Securities Law Prof Blog

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

Friday, June 15, 2012

Jury Convicts Gupta of Securities Fraud

A jury convicted Rajat Gupta of three counts of securities fraud and one count of conspiracy for passing along confidential board information to Galleon hedge fund operator Raj Rajaratnam.  He was acquitted of two other counts.

This is a big victory for the government.  First, Gupta is a big fish -- a former director of Goldman Sachs and Procter & Gamble and executive at McKinsey & Co.  Second, unlike in Rajaratnam's trial, the government had no wiretaps of stock tips but instead relied on circumstantial evidence, principally phone records of Gupta calling Rajaratnam after receiving confidential board information.

NYTimes, Rajat Gupta Convicted of Insider Trading

June 15, 2012 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, June 14, 2012

Stanford Gets 110 Years for Ponzi Scheme

Allen Stanford was sentenced to 110 years for running a $7 billion Ponzi scheme that fleeced 30,000 investors.  A jury convicted him of 13 out of 14 counts for the fraud, but at his sentencing Stanford continued to proclaim his innocence and blame the government for ruining his business.

NYTimes, Stanford Sentenced to 110-Year Term in $7 Billion Ponzi Case

June 14, 2012 in News Stories | Permalink | Comments (0) | TrackBack (0)

Notice of Scholars' Positions at Max Planck Institute

The Director of the new Max Planck Institute in Luxembourg has asked me to post this notice for scholars, which I am pleased to do (Download MPI_business_law):

The newly founded Max Planck Institute Luxemburg for International, European and Regulatory Procedural Law is seeking to hire senior and junior legal researchers on either a temporary (from one to five years) or permanent basis. The fields of research are:

- Listed corporations and corporate governance
- IPOs and takeovers
- Regulation of intermediaries and mutual funds
- Regulation of stock exchanges and other financial markets
- Banking regulation

Candidates should have a proven record of effective research at the international level or, for more junior positions, show a strong potential for research. Jurists and legal scholars are preferred, but economists will also be considered. The ideal candidate will have a Ph.D. in one of the fields of research and/or an LL.M., will be fluent in English and will ideally know one or two different languages spoken in the European Union. The working language of the Institute is English. The Institute aims at being one of the leading research institutions in Europe.

The positions do not include any teaching obligations, and researchers will be free to focus exclusively on research. Significant funds will be provided for research expenses, including the organization of seminars and conferences and a travel budget. Compensation is competitive with leading universities and research institutions. The specific terms of each position will depend on candidates’ seniority and interests.

Applications should be sent via email, completed with an updated CV, selected publications, a motivation letter and an indication of the field of research you are interested in, at

For further information, please contact

The deadline for the applications is June 30, 2012, but late applications will be considered as well as long as there are still available positions.


June 14, 2012 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 13, 2012

Supreme Court Grants Cert to Consider Materiality Issue at Class Certification Stage

On June 11 the U.S. Supreme Court granted certiorari in a Rule 10b-5 private action, Amgen v. Connecticut Retirement Plans (Docket No. 11-1085).  The Question Presented is:

1. Whether, in a misrepresentation case under SEC Rule lOb-5, the district
court must require proof of materiality before certifying a plaintiff class based on
the fraud-on-the-market theory.
2. Whether, in such a case, the district court must allow the defendant to
present evidence rebutting the applicability of the fraud-on-the-market theory
before certifying a plaintiff class based on that theory.

Justice Breyer took no part in this decision.

The lower court opinion, from the Ninth Circuit, is reported at 660 F.3d 1170 ( Download Amgen v. ConnRetPlan.9Cir)

June 13, 2012 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 12, 2012

SEC Releases Preliminary Findings of Dodd-Frank Changes to Adviser Registration Requirements

March 30, 2012 was the compliance date for several provisions of the Dodd-Frank Act that amended the registration provisions of the Advisers Act. As of that date:

• advisers to many hedge funds, private equity funds, and other “private funds” that previously were exempt from registration were required to register with the Commission;
• exempt reporting advisers (i.e., unregistered advisers to venture capital funds and to private funds with less than $150 million in assets) were required to submit reports on Form ADV for the first time; and
• mid-sized advisers (i.e., advisers with between $25 million and $100 million in assets under management subject to examination by state regulators) switching to state registration were required to amend their Form ADVs reporting that they are no longer eligible to remain registered with the Commission.

The SEC's Division of Investment Management has prepared a summary of the preliminary results of these changes ( Download Df-iaregistration[1]).

Bottom line from the report:

Anticipated Impact on Population of Registered Advisers. There are 12,623 advisers registered with the Commission with total assets under management of $48.8 trillion. Based on data recently submitted by advisers, the staff expects 2,400 mid-sized advisers will switch to state registration by June 28, 2012, resulting in approximately 10,000 advisers with $48.6 trillion in assets under management registered with the Commission. Using these projections, the staff anticipates that the cumulative impact of the Dodd-Frank Act registration changes will be a 25% decrease in the number of advisers registered with the Commission, but a 12% increase in the total assets under management of those registered advisers


June 12, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges Fourteen in Long Island-Based Ponzi Scheme

Long Island has long had the unfortunate reputation as a center for boiler rooms and other fraudulent scheme.  Today the SEC reinforced that image when it charged 14 sales agents  with misleading investors and illegally selling securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.

According to the SEC: the sales agents falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc and that only 1 percent of their principal was at risk. In fact, the Agape securities were actually non-existent; it was a classic Ponzi scheme. The sales agents received more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution.

June 12, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Defense Rests in Gupta Insider Trading Case

The defense rested in the government's insider trading case against Rajat Gupta today, after calling twelve witnesses in his defense, including a number who testified as to his integrity and charitable endeavors.  The defense also argued that Mr. Gupta had a falling-out with Raj Rajaratnam over the loss of an investment in fall 2008, so that he would not have passed confidential information to him.  Mr. Gupta did not himself testify.  Closing arguments will be made tomorrow, and then the case will go to the jury.

WSJ, Gupta Defense Rests in Insider-Trading Trial

June 12, 2012 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, June 11, 2012

SEC Issues Roadmap on Phasing in Derivatives Regulation

The SEC issued a policy statement describing the order in which it expects new rules regulating the derivatives market would take effect. The statement covers final rules to be adopted by the SEC under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The SEC is requesting public comment on its plan to phase in final rules regulating security-based swaps and security-based swap market participants. The policy statement does not estimate when the rules would be put in place, but describes the sequence in which they would take effect. The phased-in approach is intended to avoid the disruption that could occur if all the new rules took effect simultaneously. To date, the Commission has proposed nearly all the rules required under the Act and already has begun to adopt those rules.

In addition, the policy statement discusses the timing of the expiration of the temporary relief the SEC previously granted to securities-based swaps market participants.

The SEC will seek public comments for 60 days after the date of the policy statement’s publication in the Federal Register.

June 11, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Sunday, June 10, 2012

Cheffins et al. on Stock Market Developments 1930-70

Questioning 'Law and Finance': US Stock Market Development, 1930-70, by Brian R. Cheffins, University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI); Steven A. Bank, University of California, Los Angeles (UCLA) - School of Law; and Harwell Wells, Temple University - Beasley School of Law, was recently posted on SSRN.  Here is the abstract:

An important tenet of a burgeoning 'law and finance' literature is that stock market development is contingent upon corporate law offering ample protection to shareholders. This paper addresses this claim, using as its departure point developments occurring in the United States between 1930 and 1970. We show that, contrary to what the law and finance literature would predict, the US lacked during this period and throughout the 20th century generally corporate law that provided extensive protection to shareholders. We also point out that while federal securities legislation introduced in the mid-1930s bolstered investor protection, this reform effort did not energize the stock market in the manner implied by law and finance analysis.

June 10, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Modesitt on Whistleblower Protection

The Garcetti Virus, by Nancy M. Modesitt, University of Baltimore - School of Law, was recently posted on SSRN.  Here is the abstract:

In an era where corporate malfeasance has imposed staggering costs on society, ranging from the largest oil spill in recorded history to the largest government bailout of Wall Street, one would think that those who uncover corporate wrongdoing before it causes significant harm should receive awards. Employees are particularly well-placed to uncover such wrongdoing within companies. However, rather than reward these employees, employers tend to fire or marginalize them. While there are statutory protections for whistleblowers, a disturbing new trend appears to be developing: courts are excluding from the protection of whistleblowing statutes employees who report wrongdoing as part of their jobs. Under this doctrine, the internal safety inspector who uncovers illegal behavior while performing his duties and reports it to his boss can legally be fired for blowing the whistle.

This Article explains how this doctrine, the job duties exclusion, was developed by the Federal Circuit over a decade ago to limit claims brought by federal employees under the federal Whistleblower Protection Act. Flawed at its inception, the doctrine languished, with no states adopting it until the Supreme Court’s decision in Garcetti v. Ceballos. In Garcetti, the Court applied the job duties exclusion to a claim brought under the First Amendment. Even though Garcetti involved a constitutional, not a statutory, claim, the decision has given new life to the doctrine developed by the Federal Circuit. Since Garcetti, courts have begun applying the job duties exclusion to state statutory whistleblower claims, placing protections for employees at grave risk. This Article examines this developing trend, explaining how Garcetti has had an impact on what is fundamentally a state statutory interpretation issue. It identifies the flaws of the job duties exclusion as first articulated, the reasons why state courts should not apply it to state whistleblower protection statutes, and recommends that legislatures amend statutory protections to ensure that employees who do the right thing and report corporate malfeasance are protected against retaliation.

June 10, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

SEC Approves FINRA Rule Addressing Broker-Dealers' Obligations in Private Placements

On June 7, 2012, the SEC approved FINRA's proposed rule change to adopt FINRA Rule 5123 setting forth a broker-dealer's obligations in connection with private placements of securities issued by non-members (Download 34-67157[1]).  As originally proposed, the Rule would have imposed disclosure and filing requirements on members and associated persons participating in a private placement, specifically, to disclose to each investor prior to the sale the anticipated use of the proceeds and the amount and type of offering expenses and offering compensation.  If the issuer's disclosure documents did not provide this information, the broker-dealer would have been required to prepare such a document.  In response to industry comments that the proposal was too burdensome, FINRA eliminated the disclosure requirement.  Instead, the firm is requirerd simply to file any existing offering document or to state that no such document was used.

In approving the proposed rule change, the SEC stated its belief that FINRA had addressed adequately capital formation, competitive and efficiency concerns.  First, FINRA had eliminated the disclosure requirement, and, second, it had narrowly tailored the rule to require either a notice filing of the documents used within 15 days of the first sale or a statement that no such documents had been used. 

June 10, 2012 in Other Regulatory Action, SEC Action | Permalink | Comments (0) | TrackBack (0)