Securities Law Commons^™

Why Salman Is A Game-Changer For The Political Intelligence Industry, Kendall R. Pauley

American University Law Review

No abstract provided.

Securities Regulation, George L. Flint Jr.

SMU Annual Texas Survey

No abstract provided.

Benchmarking The World: A Proposal For Regulatory Oversight Of Stock Market Index Providers, Jenna L. Mccarthy

Vanderbilt Journal of Transnational Law

Wall Street has recently seen a shift from active management, which involves investors or portfolio managers buying and selling stocks, towards passive management, where investors invest in funds that seek to match the returns of an underlying index. As the popularity of index funds has grown, questions have arisen regarding the role of the index providers that produce the underlying indices. Unlike the funds themselves, these providers are largely unregulated, and have considerable discretion to determine the makeup of indices. This wide discretion allows index providers to exercise control over the global investment community since they have the ability to …

Reforming The True-Sale Doctrine, Heather Hughes

Scholarly Articles in Law Reviews & Journals

No abstract provided.

Sg's Brief In Lucia Could Portend The End Of The Alj Program As We Have Known It, Jeffrey Lubbers

Scholarly Articles in Law Reviews & Journals

No abstract provided.

Legitimate Yet Manipulative: The Conundrum Of Open-Market Manipulation, Gina-Gail S. Fletcher

Articles by Maurer Faculty

Is manipulation possible in the absence of misconduct? This is the foundational inquiry at the heart of open-market manipulation. Open-market manipulation captures the attention of lawmakers and courts because it is market manipulation effected entirely through facially legitimate transactions. Whereas traditional, well-accepted forms of market manipulation involve deception, fraud, and monopolistic prices, open-market manipulation involves no objectively bad acts and, instead, is accomplished through permissible transactions executed on the open market. As enforcement of this form of manipulation increases, the question arises—when, if ever, is a legitimate transaction manipulative?

To the Securities Exchange Commission and the Commodity Futures Trading Commission …

The Statutory Authority For Court-Ordered Disgorgement In Sec Enforcement Actions, Donna M. Nagy

Articles by Maurer Faculty

What empowers the U.S. Securities and Exchange Commission (SEC) to seek, and federal district courts to order, the disgorgement of ill-gotten gains from securities law violators? The short answer, which stood largely unchallenged for 46 years, is that federal courts may award disgorgement, at the request of the SEC, pursuant to the equitable powers that Congress conferred in the jurisdictional provisions of the federal securities laws. During the 2017 oral argument in Kokesh v. SEC, however, five justices of the U.S. Supreme Court interjected statements expressing varying degrees of skepticism. The tenor of the questions during the Kokesh argument, as …

The Price Of Law: The Case Of The Eurozone's Collective Action Clauses, Elena Carletti, Paolo Colla, Mitu Gulati, Steven Ongena

Faculty Scholarship

Do markets value contract protections? And does the quality of a legal system affect such valuations? To answer these questions we exploit a unique experiment whereby, after January 1, 2013, newly issued sovereign bonds of Eurozone countries under domestic law had to include Collective Action Clauses (CACs) specifying the minimum vote needed to modify payment terms. We find that CAC bonds trade at lower yields than otherwise similar no-CAC bonds; and that the quality of the legal system matters for this differential. Hence, markets appear to see CACs as providing protection against the legal risk embedded in domestic-law sovereign bonds.

The Myth Of The Ideal Investor, Elisabeth De Fontenay

Faculty Scholarship

Critiques of specific investor behavior often assume an ideal investor against which all others should be compared. This ideal investor figures prominently in the heated debates over the impact of investor time horizons on firm value. In much of the commentary, the ideal is a longterm investor that actively monitors management, but the specifics are typically left vague. That is no coincidence. The various characteristics that we might wish for in such an investor cannot peacefully coexist in practice.

If the ideal investor remains illusory, which of the real-world investor types should we champion instead? The answer, I argue, is …

The Hausmann-Gorky Effect, Mitu Gulati, Ugo Panizza

Faculty Scholarship

For over a century, legal scholars have debated the question of what to do about the debts incurred by despotic governments; asking whether successor non-despotic governments should have to pay them. That debate has gone nowhere. This paper examines whether an Op Ed written by Harvard economist, Ricardo Hausmann, in May 2017, may have shown an alternative path to the goal of increasing the cost of borrowing for despotic governments. Hausmann, in his Op Ed, had sought to produce a pricing penalty on the entire Venezuelan debt stock by trying to shame JPMorgan into removing Venezuelan bonds from its emerging …

Securitization Ten Years After The Financial Crisis: An Overview, Steven L. Schwarcz

Faculty Scholarship

This symposium issue examines securitization a decade after the 2008 financial crisis. Prior to the crisis, securitization was one of America’s dominant means of financing. Many observers, however, blamed securitization for causing the crisis, sparking regulation that arguably has been overly restrictive and, in some cases, even punitive. Where are we now?

Seeking An Objective For Regulating Insider Trading Through Texas Gulf Sulphur, James D. Cox

Faculty Scholarship

Data summarized in the opening of this article document that inside trading is a growth industry. And, as deals get ever bigger, the growth curve becomes steeper as more the data confirms intuition that the more who know about a good thing the more who will seek to harvest its benefits. Even though insider trading appears to have thrived during the fifty years after Texas Gulf Sulphur, we gather in this symposium to celebrate the decision. But why? As developed below, the Second Circuit’s landmark decision gave way to the Supreme Court’s erection of a fiduciary framework that this article …

Arbitration Law Update: 2017-2018, Teresa J. Verges, Elissa Germaine

Faculty Publications

(Excerpt)

This article summarizes the leading federal and state arbitration cases during the last year that are of particular relevance to the securities arbitration practitioner. In its sole arbitration decision during the 2017-18 term, the U.S. Supreme Court held in Epic Systems Corp. v. Lewis that employers could require their employees to waive their right to class actions and collective arbitration. Courts also addressed a host of novel issues, including whether investors can force a non-FINRA member and municipal bond indentured trustee to arbitrate before FINRA, the arbitrability of claims against a cryptocurrency exchange, and the applicability of a state's …

Texas Gulf Sulphur At Fifty—A Contemporary And Historical Perspective, Marc I. Steinberg

SMU Law Review

Fifty years ago, the Second Circuit decided perhaps the most important case under the U.S. securities laws – Securities and Exchange Commission v. Texas Gulf Sulphur. This decision focused on several landmark issues, including insider trading, company disclosure obligations, and the concept of materiality. Although a number of its rulings subsequently were rejected by the U.S. Supreme Court, others remain good law today. Indeed, the significance of Texas Gulf Sulphur’s analysis in large measure is evidenced by its continued vitality in the federal courts and SEC enforcement practice. From a comparative law perspective, Texas Gulf Sulphur also is …

From Tgs Conservatorships To Sarbanes-Oxley Fair Funds, Richard M. Buxbaum

SMU Law Review

While the TGS duo is justly known for its foundational work on the application of Rule 10b-5 to insider trading and corporate misstatements, two other aspects of the two cases are the focus of this contribution. The first is the development of the role of the SEC as conservator, derived originally from the equity side of federal bankruptcy law, but expanded to function as a general equitable remedy. That remedy faced difficult issues concerning the ranking of different victims of insider trading, in particular the status of an entity as a claimant in competition with victimized market participants. The second, …

Texas Gulf Sulphur: A Case Study On Responding To Market Rumors, Wendy G. Couture

SMU Law Review

This essay uses Texas Gulf Sulphur as a case study on an issue that companies continue to face today: whether, and how, to respond to market rumors. This essay analyzes the countervailing incentives that influence whether companies respond to market rumors, applies those pressures to the facts of Texas Gulf Sulphur, and concludes that counsel today would likely advise similarly situated companies to remain silent rather than respond to market rumors. Drawing therefrom, this essay argues that silence is not the socially optimal response and that the dueling pressures on companies should be adjusted to incentivize companies to respond to …

From Equality To Duty: On Altering The Reach, Impact, And Meaning Of The Texas Gulf Legacy, Lisa M. Fairfax

SMU Law Review

As the first federal court decision to hold that insider trading represented a violation of the federal securities laws, the historical importance of SEC v. Texas Gulf Sulphur Co. is clear. However, its current relevance may not be so clear. This is because while there are some aspects of Texas Gulf that have endured and remain a fixture of federal insider trading jurisprudence, the Supreme Court has firmly repudiated the normative rationale for in- sider trading articulated by Texas Gulf. This essay contends that this repudiation has important descriptive and normative implications. Perhaps most importantly, this essay contends that Texas …

Personal Benefit Has No Place In Misappropriation Tipping Cases, Merritt B. Fox, George N. Tepe

SMU Law Review

The Supreme Court’s decision in Salman v. United States left unanswered an important issue concerning the reach of Rule 10b-5’s prohibitions with respect to trades based on a tip of material inside information: in cases based on the misappropriation theory, is it necessary to show that the tipper enjoyed a personal benefit of which the trader was aware? The personal benefit test was originally developed in the context of tipping cases based on the classical theory of insider trading. The Supreme Court in Salman explicitly said that it was not reaching the matter of whether the test should be extended …

Unintended Consequences: The Link Between Judge Friendly’S Texas Gulf Sulphur Concurrence And Recent Supreme Court Decisions Misconstruing Rule 10b-5, Margaret V. Sachs

SMU Law Review

In his Texas Gulf Sulphur concurrence, Judge Henry J. Friendly coun- seled the federal district courts concerning the numerous pending satellite class actions that had been filed under Section 10(b) of the Securities Ex- change Act and Rule 10b-5. In the course of so doing, he argued forcefully that private Rule 10b-5 litigation should be curtailed. Finding his argument convincing, the Supreme Court issued four major decisions restricting the Rule between 1975 and 1994, while nonetheless expanding it in Basic Inc. v. Levinson. Congress responded by blessing both aspects of the Court’s jurisprudence – imposing its own set of …

The Coasian Firm And Insider Trading, Revisited, James C. Spindler

SMU Law Review

I present an economic model of insider trading building upon Haddock & Macey’s classic analysis of trading by the manager of a Coasian firm (i.e., a firm in which agency costs do not exist). Due to current shareholders’ status as expected sellers of shares, Coasian insider trading allows shareholders to expropriate outsiders via the managerial proxy and any signaling value of insider trading is eliminated by shareholders’ biased incentives. Adverse selection results. If a system of credible disclosure exists, an insider trading ban results in more disclosure, more efficient prices, and lower illiquidity costs. While the case for insider trading …

Shareholder Divorce Court, Ann Lipton

Publications

No abstract provided.

Thinking Fast And Slow About The Concept Of Materiality, Mark J. Loewenstein

Publications

Determining whether, for securities law purposes, a misrepresentation or omission is material raises interesting questions. The Court of Appeals in SEC v. Texas Gulf Sulphur Co. provided some guidance on materiality, and the U.S. Supreme Court has weighed in several times in the past 50 years. This article first discusses what Texas Gulf Sulphur contributed to the doctrine of materiality, then briefly considers other dimensions of the doctrine, and finally moves to its thesis: The doctrine of materiality should take into account important psychological insights and heuristics that may affect the way that a fact finder decides whether a misrepresentation …