Sunday, April 20, 2008
When Perception Changes Reality: An Empirical Study of Investors' Views of the Fairness of Securities Arbitration, by JILL GROSS, Pace Law School, and BARBARA BLACK, University of Cincinnati - College of Law, was recently posted on SSRN. Here is the abstract:
Arbitration in securities industry-sponsored forums is the primary mechanism to resolve disputes between investors and their brokerage firms. Because it is mandatory, participants debate its fairness, and Congress has introduced legislation to ban pre-dispute arbitration clauses in customer agreements. Missing from the debate has been empirical research of perceptions of fairness by the participants, especially investors. To fill that gap, we mailed 25,000 surveys to participants in recent securities arbitrations involving customers to learn their views of the process. The article first details the survey's background, explains the importance of surveying perceptions of fairness, and describes our methodologies, procedures, and survey error structure. We then present our findings, including our primary conclusions that (1) investors have a far more negative perception of securities arbitration than all other participants, (2) investors have a strong negative perception of the bias of arbitrators, and (3) investors lack knowledge of the securities arbitration process. We also offer several explanations for these negative perceptions. We conclude that customers' negative perceptions transform the reality faced by policy-makers and mandate reform of the process, including the elimination of the industry arbitrator requirement and further public deliberation on the value of the explained award.
The Dialectical Regulation of Rule 14a-8: Intersystemic Governance in Corporate Law, by ROBERT B. AHDIEH, Emory University School of Law; Program in Law and Public Affairs, was recently posted on SSRN. Here is the abstract:
In recent years, Rule 14a-8 of the Securities Exchange Act - first adopted more than sixty years ago to increase shareholder participation in corporate governance - has been the subject of a flurry of litigation, scholarly analysis, and SEC rulemaking. Most recently, following several years of debate, the SEC issued a significant clarification of the rule, reversing the Second Circuit's hotly contested interpretation of it in AFSCME v. AIG. For the most part, the debates surrounding Rule 14a-8 - including in the latter case - have focused on the scope of the rule's exceptions. This paper, selected for reprinting in the Securities Law Review's forthcoming volume of the year's top securities law articles, attempts to go beyond those exceptions, to suggest a fundamental rethinking of the nature and operation of the rule.
Specifically, the paper explores Rule 14a-8 as an occasion for what I have termed "intersystemic governance" - an embrace of cross-jurisdictional overlap and engagement in regulatory design and function. In its very structure, thus, Rule 14a-8 calls on the SEC to interpret and apply state law. Properly utilized, this scheme offers an opportunity for the development of regulatory norms that meaningfully integrate both federal and state values of corporate governance and shareholder participation. To this end, among other reforms, I propose a shift in the SEC presumptions applicable to no-action letters, praise Delaware's recent constitutional amendment to permit SEC certification of questions to the Delaware courts, and highlight various opportunities for heightened discourse. By means such as these, a more integrated - and ultimately more efficient - regime of shareholder participation may begin to emerge.
The 'Principles' Paradox, by STEVEN L. SCHWARCZ, Duke University - School of Law, was recently posted on SSRN. Here is the abstract:
Although principles-based regulation is thought to more closely achieve normative goals than rules, the extent to which that occurs can depend on the enforcement regime. A person who is subject to unpredictable liability is likely to hew to the most conservative interpretation of the principle, especially where that person would be a potential deep pocket in litigation. This creates a paradox: Unless protected by a regime enabling one in good faith to exercise judgment without fear of liability, such a person will effectively act as if subject to a rule and, even worse, an unintended rule.
Pleading After Tellabs, by GEOFFREY P. MILLER, New York University - School of Law, was recently posted on SSRN. Here is the abstract:
In Tellabs, Inc. v. Makor Issues & Rights, Ltd., the Supreme Court held that a securities fraud complaint will survive a motion to dismiss only if a reasonable person would deem the inference of [culpable state of mind] cogent and at least as compelling as any opposing inference one could draw from the facts alleged. This paper analyzes how the Tellabs test may be applied, identifies questions left open under the decision, and discusses broader implications of the opinion and the PSLRA. Among other things, the paper suggests that the PSLRA's heightened pleading rules have deformed the motion to dismiss to the point where it now operates in securities fraud cases as a hybrid falling somewhere in between the traditional Rule 12(b)(6) and Rule 56 summary judgment procedures.