Pub Date : 2008-05-27DOI: 10.1017/CBO9780511763076.011
K. F. Brickey
Enron and its progeny spawned an unprecedented amount of press coverage. To its credit the press has, in the main, acquitted itself well. But media coverage of the ensuing investigations and trials also has raised a host of provocative questions about judgment, professionalism and restraint. Using five high-profile criminal trials arising out of recent corporate fraud scandals as a springboard, this article provides a critical analysis of how media coverage - and defendants' efforts to spin that coverage - can influence the course and outcome of a trial. Some, but not all of the mischief originates with the press. Ever conscious of the potential for media coverage to alter the outcome, defendants in high-profile fraud trials have increasingly orchestrated costly multi-media public relations campaigns that demonize prosecutors, witnesses, and the press to exonerate themselves. The five case studies in the article highlight growing points of tension between the media and the courts and provide a concrete context for exploring the extent to which we should be concerned about the potential for aggressive media coverage and media manipulation to undermine the legitimacy of the courts, to affect the outcome of lengthy criminal trials, to play on the passions of the community from which the jury will be drawn, to subvert journalistic credibility and independence, and to invite more restrictive court-imposed rules governing media coverage of high-profile trials. The article concludes that if the press is to effectively perform its watchdog role, it should be mindful of the need to watch itself. Three appendices at the end of the article provide a media-centric postscript on coverage of the corporate governance scandals.
{"title":"From Boardroom to Courtroom to Newsroom: The Media and the Corporate Governance Scandals","authors":"K. F. Brickey","doi":"10.1017/CBO9780511763076.011","DOIUrl":"https://doi.org/10.1017/CBO9780511763076.011","url":null,"abstract":"Enron and its progeny spawned an unprecedented amount of press coverage. To its credit the press has, in the main, acquitted itself well. But media coverage of the ensuing investigations and trials also has raised a host of provocative questions about judgment, professionalism and restraint. Using five high-profile criminal trials arising out of recent corporate fraud scandals as a springboard, this article provides a critical analysis of how media coverage - and defendants' efforts to spin that coverage - can influence the course and outcome of a trial. Some, but not all of the mischief originates with the press. Ever conscious of the potential for media coverage to alter the outcome, defendants in high-profile fraud trials have increasingly orchestrated costly multi-media public relations campaigns that demonize prosecutors, witnesses, and the press to exonerate themselves. The five case studies in the article highlight growing points of tension between the media and the courts and provide a concrete context for exploring the extent to which we should be concerned about the potential for aggressive media coverage and media manipulation to undermine the legitimacy of the courts, to affect the outcome of lengthy criminal trials, to play on the passions of the community from which the jury will be drawn, to subvert journalistic credibility and independence, and to invite more restrictive court-imposed rules governing media coverage of high-profile trials. The article concludes that if the press is to effectively perform its watchdog role, it should be mindful of the need to watch itself. Three appendices at the end of the article provide a media-centric postscript on coverage of the corporate governance scandals.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"132 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123217056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-04-21DOI: 10.1093/acprof:oso/9780199862566.003.0005
Douglas J. Cumming, S. Johan
Hedge funds have been the subject of media attention in the United States (US) and around the world given the pronounced growth of the hedge fund sector in recent years and the comparative dearth of regulations faced by hedge fund managers. The first part of this paper provides an overview of the potential agency problems associated with managing a hedge fund, and associated rationales for hedge fund regulation. While hedge funds are hardly regulated in the US, there are nevertheless jurisdictions outside the US with different and sometimes more onerous sets of regulatory requirements. Examples of international differences in hedge fund regulation include minimum capitalization requirements, restrictions on the location of key service providers and different permissible distribution channels via private placements, banks, other regulated or non-regulated financial intermediaries, wrappers, investment managers and fund distribution companies. The second part of this paper provides an analysis of hedge fund strategies in the context of international differences in hedge fund regulation. Certain fund strategies have been characterized in the law and finance literature, as well we in popular media and public policy debates, as being inherently more risky and associated with more pronounced agency problems. For instance, managed futures, long/short and event driven strategies might be associated with greater risk and agency problems than market neutral equity strategies and various arbitrage strategies. At issue, therefore, is whether funds engage in forum shopping to select jurisdictions that potentially offer greater scope for agency problems associated with hedge fund management. The data examined offer little or no support for the view that hedge fund managers pursuing riskier strategies or strategies with potentially more pronounced agency problems systematically select jurisdictions with less stringent regulations. For the most part, fund strategies are not systematically and statistically related to different regulations observed in different jurisdictions. In fact, to the extent that there is evidence of forum shopping, it is such that funds pursuing riskier strategies or strategies with greater potential agency problems select jurisdictions with more stringent regulations. We may infer from the evidence that forum shopping by fund managers in relation to fund strategic focus is not consistent with a 'race to the bottom'. Rather, hedge fund managers appear to select jurisdictions that are in funds' investors' interests in order to facilitate capital raising by the hedge fund.
{"title":"Hedge Fund Forum Shopping","authors":"Douglas J. Cumming, S. Johan","doi":"10.1093/acprof:oso/9780199862566.003.0005","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199862566.003.0005","url":null,"abstract":"Hedge funds have been the subject of media attention in the United States (US) and around the world given the pronounced growth of the hedge fund sector in recent years and the comparative dearth of regulations faced by hedge fund managers. The first part of this paper provides an overview of the potential agency problems associated with managing a hedge fund, and associated rationales for hedge fund regulation. While hedge funds are hardly regulated in the US, there are nevertheless jurisdictions outside the US with different and sometimes more onerous sets of regulatory requirements. Examples of international differences in hedge fund regulation include minimum capitalization requirements, restrictions on the location of key service providers and different permissible distribution channels via private placements, banks, other regulated or non-regulated financial intermediaries, wrappers, investment managers and fund distribution companies. The second part of this paper provides an analysis of hedge fund strategies in the context of international differences in hedge fund regulation. Certain fund strategies have been characterized in the law and finance literature, as well we in popular media and public policy debates, as being inherently more risky and associated with more pronounced agency problems. For instance, managed futures, long/short and event driven strategies might be associated with greater risk and agency problems than market neutral equity strategies and various arbitrage strategies. At issue, therefore, is whether funds engage in forum shopping to select jurisdictions that potentially offer greater scope for agency problems associated with hedge fund management. The data examined offer little or no support for the view that hedge fund managers pursuing riskier strategies or strategies with potentially more pronounced agency problems systematically select jurisdictions with less stringent regulations. For the most part, fund strategies are not systematically and statistically related to different regulations observed in different jurisdictions. In fact, to the extent that there is evidence of forum shopping, it is such that funds pursuing riskier strategies or strategies with greater potential agency problems select jurisdictions with more stringent regulations. We may infer from the evidence that forum shopping by fund managers in relation to fund strategic focus is not consistent with a 'race to the bottom'. Rather, hedge fund managers appear to select jurisdictions that are in funds' investors' interests in order to facilitate capital raising by the hedge fund.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115660911","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper tests the hypothesis that negative client stock returns following the revelation that Enron documents had been shredded are attributable to confounding effects as opposed to a loss of Andersen's reputation. We find that a sharp decline in oil prices along with a disproportionate share of energy clients combine to produce significantly more negative returns for Andersen clients relative to other Big 4 clients, and for Andersen's Houston office clients relative to its clients in other locations. Further, the returns of Andersen clients are no different from those experienced by Big 4 clients in nine out of ten industry sectors. Additional tests of earnings response coefficients reveal no change in the market's valuation of clients' earnings after the shredding announcement. Overall, we conclude the market reaction surrounding the shredding date is attributable to market-wide news events rather than the loss of Andersen's reputation.
{"title":"The Market Reaction to Arthur Andersen's Shredding of Documents: Loss of Reputation or Confounding Effects?","authors":"Karen K. Nelson, R. Price, Brian R. Rountree","doi":"10.2139/ssrn.1108337","DOIUrl":"https://doi.org/10.2139/ssrn.1108337","url":null,"abstract":"This paper tests the hypothesis that negative client stock returns following the revelation that Enron documents had been shredded are attributable to confounding effects as opposed to a loss of Andersen's reputation. We find that a sharp decline in oil prices along with a disproportionate share of energy clients combine to produce significantly more negative returns for Andersen clients relative to other Big 4 clients, and for Andersen's Houston office clients relative to its clients in other locations. Further, the returns of Andersen clients are no different from those experienced by Big 4 clients in nine out of ten industry sectors. Additional tests of earnings response coefficients reveal no change in the market's valuation of clients' earnings after the shredding announcement. Overall, we conclude the market reaction surrounding the shredding date is attributable to market-wide news events rather than the loss of Andersen's reputation.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130516375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the shareholder governance area, one of the most contentious issues concerns the right of shareholders to nominate directors and include the nominees in management's proxy statement. This article examines the conflict in the context of the growing importance of independent directors. State law and the Securities and Exchange Commission (SEC) have increasingly relied upon independent directors to protect shareholders and ensure the integrity of the financial disclosure process. Yet because of weak definitions and problems of enforcement, these directors are often not truly independent. One method of addressing these concerns is to allow shareholders to nominate and elect their own candidates. They have the power to nominate under state law but the authority has largely been emasculated by the need to solicit proxies, an expensive and time consuming process. The SEC has from time to time sought, always unsuccessfully, to amend the rules to allow shareholders some access to the company's proxy statement for their nominees, with the first effort taking place in 1942. The article contains a comprehensive analysis of these efforts, including the most recent iteration in 2007 when the Commission reaffirmed its traditional position that shareholders should not have access to the company's proxy statement for nominees. The article takes the position that in an era of activist shareholders, pressure on the SEC to reform its rules will continue to grow. Moreover, continued denial of access will make things worse, leading to efforts by activist shareholders that are more intrusive and more likely to result in contests for the board of directors. The denial of access also leaves in place a serious gap in the disclosure regime for proxy contests. Finally, as the SEC becomes increasingly involved in the corporate governance process, a role it has not historically had to consider, the denial of access raises questions about the agency's willingness to protect the interests of shareholders.
{"title":"The SEC, Corporate Governance, and Shareholder Access to the Board Room","authors":"J. Brown","doi":"10.2139/SSRN.1095032","DOIUrl":"https://doi.org/10.2139/SSRN.1095032","url":null,"abstract":"In the shareholder governance area, one of the most contentious issues concerns the right of shareholders to nominate directors and include the nominees in management's proxy statement. This article examines the conflict in the context of the growing importance of independent directors. State law and the Securities and Exchange Commission (SEC) have increasingly relied upon independent directors to protect shareholders and ensure the integrity of the financial disclosure process. Yet because of weak definitions and problems of enforcement, these directors are often not truly independent. One method of addressing these concerns is to allow shareholders to nominate and elect their own candidates. They have the power to nominate under state law but the authority has largely been emasculated by the need to solicit proxies, an expensive and time consuming process. The SEC has from time to time sought, always unsuccessfully, to amend the rules to allow shareholders some access to the company's proxy statement for their nominees, with the first effort taking place in 1942. The article contains a comprehensive analysis of these efforts, including the most recent iteration in 2007 when the Commission reaffirmed its traditional position that shareholders should not have access to the company's proxy statement for nominees. The article takes the position that in an era of activist shareholders, pressure on the SEC to reform its rules will continue to grow. Moreover, continued denial of access will make things worse, leading to efforts by activist shareholders that are more intrusive and more likely to result in contests for the board of directors. The denial of access also leaves in place a serious gap in the disclosure regime for proxy contests. Finally, as the SEC becomes increasingly involved in the corporate governance process, a role it has not historically had to consider, the denial of access raises questions about the agency's willingness to protect the interests of shareholders.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128890573","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Standardisation techniques are used in a very broad range of financial transactions: technical standards, model contracts, codes of conduct, accounting rules, and even experiments with alternatives to European regulations. Especially in the financial services field, where mass production and relational stability are essential, standardisation is an integral part of the existing framework and its regulation. The functions of standardisation are manifold and extend even to issues like mutual recognition. The relationship of these techniques with the legal system is a complex one, relying on a wide range of instruments such as contract provisions, explicit references in the law, default rules, good business practices, and so on. Enforcement is partly based on legal instruments, but also on the market.
{"title":"Standarisation by Law and Markets Especially in Financially Services","authors":"E. Wymeersch","doi":"10.2139/ssrn.1089037","DOIUrl":"https://doi.org/10.2139/ssrn.1089037","url":null,"abstract":"Standardisation techniques are used in a very broad range of financial transactions: technical standards, model contracts, codes of conduct, accounting rules, and even experiments with alternatives to European regulations. Especially in the financial services field, where mass production and relational stability are essential, standardisation is an integral part of the existing framework and its regulation. The functions of standardisation are manifold and extend even to issues like mutual recognition. The relationship of these techniques with the legal system is a complex one, relying on a wide range of instruments such as contract provisions, explicit references in the law, default rules, good business practices, and so on. Enforcement is partly based on legal instruments, but also on the market.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128454725","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyses the relationship between the EU Capital Requirements Directive and the proposed Solvency II directive and their application in the context of parent-subsidiary relations and the general rules on groups of companies, as these are applied in the Member States of the EU. Art 68 and 69 of the CRD allow under certain conditions, to apply the capital requirement on a group approach, provided i.a. that there is no legal impediment to the prompt transfer of the own funds. This requirement may, in certain circumstances not be compatible with the common principles of the law on groups. The paper analyses to what extent in cases of financial distress the free transferability whether up- or downstream may be impeded. Similar issues could be raised in the Solvency context.
{"title":"Conflict of Interest in Financial Services Groups","authors":"E. Wymeersch","doi":"10.2139/ssrn.1087001","DOIUrl":"https://doi.org/10.2139/ssrn.1087001","url":null,"abstract":"This paper analyses the relationship between the EU Capital Requirements Directive and the proposed Solvency II directive and their application in the context of parent-subsidiary relations and the general rules on groups of companies, as these are applied in the Member States of the EU. Art 68 and 69 of the CRD allow under certain conditions, to apply the capital requirement on a group approach, provided i.a. that there is no legal impediment to the prompt transfer of the own funds. This requirement may, in certain circumstances not be compatible with the common principles of the law on groups. The paper analyses to what extent in cases of financial distress the free transferability whether up- or downstream may be impeded. Similar issues could be raised in the Solvency context.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"150 3583 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130474778","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Twenty years after being decided, Basic Inc. v. Levinson is being interpreted and applied in interesting, sometimes jarring, ways. This paper looks at Basic's presumption of reliance in fraud-on-the-market cases and the ways in which contemporary courts are addressing such issues as (1) the level of efficiency that is necessary for the presumption to apply; (2) the role of market price distortion and loss causation in the class certification decision; and (3) the connections between materiality and reliance (Basic's two separate issues) in both class certification and on the merits. Basic set in motion much of the resulting confusion by making more of reliance - and market efficiency - than was needed, and then paying too little attention to the joint risks of indeterminacy and disproportionality in the liability threat created by fraud-on-the-market lawsuits. Had it taken a different route, or better explained the route it was taking, we might have seen early on that class recovery is better suited as a deterrence mechanism than a compensatory device. That makes a stringent approach to reliance, causation or class certification unnecessary, but also calls into question the idea that each investor has a "right" to recovery by trading at a distorted price. Instead, the law headed in precisely the opposite direction.
在Basic Inc.诉莱文森案(Basic Inc. v. Levinson)判决二十年后，人们正在以有趣的、有时甚至是不和谐的方式解读和应用此案。本文着眼于Basic在市场欺诈案件中的依赖推定，以及当代法院处理以下问题的方式:(1)适用该推定所必需的效率水平;(2)市场价格扭曲和损失成因在类别认证决策中的作用;(3)在类别认证和是非事实方面，重要性和可靠性(Basic的两个独立问题)之间的联系。由于过分强调依赖和市场效率，而对市场欺诈诉讼所带来的责任威胁中的不确定性和不成比例的共同风险关注太少，导致了许多由此产生的混乱。如果它采取不同的路线，或者更好地解释它所采取的路线，我们可能早就看到，阶级恢复更适合作为一种威慑机制，而不是一种补偿手段。这使得对信赖、因果关系或类别认证采取严格的方法变得没有必要，但也让人质疑每个投资者都有“权利”通过以扭曲的价格进行交易来获利的观点。相反，法律的方向恰恰相反。
{"title":"Basic at Twenty: Rethinking Fraud-on-the-Market","authors":"Donald C. Langevoort","doi":"10.2139/ssrn.1026316","DOIUrl":"https://doi.org/10.2139/ssrn.1026316","url":null,"abstract":"Twenty years after being decided, Basic Inc. v. Levinson is being interpreted and applied in interesting, sometimes jarring, ways. This paper looks at Basic's presumption of reliance in fraud-on-the-market cases and the ways in which contemporary courts are addressing such issues as (1) the level of efficiency that is necessary for the presumption to apply; (2) the role of market price distortion and loss causation in the class certification decision; and (3) the connections between materiality and reliance (Basic's two separate issues) in both class certification and on the merits. Basic set in motion much of the resulting confusion by making more of reliance - and market efficiency - than was needed, and then paying too little attention to the joint risks of indeterminacy and disproportionality in the liability threat created by fraud-on-the-market lawsuits. Had it taken a different route, or better explained the route it was taking, we might have seen early on that class recovery is better suited as a deterrence mechanism than a compensatory device. That makes a stringent approach to reliance, causation or class certification unnecessary, but also calls into question the idea that each investor has a \"right\" to recovery by trading at a distorted price. Instead, the law headed in precisely the opposite direction.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133677124","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The National Association of Securities Dealers, Inc. ("NASD") and NYSE Group, Inc. ("NYSE") have combined their regulatory operations into a new entity called the Financial Industry Regulatory Authority ("FINRA"). Although both the NASD and the NYSE have long histories as self-regulatory organizations ("SROs"), subject to increasingly pervasive and statutorily based SEC regulation, the creation of FINRA poses a question long lurking in the structure and operation of the NASD: was the NASD for all practical purposes a government agency, and if so, what are the constitutional and administrative law ramifications of such a conclusion for its new incarnation, FINRA? This article will discuss a number of issues in an attempt to answer these questions: the constitutional issues inherent in the FINRA's status as an SRO; cases addressing the NASD's or NYSE's immunity from suit for their regulatory decisions and functions; the right of persons under NASD investigation to claim deprivation of their Fifth Amendment rights; the status of NASD arbitration facilities; the constitutional and administrative due process rights of persons subject to FINRA investigations and enforcement actions and FINRA rule-making; and the status of SRO rules in cases posing preemption and antitrust issues. The article will conclude that as long as the securities industry, rather than the SEC, controls the governance of FINRA and the selection of its Board of Governors, FINRA will not be a government entity, but since FINRA will be exercising delegated governmental functions with regard to discipline and rule-making, fundamental constitutional and administrative law protections should be afforded to persons affected by these activities.
{"title":"Is the Financial Industry Regulatory Authority a Government Agency?","authors":"R. Karmel","doi":"10.2139/SSRN.1018396","DOIUrl":"https://doi.org/10.2139/SSRN.1018396","url":null,"abstract":"The National Association of Securities Dealers, Inc. (\"NASD\") and NYSE Group, Inc. (\"NYSE\") have combined their regulatory operations into a new entity called the Financial Industry Regulatory Authority (\"FINRA\"). Although both the NASD and the NYSE have long histories as self-regulatory organizations (\"SROs\"), subject to increasingly pervasive and statutorily based SEC regulation, the creation of FINRA poses a question long lurking in the structure and operation of the NASD: was the NASD for all practical purposes a government agency, and if so, what are the constitutional and administrative law ramifications of such a conclusion for its new incarnation, FINRA? This article will discuss a number of issues in an attempt to answer these questions: the constitutional issues inherent in the FINRA's status as an SRO; cases addressing the NASD's or NYSE's immunity from suit for their regulatory decisions and functions; the right of persons under NASD investigation to claim deprivation of their Fifth Amendment rights; the status of NASD arbitration facilities; the constitutional and administrative due process rights of persons subject to FINRA investigations and enforcement actions and FINRA rule-making; and the status of SRO rules in cases posing preemption and antitrust issues. The article will conclude that as long as the securities industry, rather than the SEC, controls the governance of FINRA and the selection of its Board of Governors, FINRA will not be a government entity, but since FINRA will be exercising delegated governmental functions with regard to discipline and rule-making, fundamental constitutional and administrative law protections should be afforded to persons affected by these activities.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116357959","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Participants in the forty-year debate over whether insider trading should be liberalized have generally treated insider sales the same as insider purchases - they have argued that all such insider transactions should be either regulated or liberalized. This article contends that there is a principled basis for treating price-decreasing insider trading (e.g., insider sales) more leniently than price-increasing insider trading (e.g., insider purchases). Because equity overvaluation is more likely than equity undervaluation to occur and persist and is more likely to occasion harm to the corporate enterprise when it does occur, corporate constituents (managers and shareholders) would likely value a policy that permits price-decreasing insider trading more than a policy that permits price-increasing insider trading. Thus, the majoritarian default rule may be an asymmetric policy under which price-decreasing insider trading is generally permitted while price-increasing insider trading is generally forbidden.
{"title":"A Middle Ground Position in the Insider Trading Debate: Deregulate the Sell Side","authors":"T. Lambert","doi":"10.2139/ssrn.1018758","DOIUrl":"https://doi.org/10.2139/ssrn.1018758","url":null,"abstract":"Participants in the forty-year debate over whether insider trading should be liberalized have generally treated insider sales the same as insider purchases - they have argued that all such insider transactions should be either regulated or liberalized. This article contends that there is a principled basis for treating price-decreasing insider trading (e.g., insider sales) more leniently than price-increasing insider trading (e.g., insider purchases). Because equity overvaluation is more likely than equity undervaluation to occur and persist and is more likely to occasion harm to the corporate enterprise when it does occur, corporate constituents (managers and shareholders) would likely value a policy that permits price-decreasing insider trading more than a policy that permits price-increasing insider trading. Thus, the majoritarian default rule may be an asymmetric policy under which price-decreasing insider trading is generally permitted while price-increasing insider trading is generally forbidden.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"266 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124215897","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There are three commonly used methodologies for modeling inflation in securities fraud cases: the "index method," the "constant percentage method," and the "constant dollar method." I have previously argued that the index and constant percentage methods, if applied without adjustment as the measure of damages under the out-of-pocket rule, generally result in an overstatement of damages under certain interpretations of loss causation. The Supreme Court's ruling in Dura did in fact endorse an interpretation of loss causation that requires that an adjustment be made to the index and constant percentage methods in the process of going from inflation to damages. The need for an adjustment has been addressed in various ways by experts and the courts, most recently with a ruling finding that the index method (without adjustment) "collides directly with loss causation doctrine" and that the constant percentage method (with what we argue is an inadequate adjustment) creates damages with properties for which even the expert proffering the methodology could provide "no 'economic or logical reason'" and also impermissibly provides investors with a "partial downside insurance policy." Here we address the type of adjustment to certain inflation models necessary to comport with the loss causation doctrine in Dura in a consistent and logical fashion.
{"title":"Inflation and Damages in a Post-Dura World","authors":"D. Tabak","doi":"10.2139/ssrn.1017334","DOIUrl":"https://doi.org/10.2139/ssrn.1017334","url":null,"abstract":"There are three commonly used methodologies for modeling inflation in securities fraud cases: the \"index method,\" the \"constant percentage method,\" and the \"constant dollar method.\" I have previously argued that the index and constant percentage methods, if applied without adjustment as the measure of damages under the out-of-pocket rule, generally result in an overstatement of damages under certain interpretations of loss causation. The Supreme Court's ruling in Dura did in fact endorse an interpretation of loss causation that requires that an adjustment be made to the index and constant percentage methods in the process of going from inflation to damages. The need for an adjustment has been addressed in various ways by experts and the courts, most recently with a ruling finding that the index method (without adjustment) \"collides directly with loss causation doctrine\" and that the constant percentage method (with what we argue is an inadequate adjustment) creates damages with properties for which even the expert proffering the methodology could provide \"no 'economic or logical reason'\" and also impermissibly provides investors with a \"partial downside insurance policy.\" Here we address the type of adjustment to certain inflation models necessary to comport with the loss causation doctrine in Dura in a consistent and logical fashion.","PeriodicalId":336554,"journal":{"name":"Corporate Law: Securities Law","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130544369","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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