Securities Law Prof Blog

Chaffee on Insider Trading and Data Breaches

Eric C. Chaffee has posted Schrödinger’s Hacker: Insider Trading and Data Breaches on SSRN with the following abstract:

The current legal framework governing insider trading is a rich fabric of interwoven stories constructed on a loom of law and regulation. Despite securities law at times gaining a reputation for being cumbersome and onerous, the stories underlying insider trading regulation are usually vibrant and engaging.

The current story regarding the intersection of hacking and insider trading is that of Oleksandr Dorozhko, a Ukrainian hacker held liable for violating section 10(b) and Rule 10b-5. Importantly, because that story ended in an unopposed motion for summary judgment against Dorozhko, the law remains unclear as to whether a hacker who merely exploits a weakness in software to obtain material nonpublic information has violated section 10(b) and Rule 10b-5.

Hacking has become a ubiquitous concern in our society. Oleksandr Dorozhko’s tale illustrates that federal securities regulation is currently inadequate to deal with the securities issues associated with hacking, which poses a threat to the stability of securities markets in the United States. This Essay offers a proposed rule to remedy this problem that gives the SEC the ability to clarify how insider trading regulation can and should address hacking.

 

Shill on Congressional Securities Trading

Gregory H. Shill has posted Congressional Securities Trading on SSRN with the following abstract:

The trading of stocks and bonds by Members of Congress presents several risks that warrant public concern. One is the potential for policy distortion: lawmakers’ personal investments may influence their official acts. Another is a special case of a general problem: that of insiders exploiting access to confidential information for personal gain. In each case, the current framework—which is based on common law fiduciary principles—is a poor fit. Surprisingly, rules from a related context have been overlooked.

Like lawmakers, public company insiders such as CEOs frequently trade securities while in possession of confidential information. Those insiders’ trades are governed by federal securities regulations. Borrowing from these regulations, this Essay proposes a taxonomy of congressional securities trading (CST) and develops a comprehensive prescription to manage it. Specifically, Rule 10b5–1 plans (which disclose trades ex ante) and the section 16(b) short-swing profits rule of the Exchange Act (which disgorges illicit profits ex post) should be adapted to the congressional context. To further minimize conflicts of interest, lawmakers should also be restricted from owning any securities other than Treasuries and passive U.S. index funds. The Essay uses recent high-profile trading scandals to illustrate why the new bright-line rules proposed here are better suited to this problem than both the current system of regulating CST, which relies on common law standards, and prominent alternative reform proposals.

This Essay’s proposed reforms are purposefully pragmatic. They draw on proven successes and do not require new legislation or regulation; all can be adopted by chamber rule. The changes, which would be very consequential if adopted, are also narrow. A risk they do not address—the enrichment of third parties by lawmakers—is often conflated with policy distortion and lawmaker self-enrichment, but its regulation presents distinct tradeoffs and should be taken up separately. SEC rules provide guideposts here as well.

New Securities Law Article in Print

The following law review article relating to securities regulation is now available in paper format:

Alina Petrova, A Critical Analysis of Robare: Does Ignorantia Legis Excuse from Liability?, 20 U.C. Davis Bus. L.J. 189 (2020).

New Securities Law Articles in Print

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

John C. Coffee Jr., Global Settlements: Promise and Peril, 22 U. Pa. J. Bus. L. 1 (2019).

Wendy Gerwick Couture, Principles for State Prosecution of Securities Crime in a Dual-Regulatory, Multi-Enforcer Regime, 22 U. Pa. J. Bus. L. 30 (2019).

David Hackett, Reagan Demas, Douglas Sanders, Jessica Wicha & Aleesha Fowler, Growing ESG Risks: The Rise of Litigation, 50 Envtl. L. Rep. 10849 (2020).

Elizabeth Pollman, Private Company Lies, 109 Geo. L.J. 353 (2020).

David Rosenfeld, Civil Penalties against Public Companies in SEC Enforcement Actions: An Empirical Analysis, 22 U. Pa. J. Bus. L. 135 (2019).

Steven L. Schwarcz, Regulating Derivatives: A Fundamental Rethinking, 70 Duke L.J. 545 (2020).

New Securities Law Articles in Print

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

John W. Bagby, David Reitter & Philip Chwistek, An Emerging Political Economy of the Blockchain: Enhancing Regulatory Opportunities, 88 UMKC L. Rev. 419 (2019).

F. Scott Kieff, Business, Risk & China's MCF: Modest Tools of Financial Regulation for a Time of Great Power Competition, 88 Geo. Wash. L. Rev. 1281 (2020).

Jonathan R. Macey, Corporate Law as Myth, 93 S. Cal. L. Rev. 923 (2020).

Viviane Muller Prado, Enforcing Insider Trading Law: The Brazilian Experience, 38 Miss. C. L. Rev. 93 (2020).

Dafan Zhang, Security Tokens: Complying with Security Laws and Regulations Provides More than Token Rewards, 88 UMKC L. Rev. 323 (2019).