Securities Law Commons^™

The Self-Regulation Of Investment Bankers, Andrew F. Tuch

Scholarship@WashULaw

As broker-dealers, investment bankers must register with the Financial Industry Regulatory Authority (“FINRA”) and comply with its rules, including the requirement to “observe high standards of commercial honor and just and equitable principles of trade.” As the self-regulatory body for broker-dealers, FINRA functions as the equivalent of the self-regulatory bodies governing other professionals, such as lawyers and accountants. Unlike the self-regulation of these professionals, however, the self-regulation of investment bankers has thus far attracted scant scholarly attention.

This Article evaluates the effectiveness of this self-regulatory system in deterring investment bankers’ misconduct. Based on a hand-collected data set of every disciplinary …

The Future Of Securities Class Actions Against Foreign Companies: China And Comity Concerns, Dana M. Muir, Junhai Liu, Haiyan Xu

University of Michigan Journal of Law Reform

In Morrison v. National Australia Bank Ltd., the U.S. Supreme Court limited the application of U.S. securities fraud law in transnational situations. The Supreme Court noted that its decision was influenced by international comity considerations. In this Article, we evaluate the availability of class actions in China in cases involving alleged securities fraud. Because we find that the availability of those actions is too limited to fully protect U.S. shareholders, we argue that U.S. investors should be permitted to bring securities fraud class actions against non-U.S. companies whose securities are traded on a U.S. exchange regardless of where those investors …

State Enforcement Of National Policy: A Contextual Approach (With Evidence From The Securities Realm), Amanda M. Rose

Vanderbilt Law School Faculty Publications

This Article addresses a topic of contemporary public policy significance: the optimal allocation of law enforcement authority in our federalist system. Proponents of competitive federalism have long argued that assigning concurrent enforcement authority to states and the federal government can lead to redundant expense, policy distortion, and a loss of democratic accountability. A growing literature responds to these claims, trumpeting the benefits of concurrent state-federal enforcement - most notably the potential for state regulators to remedy under-enforcement by captured federal agencies. Both bodies of scholarship are right, but also incomplete. What is missing from this rather polarized debate is a …

Merrill Lynch, Pierce, Fenner & Smith, Inc. V. Curran: Establishing An Implied Private Right Of Action Under The Commodity Exchange Act, Howard E. Hamann

Pepperdine Law Review

In the case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, the United States Supreme Court held that there is an implied private right of action under the Commodity Exchange Act, as amended. As a result of this holding, a private party may maintain an action for damages caused by a violation of the Commodity Exchange Act. In this article, the author examines the Supreme Court's analysis and explores the future impact of the decision in light of the role the judiciary has in legislative matters.

Securities Class Actions And Bankrupt Companies, James J. Park

Michigan Law Review

Securities class actions are often criticized as wasteful strike suits that target temporary fluctuations in the stock prices of otherwise healthy companies. The securities class actions brought by investors of Enron and WorldCom, companies that fell into bankruptcy in the wake of fraud, resulted in the recovery of billions of dollars in permanent shareholder losses and provide a powerful counterexample to this critique. An issuer's bankruptcy may affect how judges and parties perceive securities class actions and their merits, yet little is known about the subset of cases where the company is bankrupt. This is the first extensive empirical study …

Boiler Room Fraud: An Operational Plan Utilizing The Injunction Against Fraud Pursuant To 18 U.S.C. §1345 , Robert M. Twiss

Pepperdine Law Review

No abstract provided.

Lies Without Liars? Janus Capital And Conservative Securities Jurisprudence, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The Supreme Court’s recent Janus Capital case offers a reading of the word “make” in Rule 10b-5 that speaks to ultimate legal authority over the communication in question. This creates the real possibility that we can have lies without liars, an entirely perplexing result in terms of any purposive meaning of the rule. In so holding, Justice Thomas joined a seemingly short list of judges who suggest that legal formalism is a particularly good weapon with which to fight securities fraud. This paper exploresJanus through the lens of conservative textualism, which takes us through a much longer intellectual history …

The New Uniform Statute Of Limitations For Federal Securities Fraud Actions: Its Evolution, Its Impact, And A Call For Reform, Anthony Michael Sabino

Pepperdine Law Review

No abstract provided.

A Framework For Analyzing Attorney Liability Under Section 10(B) And Rule 10b-5, Gary M. Bishop

The University of New Hampshire Law Review

[Excerpt] “Lawyers who make their living representing securities issuers face a myriad of challenges. Securities lawyers must navigate and master an intricate body of statutory, regulatory, and case law at both the state and the federal level and ensure that their clients comply with the law. The compliance requirement, however, is not limited to the issuer clients. Defrauded investors will often seek recovery of their losses from both the issuer of the failed investment securities and from the lawyers who represent the issuer, which only exacerbates the complexity of the securities lawyer’s work. These securities fraud actions against lawyers raise …

Determining The Proper Pleading Standard Under The Private Securities Litigation Reform Act Of 1995 After In Re Silicon Graphics , Erin Brady

Pepperdine Law Review

No abstract provided.

Who Should Do The Math? Materiality Issues In Disclosures That Require Investors To Calculate The Bottom Line, Stefan J. Padfield

Pepperdine Law Review

Corporations sometimes tread a fine line by disclosing the data necessary to calculate the bottom line impact of a particular set of facts, while failing to disclose the bottom line itself. For example, in 2002, Merck & Co., Inc., disclosed that one of its subsidiaries had recognized as revenue co-payments it never actually received, but failed to disclose that the total amount so recognized was $5.54 billion for the year 2001. When plaintiffs challenge such incomplete disclosure, courts routinely dismiss their claims based upon what I call the Simple Math rule. The Simple Math rule states that, assuming a material …

Private Equity Firms: Beyond Sec Registration As An Investment Adviser How To Build And Administer An Effective Compliance Program, Susan Mosher

Michigan Business & Entrepreneurial Law Review

The Securities and Exchange Commission (the “SEC” or the “Commission”) recently adopted new rules and rule amendments under the Investment Advisers Act of 1940 (the “Advisers Act”) that serve to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).1 The new rules and rule amendments under the Advisers Act relate to provisions of Title IV of the Dodd-Frank Act (the Private Fund Investment Advisers Registration Act of 2010) that, among other things, require certain private fund advisers and private equity firms to register with the Commission.2 This article is intended to assist firms that …

Shareholder Litigation After The Meltdown, Daniel J. Morrissey

West Virginia Law Review

No abstract provided.

Financial Abuse Of The Elderly, Christine Lazaro

Faculty Publications

(Excerpt)

As of 2010, 13% of the population is over age 65; 16% is over age 62. Another 27% of the population falls into the “Baby Boomer” category, aged between 45 and 64.

As Americans approach retirement, the question is raised, “are they prepared?” A study published earlier this year found, “a substantial fraction of persons die with virtually no financial assets—46.1 percent with less than $10,000—and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support. In addition, this group is disproportionately in poor health. Based on a replacement rate …

Investors And Employees As Relief Defendants In Investment Fraud Receiverships: Promoting Efficiency By Following The Plain Meaning Of "Legitimate Claim Or Ownership Interest", Jared A. Wilkerson

W&M Law Student Publications

Relief defendants are nominal, innocent parties who hold funds traceable to the receivership but have no legitimate claim or ownership interest in them. These nominal parties, as opposed to full or primary defendants, have no cause of action asserted against them, and if they show no legitimate claim to the funds traced to the receivership, the funds are disgorged — generally at summary judgment. This seemingly simple relief defendant tool is used by receivers and regulatory agencies to quickly recover receivership funds for ultimate distribution to creditors. Recently, however, conflict has arisen in federal courts concerning the meaning of “legitimate …

The Multienforcer Approach To Securities Fraud Deterrence: A Critical Analysis, Amanda M. Rose

Vanderbilt Law School Faculty Publications

Participants in the U.S. capital markets can be sued for securities fraud by a mishmash of enforcers, including the SEC, class action plaintiffs, and state regulators. Does this multi-enforcer approach make sense from a deterrence perspective? This Article suggests that the answer is probably no. Although in theory there are conditions under which a multi-enforcer approach would promote optimal deterrence, it is unclear at best that those conditions exist in the United States. And further empirical research, while warranted, is unlikely to resolve the issue definitively. The status quo tends to persevere in the face of this sort of irreducible …

The Road Not Taken: Rethinking Securities Regulation And The Case For Federal Merit Review, Daniel J. Morrissey

University of Richmond Law Review

No abstract provided.

Do Differences In Pleadings Standards Cause Forum Shopping In Securities Class Actions?: Doctrinal And Empirical Analyses, James D. Cox, Randall S. Thomas, Lin (Lynn) Bai

Faculty Articles and Other Publications

Federal appellate courts have promulgated divergent legal standards for pleading fraud in securities fraud class actions after the Private Securities Litigation Reform Act (PSLRA). Recently, the Supreme Court of the United States issued a decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd. that could have resolved these differences, but did not do so. This Paper provides two significant contributions. We first show that Tellabs avoids deciding the hard issues that confront courts and litigants daily in the wake of the PSLRA's heightened pleading standard. As a consequence, the opinion keeps very much alive the circuits' disparate interpretations of …

Teamsters Local 445 Freight Division Pension Fund V. Dynex Capital Inc., Erica E. Bonnett

NYLS Law Review

No abstract provided.

Deception, Decisions, And Investor Education, Jayne W. Barnard

Faculty Publications

Tens of millions of dollars each year are spent on investor education. Because older adults (those aged sixty and older) are disproportionately victims of investment fraud schemes, many educational programs are targeted at them. In this Article, Professor Barnard questions the effectiveness of these programs. Drawing on recent studies from marketing scholars, neurobiologists, social psychologists, and behavioral economists examining the ways in which older adults process information and make decisions, she offers a model of fraud victimization (the "deception/decision cycle") that explains why older adults are often vulnerable to investment fraud schemes. She then suggests that many of the factors …

Wherefore Art Thou Guidelines? An Empirical Study Of White-Collar Criminal Sentencing And How The Gall Decision Effectively Eliminated The Sentencing Guidelines, S. Patrick Morin

The University of New Hampshire Law Review

[Excerpt] “Until the passage of the U.S. Federal Sentencing Guidelines in 1984, federal judges had relatively wide discretion in sentencing federal offenders up to the statutory maximum. This judicial discretion led to a disparity in the sentences of similarly situated offenders, particularly in white-collar cases. The Guidelines attempted to eliminate this disparity by establishing maximum and minimum sentences for certain offenses based on the characteristics of the crime. An important feature of the Guidelines system was its mandatory nature, which decreased and structured the judiciary‘s discretion within bounds set by Congress.

The mandatory application of the Guidelines resulted in stiff …

Corporate America Fights Back: The Battle Over Waiver Of The Attorney-Client Privilege, Michael L. Seigel

UF Law Faculty Publications

This Article addresses a topic that is the subject of an on-going and heated contest between the business lobby and its lawyers, on the one side, and the U.S. Department of Justice on the other. The fight is over federal prosecutors' escalating practice of requesting that corporations accused of criminal wrongdoing waive their attorney-client privilege as part of their cooperation with the government. The Department of Justice views privilege waiver as a legitimate and critical tool in its post-Enron battle against white collar crime. The business lobby views it as encroaching on corporations' fundamental right to protect confidential attorney-client communications. …

Stoneridge Investment Partners V. Scientific-Atlanta: The Political Economy Of Securities Class Action Reform, Adam C. Pritchard

Articles

I begin in Part II by explaining the wrong turn that the Court took in Basic. The Basic Court misunderstood the function of the reliance element and its relation to the question of damages. As a result, the securities class action regime established in Basic threatens draconian sanctions with limited deterrent benefit. Part III then summarizes the cases leading up to Stoneridge and analyzes the Court's reasoning in that case. In Stoneridge, like the decisions interpreting the reliance requirement of Rule 10b-5 that came before it, the Court emphasized policy implications. Sometimes policy implications are invoked to broaden the reach …

Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey

Michigan Law Review

The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on "whistleblower information," that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized. Often, insider trading will be far more effective than whistleblowing at bringing fraud …

Hedge Fund Regulation: The Amended Investment Advisers Act Does Not Protect Investors From The Problems Created By Hedge Funds, Sean M. Donahue

Cleveland State Law Review

Hedge funds are a viable investment alternative for financially sophisticated investors. However, because traditional hedge funds and funds of funds are unsuitable for average investors, these investors should be restricted from making such investments. Regardless of who invests in hedge funds, advisers of these entities must be regulated to assure that they do not commit fraud. In addition to monitoring advisers, the SEC must limit hedge funds' use of leverage to assure that market collapse does not occur. Part II of this Note describes the history and development of hedge funds. Part III illustrates the current problems facing the hedge …

The Investor Compensation Fund, Alicia J. Davis

Articles

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation. The interest in compensation, however, should be advanced by better means than are …

A Business Ethics Perspective On Sarbanes-Oxley And The Organizational Sentencing Guidelines, David Hess

Michigan Law Review

This Article assesses the ability of Sarbanes-Oxley and other recent changes in the law and stock exchange listing requirements to reduce the incidence of fraud and to increase the reporting of financial misconduct. It begins by examining the individual decision-makers within a corporation and analyzing their intentions and behaviors under the Theory of Planned Behavior. It then examines the ability of the organization to influence the employees' intentions and behaviors through codes of ethics and compliance programs, and finds growing support for the usefulness of integrity based compliance programs. Finally, the Article considers how the Sarbanes-Oxley legislation and Organizational Sentencing …

Reforming Punishment Of Financial Reporting Fraud, Samuel W. Buell

Faculty Scholarship

Present sentencing law in criminal cases of financial reporting fraud is embarrassingly flawed. The problem is urgent given that courts are now regularly sentencing corporate offenders, sometimes (but sometimes not) to extremely punitive terms of imprisonment. Policing of fraud by multiple jurisdictions in a federal system means that principled sentencing law is necessary not only for first-order policy reasons but also for coordination of sanctioning efforts. Proportionality and rationality demand that sentencing law have an agreed scale for measuring cases of financial reporting fraud in relation to each other, a sound methodology for fixing a given case on that scale, …

Conscripting Attorneys To Battle Corporate Fraud Without Shields Or Armor? Reconsidering Retaliatory Discharge In Light Of Sarbanes-Oxley, Kim T. Vu

Michigan Law Review

This Note advocates that federal courts should allow attorneys to bring retaliatory discharge claims under SOX. Traditional rationales prohibiting the claims of retaliatory discharge by attorneys do not apply in the context of Sarbanes-Oxley. This Note contends that the Department of Labor and the federal courts should interpret the whistleblower provisions of § 806 as protecting attorneys who report under § 307. Assuring reporting attorneys that they have protection from retaliation will encourage them to whistleblow and thereby advance SOX's policy goal of ferreting out corporate fraud. Part I explores the legal landscape of retaliatory discharge suits by attorneys. This …

Reassessing Damages In Securities Fraud Class Actions, Elizabeth C. Burch

ExpressO

No coherent doctrinal statement exists for calculating open-market damages for securities fraud class actions. Instead, courts have tried in vain to fashion common-law deceit and misrepresentation remedies to fit open-market fraud. The result is a relatively ineffective system with a hallmark feature: unpredictable damage awards. This poses a significant fraud deterrence problem from both a practical and a theoretical standpoint.

In 2005, the Supreme Court had the opportunity to clarify open-market damage principles and to facilitate earlier dismissal of cases without compensable economic losses. Instead, in Dura Pharmaceuticals v. Broudo, it further confused the damage issue by (1) perpetuating the …