Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, October 20, 2008

FINRA Proposes New Rule on Explained Awards

FINRA is filing with the SEC a proposed rule change to amend NASD Rules 12214, 12514 and 12904 of Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and NASD Rules 13214, 13514 and 13904 of the Code of Arbitration Procedure for Industry Disputes (“Industry Code”) to require arbitrators to provide an explained decision upon the joint request of the parties (SR-FINRA-2008-051).  This proposed rule replaces a much-criticized proposal, filed three years ago, that would have required arbitrators to provide reasons upon the request of the customer only.  The explained decision would be a fact-based award stating the general reason(s) for the arbitrators’ decision; it would not be required to include legal authorities and/or damage calculations. Under the proposed rule change, parties would be required to submit any joint request for an explained decision at least 20 days before the first scheduled hearing date. The chairperson would: 1) be required to write the explained decision; and 2)receive an additional honorarium of $400 for writing the decision. The panel would allocate the cost of the additional honorarium to the parties as part of the final award.  The rule would not apply to simplified arbitration claims.

October 20, 2008 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (5)

SEC Settles Insider Trading Charges in Connection with PIPES offering with Hedge Fund Analyst

The SEC settled charges that Brian D. Ladin, a former analyst for Bonanza Master Fund Ltd. ("Bonanza"), a Dallas-based hedge fund, engaged in unlawful insider trading in connection with a 2004 "PIPE" (an acronym for private investment in public equity) offering conducted by Radyne Comstream Inc. Ladin agreed to entry of a final judgment imposing an injunction and ordering him to pay $330,427, consisting of $13,427 in disgorgement and prejudgment interest and a $317,000 civil penalty.

The Commission's complaint alleges, among other things, that Ladin accepted a duty to keep the offering information confidential. The Complaint further alleges that Ladin, on the basis of the material, non-public PIPE information, presented an investment in Radyne to Bonanza, resulting in Bonanza establishing a 100,000 share short position in Radyne stock. The Commission's complaint further alleges that Ladin, in signing the offering's stock purchase agreement on behalf of Bonanza, represented that Bonanza did not hold a short position in Radyne common stock when he knew, or was reckless or negligent in not knowing, that Bonanza held a short position in Radyne's common stock.

October 20, 2008 in SEC Action | Permalink | Comments (0) | TrackBack (2)

Sunday, October 19, 2008

Hunt on Rating Agency Rules

The SEC's Proposed Rating Agency Rules: Unresolved Conflicts, by John P. Hunt, Berkeley Center for Law, Business and the Economy, was recently posted on SSRN.  Here is the abstract:

On June 16, the SEC made public new rules intended to increase transparency and reduce conflicts of interest in the credit rating process for fixed-income instruments. The proposal may be most important for what it does not do: The SEC does not plan to forbid the "issuer-pays" system, in which the rating agencies are paid by the parties whose products are being evaluated. Although the SEC apparently has the power to ban issuer-pays and recognizes that the arrangement creates potential conflicts of interest, the proposed rules address issuer-pays only through a half measure that appears unlikely to be effective.

October 19, 2008 in Law Review Articles | Permalink | Comments (0) | TrackBack (2)

Trevino on ERISA Litigation

Erisa Misrepresentation and Nondisclosure Claims: Securities Litigation Under the Guise of Erisa?, by Clovis Trevino, Geogetown University Law Center, was recently posted on SSRN.  Here is the abstract:

As a result of recent corporate scandals and dramatic market downturns, many employees whose defined contribution plans were heavily invested in employer stock have experienced substantial losses in their anticipated retirement savings. To recover for their losses, plan participants have filed a number of lawsuits under the Employee Retirement Income Security Act of 1974 ("ERISA") alleging that plan fiduciaries made misrepresentations or failed to disclose material information about the suitability of investing in the company stock. These controversial suits are derivative or companion cases to securities class actions based on the same allegations of misrepresentations or nondisclosures. Even though there is a significant overlap between the ERISA and the securities suit, the procedural, remedial, and substantive rules governing the two actions are substantially different. By juxtaposing these rules, this Article examines whether ERISA fiduciary misrepresentation and nondisclosure claims amount to securities litigation in disguise; and if so, whether these claims should be allowed to proceed in the absence of the procedural safeguards imposed by the Private Securities Litigation Reform Act ("PSLRA").

October 19, 2008 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)