Securities Law Prof Blog

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

Wednesday, September 16, 2015

Strader on Insider Trading

Kelly Strader has posted (Re)Conceptualizing Insider Trading: United States v. Newman and the Intent to Defraud on SSRN with the following abstract:

Insider trading law is a mens rea morass. The confusion concerning the mental element of this crime risks both the deprivation of fair notice to potential defendants and the abuse of prosecutorial discretion. In the wake of aggressive and high-profile insider trading prosecutions, these concerns are particularly salient. The Second Circuit’s decision in United States v. Newman takes an important first step in articulating the mens rea component of insider trading. Taking Newman as a starting point, this article seeks to re-conceptualize and systematize insider trading law. When articulating the mens rea of insider trading, courts should focus on the underlying concept of insider trading law: the harm caused by the breach of trust attendant to the theft of inside information. When a court clearly focuses on the core purpose of insider trading law, the second level of reform is possible. That is, we can assess the culpability of alleged inside traders by the harm that they intended to cause and assign levels of mens rea accordingly. Applying common law fraud principles, and using Model Penal Code terminology and methodology, this article identifies the elements of insider trading and attaches appropriate levels of mens rea to each element. The article concludes with a set of jury instructions that reflect these underlying principles.

September 16, 2015 | Permalink | Comments (0)

Monday, September 7, 2015

New in Print

The following law review articles relating to securities regulation are now available in paper format:

Onnig H. Dombalagian, Substance and Semblance in Investor Protection, 40 J. Corp. L. 599 (2015).

Michael D. Guttentag, On Requiring Public Companies to Disclose Political Spending, 2014 Colum. Bus. L. Rev. 593.

Vincent R. Johnson, International Financial Law: The Case Against Close-Out Netting, 33 B.U. Int'l L.J. 395 (2015).

Susan Lorde Martin, Compliance Officers: More Jobs, More Responsibility, More Liability, 29 Notre Dame J.L. Ethics & Pub. Pol'y 169 (2015).

Geeyoung Min, The SEC and the Courts' Cooperative Policing of Related Party Transactions, 2014 Colum. Bus. L. Rev. 663.

Matthew G. Newmann, Note, Neither Admit nor Deny: Recent changes to the Securities and Exchange Commission's Longstanding Settlement Policy, 40 J. Corp. L. 793 (2015).

Matthew A. Pei, Note, Intrastate Crowdfunding, 2014 Colum. Bus. L. Rev. 854.

Quigley, Helen. Note, Kicking the Can Down the Road: Dodd-Frank's Attempted Reform on Broker-Dealers, 59 N.Y.L. Sch. L. Rev. 561 (2014/15).

Robert N. Rapp, Plausible Cause: Exploring the Limits of Loss Causation in Pleading and Proving Market Fraud Claims under Securities Exchange Act Section 10(b) and SEC Rule 10b-5, 41 Ohio N.U. L. Rev. 389 (2015).

Margaret V. Sachs, Superstar Judges as Entrepreneurs: The Untold Story of Fraud-on-the-Market, 48 UC Davis L. Rev. 1207 (2015).

September 7, 2015 | Permalink | Comments (0)

Sunday, September 6, 2015

Vollmer on SEC Enforcement

Andrew N. Vollmer has posted Four Ways To Improve SEC Enforcement on SSRN with the following abstract:

The enforcement program at the Securities and Exchange Commission has been the subject of severe criticism in recent years. The occasional reforms that have been adopted have not begun to root out the deeper, structural defects with the investigation and charging process at the SEC. Reforms going to the essence of the process and the way the Division of Enforcement operates are needed.

The three fundamental problems with SEC enforcement are that the Commission and the Division of Enforcement (1) advance legal theories that are outside settled boundaries, (2) misunderstand or mischaracterize the factual record, and (3) fail to accord fair and impartial treatment to persons being investigated. The result is an unacceptably high number of cases that lack merit, meaning either that the extensive evidence collected by the SEC does not support the alleged violation or that the case relies on a legal theory that is not likely to be accepted by a court.

The SEC can do better and be more effective. It can extend more fairness and consideration to those being investigated without any damage to tough enforcement. The paper describes four ways to improve SEC enforcement:

• use established and accepted legal theories and do not base claims on new, untested liability theories,

• create an objective and balanced investigative record that considers both potential wrongdoing and innocent explanations,

• apply rigorous, neutral standards before opening investigations and initiating cases. A formal investigation should be based on credible evidence justifying a reasonable suspicion of a possible violation and on an evaluation of enforcement priorities. The Commissioners should not authorize a proceeding unless they believe a reasonable person would conclude that the SEC is more likely than not to prevail on the facts and the law and believe that a proceeding would serve broad and legitimate enforcement goals, and

• substantially shorten investigations. Each member of the staff should make an effort to limit the number of documents requested and the number of individuals called for testimony.

A fifth possible reform, discussed in an earlier article, is that the SEC should significantly narrow investigative subpoenas.

September 6, 2015 | Permalink | Comments (0)

Hornuf & Schwienbacher on German Crowdinvesting

Lars Hornuf and Armin Schwienbacher have posted Funding Dynamics in Crowdinvesting on SSRN with the following abstract:

We use hand-collected data from four German crowdinvesting portals to analyze what determines individual investment decisions in crowdinvesting. In contrast with the crowdfunding campaigns on Kickstarter where the typical pattern of project support is U-shaped, we find crowdinvesting dynamics to be rather L-shaped under a first-come, first-serve mechanism and U-shaped under an auction mechanism. The evidence shows that investors base their decisions on information provided by the entrepreneur in form of updates during the campaign and by the investment behavior and comments of other crowd investors. Moreover, we find evidence for a collective attention effect and herding behavior.

September 6, 2015 | Permalink | Comments (0)

Katz, Bommarito, Soellinger & Chen on Securities Litigation

Daniel Martin Katz, Michael James Bommarito II, Tyler Soellinger, and James Ming Chen have posted Law on the Market? Evaluating the Securities Market Impact of Supreme Court Decisions on SSRN with the following abstract:

Do judicial decisions affect the securities markets in discernible and perhaps predictable ways? In other words, is there “law on the market” (LOTM)? This is a question that has been raised by commentators, but answered by very few in a systematic and financially rigorous manner. Using intraday data and a multiday event window, this large scale event study seeks to determine the existence, frequency and magnitude of equity market impacts flowing from Supreme Court decisions.

We demonstrate that, while certainly not present in every case, "law on the market" events are fairly common. Across all cases decided by the Supreme Court of the United States between the 1999-2013 terms, we identify 79 cases where the share price of one or more publicly traded company moved in direct response to a Supreme Court decision. In the aggregate, over fifteen years, Supreme Court decisions were responsible for more than 140 billion dollars in absolute changes in wealth. Our analysis not only contributes to our understanding of the political economy of judicial decision making, but also links to the broader set of research exploring the performance in financial markets using event study methods.

We conclude by exploring the informational efficiency of law as a market by highlighting the speed at which information from Supreme Court decisions is assimilated by the market. Relatively speaking, LOTM events have historically exhibited slow rates of information incorporation for affected securities. This implies a market ripe for arbitrage where an event-based trading strategy could be successful.

September 6, 2015 | Permalink | Comments (0)

Saturday, September 5, 2015

New in Print

The following law review articles relating to securities regulation are now available in paper format:

Tristan R. Brown, Note, Nobody Goes to Jail: The Economics of Criminal Law, Securities Fraud, and the 2008 Recession, 41 New Eng. J. on Crim. & Civ. Confinement 343 (2015).

Kerry L. Burke, II, Note, Fear Based Motivation: Dodd-Frank's New Sentencing Guidelines for Insider Trading Lead to an Extension of Tippee Liability, 41 New Eng. J. on Crim. & Civ. Confinement 395 (2015).

Cadesby B. Cooper, Note, Rule 10b-5 at the Intersection of Greenwash and Green Investment: The Problem of Economic Loss, 42 B.C. Envtl. Aff. L. Rev. 405 (2015).

Michael Evans, Note, Adding a Due Diligence Defense to Section 13(b) and Rule 13b2-2 of the Securities Exchange Act of 1934, 72 Wash. & Lee L. Rev. 901 (2015).

Alexander D. Flaschsbart, Note, Municipal Bonds in Bankruptcy Section 902(2) and the Proper Scope of "Special Revenues" in Chapter 9, 72 Wash. & Lee L. Rev. 955 (2015).

Merritt B. Fox, Halliburton II: It All Depends on What Defendants Need to Show to Establish No Impact on Price, 70 Bus. Law. 437 (2015).

Sandeep Gopalan & Katrina Hogan, Ethical Transnational Corporate Activity at Home and Abroad: A Proposal for Reforming Continuous Disclosure Obligations in Australia and the United States, 46 Colum. Hum. Rts. L. Rev. 1 (2015).

Anita K. Krug, Investing and Pretending, 100 Iowa L. Rev. 1559 (2015).

Steven W. Lippman, Comment, A Corporation's Securities Litigation Gambit: Fee-Shifting Provisions that Defend Against Fraud-on-the-Market, 49 U. Rich. L. Rev. 1321 (2015). 

Jeffrey Manns, The Reciprocal Oversight Problem, 100 Iowa L. Rev. 1619 (2015).

Janna Mouret, Comment, Shelter from the Retaliation Storm, 52 Hous. L. Rev. 1529 (2015).

Steven L. Schwarcz, Derivatives and Collateral: Balancing Remedies and Systemic Risk, 2015 U. Ill. L. Rev. 699.

Lily D. Vo, Comment, Substituted Compliance: An Alternative to National Treatment for Cross-Border Transactions and International Financial Entities, 13 Geo. J.L. & Pub. Pol'y 85 (2015).

Fourth Annual Institute for Investor Protection Conference: The New Landscape of Securities Fraud Class Actions, Foreword by Shelley Dunck; remarks by Thomas Goldstein, Judge Shira A. Scheindlin and Jeffrey Paul Mahoney; articles by David Tabak, Marc I. Gross, Leigh Handelman Smollar, Wendy Gerwick Couture and Charles W. Murdock. 46 Loy. U. Chi. L.J. 447-582 (2015).

Institute for Law and Economic Policy Symposium: Business Litigation and Regulatory Agency Review in the Era of the Roberts Court, Articles by John C. Coates IV, Donald C. Langevoort, Geoffrey Miller, Ann M. Lipton, Yoon-Ho Alex Lee, Donna M. Nagy, Brian T. Fitzpatrick, David H. Webber, Deborah A. DeMott and Mark Lebovitch, 57 Ariz. L. Rev. 1-309 (2015).


September 5, 2015 | Permalink | Comments (0)

Friday, August 28, 2015

Macey-Dare on English Derivatives Litgation

Rupert Macey-Dare has posted Key Derivatives Cases 2015 on SSRN with the following abstract:

The paper considers key derivatives cases in the English courts from 2015, namely: Wani v Royal Bank of Scotland, Dexia v Commune di Prato, Enasarco v Lehmans, SwissMarine v O.W. Supply, and MHB Bank v Shanpark.

Derivative products covered include: base rate swaps, interest rate swaps, caps, collars and corridors, extendable swaps, constant proportional portfolio insurance (CPPI) funds, fund options, and contracts for difference (CFDs).

Additional cases will be added in due course.

August 28, 2015 | Permalink | Comments (0)

Monday, August 17, 2015

Registration Open for 2015 Central States Law Schools Association Conference

Please note the following Conference announcement:

Registration is now open for the Central States Law Schools Association 2015 Scholarship Conference, on Friday, October 9 and Saturday, October 10 at The University of Toledo College of Law in Toledo, Ohio. CSLSA invites law faculty from across the country to submit proposals to present papers or works in progress.

The deadline for registration is September 8, 2015. To register, please visit:

The CSLSA has reserved a block of rooms at the Wingate Hotel in Sylvania, Ohio. To book your room, please call (419)517-2000 and mention the conference. The block will remain open until September 8, 2015. The cost of a standard room is $129.99 per night and the cost of a suite is $149.99 per night. Please note that conference participants are responsible for all of their travel expenses including hotel accommodations.

For more information about CSLSA and the 2015 Annual Conference, visit our website at

We look forward to seeing you at the Conference!

The 2015 CSLSA Board


August 17, 2015 | Permalink | Comments (0)

Faculty Opening: University of Iowa College of Law

I received the following notice that may be of interest to some of this blog's readers:

THE UNIVERSITY OF IOWA COLLEGE OF LAW anticipates hiring several tenured/tenure track faculty members and clinical faculty members (including a director for field placement program) over the coming year. Our goal is to find outstanding scholars and teachers who can extend the law school’s traditional strengths and intellectual breadth. We are interested in all persons of high academic achievement and promise with outstanding credentials. Appointment and rank will be commensurate with qualifications and experience. Candidates should send resumes, references, and descriptions of areas of interest to: Faculty Appointments Committee, College of Law, The University of Iowa, Iowa City, Iowa 52242-1113.

THE UNIVERSITY OF IOWA is an equal opportunity/affirmative action employer. All qualified applicants are encouraged to apply and will receive consideration for employment free from discrimination on the basis of race, creed, color, national origin, age, sex, pregnancy, sexual orientation, gender identity, genetic information, religion, associational preference, status as a qualified individual with a disability, or status as a protected veteran.

August 17, 2015 | Permalink | Comments (0)

Thursday, August 13, 2015

New in Print

The following law review articles relating to securities regulation are now available in paper format:

Carlos Berdejo, Going Public After the JOBS Act, 76 Ohio St. L.J. 1 (2015).

Daniel Chatlos, Note, Grabbing the Bull by the Horns:  The Future of Mortgage Lending and Securitization in the Aftermath of the Financial Crisis, 25 U. Fla. J.L. & Pub. Pol'y 137 (2014).

Alexis A. Geeza, Comment, Put Your Money Where Your Mind Is:  Protecting the Markets in the Age of Post-JOBS Act Rule 506 Offerings, 45 Seton Hall L. Rev. 581 (2015).

Julian J.Z. Polaris, Note, Backstop Ambiguity:  A Proposal for Balancing Specificity and Ambiguity in Financial Regulation, 33 Yale L. & Pol'y Rev. 231 (2014).

Dodd-Frank, the Financial Crisis, and a Christian View of Financial Markets, Articles by Paul J. Foley, Tory L. Lucas and student Joshua C. Dawson; abstract by Rodney Chrisman; note by Kaitlyn E. Evans. 9 Liberty U. L. Rev. 445-595 (2015).

Symposium, Investor-State Disputes, Preface by Michael B. Brown; articles by Matthew D. McGill, Alexander N. Harris, Melissa Stear Gorsline, Maria Pradilla Picas, Henry G. Burnett, Jessica Bees und Chrostin, Ellen Ginsberg Simon, Q. Monty Crawford, Simon Lester, Ryan Mellske, David N. Cinotti, Adriana T. Ingenito and Christina G. Hioureas; note by Jordan Reth. 30 Md. J. Int'l L. 1-167 (2015).

August 13, 2015 | Permalink | Comments (0)

Wednesday, August 5, 2015

Gallagher on Dodd-Frank

On August 4, 2015, Commissioner Daniel M. Gallagher delivered his last formal speech as an SEC commissioner to the U.S. Chamber of Commerce in Washington, D.C.  The speech related to Dodd-Frank, and he stated in part:

Last month marked the fifth anniversary of the Dodd-Frank Act,[1] meaning that my entire tenure as a Commissioner has occurred in the midst of the first Five-Year Plan for our national economy. And, as is always the case with grandiose central plans, Dodd-Frank has backfired, strangling our economy, increasing the fragility of the financial system, and politicizing our independent financial regulators.

August 5, 2015 | Permalink | Comments (0)

NASAA’s Electronic Filing Depository Reaches Milestone

The press release states in part:

The North American Securities Administrators Association (NASAA) today announced that its new Electronic Filing Depository (EFD) has been used to facilitate more than 10,000 notice filings with state securities regulators since its launch less than eight months ago.

Developed by NASAA, EFD is an online system that allows issuers to submit a Form D for a Regulation D, Rule 506 offering to state securities regulators and pay related fees. The EFD website also enables the public to search and view, free of charge, Form D filings made with state securities regulators through EFD, which is available at:

August 5, 2015 | Permalink | Comments (0)

SEC Adopts Registration Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants

The press release states in part:

The Securities and Exchange Commission today adopted new rules to provide a comprehensive, efficient process for security-based swap dealers and major security-based swap participants to register with the SEC.  The new rules mark a significant milestone in the SEC’s final implementation of Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act. 


August 5, 2015 | Permalink | Comments (0)

SEC Adopts Rule for Pay Ratio Disclosure

The press relates states in part:

The Securities and Exchange Commission today adopted a final rule that requires a public company to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.  The new rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on “say on pay.” 


August 5, 2015 | Permalink | Comments (0)

Monday, August 3, 2015

New in Print

The following law review articles relating to securities regulation are now available in paper format:

Wendy Gerwick Couture, Materiality and a Theory of Legal Circularity, 17 U. Pa. J. Bus. L. 453 (2015).

Sandeep Gopalan & Katherine Watson, An Agency Theoretical Approach to Corporate Board Diversity, 52 San Diego L. Rev. 1 (2015).

Kenneth Hsu, Note, The Delaware Carve-Out's Carve:  Examining and Repairing SLUSA's State Law Exception, 11 Hastings Bus. L.J. 385 (2015).

Kevin Laws & Zeb Zankel, Funding Innovation:  Regulating Seed Financing, 31 Santa Clara High Tech. L.J. 1 (2015).

James Naughton & Holger Spamann, Fixing Public Sector Finances:  The Accounting and Reporting Lever, 62 UCLA L. Rev. 572 (2015).

Joshua E. Perry, The People's NIH? Ethical and Legal Concerns in Crowdfunded Biomedical Research, 29 Notre Dame J.L. Ethics & Pub. Pol'y 453 (2015).

Stan Polit, Comment, Friends, Followers, and Fairness: SEC Fair Disclosure Requirements in a Changing Information Marketplace, 17 U. Pa. J. Bus. L. 619 (2015).

August 3, 2015 | Permalink | Comments (0)

Ben-David, Franzoni, Moussawi & Sedunov on Institutional Investors

Itzhak Ben-David, Francesco A. Franzoni, Rabih Moussawi, and John Sedunov III have posted The Granular Nature of Large Institutional Investors on SSRN with the following abstract:

Over last 35 years institutional ownership became concentrated at unprecedented levels; e.g., the stock holdings by the largest ten asset management firms quadrupled from 5.6% to 23.1%. Due to their sheer size, institution-level shocks cannot be diversified away and can spill over to the underlying securities. We document that stock ownership by the largest institutional investors leads to an increase in the volatility of the assets that they hold. Furthermore, stocks held by the largest institutional investors exhibit patterns of price inefficiency. We show that these effects are triggered by institution-level idiosyncratic news and channeled through large trades.

August 3, 2015 | Permalink | Comments (0)

Clapham, Haferkorn & Zimmermann on High-Frequency Trading

Benjamin Clapham, Martin Haferkorn, and Kai Zimmermann have posted Does Speed Matter? The Role of High-Frequency Trading for Order Book Resiliency on SSRN with the following abstract:

This paper explores limit order book resiliency following liquidity shocks in the presence of high-frequency trading firms. Based on a unique data set that enables the identification of orders submitted by algorithmic traders and subscribers of co-location services, we study whether high-frequency traders are involved in the reconstruction of the order book. We analyze order submission and deletion activity before and after a liquidity shock initiated by a large market order. Our results show that exclusively high- frequency traders reduce the spread within the first seconds after the market impact making use of their speed advantage. However, liquidity recovery in terms of order book depth takes significantly longer and is accomplished by human traders' submission activity only.

August 3, 2015 | Permalink | Comments (0)

Clarke, Silva & Thorley on Portfolio Theory

Roger G Clarke, Harindra de Silva, and Steven Thorley have posted Factor Portfolios and Efficient Factor Investing on SSRN with the following abstract:

Even in the absence of security-specific alphas, constructing a total portfolio from factor sub-portfolios is not generally mean-variance efficient. For example, an optimal combination of four fully-invested factor sub-portfolios, Low Beta, Small Size, Value, and Momentum, captures only about 45 percent of the potential improvement over the market Sharpe ratio. In contrast, a long-only portfolio of individual securities, using the same risk model and return forecasts, captures about 90 percent of the potential improvement. In this paper, we adapt general portfolio theory to the concept of factor-based investing, and investigate optimal combinations of factor portfolios using the largest one thousand common stocks in the U.S. equity market from 1968 to 2014.

August 3, 2015 | Permalink | Comments (0)

Israeli, Lee & Sridharan on Exchange Traded Funds

Doron Israeli, Charles M.C. Lee, and Suhas A. Sridharan have posted Is There a Dark Side to Exchange Traded Funds (ETFs)? An Information Perspective on SSRN with the following abstract:

In a noisy rational expectations framework with costly information, some agents expend resources to become informed, and earn a return for their efforts by trading with the uninformed. Applying this insight, we examine the proposition that an increase in ETF ownership is accompanied by a decline in pricing efficiency for the underlying component securities. Our tests show an increase in ETF ownership is associated with: (1) higher trading costs (measured as bid-ask spreads and price impact of trades); (2) an increase in “stock return synchronicity” (measured as the co-movement of firm-level stock returns with general market and related-industry stock returns); (3) a decline in “future earnings response coefficients” (measured as the predictive power of current returns for future earnings), and (4) a decline in the number of analysts covering the firm. Collectively, our findings support the view that increased ETF ownership can lead to higher trading costs and lower benefits from information acquisition, a combination which results in less informative security prices for the component firms.

August 3, 2015 | Permalink | Comments (0)

Saturday, August 1, 2015

Request for Public Comment on Exchange-Traded Products

The SEC is soliciting comments on exchange-traded products and the window for comment is drawing to a close.  This issue has not received the attention that it deserves.  Hopefully, some of this Blog's readers will consider contributing.

The news release reads as follows:

The Securities and Exchange Commission today announced that it is seeking public comment to help inform its review of the listing and trading of new, novel, or complex exchange-traded products (ETPs). The request for comment addresses key issues that arise when exemptions are sought by a market participant to trade a new ETP or when a securities exchange seeks to establish standards for listing new ETPs. Due to the expansion of ETP investment strategies in recent years that has led to a significant increase in the number and complexity of these requests, the Commission determined it would be beneficial to receive public input on these issues.
“Exchange-traded products have become an increasingly important investment vehicle to market participants ranging from individuals to large institutional investors,” said SEC Chair Mary Jo White. “As new products are developed and their complexity grows, it is critical that we have broad public input to inform our evaluation of how they should be listed, traded, and marketed to investors, especially retail investors.”

The request for comment addresses arbitrage mechanisms and market pricing for ETPs, legal exemptions and other regulatory positions related to the trading of ETPs, and securities exchange listing standards for ETPs. In addition, the request invites comment on how market professionals sell ETPs, especially to retail investors, and on investors’ understanding of the nature and use of ETPs.

ETPs constitute a diverse class of financial products that seeks to provide investors with exposure to financial instruments, financial benchmarks, or investment strategies across a wide range of asset classes. ETP trading occurs on national securities exchanges and other secondary markets that are regulated by the Commission under the Securities Exchange Act of 1934.

The public comment period will remain open for 60 days following publication of the comment request in the Federal Register.

August 1, 2015 | Permalink | Comments (0)