Monday, July 3, 2017
The following law review articles relating to securities regulation are now available in paper format:
Joanna Howard, Note, Reforming SEC ALJ Proceedings, 50 U. Mich. J.L. Reform 795 (2017).
Mike Koehler, Foreign Corrupt Practices Act Statistics, Theories, Policies, and Beyond, 65 Clev. St. L. Rev. 157 (2017).
Lisa Newman, Note, Are SEC Administrative Proceedings the New [Unconstitutional] Normal?, 36 Rev. Litig. 193 (2017).
Kevin M. Talbot, Comment, What Does "Green" Really Mean?: How Increased Transparency and Standardization Can Grow the Green Bond Market, 28 Vill. Envtl. L.J. 127 (2017).
Tuesday, June 27, 2017
The Supreme Court has greated certiorari in Cyan Inc. v. Beaver County Employees Retirement Fund. At issue in the case is whether the Securities Litigation Uniform Standards Act prohibits a state court from exercising jurisdiction over lawsuits that only allege violations of the Securities Act of 1933. As my recent article discuses, the Roberts Court's interest in securities litigation procedure runs deep.
In California Public Employees’ Retirement System v. ANZ Securities, Inc., the Supreme Court of the United States has held that the three year limitation period applicable to Securities Act Section 11 claims cannot be extended or tolled based upon the language of Section 13. Justice Kennedy wrote the opinion for the Court in a 5 to 4 decision.
As with all securities regulation cases involving the Roberts Court, Chief Justice was in the majority. The case continues the Court's recent focus on procedural issues in securities regulation cases. For commentary on the Roberts Court and securities law, see my recent article here.
Tuesday, June 20, 2017
Stanislav Dolgopolov has posted Securities Fraud Embedded in the Market Structure Crisis: High-Frequency Traders as Primary Violators on SSRN with the following abstract:
This Article analyzes approaches to attaching liability for securities fraud to high-frequency traders as primary violators in connection with the current market structure crisis. One of the manifestations of this crisis pertains to inadequate disclosure of advanced functionalities offered by trading venues, as exemplified by the order type controversy. The Article’s analysis is applied to secret arrangements between trading venues and preferred traders, glitches and gaming, and the reach of the doctrine of market manipulation, and several relevant issues are also viewed from the standpoint of the integrity of the trading process. The Article concludes by arguing for a balanced approach to catching certain problematic practices of high-frequency traders as securities fraud.
The following law review articles relating to securities regulation are now available in paper format:
Ilya Beylin, Taxing Fictive Orders: How an Information-Forcing Tax Can Reduce Manipulation and Distortion in Financial Product Markets, 85 U. Cin. L. Rev. 91 (2017).
Randall Bryer, Comment, The SEC's Potential Appointments Clause Defect and How It Could Impact the Administrative State, 19 U. Pa. J. Const. L. 521 (2016).
Elisabeth de Fontenay, The Deregulation of Private Capital and the Decline of the Public Company, 68 Hastings L.J. 445 (2017).
Luke I. Landers, Comment, To Be a "Whistleblower," or Not to Be a "Whistleblower?" that is the Question--Whether 'Tis Nobler in the Mind of the Courts to Suffer for Reporting Wrongdoing to the SEC or Employers Internally: Examining the Recent Circuit Split Regarding the Definition of a Whistleblower under Dodd-Frank, 10 J. Bus. Entrepreneurship & L. 79 (2016).
Alison M. Zeitlin, Note, Improving Protections for Whistleblowers: Why Congressional and Agency Intent Helped Provide the Second Circuit with the Correct Answer of Encouraging Reporting of Securities Violations, 105 Ky. L.J. 393 (2016-2017).
Thursday, June 15, 2017
Matthew C. Turk has posted Regulation by Settlement on SSRN with the following abstract:
This article explores a recent development at the intersection of administrative law and financial regulation: the explosion in enforcement actions brought by federal agencies against financial institutions, and the exclusive resolution of those cases via settlement agreements that preclude meaningful judicial review. It argues that those practices have given rise to a distinct new form of policymaking, “regulation by settlement,” which has significant implications for both areas of the law.
Regulation by settlement has two defining features. First, by pursuing settlements that target certain areas of the financial system on a comprehensive basis, agencies are able to leverage those agreements in a manner that effectively establishes novel legal standards of general applicability. Settlements are now a tool for setting policy in financial regulation. Second, the procedural posture of those settlements allows agencies to engage in a uniquely freewheeling style of policymaking, which sidesteps nearly all of the constraints that administrative law applies to more conventional forms of agency action.
The article closes by considering normative issues raised by regulation by settlement, including questions concerning its consistency with rule of law values and efficiency from a cost-benefit perspective. It also reviews potential reforms, such as subjecting settlements to greater judicial scrutiny or presidential oversight. The broader contribution to the literature is to show how a richer understanding of the regulatory process can be gained by analyzing its public law and business law aspects in parallel.
Wednesday, June 14, 2017
The following law review articles relating to securities regulation are now available in paper format:
Taylor Essner, Note, Insider Trading in Flux: Explaining the Second Circuit's Error in United States v. Newman and the Supreme Court's Correction of that Error in United States v. Salman, 61 St. Louis U. L.J. 117 (2016).
Norman Menachem Feder, Market in the Remaking: Over-the-Counter Derivatives in a New Age, 11 Va. L. & Bus. Rev. 309 (2017).
Christopher B. Grady, Note, Finding the Pearl in the Oyster: Supercharging IPOs through Tax Receivable Agreements, 111 Nw. U. L. Rev. 483 (2017).
Marc I. Steinberg & Forrest C. Roberts, Laxity at the Gates: the SEC's Neglect to Enforce Control Person Liability, 11 Va. L. & Bus. Rev. 201 (2017).
Steven L. Schwarcz, Changing Law to Address Changing Markets: A Consequence-Based Inquiry, 80 Law & Contemp. Probs. 163 (2017).
Gregory Scopino, Expanding the Reach of the Commodity Exchange Act's Antitrust Considerations, 45 Hofstra L. Rev. 573 (2016).
Tuesday, June 6, 2017
Sarah Baumgartel, Privileging Professional Insider Trading, 51 Ga. L. Rev. 71 (2016).
George S. Georgiev, Too Big to Disclose: Firm Size and Materiality Blindspots in Securities Regulation, 64 UCLA L. Rev. 602 (2017).
Stacey E. Harlow, Comment, Using "SOX" to Prevent Federal Courts' Cold Feet about Dodd-Frank's Whistleblower Provisions, 24 Geo. Mason L. Rev. 315 (2016).
Michael C. Macchiarola & Daniel Prezioso, Expanding Alternatives: From Structured Notes to Structured Funds, 19 U. Pa. J. Bus. L. 405 (2017).
Marc I. Steinberg & Abel Ramirez, Jr., The SEC's Neglected Weapon: A Proposed Amendment to Section 17(a)(3) and the Application of Negligent Insider Trading, 19 U. Pa. J. Bus. L. 239 (2017).
Harris M. Watkins, Note, Defining and Verifying Accredited Investors: Effect of Potential SEC Changes on North Carolina's Crowdfunding Statute, the NC PACES Act, 21 N.C. Bank. Inst. 469 (2017).
The Enduring Legacy of Henry G. Manne, Articles by Bernard S. Sharfman, John P. Anderson, Edward Peter Stringham, Brian F. Mannix, M. Todd Henderson & Houman B. Shadab. 12 J.L. Econ. & Pol'y 251-371 (2016).
Monday, June 5, 2017
The Supreme Court of the United States has handed down a unanimous opinion authored by Justice Sonia Sotomayor in SEC v. Kokesh. At issue was the statute of limitations in disgorgement actions by the SEC. The Court held "Because SEC disgorgement operates as a penalty . . . , any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued."
Notably, this case continues the trends by the Roberts Court of limited polarization and focusing on procedural issues in securities regulation matters. These trends were discussed in my recent article, The Supreme Court as Museum Curator: Securities Regulation and the Roberts Court.
Friday, June 2, 2017
I have posted The Supreme Court as Museum Curator: Securities Regulation and the Roberts Court on SSRN with the following abstract:
The number of opinions relating to securities regulation that have been handed down by the Supreme Court since Chief Justice Roberts began his tenure on September 29, 2005 is substantial. The Roberts Court has taken approximately two securities regulation cases per term, which is twice the number that the Rehnquist Court took. Moreover, the number of cases granted certiorari continues to shrink, which means that securities law cases represent an even larger portion of the Court’s docket.
The roughly twenty-one opinions authored by the Court might suggest a deep and abiding love of securities regulation issues. But, as this symposium article explores, the opinions themselves tell a different story with the Court serving in the role of a museum curator maintaining historical relics from bygone eras, doing minor restoration work as needed, limiting access to these relics through statutory interpretation, and occasionally offering an exhibition involving issues at the periphery of securities law. The implications of this approach include the death of the lower courts laboratories approach in regard to creating securities law, especially in regard to the Second Circuit, which was previously the “Mother Court” in securities regulation; the entrenchment of good and bad Supreme Court precedent; and a clear message that the Roberts Court is not pro-business in the securities regulation realm because the Court is not pushing any market regulation agenda. While the future remains open, this role for the Court is well-entrenched, and the narrative of the Roberts Court in regard to securities law is well-developed.
Stephen J. Choi and Adam C. Pritchard have posted Lead Plaintiffs and Their Lawyers: Mission Accomplished, or More to Be Done? on SSRN with the following abstract:
This chapter, written for the Research Handbook on Shareholder Litigation, surveys empirical work studying the lead plaintiff provision of the Private Securities Litigation Reform Act (PSLRA). That work finds that the lead plaintiff provision has encouraged institutional investors to participate in securities class actions, and that those institutional investors have negotiated lower attorneys' fees. Those benefits from the lead plaintiff provision are undercut, however, by political contributions made by plaintiffs' lawyers. We suggest additional reforms to promote transparency and competition among lawyers for lead plaintiffs. We also suggest reforms to the lead plaintiff provision intended to enhance the screening effect of the PSLRA.
Frank Partnoy has posted What's (Still) Wrong with Credit Ratings on SSRN with the following abstract:
Scholars and regulators generally agree that credit rating agency failures were at the center of the recent financial crisis. Congress responded to these failures with reforms in the 2010 Dodd-Frank Act. This article demonstrates that those reforms have failed. Instead, regulators have thwarted Congress’s intent at every turn. As a result, the major credit rating agencies continue to be hugely profitable, yet generate little or no informational value. The fundamental problems that led to the financial crisis – overreliance on credit ratings, a lack of oversight and accountability, and primitive methodologies – remain as significant as they were before the financial crisis. This article addresses each of these problems and proposes several solutions.
First, although Congress attempted to remove credit rating agency “regulatory licenses,” the references to ratings in various statutes and rules, regulatory reliance on ratings remains pervasive. I show that regulated institutions continue to rely mechanistically on ratings, and I demonstrate that regulations continue to reference ratings, notwithstanding the Congressional mandate to remove references. I suggest several paths to reduce reliance.
Second, although Congress authorized new oversight measures, including an Office of Credit Ratings, that oversight has been ineffective. Annual investigations have uncovered numerous failures, many in the same mortgage-related areas that precipitated the financial crisis, but regulators have imposed minimal discipline on violators. Moreover, because regulators refuse to identify particular rating agencies in OCR reports, wrongdoers do not suffer reputational costs. I propose reforms to the OCR that would enhance its independence and sharpen the impact of its investigations.
Third, although Congress authorized new accountability measures, particularly removing rating agencies’ exemptions from Section 11 liability and Regulation FD, the Securities and Exchange Commission has gutted both of those provisions. The SEC performed an end-run around Dodd-Frank’s explicit requirements, reversing the express will of Congress. Litigation has not been effective as an accountability measure, either, in part because rating agencies continue to assert the dubious argument that ratings are protected speech. I argue that the SEC should reverse course and implement Congress’s intent, including encouraging private litigation.
Finally, given the ongoing problems in these three areas, it is no surprise that credit rating agency methodologies remain unreliable. I conclude by illustrating the weakness of current methodologies for corporate bonds, with a particular focus on the treatment of diversification and investment holding companies. I argue that neither regulators nor investors should rely on such crude and uninformative methodologies.
This article’s overarching recommendation is straightforward: both regulators and investors should reduce reliance on credit ratings, and regulators should implement Congress’s will with respect to rating agency oversight and accountability. Credit rating agencies are a cautionary example of regulatory stickiness: reliance on ratings has proven difficult to undo. More generally, the stickiness of regulatory licenses is a warning for policymakers who are considering deferring to private entities for regulatory purposes in other areas.
Thursday, June 1, 2017
Joan Abelardo, Note, Who Starved for that Smartphone?: Limitations of the SEC's Approach to the Congolese Conflict Minerals Trade Problem and the Need for the European Union to Better Address Its Associated Human Rights Abuses, 40 Fordham Int'l L.J. 583 (2017).
Brock K. Bales, Note, And Then It Was Gone: A Critique of Section 10(b) Collective Scienter Pleading in the Sixth Circuit's Bondali Decision, 11 Liberty U. L. Rev. 69 (2016).
Stephen J. Choi & A.C. Pritchard, The SEC's Shift to Administrative Proceedings: An Empirical Assessment, 34 Yale J. on Reg. 1 (2017).
Beverley Earle & Anita Cava, The "Princelings" and the Banks: When Does a Legitimate Business Practice Become Criminal Corruption in Violation of the Foreign Corrupt Practices Act?, 37 Nw. J. Int'l L. & Bus. 107 (2016).
Daniel Gilpin, Note, Hiding Behind the Veil of Ambiguity: Why Courts Should Apply the Plain Meaning of the Dodd-Frank Whistleblower Provisions, 90 St. John's L. Rev. 851 (2016).
Zachary J. Gregoricus, Note, Whistleblowing from the Bench, 51 New Eng. L. Rev. 155 (2016).
Eric R. Harper, Comment, Unveiling Management's Crystal Ball, 77 La. L. Rev. 879 (2017).
Scott Hirst, Frozen Charters, 34 Yale J. on Reg. 91 (2017).
Thomas C. Rossidis, Note, Article II Complications Surrounding SEC-Employed Administrative Law Judges, 90 St. John's L. Rev. 773 (2016).
Marc I. Steinberg & James Ames, From the Regulatory Abyss: The Weakened Gatekeeping Incentives under the Uniform Securities Act, 35 Yale L. & Pol'y Rev. 1 (2016).
Wednesday, May 24, 2017
I have posted A Call for Legislative Reform: Expanding the Extraterritorial Application of the Private Rights of Action Under Federal Securities Law While Limiting the Scope of Relief Available on SSRN with the following abstract:
When the Supreme Court of the United States issued its opinion in Morrison v. National Australia Bank Ltd. on June 24, 2010, the Court took a narrow view of the extraterritorial application of federal securities regulation and held that a general presumption exists against the extraterritorial application of federal securities law. Speaking for the majority, Justice Scalia wrote, “Rather than guess anew in each case [involving the extraterritorial application of federal securities law] we apply the presumption [against the extraterritorial reach] in all cases, preserving a stable background against which Congress can legislate with predictable effects.” Remarkably, Congress immediately at least in part took up this charge to legislate. When President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, Congress clarified the scope of the SEC’s extraterritorial jurisdiction by adopting a conduct and effects approach in section 929P of the Act. Moreover, Congress demonstrated a willingness to consider extending the extraterritorial application of the private rights of action under the Securities Exchange Act of 1934 by mandating a study of the issue by the United States Securities and Exchange Commission.
When the SEC issued its study in April 2012, however, it failed to make a definitive recommendation to Congress regarding the extraterritorial application of the private rights of action under the Exchange Act. Commissioner Luis Aguilar even went so far as to release a dissenting statement arguing that the SEC had failed to meet its Congressional mandate under Section 929Y to provide a recommendation regarding the extraterritorial application of the private rights. The SEC’s reluctance to provide such a recommendation is understandable. Considering the controversy surrounding the private rights of action, especially the implied private right of action under Section 10(b) and Rule 10b-5, the SEC took a cautious approach hoping that Congress would finally provide some actual legislative guidance on this murky area of federal securities law. Congress, however, still has not acted on this issue.
This Article suggests that the best solution would be to allow broad extraterritorial application of the private rights of action under the Securities Act and Exchange Act in regard to issuers seeking injunctive relief, rather than those seeking monetary damages. Such an approach would promote greater disclosure while limiting the nuisance litigation that has plagued the private rights of action under federal securities law. Such an approach is not without precedent. For example, even after the adoption by the United States Court of Appeals for the Second Circuit of the purchaser-seller requirement for standing to bring a private cause of action under section 10(b) and Rule 10b-5, which was later adopted by the Supreme Court of the United States in Blue Chip Stamps v. Manor Drug Stores, many courts adopted an exception to the purchaser-seller requirement for private parties seeking only injunctive relief under section 10(b) and Rule 10b-5. In that context and in the context of the extraterritorial application of the private rights of action under federal securities law, allowing availability of injunctive relief supports the underlying purpose of the federal securities laws to promote full and fair disclosure, while at the same time controlling nuisance litigation that can impede the efficient functioning of the capital markets. Such an approach will help to police and stabilize securities markets both domestically and abroad.
Kurt S. Schulzke and Gerlinde Berger-Walliser have posted Toward a Unified Theory of Materiality in Securities Law on SSRN with the following abstract:
In the face of rapidly advancing globalization of capital markets, data, and information channels, U.S. and E.U. securities regulators are increasingly focused on formally defining materiality, an essential securities law concept. In the United States, the Supreme Court has loosely regulated materiality through a line of cases beginning with TSC Industries v. Northway and Basic, Inc. v. Levinson, whose reasonable investor rubric is frequently disregarded by lower courts, prosecutors, and the Securities and Exchange Commission, and is criticized in legal and behavioral economics scholarship for its ambiguity, unpredictability, and disconnection from market psychology. Recognizing these criticisms, this article conducts an international comparative investigation of materiality in the legislation, regulation, and case law of the United States and European Union, revealing a shared, probabilistic Bayesian infrastructure of materiality. The article then proposes a flexible Bayesian framework that harmonizes the substantive evaluation of materiality under existing U.S. and E.U. law, and then models application of the framework using Bayesian network analysis in the context of a hypothetical stock transaction.
Mike Koehler has posted The FCPA's Record-Breaking Year on SSRN with the following abstract:
On a number of levels, 2016 was a record-breaking year for Foreign Corrupt Practices Act enforcement. This article, part of annual series, highlights how 2016 witnessed the largest number of corporate enforcement actions and largest aggregate corporate settlement amounts in the FCPA’s nearly 40 year history.
FCPA enforcement in 2016 was also notable given the wide spectrum of enforcement actions. For instance, there were FCPA enforcement actions against U.S. companies as well as foreign companies; enforcement actions that alleged egregious instances of corporate bribery executed at the highest levels of a company as well as enforcement actions finding bribery based on allegations of “golf in the morning and beer-drinking in the evening” and internship and hiring practices; enforcement actions against large multinational companies as well as small publicly-traded companies, privately-held companies and limited liability companies; enforcement actions across a wide spectrum of industries such as technology, oil and gas, pharmaceutical and medical device, airlines, and financial services; and enforcement actions involving conduct across the globe from Latin America to South America, to Eastern Europe to Africa with a majority of enforcement actions focusing in whole or in part on conduct occurring in China.
2016 was notable not just for record-breaking and diverse enforcement activity often tied to expansive and evolving enforcement theories, but also FCPA policy developments. For instance, both the Department of Justice and Securities and Exchange Commission renewed their long-standing FCPA enforcement commitment and the DOJ released a one year FCPA Pilot Program designed in large part to further motivate business organizations to voluntarily disclose FCPA issues to better facilitate enforcement actions against culpable individuals.
In short, much happened in the FCPA space in 2016 and this article provides a detailed analysis of the most notable FCPA enforcement and policy developments and will be value to anyone seeking to elevate their FCPA knowledge.