Securities Law Commons^™

The Bank Bailout: A License For Sovereign Securities Fraud, Wendy Gerwick Couture

Articles

No abstract provided.

Insider Trading And The Gradual Demise Of Fiduciary Principles, Donna M. Nagy

Articles by Maurer Faculty

Recent SEC enforcement actions, such as the case filed against Dallas Mavericks' owner Mark Cuban, raise the question whether deception by a fiduciary is essential to the Rule 10b-5 insider trading offense. Under the Supreme Court's classical and misappropriation theories, the answer is clearly yes - each theory has a fiduciary principle at its core. Yet lower courts and the SEC frequently disregard the Court's explicit dictates, and a consensus is emerging that insider trading rests simply on the wrongful use of material nonpublic information, regardless of whether a fiduciary-like duty is breached. Although this view of insider trading can …

The Sec And The Madoff Scandal: Three Narratives In Search Of A Story, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This essay, part of a symposium on narrative in corporate law, considers various portrayals of the complicity of the SEC in the Bernard Madoff scandal--including the Commission's own Inspector General's report issued in September 2009. It considers possible explanations (revolving door problems, incompetence and sloth, etc.) but suggests that the story is deeper and more frustrating, arising out of the relative poverty in which the SEC operates, which in turn leads to habits of thought and action that leave too much unnoticed and undone. The interesting question, then: why the poverty? The essay concludes with a political explanation. While by …

The Screening Effect Of The Private Securities Litigation Reform Act, Adam C. Pritchard, Stephen J. Choi, Karen K. Nelson

Articles

Prior research shows that the Private Securities Litigation Reform Act (PSLRA) increased the significance of merit-related factors in determining the incidence and outcomes of securities fraud class actions (Johnson et al. 2007). We examine two possible explanations for this finding: the PSLRA may have reduced the incidence of nonmeritorious litigation, or it may have changed the definition of merit, effectively precluding claims that would have survived and produced a settlement pre-PSLRA. We find no evidence that pre-PSLRA claims that settled for nuisance value would be less likely to be filed under the PSLRA regime. There is evidence, however, that pre-PSLRA …

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

Faculty Scholarship

No abstract provided.

There Are Plaintiffs And . . . There Are Plaintiffs: An Empirical Analysis Of Securities Class Action Settlements, Randall Thomas, James D. Cox, Lynn Bai

Vanderbilt Law School Faculty Publications

In this paper, we examine the impact of the PSLRA and more particularly the impact the type of lead plaintiff on the size of settlements in securities fraud class actions. We thus provide insight into whether the type of plaintiff that heads the class action impacts the overall outcome of the case. Furthermore, we explore possible indicia that may explain why some suits settle for extremely small sums - small relative to the "provable losses" suffered by the class, small relative to the asset size of the defendant-company, and small relative to other settlements in our sample. This evidence bears …

Should The Sec Be A Collection Agency For Defrauded Investors?, Barbara Black

Faculty Articles and Other Publications

One of the important functions of the U.S. Securities and Exchange Commission ("the SEC") is enforcing the securities laws and punishing violators. Collecting damages for defrauded investors was not, historically, an important part of the agency's mission; rather that was the function of private securities fraud class actions. Section 308 (the "Fair Fund provision") of the Sarbanes-Oxley Act of 2002 gives the SEC a more prominent role in compensating investors and allows the agency, in some circumstances, to distribute civil penalties to defrauded investors. The SEC has established Fair Funds in a number of high-profile cases and has taken pride …

Retail Investor Remedies Under Rule 10b-5, O'Hare Jennifer

Faculty Publications

This paper assesses the private remedies available under Rule 10b-5 to retail investors who have been defrauded by false corporate disclosures. After comparing the treatment received by retail investors to the treatment received by institutional investors, I identify several areas in which the federal securities laws disfavor retail investors who have been defrauded by false corporate disclosures, including the creation of a two-tiered system of investor remedies for securities fraud. Institutional investors are permitted to pick and choose which law and forum offers them the most attractive chance for recovery, but retail investors typically do not have this opportunity. They …

Brief For Professors James D. Cox Et Al. As Amici Curiae In Support Of Petitioners, Stoneridge Investment Partners V. Scientific-Atlanta, No. 06-43 (U.S. June 11, 2007), Donald C. Langevoort

U.S. Supreme Court Briefs

No abstract provided.

The Missing Link Between Insider Trading And Securities Fraud, Richard A. Booth

Faculty Scholarship

In a recent article, I argued that diversified investors - the vast majority of investors - would prefer that securities fraud class actions under the 1934 Act and Rule 10b-5 be dismissed in the absence of insider trading or similar offenses during the fraud period. See Richard A. Booth, The End of the Securities Fraud Class Action as We Know It, 4 Berk. Bus. L. J. 1 (2007), http://ssrn.com/abstract=683197. In this article, I draw on the classic case, SEC v. Texas Gulf Sulfur Company, to show that the federal courts originally viewed securities fraud as inextricably connected to insider trading …

On Leaving Corporate Executives "Naked, Homeless And Without Wheels": Corporate Fraud, Equitable Remedies, And The Debate Over Entity Versus Individual Liability, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

There is a lively debate about the relative merits of entity versus individual liability in cases involving securities fraud. After reviewing this debate in the context of both private securities litigation and SEC enforcement, this paper considers whether the legal tools available against individual executives are adequate, and if not, what changes might be made. The main focus is on equitable remedies, especially rescission and restitution, under both state and federal law. As to the former, Vice Chancellor Strine’s opinion in In re Healthsouth offers an interesting template, although there are limits on the usefulness of derivative suits to police …

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 …

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, …

The Use Of The Corporate Monitor In Sec Enforcement Actions, O'Hare Jennifer

Faculty Publications

This paper addresses the SEC's recent use of the corporate monitor as ancillary relief in its enforcement actions. The corporate monitor represents the latest example of the SEC seeking to shift its enforcement responsibilities to the public companies it regulates. Focusing on the role played by the corporate monitor imposed by the SEC in its enforcement action brought against WorldCom, this paper considers some of the dangers posed by the use of the corporate monitor, such as the whether the appointment of a corporate monitor constitutes impermissible overreaching by the SEC. The paper recognizes that the corporate monitor can be …

The End Of The Securities Fraud Class Action As We Know It, Richard A. Booth

ExpressO

In this article, I argue that securities fraud class actions (SFCAs) should not be treated as class actions but rather should be treated as derivative actions. In addition, I argue that such actions should be dismissed unless it appears that insiders (including the company itself) have enjoyed gains from trading during the fraud period. Both of these conclusions are based on the fundamental argument that (1) securities law seeks to protect the interests of reasonable investors, (2) reasonable investors diversify, and (3) diversified investors are effectively protected against the supposed financial harms of securities fraud by virtue of being diversified, …

Tattlers And Trail Blazers: Attorneys' Liability For Clients' Fraud, Barbara Black

Faculty Articles and Other Publications

No abstract provided.

Introduction: Insider Trading (Pli 2d Ed. 2006), Marc I. Steinberg, William K.S. Wang

Faculty Journal Articles and Book Chapters

This paper is the Introductory chapter to Insider Trading (PLI 2d ed. 2006). Insider Trading is a two-volume treatise that analyzes the application of various laws to stock market insider trading and tipping. Among the federal laws are Exchange Act section 10(b), SEC rule 10b-5, mail/wire fraud, SEC rule 14e-3, Exchange Act section 16, and Securities Act section 17(a). The state laws discussed are the common law, the Uniform Securities Act, and the California and New York securities statutes.

Another chapter addresses government enforcement of the insider trading/tipping prohibitions. A chapter on compliance programs deals with how firms can try …

Merrill Lynch V. Dabit: Federal Preemption Of Holders' Class Actions, Mark J. Loewenstein

Publications

No abstract provided.

The Irrational Auditor And Irrational Liability, Adam C. Pritchard

Articles

This Article argues that less liability for auditors in certain areas might encourage more accurate and useful financial statements, or at least equally accurate statements at a lower cost. Audit quality is promoted by three incentives: reputation, regulation, and litigation. When we take reputation and regulation into account, exposing auditors to potentially massive liability may undermine the effectiveness of reputation and regulation, thereby diminishing integrity of audited financial statements. The relation of litigation to the other incentives that promote audit quality has become more important in light of the sea change that occurred in the regulation of the auditing profession …

Cataclysmic Liability Risk Among Big Four Auditors, Eric L. Talley

Faculty Scholarship

Since Arthur Andersen's implosion in 2002, policymakers have been encouraged with ever increasing urgency to insulate the auditing industry from legal liability. Advocates of such insulation cite many arguments, but the gravamen of their case is that the profession faces such significant risk of cataclysmic liability that its long term viability is imperiled. In this Essay, I explore the nature of these claims as a legal, theoretical, and empirical matter. Legally, it is clear that authority exists (within both state and federal law) to impose liability on auditing firms for financial fraud, and courts have been doing so sporadically for …

Rediscovering The Economics Of Loss Causation , Richard Kaplan, Madge Thorsen, Scott Hakala

ExpressO

Abstract This article explores the economic principles and theories underlying loss causation in the context of securities fraud litigation. It explains the difference between “investment loss” and recoverable “inflationary loss” and posits that the latter consists of the difference between inflation in stock prices caused by the fraud at the time of purchase and inflation in the price at the time of sale. It reviews scenarios in which inflationary loss due to fraud may occur and would be recognized as a matter of economic theory as well as a matter of law. It urges that Dura v. Broudo Pharmaceuticals, 125 …

Sarbanes-Oxley Act, Section 307 - The Price Of Accountability: How Will Section 307 Affect The Role Of The Corporate Attorney, Sara B. Smith

West Virginia Law Review

No abstract provided.

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 …

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.

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

Articles

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 …

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

Articles

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 …

Letting Billions Slip Through Your Fingers: Empirical Evidence And Legal Implications Of The Failure Of Financial Institutions To Participate In Securities Class Action Settlements, James D. Cox, Randall S. Thomas

Faculty Scholarship

In a pilot study we published two years ago, we reported that nearly two-thirds of the institutional investors with financial losses in 53 settled securities class actions fail to submit claims. As a consequence of this failure substantial sums they were entitled to receive were given to others. This article presents the results of a much more extensive investigation of the frequency with which financial institutions submit claims in settled securities class actions. We combine an empirical study of a much larger set of settlements with the results of a survey of institutional investors about their claims filing practices. Consistent …

Securities Analysts: Why These Gatekeepers Abandoned Their Post, David J. Labhart

Indiana Law Journal

No abstract provided.

Is Securities Arbitration Fair To Investors?, Barbara Black

Faculty Articles and Other Publications

Most disputes between customers and their brokerage firms are resolved through arbitration as a result of the Supreme Court's holding in Shearson/American Express, Inc. v. McMahon. McMahon was part of two larger trends of the Supreme Court: the Court's general pro-arbitration trend and its efforts to remove private securities fraud claims from federal court. Many investor advocates viewed McMahon as anti-investor, a view that continues to have support today.

This is an assessment of the current securities arbitration process from the perspective of an investor advocate. In my view, investors may fare better in arbitration than in litigation. Accordingly, the …

Sec Enforcement Of Attorney Up-The-Ladder Reporting Rules: An Analysis Of Institutional Constraints, Norms And Biases, Michael A. Perino

Villanova Law Review (1956 - )

No abstract provided.