Securities Law Commons^™

Shareholder Engagement In The United States, Vikramaditya S. Khanna

Book Chapters

Shareholder voting and engagement in the US have undergone substantial changes over the last 50 years. They have moved from being relatively sleepy issues to those that trigger insomnia in even the most hardened executives. The changes in the ownership structure of US publicly traded firms are probably the most important reason for the shift, but so too are rule changes that have facilitated greater shareholder activism. This chapter explores these developments while describing the rules of the road for shareholder voting in the US by focusing on Delaware jurisprudence and changes in US federal securities regulations. It also examines …

Negligence At The Breach: Information Fiduciaries And The Duty To Care For Data, Daniel M. Filler, David M. Haendler, Jordan L. Fischer

Connecticut Law Review

Personal data is a cost of admission for much of modern life. Employers, tech companies, advertisers, information brokers, and others collect huge quantities of data about us all. Yet outside of a few highly-regulated industries, American companies face few legal restrictions on how they manage and use that data. Until now, individuals have had very limited remedies when their data is stolen from data collectors. But change is afoot. In a significant recent decision, the Pennsylvania Supreme Court took a consequential step holding that entities collecting personal data owe a duty of reasonable care to protect data subjects against harm. …

How To Sell Nfts Without Really Trying, Brian L. Frye

Law Faculty Scholarly Articles

Something is happening and we don’t know what it is. Suddenly last summer, the internet went nuts for “non-fungible tokens” or “NFTs.” In a matter of months, NFT sales swelled from a sleepy slough of the blockchain to a thundering cataract that shows no sign of slaking. Special NFTs sell for millions of dollars, and some are even securitized. It’s a big business that’s only getting bigger.

But no one seems to know why. Objectively, NFTs are useless, meaningless, and worthless. So why are people willing to pay millions of dollars for them, even begging for the opportunity? Maybe it …

Taking Corwin Seriously, Itai Fiegenbaum

Lewis & Clark Law Review

Corporate law’s most important development is founded on a misunderstanding of the channels and consequences of shareholder empowerment. The Article’s title references the seminal Delaware Supreme Court decision that ruled that a positive shareholder vote effectively insulates a friendly sale from judicial oversight. Central to Corwin’s reasoning is the notion that the shareholder vote provides an effective restraint against insider overreaching. Yet every deal that includes a premium over the market price is assured of shareholder approval. The doctrinal lynchpin’s real-life insignificance exposes a baffling inconsistency in contemporary takeover jurisprudence.

This Articles makes two novel contributions to the bourgeoning scholarship …

Social Media, Securities Markets, And The Phenomenon Of Expressive Trading, John P. Anderson, Jeremy Kidd, George A. Mocsary

Lewis & Clark Law Review

A new category of retail stock trader has emerged: the “expressive” trader. An expressive trader is not motivated by profit alone, but trades as a form of social protest, political speech, or aesthetic expression. GameStop’s meteoric surge in price in January 2021 revealed the power expressive traders can exert on the market. This Essay explores the phenomenon of expressive trading and its implications for issuers, markets, and regulators. The Essay sets forth potential defensive measures available to issuers against the consequences of expressive trading, and cautions regulators against hasty action to address expressive trading.

The Alchemy Of Effective Auditor Regulation, Sarah J. Williams

Lewis & Clark Law Review

The audit profession has repeatedly failed in its obligation to accurately opine on financial statements prepared by companies that trade in U.S. markets. The list of entities that have contributed to the quest for effective regulation of these auditors is long; it includes the American Institute of Certified Public Accountants (AICPA), the U.S. Securities and Exchange Commission (SEC), Congress, outside directors of public companies, and the Public Company Accounting Oversight Board (PCAOB), a recent congressional creation. Yet, despite 50 years of effort, the formula for efficacious oversight of the audit profession remains elusive.

This Article is the first in a …

The Long-Term Effects Of Short Selling And Negative Activism, Peter Molk, Frank Partnoy

UF Law Faculty Publications

We investigate the long-term effects of short selling and “negative activism,” where activists seek to profit from declines in the share prices of targeted firms. We show that negative activism is associated with significant and declining long-term share returns and operating performance, as well as an increase in securities litigation and regulatory actions against targeted firms. We explore the policy implications of this new evidence, including ways that policy makers and market participants might take advantage of the potential benefits of short selling negative activism. Our message is straightforward: resist impulses to curb short selling, and instead embrace attempts to …

The Sec's Climate Disclosure Rule: Critiquing The Critics, George S. Georgiev

Articles

Climate change is an existential phenomenon, which entails a wide variety of physical risks as well as sizeable but underappreciated economic risks. In March 2022, the U.S. Securities and Exchange Commission (SEC) moved to address some of the information gaps related to the effects of climate change on firms by proposing a rule that requires public companies to report detailed and standardized information about important climate-related matters for the benefit of investors and markets. Though the rule proposal was welcomed by many market participants, it was also met with a level of opposition that was unusual in both its intensity …

Taking Misappropriation Seriously: State Common Law Disgorgement Actions For Insider Trading, Jeanne L. Schroeder

American University Business Law Review

This article examines the restitutionary remedy of disgorgement and connects it to the specific context of insider trading. It argues that disgorgement can and should be sought in private rights of actions brought under state common law rather than by the SEC under the federal securities laws.

Realizing Diversity, Sustainability, And Stakeholder Capitalism, Peter H. Huang

Emory Business Law Review

Stakeholder capitalism conceives of capitalism with companies maximizing their long-term value, while considering in addition to the interests of their shareholders, also the interests of all their other stakeholders. Examples of such additional stakeholders include customers, employees, communities, creditors, competitors, society at large, and our planet. America today does not have stakeholder capitalism. Instead, America presently has shareholder capitalism, in which publicly held corporations only maximize their stock value to shareholders.

This Essay analyzes proposals for the United States Securities Exchange Commission to require that all reporting companies make periodic mandatory Environmental, Social, and Governance (ESG) disclosures of comparable, standardized, …

A Future Of Mandatory Environment, Social, And Governance (Esg) Disclosures: A Review Of Public Comments As A Case Study In The Impact Of Esg, Jessica Dennis Jackson

Emory Business Law Review

No abstract provided.

The Sec’S Climate Disclosure Rule: Critiquing The Critics, George S. Georgiev

Faculty Articles

Climate change is an existential phenomenon, which entails a wide variety of physical risks as well as sizeable but underappreciated economic risks. In March 2022, the U.S. Securities and Exchange Commission (SEC) moved to address some of the information gaps related to the effects of climate change on firms by proposing a rule that requires public companies to report detailed and standardized information about important climate-related matters for the benefit of investors and markets. Though the rule proposal was welcomed by many market participants, it was also met with a level of opposition that was unusual in both its intensity …

The Extraterritorial Reach Of Section 10(B): A Wolf Hunt Off Wall Street, Radley Gillis

Emory Law Journal

Born to combat the market effects of the Great Depression, the Securities Exchange Act of 1934 protects American investors and maintains American confidence in the U.S. securities market. These objectives are largely accomplished through the imposition of liability from Section 10(b) of the Securities Exchange Act and the SEC’s Rule 10b-5. These federal laws impose civil and criminal penalties for domestic insider trading and securities fraud violations. Because Section 10(b) and Rule 10b-5 only apply domestically, when securities violations occur both within the United States and abroad, the reach of federal law becomes questionable, leaving federal courts with a complex …

Governing Fintech 4.0: Bigtech, Platform Finance, And Sustainable Development, Douglas Arner, Ross Buckley, Kuzi Charamba, Artem Sergeev, Dirk Zetzsche

Fordham Journal of Corporate & Financial Law

Over the past 150 years, finance has evolved into one of the world’s most globalized, digitized, and regulated industries. Digitalization has transformed finance, but also enabled new entrants over the past decade in the form of technology companies, especially FinTechs and BigTechs. As a highly digitalized industry, incumbents and new entrants alike are increasingly pursuing similar approaches and models, focusing on the economies of scope and scale typical of finance and the network effects typical of data. Predictably, this has resulted in the emergence of large digital finance platforms. We argue that the combination of digitalization, new entrants (especially BigTechs), …

The Cryptic Nature Of Crypto Digital Assets Regulations: The Ripple Lawsuit And Why The Industry Needs Regulatory Clarity, Jacqueline Hennelly

Fordham Journal of Corporate & Financial Law

The tension and associated time lag between technology and regulation has been well documented. Paradigmatic of this phenomenon is the global evolution of blockchain technology and digital assets. Digital assets in the blockchain allow users to transact directly without financial intermediaries. However, the regulatory guidelines for the assets, their issuance, and the subsequent transactions are unclear. The Securities and Exchange Commission (SEC) has filed an action to apply its existing regulations and the judicial interpretations to Ripple’s issuance of XRP, its token, and Ripple’s control over subsequent user transactions of XRP. This Note uses SEC v. Ripple as a case …

Goodbye Buybacks? Why Recent Stock Buyback Reform Proposals Go Beyond What Is Necessary, Joshua Zelen

Fordham Journal of Corporate & Financial Law

This note provides an overview of the intensifying debate around the impact that stock buybacks have on economic inequality and the proposals designed to reform the practice. With the advent of the Securities and Exchange Commission’s (SEC) 1982 promulgation of Rule 10b-18, corporations began allocating vast portions of their profits to stock buybacks. In recent years, this practice has become increasingly more common and has surpassed previous historical benchmarks.

Critics of stock buybacks primarily view the practice as a misuse of excess corporate funds that could instead be allocated to improve employee working conditions, benefits, and future outcomes. Opponent’s concerns …

Here To Stay: Wrestling With The Future Of The Quickly Maturing Spac Market, Matthew Diller, Rick Fleming, Stephen Fraidin, Aj Harris, Gregory F. Laufer, Mark Lebovitch, Gregg A. Noel, Hester M. Peirce, Usha R. Rodrigues, Mike Stegemoller, Verity Winship, Douglas Ellenoff

Fordham Journal of Corporate & Financial Law

No abstract provided.

Unequal Investment: A Regulatory Case Study, Emily R. Winston

Faculty Publications

Growing economic inequality in the United States has reduced social mobility, placing financial security farther out of reach for a growing number of Americans. During the COVID-19 pandemic, U.S. stock prices have grown simultaneously with unemployment and food insecurity, highlighting the fact that prosperity is unequally distributed in the U.S. economy.

Many Americans do not benefit when the stock market soars because they do not have the means to invest. However, even ordinary American families who do have wealth to invest in the capital markets will face enormous obstacles in narrowing the wealth divide through investment. This is because ordinary …

Supreme Risk, Benjamin P. Edwards

Scholarly Works

While many have discussed the social issues that might arise because of a majority-conservative Supreme Court, one critical consequence of the current Court has been overlooked: the role of the Court in generating or avoiding systemic risk. For some time, systemic financial risk has been regulated by a mix of self-regulatory organizations (SROs), such as the Depository Trust Corporation, and federal regulators such as the Financial Stability Oversight Council (FSOC). However, the Court's recent jurisprudence now creates real risk that federal courts will declare keystone SROs unconstitutional because they do not fit neatly into an eighteenth-century constitutional framework.

SROs are …

Temporary Securities Regulation, Anita K. Krug

Washington and Lee Law Review

In times of crisis, including during the 2020–2021 global pandemic, the U.S. Securities and Exchange Commission (SEC) has engaged in a type of securities regulation that few scholars have acknowledged, let alone evaluated. Specifically, during recent market crises, the SEC adopted rules that are temporary, designed to help the securities markets and their participants— both public companies and public investment funds, such as mutual funds and ETFs—weather the crisis at hand but go no further. Once that goal has been accomplished, these rules usually expire, replaced by the permanent rules that they temporarily supplanted. Although the temporary-rulemaking endeavor is laudable—and …

An Ocean Apart: The Mandatory Takeover Rule In Brazil And In Europe, Jorge Brito Pereira

Emory Business Law Review

The common statement that there are two different regulatory systems concerning the mandatory takeover rule – the market rule system and the equal opportunity system – is, in practice, overly simplistic: facing the choice between freedom and strict regulation on whether the control premium should be proportionally shared with all non-controlling shareholders, some jurisdictions have adopted a hybrid solution. The Brazilian mandatory takeover rule (re)approved in 2001 is a good example. This paper will comprehensively analyse the Brazilian and European rules on mandatory takeover bids, using empirical data about the Brazilian markets and details of various cases that tested the …

Public Safety Concerns And Meeting The Dudenhoeffer Pleading Standard, Douglass G. Brown

Journal of Air Law and Commerce

This Comment analyzes the recent Employee Retirement Income Security Act (ERISA) stock drop cases against The Boeing Company (Boeing) and reviews the underlying pleading standard in these cases that the Supreme Court set forth in Fifth Third Bancorp v. Dudenhoeffer. With the tremendous amount of assets in retirement plans—and specifically in employee stock ownership plans—litigation under ERISA can be extremely costly to employers, especially those in the airline industry that offer these plans. The current pleading standard for stock drop cases has become a practically insurmountable barrier to plaintiffs, even when their employers know they are negligently creating products …

Realizing Diversity, Sustainability, And Stakeholder Capitalism, Peter H. Huang

Publications

Stakeholder capitalism conceives of capitalism with companies maximizing their long-term value, while considering in addition to the interests of their shareholders, also the interests of all their other stakeholders. Examples of such additional stakeholders include customers, employees, communities, creditors, competitors, society at large, and our planet. America today does not have stakeholder capitalism. Instead, America presently has shareholder capitalism, in which publicly held corporations only maximize their stock value to shareholders.

This Essay analyzes proposals for the United States Securities Exchange Commission to require that all reporting companies make periodic mandatory Environmental, Social, and Governance (ESG) disclosures of comparable, standardized, …

Broken Infrastructure, Del C. Wright Jr.

Faculty Works

This article examines the cryptocurrency-related provisions of the Infrastructure Investment and Jobs Act of 2021, focusing on amendments to the Internal Revenue Code that expand tax reporting and surveillance obligations for digital assets. Specifically, it analyzes the new “Broker” and “Tax” provisions, which extend reporting requirements beyond traditional financial intermediaries to actors in the blockchain ecosystem who may lack access to the necessary data. The article situates these provisions within the broader regulatory and political context, tracing their roots to prior Treasury rulemaking efforts and exploring their intended role in closing the “tax gap.” It highlights the significant compliance challenges, …

The Educated Retail Investor: A Response To "Regulating Democratized Investing", Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The diffusion of mobile-first investing apps, like Robinhood, has increased retail investor participation in financial markets, particularly from the Millennial and GenZ generations, and has increased the diversity of retail investors. However, mobile-first investing apps are not free from controversy. In Regulating Democratized Investing, Abraham Cable tackles the debate on regulating mobile-first investing apps and largely opposes paternalistic regulation, which would raise unsurmountable barriers at the entrance of the stock market for retail investors. But it concedes to a form of regulation that in Cable’s own words “serves ultra-retail investors a modest portion of what they really want.” We strongly …

The Wireless Investors Movement, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The inaugural guest academic article for the University of Chicago Business Law Review Blog discusses how Millennial and GenZ investors can set in motion a social movement with disruptive effects on the current corporate governance paradigm. It refers to Millennial and GenZ investors as “wireless investors” and their social movement as the “Wireless Investors Movement.” The Wireless Investors Movement, fueled by wireless investors’ vision of the world and technology savviness, will bring corporations to pursue social and environmental causes. This short contribution analyzes the characteristics of the Wireless Investors Movement and the effects it will have on corporate governance.

Nontraditional Investors, Jennifer S. Fan

Articles

In recent years, nontraditional investors have become a major player in the startup ecosystem. Under the regulatory regime of U.S. securities law, those in the public realm are heavily regulated, while those in the private realm are largely left alone. This public-private divide, which is a fundamental organizing principle of securities law, has eroded with the rise of nontraditional investors. While legal scholars have addressed the impact of some of these nontraditional investors individually, their collective impact on deal terms, deal timelines, due diligence, and board configuration has not been discussed in a holistic manner; neither has their impact on …

Arbitration Case Law Updates 2021–2022 (June 2022), Sandra D. Grannum, Elissa Germaine

Faculty Publications

(Excerpt)

This article summarizes leading arbitration cases and related issues that are of particular relevance to the securities arbitration practitioner. There appears to be a move away from compelling arbitration and federal jurisdiction of motions to confirm or vacate. The courts have decided several cases specifically involving FINRA arbitrations, discussing who can bring them and what courts have jurisdiction over them.

In addition, the Federal Arbitration Act was amended by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, the title of which speaks for itself.

The Obligations And Regulatory Challenges Of Online Broker-Dealers And Trading Platforms, Christine Lazaro, Teresa J. Verges

Faculty Publications

(Excerpt)

Investing has been evolving for decades. On “Mayday” in 1975, the SEC abolished fixed commissions, changing the face of the brokerage industry. A few months later, Charles Schwab opened its first offices, and discount brokerages were born. By the mid-1980s, there were over 600 discount brokers operating. By 1990, discount brokerage firms captured just under than 10% of the market, although Charles Schwab captured 40% of the discount brokerage market. Throughout the 1990s, new firms entered the market, including E*Trade and AmeriTrade. Online trading became more prevalent; by 1999 25% of all trades occurred online. The term “day trader” …

Pleading And Advocating A Negligence Claim Through The Regulation Best Interest Lens, Christine Lazaro, Michael S. Edmiston

Faculty Publications

(Excerpt)

On June 5, 2019, the SEC adopted the Regulation Best Interest Rule Package, consisting of (i) Regulation Best Interest: The Broker-Dealer Standard of Conduct (“Reg. BI”); (ii) Form CRS Relationship Summary and Amendments to Form ADV;(iii) the SEC Interpretation Regarding Standard of Conduct for Investment Advisers; and (iv) the SEC Interpretation Regarding the “Solely Incidental” Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser. Brokers were obligated to begin compliance with Reg. BI as of June 30, 2020.

Reg. BI contains four component sections mandating duties for brokers and firms: Disclosure, Care, Conflicts of Interest, and Compliance. …