Securities Law Commons^™

The Sixth Commissioner, Nadelle Grossman

Georgia Law Review

The federal securities laws grant broad rulemaking authority to the Securities and Exchange Commission (SEC). In promulgating rules, the SEC must not only ensure that its rules protect investors and the public interest, but also consider the effects of its rules on efficiency, competition, and capital formation (the ECCF mandate). However, the SEC's rulemaking authority has been frustrated. In two decisions striking down SEC rules, the D.C. Circuit has required the SEC to conduct a quantitative cost-benefit analysis under the ECCF mandate. This contrasts with the SEC's historic practice of qualitatively assessing the effects of its rules. While these D.C. …

Politics In Securities Enforcement, Urska Velikonja

Georgia Law Review

American securities enforcement agencies often face charges that they use their enforcement power to further political goals.' Most recently, Standard & Poor's credit rating agency claimed that the U.S. Department of Justice unfairly singled it out for prosecution for fraudulent credit ratings after it downgraded U.S. sovereign debt. The U.S. Securities and Exchange Commission (SEC or the Commission), too, has been accused of using its enforcement politically: of bringing enforcement actions to improve its political standing, to punish its detractors, or to deflect attention from negative reports about its activities; and of holding back investigations of politically-connected figures.

The Financial Industry's Plan For Resolving Failed Megabanks Will Ensure Future Bailouts For Wall Street, Arthur E. Wilmarth Jr.

Georgia Law Review

Wall Street has achieved a remarkable political comeback from the financial crisis of 2007-2009. Public anger over bailouts of large financial institutions spurred Congress to pass the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank) in July 2010.1 Megabanks, however, used their political influence to weaken Dodd-Frank's provisions, and they have pursued a determined campaign since 2010 to undermine Dodd- Frank's implementation. A primary goal of Dodd-Frank is to end "too big to fail" (TBTF) treatment for systemically important financial institutions (SIFIs) and their creditors. During the debates over Dodd-Frank, however, Wall Street defeated two major initiatives …

Bank Regulation And Securitization: How The Law Improved Transmission Lines Between Real Estate And Banking Crises, Erik F. Gerding

Georgia Law Review

Financial crises take many forms. Real estate crises can devastate economies.' So too can bank crises. Stock market crashes can precipitate crises of their own. The "subprime crisis" represents the confluence and worst of all three; like three cyclones merging together in warm offshore waters, these three kinds of crises generated even more destructive force when conjoined. The panic that took shape in U.S. real estate and capital markets in 2007 represents another example in a long historical line of intertwined banking and real estate crises. Securitization served as a new coupling rod joining cycles in real estate and banking …

The Evolving Role Of Economic Analysis In Sec Rulemaking, Joshua T. White

Georgia Law Review

Recently, the SEC has come under great scrutiny for how it conducts economic analysis around rulemakings, especially those associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or the Dodd-Frank Act) Dodd-Frank tasked the SEC with more than 100 rulemaking provisions. Perhaps no criticism had a more profound effect than the D.C. Circuit's decision in Business Roundtable v. SEC, which struck down the SEC's proxy access rule due to inadequate economic analysis.

Regulations are imperfect. They cannot be costlessly executed or enforced. Regulators also lack full information on the actual costs and benefits of proposed policies. For …

Lift Not The Painted Veil! To Whom Are Directors’ Duties Really Owed?, Martin Gelter, Geneviève Helleringer

Faculty Scholarship

In this article, we identify a fundamental contradiction in the law of fiduciary duty of corporate directors across jurisdictions, namely the tension between the uniformity of directors’ duties and the heterogeneity of directors themselves. American scholars tend to think of the board as a group of individuals elected by shareholders, even though it is widely acknowledged (and criticized) that the board is often a largely self-perpetuating body whose inside members dominate the selection of their future colleagues and eventual successors. However, this characterization is far from universally true internationally, and it tends to be increasingly less true even in the …

Confronting The Peppercorn Settlement In Merger Litigation: An Empirical Analysis And A Proposal For Reform, Jill E. Fisch, Sean J. Griffith, Steven D. Solomon

Faculty Scholarship

Shareholder litigation challenging corporate mergers is ubiquitous, with the likelihood of a shareholder suit exceeding 90%. The value of this litigation, however, is questionable. The vast majority of merger cases settle for nothing more than supplemental disclosures in the merger proxy statement. The attorneys that bring these lawsuits are compensated for their efforts with a court-awarded fee. This leads critics to charge that merger litigation benefits only the lawyers who bring the claims, not the shareholders they represent. In response, defenders of merger litigation argue that the lawsuits serve a useful oversight function and that the improved disclosures that result …

Regulating Angels, Heidi Mandanis Schooner

Scholarly Articles

This article examines the current calls for deregulation of community banks and balances those ideas against the long history of community bank regulation, insolvency, and government support. Part II discusses the benefits offered by community banks and the current status of the industry. Part III outlines the justification for community bank regulation and the availability of the government safety net to support these institutions. Part IV addresses the solvency risk of community banks-their rates of failure and the causes of their failure. Part V addresses the reaction by community banks and their supporters to the passage of the Dodd-Frank Wall …

The Next British Invasion Is Securities Crowdfunding: How Issuing Non-Registered Securities Through The Crowd Can Succeed In The United States, Robert H. Steinhoff

University of Colorado Law Review

Securities crowdfunding is the novel concept of using the power of the Internet to raise business capital through the "crowd." British companies and investors have proven adept at using the relatively new medium of crowdfunding as a means of providing much needed capital to startups and other small businesses. This Comment examines securities crowdfunding in the United Kingdom in an effort to show how this means of capital formation might succeed in the United States once the SEC implements proposed rules exempting crowdfunded securities from registration. Other commentators have already provided ample criticism of the crowdfunding exemption in the JOBS …

Halliburton Ii: It All Depends On What Defendants Need To Show To Establish No Impact On Price, Merritt B. Fox

Faculty Scholarship

Rule 1Ob-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II, the Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the-market presumption through evidece that the misstatement had no effect on the issuer's share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged.

This Article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was …

"Loser Pays" And Federal Preemption, John C. Coffee Jr.

Faculty Scholarship

Delaware and the federal courts have been on a collision course since 2014 when the Delaware Supreme Court upheld the facial validity of a corporate bylaw that shifted the corporation’s (and all defendants’) legal expenses to a losing plaintiff. That 2014 decision, ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A. 3d 554 (Del. 2014), quickly led a number of public corporations to adopt similar “loser pays” bylaws and charter provisions, all of which are one-sided provisions (that is, only the plaintiff may be held liable) and most shift the fees against the plaintiff even if it wins (unless …

Loser Pays: The Latest Installment In The Battle-Scarred, Cliff-Hanging Survival Of The Rule 10b-5 Class Action, John C. Coffee Jr.

Faculty Scholarship

When I was an upper-year student at Yale Law School in the late 1960s, I was sometimes as undermotivated as contemporary upper-year law students regularly appear to be. But there was then an appropriate role model for us: a graduate student, brimming with efficiency and self-discipline, who occupied a carrel in the law library, seemingly working day and night on a special research project. He had piled law review articles and cases a foot or more about his carrel, and anyone walking by could see that he seemed obsessed with something called Rule 10b-5. I had dimly heard of this …

Mandatory Disclosure And Individual Investors: Evidence From The Jobs Act, Colleen Honisberg, Robert J. Jackson Jr., Yu-Ting Forester Wong

Faculty Scholarship

One prominent justification for the mandatory disclosure rules that define modem securities law is that these rules encourage individual investors to participate in stock markets. Mandatory disclosure, the theory goes, gives individual investors access to information that puts them on a more equal playing field with sophisticated institutional shareholders. Although this reasoning has long been cited by regulators and commentators as a basis for mandating disclosure, recent work has questioned its validity. In particular, recent studies contend that individual investors are overwhelmed by the amount of information required to be disclosed under current law, and thus they cannot and do …

Corporate Legacy, Andrew A. Schwartz

Publications

Many public companies have shed takeover defenses in recent years, on the theory that such defenses reduce share price. Yet new data presented here shows that practically all new public companies--those launching their initial public offering (IPO)--go public with powerful takeover defenses in place. This behavior is puzzling because the adoption of takeover defenses presumably lowers the price at which the pre-IPO shareholders can sell their own shares in and after the IPO. Why would founders and early investors engage in this seemingly counterproductive behavior? Building on prior attempts to solve this mystery, this Article claims that IPO firms adopt …

The Digital Shareholder, Andrew A. Schwartz

Publications

Crowdfunding, a new Internet-based securities market, was recently authorized by federal and state law in order to create a vibrant, diverse, and inclusive system of entrepreneurial finance. But will people really send their money to strangers on the Internet in exchange for unregistered securities in speculative startups? Many are doubtful, but this Article looks to first principles and finds reason for optimism.

Well-established theory teaches that all forms of startup finance must confront and overcome three fundamental challenges: uncertainty, information asymmetry, and agency costs. This Article systematically examines this “trio of problems” and potential solutions in the context of crowdfunding. …

The Nonfinancial Returns Of Crowdfunding, Andrew A. Schwartz

Publications

Securities crowdfunding — the sale of unregistered securities to the public over the Internet — has come under attack before it has even begun. Legal scholars in particular have expressed concern that investors will lose any money they invest in crowdfunding companies. Even assuming that this may be true from a purely financial perspective, these critics are missing an important point: Crowdfund investors with negative returns will not simply have lost their money, but rather they will have spent it (at least in part) on nonpecuniary benefits, including entertainment, political expression and community building. These nonfinancial returns of crowdfunding are …

Private And Public Ordering In Safe Asset Markets, Anna Gelpern, Erik F. Gerding

Publications

An influential literature in economics explores the phenomenon of “safe assets” – when participants across financial markets act “as if” certain debt is risk free – as well as its role in the global financial crisis and its implications for post-crisis reform.

We highlight the role of private ordering in constructing safe assets. Private ordering, including contractual devices and transaction structures, contributes to the creation of these debt contracts, to their collective treatment in financial markets as low risk investments, and to the making of deep and liquid markets in them. These contracts and transaction structures also provide a template …

Stock-Market Law And The Accuracy Of Public Companies’ Stock Prices, Kevin S. Haeberle

Faculty Publications

The social benefits of more accurate stock prices—that is, stock-market prices that more accurately reflect the future cash flows that companies are likely to produce—are well established. But it is also thought that market forces alone will lead to only a sub-optimal level of stock-price accuracy—a level that fails to obtain the maximum net social benefits, or wealth, that would result from a higher level. One of the principal aims of federal securities law has therefore been to increase the extent to which the stock prices of the most important companies in our economy (public companies) contain information about firms’ …

Through The Looking Glass To A Shared Reflection: The Evolving Relationship Between Administrative Law And Financial Regulation, Gillian E. Metzger

Faculty Scholarship

Administrative law and financial regulation have an uneasy relationship today. It was not always so. Indeed, the two were closely intertwined at the nation's birth. The Treasury Department was a major hub of early federal administration, with Alexander Hamilton crafting the first iterations of federal administrative law in his oversight of revenue generation and customs collection. One hundred and fifty years later, administrative law and financial regulation were conjoined in the New Deal's creation of the modern administrative state. This time it was James Landis, Chair of the newly formed Securities and Exchange Commission (SEC) and author of the leading …

Banker Loyalty In Mergers And Acquisitions, Andrew F. Tuch

Scholarship@WashULaw

When investment banks advise on merger and acquisition (M&A) transactions, are they fiduciaries of their clients, gatekeepers for investors, or simply arm’s-length counterparties with no other-regarding duties? Scholars have generally treated M&A advisors as arm’s-length counterparties, putting faith in the power of contract law and market constraints to discipline errant bank behavior. This Article counters that view, arguing that investment banks are rightly characterized as fiduciaries of their M&A clients and thus required to loyally serve client interests.

This Article also develops an analytical framework for assessing the liability rules that will most effectively deter disloyalty on the part of …