," which assesses whether the seller retains meaningful property rights. The analysis emphasizes the need for clear legal standards to prevent misclassification and ensure market certainty.

Corporate Governance And Executive Remuneration: Rediscovering Managerial Positional Conflict, Jennifer Hill, Charles M. Yablon

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The article critiques the assumption that performance-based executive remuneration aligns managerial and shareholder interests, arguing that executives' positional power allows them to exploit such systems, leading to excessive pay and corporate malfeasance. It highlights how this conflict of interest contributed to major corporate collapses like Enron and One.Tel, emphasizing the need for reforms beyond current governance mechanisms.

Who Cares?, Adam C. Pritchard

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Jim Cox and Randall Thomas have identified an interesting phenomenon in their contribution to this symposium: institutional investors seem to be systematically "leaving money on the table" in securities fraud class actions. For someone who approaches legal questions from an economic perspective, the initial response to this claim is disbelief. As the joke goes, economists do not bend over to pick up twenty-dollar bills on the street. The economist knows that the twenty dollars must be an illusion. In a world of rational actors, someone else already would have picked up that twenty-dollar bill, so the effort spent bending over …

Statutes With Multiple Personality Disorders: The Value Of Ambiguity In Statutory Design And Interpretation, Joseph A. Grundfest, Adam C. Pritchard

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Ambiguity serves a legislative purpose. When legislators perceive a need to compromise they can, among other strategies, "obscur[e] the particular meaning of a statute, allowing different legislators to read the obscured provisions the way they wish." Legislative ambiguity reaches its peak when a statute is so elegantly crafted that it credibly supports multiple inconsistent interpretations by legislators and judges. Legislators with opposing views can then claim that they have prevailed in the legislative arena, and, as long as courts continue to issue conflicting interpretations, these competing claims of legislative victory remain credible. Formal legal doctrine, in contrast, frames legislative ambiguity …

In Re Silicon Graphics Inc.: Shareholder Wealth Effects Resulting From The Interpretation Of The Private Securities Litigation Reform Act's Pleading Standard., Adam C. Pritchard, Marilyn F. Johnson, Karen K. Nelson

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This Article presents an empirical study of changes in shareholder wealth resulting from the Ninth Circuit Court of Appeals decision in In re Silicon Graphics Inc. Securities Litigation, which interpreted the pleading provision established in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Congress passed the Reform Act as part of an ongoing effort to protect corporations from abusive suits alleging "fraud by hindsight." In such suits, plaintiffs claimed that a sudden drop in a company's stock price was evidence that the issuer and its management covered up the bad news that led to the price drop. …

Constitutional Federalism, Individual Liberty, And The Securities Litigation Uniform Standards Act Of 1998, Adam C. Pritchard

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This Article proceeds in four parts. Part I provides background on the historical development of constitutional federalism, the Supreme Court's decisions in this area, and the apparent demise of constitutional limits on federal power. Part II then reviews the Court's revival of constitutional federalism over the last decade. Based on this review, I argue that the Supreme Court's current federalism doctrine can be understood as a "constrained libertarianism" that attempts to use constitutional structure as a check on government interference with individual liberty. In this model, states are respected in our constitutional system because of the counterbalance that they provide …

In Re Silicon Graphics Inc.: Shareholder Wealth Effects Resulting From The Interpretation Of The Private Securities Litigation Reform Act's Pleading Standard, Marilyn F. Johnson, Karen K. Nelson, Adam C. Pritchard

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This Article presents an empirical study of changes in shareholder wealth resulting from the Ninth Circuit Court of Appeals decision in In re Silicon Graphics Inc. Securities Litigation, which interpreted the pleading provision established in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Congress passed the Reform Act as part of an ongoing effort to protect corporations from abusive suits alleging "fraud by hindsight." In such suits, plaintiffs claimed that a sudden drop in a company's stock price was evidence that the issuer and its management covered up the bad news that led to the price drop. …

A Dangerous Supplement? Longshot Claims And Private Securities Litigation, Charles M. Yablon

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No abstract provided.

Disorderly Conduct: Day Traders And The Ideology Of "Fair And Orderly Markets", Caroline Bradley

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No abstract provided.

Markets As Monitors: A Proposal To Replace Class Actions With Exchanges As Securities Fraud Enforcers, Adam C. Pritchard

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Fraud in the securities markets has been a focus of legislative reform in recent years. Corporations-especially those in the high-technology industry-have complained that they are being unfairly targeted by plaintiffs' lawyers in class action securities fraud lawsuits. The corporations' complaints led to the Private Securities Litigation Reform Act of 1995 ("Reform Act"). The Reform Act attempted to reduce meritless litigation against corporate issuers by erecting a series of procedural barriers to the filing of securities class actions. Plaintiffs' attorneys warned that the Reform Act and the resulting decrease in securities class actions would leave corporate fraud unchecked and deprive defrauded …

United States V. O'Hagan: Agency Law And Justice Powell's Legacy For The Law Of Insider Trading, Adam C. Pritchard

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The law of insider trading is judicially created; no statutory provision explicitly prohibits trading on the basis of material, non-public information. The Supreme Court's insider trading jurisprudence was forged, in large part, by Justice Lewis F. Powell, Jr. His opinions for the Court in United States v. Chiarella and SEC v. Dirks were, until recently, the Supreme Court's only pronouncements on the law of insider trading. Those decisions established the elements of the classical theory of insider trading under § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"). Under this theory, corporate insiders and their tippees who …

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

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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 …

The Securities Litigation Uniform Standards Act Of 1998: The Sun Sets On California's Blue Sky Laws, David M. Lavine, Adam C. Pritchard

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It is often said that California sets the pace for changes in America's tastes. Trends established in California often find their way into the heartland, having a profound effect on our nation's cultural scene. Nouvelle cuisine, the dialect of the Valley Girl and rollerblading all have their genesis on the West Coast. The most recent trend to emerge from California, instead of catching on in the rest of the country, has been stopped dead in its tracks by a legislative rebuke from Washington, D.C. California's latest, albeit short-lived, contribution to the nation was a migration of securities fraud class actions …

Voidable Preferences And Proceeds: A Reconceptualization, David G. Carlson

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The article examines the complexities surrounding voidable preferences and proceeds in bankruptcy law, particularly when a secured creditor holds a floating lien on a debtor's assets. It argues that payments made by the debtor to unsecured creditors using encumbered funds can be recovered by the bankruptcy trustee as voidable preferences, provided the creditor cannot trace the funds back to their trust property. The analysis critiques existing case law and proposes that the voidable preference right is never part of the debtor's estate, instead being held by the trustee. The article also challenges the notion that good faith purchasers should retain …

Suspension And Disbelief (Or, How Managed Should A Market Be?), Caroline Bradley

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No abstract provided.

Rents In Bankruptcy, David G. Carlson

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The article examines the treatment of rent receivables in bankruptcy proceedings, focusing on the tension between secured creditors' rights and the trustee's powers. It argues that rent receivables should be treated as security interests rather than absolute transfers to prevent unfair forfeitures and ensure debtors can use these funds for reorganization under adequate protection.