Tuesday, June 23, 2015
The following law review articles relating to securities regulation are now available in paper format:
J.H. Dalhuisen, Globalization and the Transnationalization of Commercial and Financial Law, 67 Rutgers U. L. Rev. 19 (2015).
Martin Gelter & Zehra G. Kavame Eroglu, Whose Trojan Horse?: The Dynamics of Resistance Against IFRS, 36 U. Pa. J. Int'l L. 89 (2014).
David Groshoff, Alex Nguyen & Kurtis Urien, Crowdfunding 6.0: Does the SEC's FinTech Law Failure Reveal the Agency's True Mission to Protect--Solely Accredited--Investors?, 9 Entrepren. Bus. L.J. 277 (2015).
Joseph Hogan, Comment, Like Oil and Water: Equity Crowdfunding and Securities Regulation, 18 Lewis & Clark L. Rev. 1091 (2014).
Hayden C. Holliman, Note, The Consolidated Audit Trail: An Overreaction to the Danger of Flash Crashes from High Frequency Trading, 19 N.C. Bank. Inst. 135 (2015).
Jonathan R. Hornok, The Alternative Investment Market: Helping Small Enterprises Grow Public, 9 Entrepren. Bus. L.J. 323 (2015).
Caroline E. Keen, Note, Clarifying What Is "Clear": Reconsidering Whistleblower Protections under Dodd-Frank, 19 N.C. Bank. Inst. 215 (2015).
J. Tyler Kirk, Superior Supererogation: Why Credit Default Swaps Are Securities under the Investment Advisers Act of 1940, 6 Wm. & Mary Bus. L. Rev. 237 (2015).
Charles R. Korsmo, Market Efficiency and Fraud on the Market: The Danger of Halliburton, 18 Lewis & Clark L. Rev. 827 (2014).
Nathan Lee, The Extraterritorial Reach of United States Securities actions after Morrison v. National Australian Bank, 13 Rich. J. Global L. & Bus. 623 (2015).
Tom C.W. Lin, Reasonable Investor(s), 95 B.U. L. Rev. 461 (2015).
Brian M. McCall, Gambling on our Financial Future: How the Federal Government Fiddles While State Common Law Is a Safer Bet to Prevent Another Financial Collapse, 46 Ariz. St. L.J. 1347 (2014).
Richard Moberly, Jordan A. Thomas & Jason Zuckerman, De Facto Gag Clauses: The Legality of Employment Agreements that Undermine Dodd-Frank's Whistleblower Provisions, 30 A.B.A. J. Lab. & Emp. L. 87 (2014).
Tyler H. Morris, Note, Too Big to Jail: The Lack of Suitable Culpability Elements in the Criminal Liability of Principals, 9 Brook. J. Corp. Fin. & Com. L. 335 (2014).
Charles W. Murdock, Halliburton, Basic, and Fraud on the Market: The Need for a New Paradigm, 60 Vill. L. Rev. 203 (2015).
Hossein Nabilou & Alessio M. Paccesm, The Hedge Fund Regulation Dilemma: Direct vs. Indirect Regulation, 6 Wm. & Mary Bus. L. Rev. 183 (2015).
Adi Osovsky, The Curious Case of the Secondary Market with Respect to Investor Protection, 82 Tenn. L. Rev. 83 (2014).
Po-Ting Peng, Note, Deciding the Applicable Law in Private Antifraud Claims Arising from Cross-Border Security-Based Swaps, 24 Minn. J. Int'l L. 131 (2015).
Taylor J. Phillips, The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act, 6 Wm. & Mary Bus. L. Rev. 89 (2015).
Carlton B .Price, Note, What Money Market Mutual Fund Reform Means for Banks and Money Market Deposit Accounts, 19 N.C. Bank. Inst. 243 (2015).
Gregory Scopino, Do Automated Trading Systems Dream of Manipulating the Price of Futures Contracts? Policing Markets for Improper Trading Practices by Algorithmic Robots, 67 Fla. L. Rev. 221 (2015).
Brian J. Shea, Note, Better Go It Alone: An Extension of Fiduciary Duties for Investment Fund Managers in Securities Class Action Opt-Outs, 6 Wm. & Mary Bus. L. Rev. 255 (2015).
Gregory H. Shill, Boilerplate Shock: Sovereign Debt Contracts as Incubators of Systemic Risk, 89 Tul. L. Rev. 751 (2015).
William Shotzbarger, Note, Business and Friendship Don't Mix: The Government's Expansion of Insider Trading Liability under SEC Rule 10b5-2, 65 Syracuse L. Rev. 579 (2015).
Steven Davidoff Solomon & David Zaring, After the Deal: Fannie, Freddie, and the Financial Crisis Aftermath, 95 B.U. L. Rev. 371 (2015).
Andrew F. Tuch, The Self-Regulation of Investment Bankers, 83 Geo. Wash. L. Rev. 101 (2014).
Markus Wagner, Regulatory Space in International Trade Law and International Investment Law, 36 U. Pa. J. Int'l L. 1 (2014).
Daniel P. Willey, Note, Misplaced Reliance: Rethinking Rule 10b-5 and the Causal Connection, 95 B.U. L. Rev. 651 (2015).
Tuesday, June 9, 2015
The following law review articles relating to securities regulation are now available in paper format:
Norah C. Avellan, Note, The Securities and Exchange Commission and the Growing Need for Cybersecurity in Modern Corporate America, 54 Washburn L.J. 193 (2014).
Eric C. Chaffee, An Oak Is an Oak Is an Oak Is an Oak: The Disappointing Entrenchment in Halliburton Co. v. Erica P. John Fund of the Implied Private Right of Action under Section 10(b) and Rule 10b-5, 9 N.Y.U. J.L. & Liberty 92 (2015).
Harry S. Gerla, Confidentiality Agreements and the Misappropriation Theory of Insider Trading: Avoiding the Fiduciary Duty Fetish, 39 U. Dayton L. Rev. 331 (2015).
Jamie Heine, The Whittling Away of the Private Right of Action under Rule 10b-5: The PSLRA, Janus, and the Financial Crisis, 48 Creighton L. Rev. 23 (2014).
Michael J. Kaufman & John M. Wunderlich, Leave Time for Trouble: The Limitations Periods under the Securities Laws, 40 J. Corp. L. 143 (2014).
Robert Quigley, The Impulse Towards Individual Criminal Punishment after the Financial Crisis, 22 Va. J. Soc. Pol'y & L. 103 (2015).
Jennifer Rose Roeske, Note, Broader Is Better: How Courts Should Determine Whether or Not an Allegation of Fraud Falls under the Preemption Provision of the Securities Litigation Uniform Standards Act, 88 St. John's L. Rev. 433 (2014).
Mauricio Salazar, Comment, Swapping More than Regulations: Reexamining the Goals of the Dodd-Frank Act and the European Market Infrastructure Regulation on Over-the-Counter Derivative Markets, 21 Sw. J. Int'l L. 217 (2014).
Raxit Shah, Note, Staying the Course with Broker-Dealer Registration: The SEC's Impending Regulation of Crowdfunding Portals under the JOBS Act, 40 J. Corp. L. 275 (2014).
Urska Velikonja, Public Compensation for Private Harm: Evidence from the SEC's Fair Fund Distributions, 67 Stan. L. Rev. 331 (2015).
Justin D. Weitz, A Necessary Supplement: Reinvigorating Civil RICO's Securities Fraud Predicate, 21 Widener L. Rev. 27 (2015).
Brian R. Cheffins, Steven A. Bank, and Harwell Wells have posted Shareholder Protection Across Time on SSRN with the following abstract:
This Article offers the first systematic attempt to measure the development of shareholder protection in the United States across time. Using three indices developed to measure the relative strength of shareholder protection across nations, we evaluate numerically the protections corporate and securities law have offered shareholders from the beginning of the twentieth century to the present day. We do so by tracking the rights accorded to shareholders across time under three important sources of corporate law, Delaware and Illinois and the Model Business Corporation Act.
Our novel study yields novel results. First, we find that the protections afforded to shareholders by state corporation law have decreased since 1900 but only modestly so. This implies that, contrary to the assumptions of many scholars, state competition in corporate law has not significantly eroded shareholder rights. Second, when we add in measures that count protections provided by federal as well as state law, we find that shareholder protection improved across time. This implies that federal intervention has played a crucial and perhaps underappreciated role in shaping U.S. corporate law. Beyond its specific findings, this study illustrates how empirical analysis of legal trends provides scholars with a new means for analyzing and resolving fundamental questions in corporate law.
Lynn A. Baker, Michael A. Perino, and Charles Silver have posted Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions on SSRN with the following abstract:
Every year, fee awards enable millions of people to obtain access to justice and strengthen the deterrent effect of the law by motivating lawyers to handle class actions. But the process by which judges decide how much to pay lawyers remains a black box. Settlements go in one side; fee awards come out the other. The inputs and outputs have been studied, but the actual operation of the fee-setting mechanism has not. Consequently, it is difficult to know why judges award the amounts they do or whether they size fee awards correctly.
Both numerically and in terms of dollars recovered, securities cases dominate the federal courts’ class action docket. We therefore undertook to peer into the fee-setting black box by studying in detail all of the 434 securities class actions that settled in federal district courts from 2007 through 2012. We examined the actual court filings in each case to create an original, comprehensive dataset of information on all points at which federal judges are likely to consider issues relating to fees. These data enable us to paint a picture of the fee-setting process that is unusually detailed and nuanced and that falsifies many common beliefs.
Among our major findings are that: (1) federal judges often deviate from the path Congress laid out in the Private Securities Litigation Reform Act (PSLRA), which requires lead plaintiffs to set the terms of class counsel’s retention and federal judges to serve as backstops against abuses; (2) fees tend to be lower in federal districts that see a high volume of securities class actions than in districts that handle these cases less often; (3) fee cuts are significantly more likely among judges that see a high volume of securities class actions than among low volume judges; (4) the well-known “decrease-increase” rule, according to which fee percentages decline as settlements become larger, operates mainly in high-volume districts; and (5) judges appear to cut fees randomly, that is, on the basis of their own predilections rather than the merits of fee requests. Finally, we learn that so-called “lodestar cross-checks,” which require judges to consider the “time and labor expended by counsel” and other factors to ensure against excessive fees, accomplish nothing. Actual fee awards reflect something closer to a pure “percentage of the fund” approach.
In sum, we found little evidence that the actions currently taken by the courts in securities class actions move class counsel’s fees closer to the “right price.” We therefore propose a set of procedural reforms which courts could easily adopt that would make fee-setting in securities class actions more transparent, more compatible with the normative goals of the PSLRA, and more predictable. The reforms would encourage lawyers to invest optimally in class actions, with salutary effects for investors seeking compensation and the integrity of the financial markets.
Monday, June 8, 2015
Onnig H. Dombalagian has published a new book, Chasing the Tape: Information Law and Policy in Capital Markets. The website for the book offers the following overview:
Financial information is a both a public resource and a commodity that market participants produce and distribute in connection with other financial products and services. Legislators, regulators, and other policy makers must therefore balance the goal of making information transparent, accessible, and useful for the collective benefit of society against the need to maintain appropriate incentives for information originators and intermediaries. In Chasing the Tape, Onnig Dombalagian examines the policy objectives and regulatory tools that shape the information production chain in capital markets in the United States, the European Union, and other jurisdictions. His analysis offers a unique cross section of capital market infrastructure, spanning different countries, regulated entities, and financial instruments.
Dombalagian uses four key categories of information—issuer information, market information, information used in credit analysis, and benchmarks—to survey the market forces and regulatory regimes that govern the flow of information in capital markets. He considers the similarities and differences in regulatory aims and strategies across categories, and discusses alternative approaches proposed or adopted by scholars and policy makers. Dombalagian argues that the long-term regulatory challenges raised by economic globalization and advanced information technology will require policy makers to decouple information policy in capital markets from increasingly arbitrary historical classifications and jurisdictional boundaries.
The following law review articles relating to securities regulation are now available in paper format:
Todd Haugh, The Most Senior Wall Street Official: Evaluating the State of Financial Crisis Prosecutions, 9 Va. L. & Bus. Rev. 153 (2015).
Paul B. Maslo, Immunocompromised: A Call for Courts to Redefine the Boundaries of the Absolute Immunity Doctrine's Application to National Securities Exchanges, 11 N.Y.U. J.L. & Bus. 333 (2014).
Alisha Patterson, Case Comment, Securities Law--Section 10(b) Liability Not Applicable to Domestic Securities-Based Swap Agreements on Foreign Securities--Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198 (2d Cir. 2014). 38 Suffolk Transnat'l L. Rev. 233 (2015).
MaryJane Richardson, Comment, The Disguise of Municipal Bonds: How a Safe Bet in Investing Can Become an Unexpected Uncertainty During Municipal Bankruptcy, 37 Campbell L. Rev. 187 (2015).
Thursday, May 28, 2015
Sarah Haan has an interesting post on Balkination about D.C. Circuit's rehearing of NAM v. SEC, the 2014 case in which the court threw out part of the SEC’s Conflict Minerals Rule on First Amendment grounds. The post addresses the issue in the case: Can the D.C. Circuit apply a commercial speech test to a securities disclosure rule?
Mike Koehler has an interesting post on the Foreign Corrupt Practices Act on the FCPA Professor Blog. The post discusses how the SEC determines whether as a civil action in federal court or an SEC administrative proceeding. It's well worth a read.
Carlos Berdejo, Revisiting the Voting Prohibition in Bond Workouts, 89 Tul. L. Rev. 541 (2015).
Hunter DeKoninck, Note, Breaking the Curse: A Multilayered Regulatory Approach, 22 Ind. J. Global Legal Stud. 121 (2015).
Susan B. Heyman, Rethinking Regulation Fair Disclosure and Corporate Free Speech, 36 Cardozo L. Rev. 1099 (2015).
Jonathan Lindenfeld, Note, The CFTC's Substituted Compliance Approach: An Attempt to Bring about Global Harmony and Stability in the Derivatives Market, 14 J. Int'l Bus. & L. 125 (2015).
Nicole Mirjanich, Comment, Digital Money: Bitcoin's Financial and Tax Future Despite Regulatory Uncertainty, 64 DePaul L. Rev. 213 (2014).
Neal Perlman, Note, Section 21(a) Reports: Formalizing a Functional Release Valve at the Securities and Exchange Commission, 69 N.Y.U. Ann. Surv. Am. L. 887 (2014).
Gregory Scopino, The (Questionable) Legality of High-Speed "Pinging" and "Front Running" in the Futures Markets, 47 Conn. L. Rev. 607 (2015).
Elan W. Silver, Comment, Reaching the Right Investors: Comparing Investor Solicitation in the Private-Placement Regimes of the United States and the European Union, 89 Tul. L. Rev. 719 (2015).
Robert H. Steinhoff, Comment, The Next British Invasion Is Securities Crowdfunding: How Issuing Non-Registered Securities Through the Crowd Can Succeed in the United States, 86 U. Colo. L. Rev. 661 (2015).
Natalie A. Turchi, Note, Restructuring a Sovereign Bond Pari Passu Work-Around: Can Holdout Creditors Ever Have Equal Treatment, 83 Fordham L. Rev. 2171 (2015).
Monday, May 11, 2015
John P. Anderson has posted Solving the Paradox of Insider Trading Compliance on SSRN with the following abstract:
Regulators demand the impossible when they require issuers to design and implement an effective insider trading compliance program because insider trading is a crime that neither Congress nor the SEC has defined with any specificity. This problem of uncertainty is then compounded by the threat of heavy civil and criminal sanctions for violations. Placed between this rock and hard place, issuers tend to adopt over-broad insider trading compliance programs that come at a heavy price in terms of corporate culture, cost of compensation, share liquidity, and cost of capital. The irony is that, since all of these costs are ultimately passed along to the shareholders, insider trading enforcement under the current regime has precisely the opposite of its intended effect. This is the paradox of insider trading compliance for issuers, just one more symptom of a dysfunctional insider trading enforcement regime that is in need of a dramatic overhaul.
There are a number of conceivable paths to resolving this paradox. The most obvious solution would be for the SEC to issue a rule or for Congress to promulgate a statute defining insider trading with greater specificity. But while simply fixing definitions to the elements of insider trading under the current regime would improve matters, this Article calls for a more radical solution. It is suggested that the current enforcement regime be liberalized to permit insider trading where the issuer approves the trade in advance and has disclosed that it permits such trading pursuant to regulatory guidelines. It is argued that such reform would lead to a more rational, efficient, and just insider trading enforcement regime. Moreover, by aligning the interests of issuers, shareholders, and regulators, it would also offer the most effective solution to the paradox of insider trading compliance.
Mike Koehler has posted Ten Seldom Discussed Foreign Corrupt Practices Act Facts that You Need to Know on SSRN with the following abstract:
Much is written about the Foreign Corrupt Practices Act. However, amid the clutter of enforcement agency rhetoric and resolution documents not subjected to any meaningful judicial scrutiny as well as the mountains of FCPA Inc. marketing material touting the next compliance risk, there are certain FCPA facts that are seldom discussed.
Yet such facts, covering the entire span of the FCPA — from the statute’s enactment, to its statutory provisions, to FCPA enforcement, to FCPA reform, to the FCPA industry itself — occasionally bear repeating.
This article does that by highlighting ten seldom discussed FCPA facts that you need to know.
Aaron S. Davidowitz, Note, Abandoning the 'Mosaic Theory': Why the 'Mosaic Theory' of Securities Analysis Constitutes Illegal Insider Trading and What to Do about It, 46 Wash. U. J.L. & Pol'y 281 (2014).
Alicia J. Davis, Market Efficiency and the Problem of Retail Flight, 20 Stan. J.L. Bus. & Fin. 36 (2014).
Francis J. Facciolo, Do I Have a Bridge for You: Fiduciary Duties and Investment Advice, 17 U. Pa. J. Bus. L. 101 (2014).
Nan S. Ellis & Steven B. Dow, Attaching Criminal Liability to Credit Rating Agencies: Use of the Corporate Ethos Theory of Criminal Liability, 17 U. Pa. J. Bus. L. 167 (2014)
Cody R. Friesz, Note, Crowdfunding & Investor Education: Empowering Investors to Mitigate Risk & Prevent Fraud, 48 Suffolk U.L. Rev. 131 (2015).
Priyah Kaul, Note, Admit or Deny: A Call for Reform of the SEC's "Neither-Admit-Nor-Deny" Policy, 48 U. Mich. J.L. Reform 535 (2015).
Michael P. Marek & Robert A. Wilson, A Future for Reserve-Based Lending in Emerging Markets? Limitations of the Traditional Model, 10 Tex. J. Oil Gas & Energy L. 149 (2014).
Nathan R. Schuur, Note, Fraud Is Already Illegal: Section 621 of the Dodd-Frank Act in the Context of the Securities Laws, 48 U. Mich. J.L. Reform 565 (2015).
Will White, Note, Oil, Corruption, and the Department of Justice: FCPA Enforcement and the Energy Industry, 10 Tex. J. Oil Gas & Energy L. 181 (2014).
2014 Symposium, Never the Twain: Emerging U.S.-Chinese Business Law Relations. Articles by Franklin Allen, Jun "QJ" Qian, Jerome A. Cohen, Li Guo, Nicholas Calcina Howson, Vikramaditya S. Khanna, Jiangyu Wang and Angela Huyue Zhang, 47 Cornell Int'l L.J. 499-707 (2014).
Wednesday, May 6, 2015
Chair White's Testimony on the Fiscal Year 2016 Budget Request of the U.S. Securities and Exchange Commission
SEC Announces Outreach Programs to Help Firms Comply With Regulation Systems Compliance and Integrity
John P. Anderson has posted What's the Harm in Issuer-Licensed Insider Trading? on SSRN with the following abstract:
There is growing support for the claim that issuer-licensed insider trading (when the insider’s firm approves the trade in advance and has disclosed that it permits such trading pursuant to published guidelines) is economically efficient, and morally harmless. But for the last 35 years many scholars and the U.S. Supreme Court have relied on “The Law of Conservation of Securities” to rebut claims that insider trading can be victimless. This law is purported to show that every act of insider trading, even those licensed by the issuer, causes an identifiable harm to someone. This essay argues that the Law of Conservation of Securities is not helpful to answering the moral question of whether insider trading is a victimless crime because it either proves too much or too little. It either proves that all profitable trades (or profitable trade omissions) in advance of firms’ material disclosures are morally impermissible (an absurdity), or it tells us nothing at all about the moral permissibility of such trades. Of course, once the Law of Conservation of Securities is neutralized, other moral criticisms of issuer-licensed insider trading that rely on this law also fail. Professor Leo Katz’s claim that morality does not permit one to consent to a system that openly allows issuer-licensed insider trading is offered as one example of an argument that fails once considered in light of a proper understanding of the Law of Conservation of Securities.
Monday, May 4, 2015
Henry T. C. Hu has posted Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency on SSRN with the following abstract:
Financial innovation has fundamental implications for the key substantive and information-based mechanisms of corporate governance. “Decoupling” undermines classic understandings of the allocation of voting rights among shareholders (e.g., “empty voting”), the control rights of debtholders (e.g., “empty crediting” and “hidden interests”/“hidden non-interests”), and of takeover practices (e.g., “hidden (morphable) ownership” to avoid Schedule 13D blockholder disclosure and to avoid triggering certain poison pills). Stock-based compensation, the monitoring of managerial performance, the market for corporate control, and other governance mechanisms dependent on a robust informational predicate and market efficiency are undermined by the transparency challenges posed by financial innovation. The basic approach to information that the SEC has always used — the “descriptive mode,” which relies on “intermediary depictions” of objective reality — is manifestly insufficient to capture highly complex objective realities, such as the realities of major banks heavily involved with derivatives. Ironically, the primary governmental response to such transparency challenges — a new system for public disclosure that became effective in 2013, the first since the establishment of the SEC — also creates difficulties. This new parallel public disclosure system, developed by bank regulators in the shadow of Basel and the Dodd-Frank Act and applicable to major financial institutions, is not directed primarily at the familiar transparency ends of investor protection and market efficiency.
As starting points, this Article offers brief overviews of: (1) the analytical framework developed in 2006-2008 for “decoupling” and its calls for reform; and (2) the analytical framework developed in 2012-2014 reconceptualizing “information” in terms of three “modes” and addressing the two parallel disclosure universes.
As to decoupling, the Article proceeds to analyze some key post-2008 developments (including the status of efforts at reform) and the road ahead. A detailed analysis is offered as to the landmark December 2012 TELUS Corp. opinion in the Supreme Court of British Columbia, involving perhaps the most complicated public example of decoupling to date. The analytical framework's "empty voter with negative economic exposure" concept is addressed in a dual class share context. The Article discusses recent actions on the part of the Delaware judiciary and legislature, the European Union, and bankruptcy courts — and the pressing need for more action by the SEC. In addition, at the time the debt decoupling research was introduced, available evidence as to the significance of empty creditor, related hidden interest/hidden non-interest matters, and hybrid decoupling was limited. This Article helps address that gap.
As to information, the Article begins by outlining the calls for reform associated with the 2012-2014 analytical framework. With revolutionary advances in computer- and web-related technologies, regulators need no longer rely almost exclusively on the descriptive mode rooted in intermediary depictions. Regulators must also begin to systematically deploy the “transfer mode” rooted in “pure information” and the “hybrid mode” rooted in “moderately pure information.” The Article then shows some of the key ways that the new analytical framework can contribute to the SEC’s comprehensive and long-needed new initiative to address “disclosure effectiveness,” including in “depiction-difficult” contexts completely unrelated to financial innovation (e.g., pension disclosures and high technology companies). The Article concludes with a concise version of the analytical framework’s thesis that the new morphology of public information — consisting of two parallel regulatory universes with divergent ends and means — is unsustainable in the long run and involve certain matters that need statutory resolution. In the interim, however, certain steps involving coordination among the SEC, the Federal Reserve, and others can be taken.
Saturday, May 2, 2015
Christian At, Sylvain Beal & Pierre-Henri Morand, Freezeout, Compensation Rules, and Voting Equilibria, 41 Int'l Rev. L. & Econ. 91 (2015).
Ian Ayres & Quinn Curtis, Protecting Consumer Investors by Facilitating "Improved Performance" Competition, 2015 U. Ill. L. Rev. 1.
Clint. Hale, Comment, The Great and Powerful FAA: Why Schwab's Class Action Waiver Should Have Been Enforced Over FINRA's Rules, 42 Pepp. L. Rev. 109 (2014).
Nina Hart, Note, Moving at a Glacial Pace: What Can State Attorneys General Do about SEC Inattention to Nondisclosure of Financially Material Risks Arising from Climate Change?, 40 Colum. J. Envtl. L. 99 (2015).
Christine Hurt, Pricing Disintermediation: Crowdfunding and Online Auction IPOs, 2015 U. Ill. L. Rev. 217.
Zoe A. Jones, Note, Left Out in the Cold: Freezing Innocent Spouses' Assets in SEC Actions, 24 Cornell J.L. & Pub. Pol'y 381 (2014).
Friday, May 1, 2015
John P. Anderson has posted Anticipating a Sea Change for Insider Trading Law: From Trading Plan Crisis to Rational Reform on SSRN with the following abstract:
The SEC is poised to take action in the face of compelling evidence that corporate insiders are availing themselves of rule-sanctioned Trading Plans to beat the market. These Trading Plans allow insiders to trade while aware of material nonpublic information. Since the market advantage insiders have enjoyed from Plan trading can be traced to loopholes in the current regulatory scheme, increased enforcement of the existing rules cannot address the issue. But simply tweaking the existing rule structure to close these loopholes would not work either. This is because the SEC adopted the current rule as a part of a delicate compromise with the courts in the “use versus possession” debate over the proper test of scienter for insider trading liability. The current rule reflects the SEC’s preferred test (mere “awareness”), but it provides for Trading Plans as an affirmative defense in order to pass judicial scrutiny. Thus, any attempt to simply close the loopholes in Trading Plans while maintaining the awareness test would upset this delicate compromise. Only a comprehensive change to the current insider trading enforcement regime can address the issue.
The reform proposed here begins with the recognition that Plan trading is generally done with the firm’s awareness and consent. Such trading is therefore a form of Non-Promissory Insider Trading. Since there are strong arguments that there is no moral wrong or economic harm done by Non-Promissory Insider Trading, the regulatory regime should openly embrace it as a permissible form of compensation through firm-sanctioned Modified Trading Plans, so long as there is adequate disclosure. Though such liberalization would represent a radical departure from the current enforcement regime, it would be within the SEC’s rulemaking authority and would be consistent with Supreme Court precedent. Most importantly, it would dramatically improve the current enforcement regime in terms of justice, clarity, efficiency and coherence.
It is sometimes said there is nothing like a good crisis for effecting much needed change. The current media attention and public scrutiny over corporate insiders’ exploitation of rule-sanction Trading Plans may be just the crisis to spur the SEC to adopt a more rational and just approach to insider trading enforcement. The outline for such reform has been proposed here.