Securities Law Prof Blog

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

Friday, September 21, 2012

SEC Obtains Emergency Order Freezing Assets of Broker Charged with Insider Trading in Burger King Stock

The SEC obtained an emergency court order to freeze the assets of a stockbroker who used nonpublic information from a customer and engaged in insider trading ahead of Burger King’s announcement that it was being acquired by a New York private equity firm.  According to the SEC, Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami, learned about the impending acquisition from a brokerage customer who invested at least $50 million in a fund managed by private equity firm 3G Capital Partners Ltd. and used to acquire Burger King in 2010. Prado misused the confidential information to illegally trade in Burger King stock for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere who also traded on the nonpublic information.

The SEC obtained the asset freeze in U.S. District Court for the Southern District of New York. The agency took the emergency action to prevent Prado from transferring his assets outside of U.S. jurisdiction. Prado recently abandoned his most current job at Morgan Stanley Smith Barney, put his Miami home up for sale, and began transferring all of his assets out of the country.

September 21, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, September 20, 2012

SEC Emphasizes Cooperation in Settling Insider Trading Charges

In an SEC release announcing the settlement of insider trading charges brought against a former director and two tippees, the SEC emphasized that "Early Cooperation Receives Lesser Penalty." 

The SEC alleged that H. Thomas Davis, Jr. breached his fiduciary duty to Mercer Insurance Group and its shareholders when he shared confidential details about the company’s negotiations to be acquired by United Fire. Davis tipped his friend and business associate Mark W. Baggett, and Baggett later tipped his golfing partner Kenneth F. Wrangell. Baggett and Wrangell made more than $83,000 in illicit profits when they traded on that confidential information illegally.

According to the SEC release:

When contacted by SEC investigators about his suspicious trading, Wrangell promptly offered significant cooperation. He provided truthful details acknowledging his own trading and entered into a cooperation agreement that resulted in direct evidence being quickly developed against Baggett and Davis. This cooperation enabled the SEC to swiftly reach settlements with all three individuals to recover ill-gotten monetary gains.

“By making the choice to cooperate with the SEC and voluntarily provide all of the necessary evidence at the outset of the investigation, Wrangell saved the SEC time and resources and himself a larger penalty,” said William P. Hicks, Associate Director in the SEC’s Atlanta Regional Office.

In settling the SEC’s charges, Davis agreed to be jointly and severally liable for disgorgement of Baggett’s insider trading profits of $41,584.45 plus prejudgment interest as well as to pay a penalty of $41,584.45. Davis also agreed to be barred from serving as an officer or director of a publicly-traded company. Baggett agreed to pay disgorgement and a penalty in amounts that will be determined by the court. Wrangell agreed to fully disgorge his ill-gotten gains of $42,521.55 plus prejudgment interest. Due to his extensive cooperation, the additional penalty that Wrangell is required to pay on top of that disgorgement amount has been reduced to $11,380.39. All three neither admit nor deny the allegations, and their settlements are subject to court approval.


September 20, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 19, 2012

Senate Banking Committee Hearing on Computerized Trading

The Senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS SUBCOMMITTEE ON SECURITIES, INSURANCE, AND INVESTMENT has taken an interest in computerized trading and will conduct a hearing Sept. 20 on “Computerized Trading: What Should the Rules of the Road Be?”

The witnesses will be Mr. David Lauer, Market Structure and High-Frequency Trading Consultant, Better Markets; Mr. Andrew Brooks, Head of U.S. Equity Trading, T. Rowe Price; Mr. Chris Concannon, Partner and Executive Vice President, Virtu Financial, LLC; and Mr. Larry Tabb, Founder and CEO, TABB Group. Their written statements are posted on the Committee's website.

 According to the Wall Street Journal, David Lauer "is part of a growing chorus of industry insiders blowing the whistle on approved trading techniques that they say are designed by the traders who derive the most benefit. " WSJ, High-Speed Trading in the Spotlight

September 19, 2012 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 18, 2012

CSLSA 2012 Annual Scholarship Conference

The Central States Law Schools Association asked me to post this notice of its upcoming Conference:

Annual Scholarship Conference
October 19-20
Cleveland-Marshall College of Law

The Central States Law Schools Association 2012 Scholarship Conference will be held October 19 and 20, 2012 at the Cleveland-Marshall College of Law, in Cleveland, Ohio.  We invite law faculty from across the country to submit proposals to present papers or works in progress.

The purpose of CSLSA is to foster scholarly exchanges among law faculty across legal disciplines.  The annual CSLSA conference is a forum for legal scholars, especially more junior scholars, to present working papers or finished articles on any law-related topic in a relaxed and supportive setting where junior and senior scholars from various disciplines are available to comment.  More mature scholars have an opportunity to test new ideas in a less formal setting than is generally available for their work. 
To allow scheduling of the conference, please send an abstract of no more than 500 words to Secretary Missy Lonegrass at by September 22, 2012.  Any late submissions will be considered on a space available basis only.  

For those who are interested, the CSLSA mentorship program pairs interested junior scholars with more senior mentors in their fields of expertise to provide feedback on their presentations or papers.  To participate in the mentorship program as either a mentor or mentee, please contact Vice-President Elizabeth Young at

 In keeping with tradition, CSLSA is able to pay for one night’s lodging for presenters from member schools.  If a school is interested in joining CSLSA and has not received an invoice, please contact Treasurer Carolyn Dessin at

For more information about CSLSA, visit our website at

September 18, 2012 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Sunday, September 16, 2012

Hu on Efficient Markets and the Law

Efficient Markets and the Law: A Predictable Past and an Uncertain Future, by Henry T.C. Hu, University of Texas at Austin - School of Law, was recently posted on SSRN.  Here is the abstract:

This article analyzes the manifold situations in which the efficient-market hypothesis (EMH) has influenced — or has failed to influence — federal securities regulation and state corporate law, and the prospective roles for the EMH in these contexts. In federal securities regulation, the EMH has offered a theoretical construct to accompany the general belief in the value of accurate and complete information that has animated the US Securities and Exchange Commission (SEC) since its creation. Specific applications of the EMH have been straightforward and predictable: For instance, its tenets as to market processing of public information helped motivate the streamlining of procedural requirements as to corporate disclosures and, more controversially, as to private securities class action lawsuits. In state corporate law, the EMH has influenced developments as to takeovers and the corporate objective. In contrast, the EMH and related learning have failed to sufficiently inform governmental actions to address financial illiteracy.

Belief in the EMH and the value of efficient markets has weakened in the face of recent market anomalies and stress. The May 2010 flash crash is not easily reconciled with the EMH, and related phenomena such as high frequency trading involve an equity market microstructure far different from the microstructure at the time the EMH emerged. Actions motivated by the global financial crisis (GFC), such as the SEC short-selling ban in September 2008, arguably suggest a greater willingness to subordinate market efficiency in favor of other governmental goals.

A range of important EMH-related issues loom beyond those associated with financial illiteracy, the equity market microstructure, and governmental goals. Foremost are those relating to the informational predicate on which market efficiency rests. One key aspect of the informational predicate relates to the disclosure challenges associated with financial innovations (such as asset-backed securities) and business entities heavily involved in financial innovation activities (such as certain money center banks). The “intermediary depiction model” that the SEC has always used is inadequate in financial innovation--related contexts. Another key aspect relates to the massive amounts of information that the Dodd-Frank Act requires to be provided to governmental bodies.

September 16, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Bebchuk & Jackson on Corporate Political Spending

Shining Light on Corporate Political Spending, by Lucian A. Bebchuk, Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI),  and Robert J. Jackson Jr., Columbia Law School, was recently posted on SSRN.  Here is the abstract:

This Article puts forward the case for SEC rules requiring public companies to disclose their political spending. We present empirical evidence indicating that a substantial amount of corporate spending on politics occurs under investors’ radar screens and that shareholders have significant interest in receiving information about such spending. We argue that disclosure of corporate political spending is necessary to ensure that such spending is consistent with shareholder interests. We discuss the emergence of voluntary disclosure practices in this area, and show why voluntary disclosure is not a substitute for SEC rules. We also provide a framework for the SEC’s design of these rules. Finally, we consider and respond to the wide range of objections that have been raised to disclosure rules of this kind. We conclude that the case for such rules is strong, and that the SEC should promptly develop disclosure rules in this area.

September 16, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)