Securities Law Prof Blog

Certiorari Granted in Cyan

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.

Remarks of NASAA President Mike Rothman at NASAA’s 2017 Cybersecurity Roundtable

The remarks are available here.

California Public Employees’ Retirement System v. ANZ Securities, Inc.

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.

Testimony on the Fiscal Year 2018 Budget Request

Chairman Clayton's testimony is available here.

Dolgopolov on High-Frequency Trading

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.

NASAA Announces Agenda and Speakers for Cybersecurity Roundtable on June 23rd

Details available here.

New in Print

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).

Turk on Administrative Settlements

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.

New in Print

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).

New in Print

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

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).

SEC v. Kokesh

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.

Information regarding the case is available on SCOTUSblog.  Professor Mike Koehler offers commentary on the implications of the opinion at his blog, FCPA Professor.

Chaffee on Securities Regulation and the Roberts Court

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.

Choi & Pritchard on Securities Class Actions

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.

Partnoy on Credit Ratings

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.

NASAA to Convene Cybersecurity Roundtable

Details available here.

New in Print

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

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).