Securities Law Commons^™

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 …

Mutual Funds, Pension Funds, Hedge Funds And Stock Market Volatility - What Regulation By The Securities And Exchange Commission Is Appropriate, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Mutual Funds, Pension Funds, Hedge Funds And Stock Market Volatility: What Regulation By The Securities And Exchange Commission Is Appropriate?, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Public And Private Enforcement Of The Securities Laws: Have Things Changed Since Enron?, Randall Thomas, James D. Cox

Vanderbilt Law School Faculty Publications

In this paper, we examine how those corporations that have been the targets of SEC enforcement efforts compare in terms of their size and financial health vis-a-vis firms that are targeted only by the private securities class action. We also ask whether the SEC or the private bar systematically proceeds against violators that cause the greatest loss to investors. In this regard, we are intrigued by the most basic question posed by private suits, whether settlements bear any relationship to the losses suffered by the class and whether those losses bear any relationship to the size of either the firm …

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 …

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 …

Fraud By Hindsight, G. Mitu Gulati, Jeffrey J. Rachlinski, Donald C. Langevoort

Cornell Law Faculty Publications

In securities-fraud cases, courts routinely admonish plaintiffs that they are not permitted to rely on allegations of "fraud by hindsight." In effect, courts disfavor plaintiffs' use of evidence of bad outcomes to support claims of securities fraud. Disfavoring hindsight evidence appears to tap into a well known, well-understood, and intuitively accessible problem of human judgment of "20/20 hindsight." Events come to seem predictable after unfolding, and hence, bad outcomes must have been predicted by people in a position to make forecasts. Psychologists call this phenomenon the hindsight bias. The popularity of this doctrine among judges deciding securities cases suggests that …

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.

Sarbanes-Oxley, Corporate Federalism, And The Declining Significance Of Federal Reforms On State Director Independence Standards, Lisa M. Fairfax

Faculty Scholarship

Commentators have argued that the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley” or the “Act”) raises federalism concerns because it regulates the internal affairs of a corporation, including the composition of, and qualifications for, corporate boards, in a manner traditionally reserved to states. This Article responds to those claims, arguing that the Act reflects a relatively minimal intrusion into state law, particularly with regard to issues of director independence. This Article further argues that the Act’s failure to disturb state law on these issues may impede its ability to tighten director independence standards and by extension may undermine its ability to improve …

Brokers And Advisers-What’S In A Name?, Barbara Black

Faculty Articles and Other Publications

The article addresses two recent developments - the adoption by the SEC of a rule that allows brokerage firms to market fee-based accounts without registering as investment advisers and the increase in brokerage advertising that promotes the image of the broker as a trusted family friend and financial adviser. Professor Black argues that as a result of these developments investors are likely to be misled into believing that their brokers are investment advisers, with the fiduciary obligations the law requires of them, instead of brokers, whom the law generally treats as salespersons. She proposes two recommendations: (1) that brokers should …

The Elusive Balance Between Investor Protection And Wealth Creation, Barbara Black, Jill Gross

Faculty Articles and Other Publications

The enactment of federal securities legislation in the 1930s codified the principle that investors should be shielded from securities fraud, but scholars and policymakers continue to debate the appropriate balance between protecting investors and encouraging capital formation. Congressional activity of the past decade reflects this tension. In the 1990s, Congress enacted two major pieces of legislation to restrict securities fraud class actions because of its belief that frivolous class actions were a drain on entrepreneurism. In 2002, after the EnronIW orldCom et al. corporate scandals, reflecting perhaps a sense that the earlier legislation had tipped the pendulum too far, Congress …

Realizing The Dream Of William O. Douglas: The Securities And Exchange Commission Takes Charge Of Corporate Governance, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

"Who's The Boss?": An Analytical And Practical Approach To Determine The "Employer" In A Defined Contribution Qualified Retirement Plan, 38 J. Marshall L. Rev. 1011 (2005), Megan Mccoy

UIC Law Review

No abstract provided.

Rules Of Or Substantive Law: Who Controls An Individual's Right To Choose A Lawyer In Today's Corporate Environment, 38 J. Marshall L. Rev. 1265 (2005), Joan Colson

UIC Law Review

No abstract provided.

A Securities Regulator Looks At Onvergence, Donald T. Nicolaisen

Northwestern Journal of International Law & Business

For many years there has been a dedicated group of practitioners, standard setters, business leaders and others from around the world who have worked to establish a single set of globally accepted accounting standards for the benefit of the capital markets. These people clearly had their hearts in the right place but, absent a binding mandate to apply the standards, it seemed largely a labor of love. Now I expect those pioneering initiatives and the many years of effort to pay off because in 2005 a large number of companies are joining what up to now has been a limited …

Cross-Border Securitized Transactions: The Missing Link In Establishing A Viable Chinese Securitization Market, Nicholas J. Faleris

Northwestern Journal of International Law & Business

This article proposes that asset-backed securitization in China could be jump-started by first focusing on cross-border (sometimes called transnational) securitization, and by establishing a dependable group of regional investors. Cross-border securitization transactions would enable China to experiment with various packaging of state-owned securities on a trial basis through a transaction-by-transaction process. Thus far, the focus has been specifically on reforming the legal infrastructure so that China eventually would be able to attract investors and capitalize on an emerging market. Rather than attempting to both build an infrastructure and attract asset-backed securitization investors with large, sweeping changes, the market would be …

Caught Between A Rock And A Soft Place: Regulating Legal Ethics To Police Corporate Governance In The United States And Hong Kong, Susan E. Carroll

Washington International Law Journal

Both the United States and Hong Kong have suffered through corporate governance scandals in recent years. The two nations have tried different methods of regulating legal ethics in order to curtail future corporate governance scandals. The United States, via the Sarbanes-Oxley Act of 2002, empowered the Securities and Exchange Commission ("SEC") to dictate disclosure requirements to U.S. lawyers who represent listed corporations. This mandate creates conflicts between lawyers' duty to keep clients' secrets and their duty to disclose client information for the protection of public interests. Hong Kong took a completely different approach. The Hong Kong Stock Exchange negotiated the …

The Elusive Balance Between Investor Protection And Wealth Creation, Barbara Black, Jill I. Gross

Elisabeth Haub School of Law Faculty Publications

The Pace Investor Rights Project (PIRP), launched in the fall of 20033 as an expansion of Pace Law School's ground-breaking Securities Arbitration Clinic, seeks to foster increased scholarly interest on topics related to investor justice in the regulatory, arbitral and judicial arenas. The Project thus produced the Investor Rights Symposium, which took place on the grounds of the Judicial Institute at Pace Law School on March 31 and April 1, 2005, to bring together academics, regulators, practitioners, investors' advocates and students to explore the precarious balance between investor protection and wealth creation. The scholarship that follows in this volume reflects …

Shock Therapy' For Aktiengesellschaften: Can The Sarbanes-Oxley Certification Requirements Transform German Corporate Culture, Practice And Prospects?, Hudson T. Hollister

Northwestern Journal of International Law & Business

The Sarbanes-Oxley Act (Act) of 20021 was the U.S. Congress's hasty response to the wave of corporate scandals that had begun to devastate U.S. investor confidence during the previous year. Its sixty-six pages contain a wide range of measures designed to enhance the quality and independence of corporate audits and disclosure under the U.S. securities-regulation regime. The Act applies to public corporations-corporations that are required to file regular financial reports under the Securities Exchange Act of 1934 (Exchange Act). Objections from German corporations and observers were particularly vigorous. At least one German foreign private issuer registered with the SEC has …

What's Brewing In Dura V. Broudo? The Plaintiffs' Attorneys Review The Supreme Court's Opinion And Its Import For Securities-Fraud Litigation, Patrick J. Coughlin, Eric Alan Isaacson, Joseph D. Daley

Loyola University Chicago Law Journal

No abstract provided.

How Can It Be Wrong When It Feels So Right - Appellate Review Of Remand Orders Under The Securities Litigation Uniform Standards Act, Thomas F. Lamprecht

Villanova Law Review (1956 - )

No abstract provided.

Correcting The Empirical Foundations Of Ipo-Pricing Regulation, Royce De R. Barondes

Faculty Publications

Recent events are replete with stories of fraudulent or opportunistic behavior in the initial public offering (IPO) process - behavior that extended to the highest-reputation investment banks. Curiously, notwithstanding this evidence, recent financial economics literature asserts investment bank conflicts of interest certify IPO issuers. This Article develops new empirical evidence that casts doubt on this certification hypothesis by examining the pre-IPO price adjustment of IPOs involving qualified independent underwriters (QIUs), particularly IPOs in which more than ten percent of the net proceeds are being directed to participating investment banks (e.g., to repay a prior extension of credit). These offerings have …

Moral Hazard And The Initial Public Offering, Christine Hurt

Cardozo Law Review

No abstract provided.

Erisa Stock Drop Cases: An Evolving Standard, 38 J. Marshall L. Rev. 889 (2005), Craig C. Martin, Elizabeth L. Fine

UIC Law Review

No abstract provided.