Monday, May 5, 2014
Steven Thel (Fordham University School of Law) has posted Taking Section 10(b) Seriously: Criminal Enforcement of SEC Rules (Columbia Business Law Review, Vol. 2014, No. 1, 2014) on SSRN. Here is the abstract:
The Supreme Court has determined the scope of federal securities laws in a series of cases in which it has read section 10(b) of the Securities Exchange Act as either prohibiting certain misconduct or authorizing the SEC to regulate that conduct and only that conduct. Judging by the language, structure and history of the Exchange Act, the Court’s reading is wrong. Section 10(b) does not prohibit anything, and it neither grants the SEC rulemaking power nor limits the rulemaking power granted to the SEC elsewhere in the Exchange Act. Instead, section 10(b) simply triggers criminal sanctions for certain rule violations. This is an important function, but one very different from the one the Supreme Court has ascribed to section 10(b).
Contrary to conventional wisdom, not all SEC rules are subject to criminal enforcement.
The Supreme Court should take responsibility for the private right of action for violations of rule 10b-5, and should consider substantially restricting the fraud on the market class action that it has itself created . On the other hand, inasmuch as section 10(b) has little to do with the SEC, the Court’s restrictive holdings in rule 10b-5 cases should not apply to enforcement actions brought by the Commission, but only to private and, sometimes, criminal actions. For the same reason, the Court’s consistent and insistent rejection of the SEC’s interpretation of section 10(b) turns out to be oddly principled.