Can fiduciaries be made to serve public goals? The movement under the Patient Protection and Affordable Care Act (“ACA”) towards universal access to health insurance requires us to focus on the fiduciary relationships between large organizations providing access to healthcare and the populations they serve. These relationships have become a collective undertaking instead of a direct, personal relationship. In this Article, I introduce the concept of the collective fiduciary in response to the shift towards uniform, national goals in the realm of health insurance and healthcare. Only through a collective approach can we hold fiduciaries accountable for the welfare of many instead of one or a few individuals. While other scholars have focused on the individual whose fortunes or health are controlled by a fiduciary, this has made it difficult to collect information about fiduciary actions and obtain consistent and coherent decisions from fiduciaries. My argument here is that this is not a problem that can be fixed at the level of the individual fiduciary or individual beneficiary. I examine the expansion of the role of the fiduciary as a result of growing demand for private welfare benefits in the United States. My concern here is with the expansion of health insurance and the administration of health benefits. If patients are denied benefits, then they are effectively denied access to service providers. In a space where the government has been, until now, largely absent both by choice and because of a lack of agreement on policy direction, individual decisions by fiduciaries add up to the only large scale policy existing for private benefits. Fiduciaries can and will undo the goal of expanding access to healthcare under the ACA unless ERISA’s fiduciary regime (the example I focus on in this Article) is altered. Though I explore several possible solutions, I ultimately argue that fiduciary duties are only meaningful when denials of benefit claims are supervised and capped by government actors.
{"title":"The Collective Fiduciary","authors":"L. Roth","doi":"10.2139/SSRN.2628718","DOIUrl":"https://doi.org/10.2139/SSRN.2628718","url":null,"abstract":"Can fiduciaries be made to serve public goals? The movement under the Patient Protection and Affordable Care Act (“ACA”) towards universal access to health insurance requires us to focus on the fiduciary relationships between large organizations providing access to healthcare and the populations they serve. These relationships have become a collective undertaking instead of a direct, personal relationship. In this Article, I introduce the concept of the collective fiduciary in response to the shift towards uniform, national goals in the realm of health insurance and healthcare. Only through a collective approach can we hold fiduciaries accountable for the welfare of many instead of one or a few individuals. While other scholars have focused on the individual whose fortunes or health are controlled by a fiduciary, this has made it difficult to collect information about fiduciary actions and obtain consistent and coherent decisions from fiduciaries. My argument here is that this is not a problem that can be fixed at the level of the individual fiduciary or individual beneficiary. I examine the expansion of the role of the fiduciary as a result of growing demand for private welfare benefits in the United States. My concern here is with the expansion of health insurance and the administration of health benefits. If patients are denied benefits, then they are effectively denied access to service providers. In a space where the government has been, until now, largely absent both by choice and because of a lack of agreement on policy direction, individual decisions by fiduciaries add up to the only large scale policy existing for private benefits. Fiduciaries can and will undo the goal of expanding access to healthcare under the ACA unless ERISA’s fiduciary regime (the example I focus on in this Article) is altered. Though I explore several possible solutions, I ultimately argue that fiduciary duties are only meaningful when denials of benefit claims are supervised and capped by government actors.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125425642","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}
Over the years, financial institutions have always acted as conduits for individuals/organizations to invest their surplus funds and also lend funds whenever needed thereby creating a fiduciary relationship between these two parties. To protect the interest of these parties, series of legislation have being formulated to aid banks in managing potential risks ranging from credit risk, market risk and operational risk. To address this potential risk, the Basel Committee on Banking service (BCBS) proposed Basel III which aim at ensuring adequate capital base, provide liquidity coverage and coverage to mitigate systemic risk. In view of the reforms proposed by Basel III, the framework has failed to address numerous issues. To address this menace in the banking sector, Basel III should not be viewed as a only conduit to resolve financial crisis but there is the need to seeks ways in integrating specific government financial regulations with the provisions of Basel III.
{"title":"Analysis of Basel III and Risk Management in Banking","authors":"John Kwaku Mensah Mawutor","doi":"10.2139/ssrn.2155987","DOIUrl":"https://doi.org/10.2139/ssrn.2155987","url":null,"abstract":"Over the years, financial institutions have always acted as conduits for individuals/organizations to invest their surplus funds and also lend funds whenever needed thereby creating a fiduciary relationship between these two parties. To protect the interest of these parties, series of legislation have being formulated to aid banks in managing potential risks ranging from credit risk, market risk and operational risk. To address this potential risk, the Basel Committee on Banking service (BCBS) proposed Basel III which aim at ensuring adequate capital base, provide liquidity coverage and coverage to mitigate systemic risk. In view of the reforms proposed by Basel III, the framework has failed to address numerous issues. To address this menace in the banking sector, Basel III should not be viewed as a only conduit to resolve financial crisis but there is the need to seeks ways in integrating specific government financial regulations with the provisions of Basel III.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"58 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126850344","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}
Over the past two years, a significant number of appellate courts in jurisdictions throughout the country have been faced with trust provisions that purport to disinherit any beneficiaries who challenge a trustee’s decision-making. Such provisions to “secure compliance...with dispositions of property” — known as “forfeiture,” “no-contest,” “anti-contest,” or “penalty” clauses — have appeared in wills for well more than a century. But the trust clauses differ from their testamentary counterparts and thus deserve serious scrutiny in their own right, especially because the abundance of recent cases has led to increasingly inconsistent and haphazard approaches. This Article exposes the problems that trust forfeiture clauses pose, in comparison to will forfeiture clauses, and proposes some solutions. Trusts, rather than wills, have become the primary vehicle for property owners to distribute their valuables at death. While courts and legislatures profess to treat trust and will forfeiture clauses identically, doing so has resulted in significant confusion because this approach ignores that the two donative vehicles, and the most common challenges to them, differ in fundamental ways. Indeed, wills are most frequently contested by beneficiaries who claim the document itself is invalid, either because it was executed without the requisite formalities or because the testator lacked capacity, was induced to sign the instrument against her free will, or revoked it in favor of some alternative disposition. Typical testamentary forfeiture clauses seeking to prevent these types of claims therefore provide that anyone who challenges the will forfeits any interests received under it; if the contestant is successful, the will (including the clause) is invalidated. In contrast, the majority of trust litigation arises from disagreements between the beneficiaries and the trustees over how property is being invested, managed, and distributed. Seeking to incentivize beneficiaries to go along with trustee decision-making, some settlors and their advisors have purposely broadened the scope of forfeiture clauses so that they apply not only to contests that challenge the validity of the trust agreement but also to claims of fiduciary misconduct or mismanagement. But a provision that discourages breach of duty claims against trustees by dictating that anyone who files such a claim forfeits her beneficial interest allows fiduciaries to escape oversight, thereby forfeiting the very qualities that define trust law in the first place. This Article exposes the conflicting ways that courts and legislatures have been grappling with these clauses that pit settlor intent not against a general distaste for forfeiture but instead against fiduciary accountability. After examining the roots of this confusion, the Article proposes a more coherent approach to trust forfeiture clauses that recognizes property owners’ interests in facilitating smooth relationships between their trustees an
{"title":"Forfeiting Trust","authors":"Deborah S. Gordon","doi":"10.2139/ssrn.2567914","DOIUrl":"https://doi.org/10.2139/ssrn.2567914","url":null,"abstract":"Over the past two years, a significant number of appellate courts in jurisdictions throughout the country have been faced with trust provisions that purport to disinherit any beneficiaries who challenge a trustee’s decision-making. Such provisions to “secure compliance...with dispositions of property” — known as “forfeiture,” “no-contest,” “anti-contest,” or “penalty” clauses — have appeared in wills for well more than a century. But the trust clauses differ from their testamentary counterparts and thus deserve serious scrutiny in their own right, especially because the abundance of recent cases has led to increasingly inconsistent and haphazard approaches. This Article exposes the problems that trust forfeiture clauses pose, in comparison to will forfeiture clauses, and proposes some solutions. Trusts, rather than wills, have become the primary vehicle for property owners to distribute their valuables at death. While courts and legislatures profess to treat trust and will forfeiture clauses identically, doing so has resulted in significant confusion because this approach ignores that the two donative vehicles, and the most common challenges to them, differ in fundamental ways. Indeed, wills are most frequently contested by beneficiaries who claim the document itself is invalid, either because it was executed without the requisite formalities or because the testator lacked capacity, was induced to sign the instrument against her free will, or revoked it in favor of some alternative disposition. Typical testamentary forfeiture clauses seeking to prevent these types of claims therefore provide that anyone who challenges the will forfeits any interests received under it; if the contestant is successful, the will (including the clause) is invalidated. In contrast, the majority of trust litigation arises from disagreements between the beneficiaries and the trustees over how property is being invested, managed, and distributed. Seeking to incentivize beneficiaries to go along with trustee decision-making, some settlors and their advisors have purposely broadened the scope of forfeiture clauses so that they apply not only to contests that challenge the validity of the trust agreement but also to claims of fiduciary misconduct or mismanagement. But a provision that discourages breach of duty claims against trustees by dictating that anyone who files such a claim forfeits her beneficial interest allows fiduciaries to escape oversight, thereby forfeiting the very qualities that define trust law in the first place. This Article exposes the conflicting ways that courts and legislatures have been grappling with these clauses that pit settlor intent not against a general distaste for forfeiture but instead against fiduciary accountability. After examining the roots of this confusion, the Article proposes a more coherent approach to trust forfeiture clauses that recognizes property owners’ interests in facilitating smooth relationships between their trustees an","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"24 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127644557","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 : 2014-08-01DOI: 10.4337/9781783474400.00007
L. Strine, J. Laster
One frequently cited distinction between alternative entities — such as limited liability companies and limited partnerships — and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship. As judges who collectively have over 20 years of experience deciding disputes involving alternative entities, we use this chapter to surface some questions regarding the extent to which this common understanding of alternative entities is sound. Based on the cases we have decided and our reading of many other cases decided by our judicial colleagues, we do not discern evidence of arms-length bargaining between sponsors and investors in the governing instruments of alternative entities. Furthermore, it seems that when investors try to evaluate contract terms, the expansive contractual freedom authorized by the alternative entity statutes hampers rather than helps. A lack of standardization prevails in the alternative entity arena, imposing material transaction costs on investors with corresponding effects for the cost of capital borne by sponsors, without generating offsetting benefits. Because contractual drafting is a difficult task, it is also not clear that even alternative entity managers are always well served by situational deviations from predictable defaults. In light of these problems, it seems to us that a sensible set of standard fiduciary defaults might benefit all constituents of alternative entities. In this chapter, we propose a framework that would not threaten the two key benefits that motivated the rise of LPs and LLCs as alternatives to corporations: (i) the elimination of double taxation at the entity level and (ii) the ability to contract out of the corporate opportunity doctrine. For managers, this framework would provide more predictable rules of governance and a more reliable roadmap to fulfilling their duties in conflict-of-interest situations. The result arguably would be both fairer and more efficient than the current patchwork yielded by the unilateral drafting efforts of entity sponsors.
{"title":"The Siren Song of Unlimited Contractual Freedom","authors":"L. Strine, J. Laster","doi":"10.4337/9781783474400.00007","DOIUrl":"https://doi.org/10.4337/9781783474400.00007","url":null,"abstract":"One frequently cited distinction between alternative entities — such as limited liability companies and limited partnerships — and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship. As judges who collectively have over 20 years of experience deciding disputes involving alternative entities, we use this chapter to surface some questions regarding the extent to which this common understanding of alternative entities is sound. Based on the cases we have decided and our reading of many other cases decided by our judicial colleagues, we do not discern evidence of arms-length bargaining between sponsors and investors in the governing instruments of alternative entities. Furthermore, it seems that when investors try to evaluate contract terms, the expansive contractual freedom authorized by the alternative entity statutes hampers rather than helps. A lack of standardization prevails in the alternative entity arena, imposing material transaction costs on investors with corresponding effects for the cost of capital borne by sponsors, without generating offsetting benefits. Because contractual drafting is a difficult task, it is also not clear that even alternative entity managers are always well served by situational deviations from predictable defaults. In light of these problems, it seems to us that a sensible set of standard fiduciary defaults might benefit all constituents of alternative entities. In this chapter, we propose a framework that would not threaten the two key benefits that motivated the rise of LPs and LLCs as alternatives to corporations: (i) the elimination of double taxation at the entity level and (ii) the ability to contract out of the corporate opportunity doctrine. For managers, this framework would provide more predictable rules of governance and a more reliable roadmap to fulfilling their duties in conflict-of-interest situations. The result arguably would be both fairer and more efficient than the current patchwork yielded by the unilateral drafting efforts of entity sponsors.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130241933","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 discusses the duties of a fiduciary with respect to underperforming assets held in a client’s account. A trustee, investment adviser, and investment manager each is a fiduciary. Because trust law most clearly articulates fiduciary rules, this paper focuses on trust law as the principal foundation of fiduciary law. Although investment advisers are not strictly subject to trust law, the fiduciary investment principles applicable to advisers are very similar to those governing trustees. Accordingly, this paper discusses the legal framework and principles applicable under trust law generally with respect to the investment and management of trust assets, focusing specifically on the treatment of assets that underperform based on relevant measures of investment performance. These general principles may apply differently to investment advisers depending on the facts and circumstances.
{"title":"Fiduciary Duty: Underperforming Assets","authors":"Melanie L. Fein","doi":"10.2139/SSRN.2410363","DOIUrl":"https://doi.org/10.2139/SSRN.2410363","url":null,"abstract":"This paper discusses the duties of a fiduciary with respect to underperforming assets held in a client’s account. A trustee, investment adviser, and investment manager each is a fiduciary. Because trust law most clearly articulates fiduciary rules, this paper focuses on trust law as the principal foundation of fiduciary law. Although investment advisers are not strictly subject to trust law, the fiduciary investment principles applicable to advisers are very similar to those governing trustees. Accordingly, this paper discusses the legal framework and principles applicable under trust law generally with respect to the investment and management of trust assets, focusing specifically on the treatment of assets that underperform based on relevant measures of investment performance. These general principles may apply differently to investment advisers depending on the facts and circumstances.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"191 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116448145","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}
A careful analysis of the jurisprudence discloses no principled common law foundation for characterizing the joint venture as a distinct legal form. Might it nevertheless be desirable to legislate the joint venture into legal existence? The Alberta Law Reform Institute has made that recommendation. The objectives and deficiencies of the proposal are breathtaking.
{"title":"Joint Venture Theurgy","authors":"Robert Flannigan","doi":"10.2139/ssrn.2364141","DOIUrl":"https://doi.org/10.2139/ssrn.2364141","url":null,"abstract":"A careful analysis of the jurisprudence discloses no principled common law foundation for characterizing the joint venture as a distinct legal form. Might it nevertheless be desirable to legislate the joint venture into legal existence? The Alberta Law Reform Institute has made that recommendation. The objectives and deficiencies of the proposal are breathtaking.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134015393","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 : 2013-09-24DOI: 10.1093/acprof:oso/9780198701729.003.0007
Lionel R. Smith
It is generally agreed that fiduciary law is concerned with obligations that relate in some way to loyalty. The usual understanding is that there is something called a duty of loyalty. This paper explores the question whether there is a legal obligation of loyalty; and if so, what does it require? My argument is that the duty of loyalty is not a duty in the strict sense, that corresponds to a claim-right held by another person. Instead, the law incorporates a requirement of loyalty into the way in which the fiduciary exercises her discretionary powers. If they are exercised disloyally, the exercise can be set aside retroactively. This understanding helps us to make sense of the structure of fiduciary law, including the relationships between and among the requirement of loyalty, the no-conflict rules, and the no-profit rule.
{"title":"Can We Be Obliged to Be Selfless?","authors":"Lionel R. Smith","doi":"10.1093/acprof:oso/9780198701729.003.0007","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780198701729.003.0007","url":null,"abstract":"It is generally agreed that fiduciary law is concerned with obligations that relate in some way to loyalty. The usual understanding is that there is something called a duty of loyalty. This paper explores the question whether there is a legal obligation of loyalty; and if so, what does it require? My argument is that the duty of loyalty is not a duty in the strict sense, that corresponds to a claim-right held by another person. Instead, the law incorporates a requirement of loyalty into the way in which the fiduciary exercises her discretionary powers. If they are exercised disloyally, the exercise can be set aside retroactively. This understanding helps us to make sense of the structure of fiduciary law, including the relationships between and among the requirement of loyalty, the no-conflict rules, and the no-profit rule.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130548156","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 : 2013-09-12DOI: 10.1017/CBO9781139505994.020
Robert H. Sitkoff
The theme of this essay, a commentary on two papers forthcoming in the same volume on “The Worlds of the Trust,” is that trust law is not a species of property law or contract law, but rather is a species of organizational law. Organizational law supplies a set of contractarian rules, some of a fiduciary character, that provide for the governance of the organization. These are the rules that provide for the powers and duties of the managers and the rights of the beneficial owners. Organizational law also supplies a set of proprietary rules that provide for asset partitioning. These are the rules that provide for the separation of the property of the organization from the property of the organization’s managers, beneficial owners, and other insiders. Classifying trust law as organizational law removes the tension between the contractarian governance and the proprietary asset partitioning features of trust law.
{"title":"Trust Law as Fiduciary Governance Plus Asset Partitioning","authors":"Robert H. Sitkoff","doi":"10.1017/CBO9781139505994.020","DOIUrl":"https://doi.org/10.1017/CBO9781139505994.020","url":null,"abstract":"The theme of this essay, a commentary on two papers forthcoming in the same volume on “The Worlds of the Trust,” is that trust law is not a species of property law or contract law, but rather is a species of organizational law. Organizational law supplies a set of contractarian rules, some of a fiduciary character, that provide for the governance of the organization. These are the rules that provide for the powers and duties of the managers and the rights of the beneficial owners. Organizational law also supplies a set of proprietary rules that provide for asset partitioning. These are the rules that provide for the separation of the property of the organization from the property of the organization’s managers, beneficial owners, and other insiders. Classifying trust law as organizational law removes the tension between the contractarian governance and the proprietary asset partitioning features of trust law.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"54 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125947217","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 : 2013-03-01DOI: 10.7916/CBLR.V2013I2.1797
J. Coffee
The current law on insider trading is arbitrary and unrationalized in its limited scope in a number of respects. For example, if a thief breaks into your office, opens your files, learns material, nonpublic information, and trades on that information, he has not breached a fiduciary duty and is presumably exempt from insider trading liability. But drawing a line that can convict only the fiduciary and not the thief seems morally incoherent. Nor is it doctrinally necessary. The basic methodology handed down by the Supreme Court in SEC v. Dirks and United States v. O’Hagan dictates (i) that a violation of the insider trading prohibition requires conduct that is 'deceptive' (the term used in Section 10(b) of the Securities Exchange Act of 1934), and (ii) that trading that amounts to an undisclosed breach of a fiduciary duty is 'deceptive.' This formula illustrates, but does not exhaust, the types of duties whose undisclosed breach might also be deemed deceptive and in violation of Rule 10b-5. Many forms of theft or misappropriation of confidential business information could be deemed sufficiently deceptive to violate Rule 10b-5. More generally (and more controversially), the common law on finders of lost property might be used to justify a duty barring recipients from trading on information that has been inadvertently released or released to them without lawful authorization. Still, current law has stopped short of generally prohibiting the computer hacker and other misappropriators who make no false representation. This article surveys possible means by which to rationalize current law and submits that the SEC can and should expand the boundaries of insider trading by promulgating administrative rules paralleling and extending the rules it issued in 2000 (namely, Rules 10b5-1 and 10b5-2). Specific examples are suggested.At the same time, this article acknowledges that the goal of reform should not be to achieve parity of information and that there are costs in attempting to extend the boundaries of insider trading to reach all instances of inadvertent release. Deception, it argues, should be the key, both for doctrinal and policy reasons.
{"title":"Mapping the Future of Insider Trading Law: Of Boundaries, Gaps, and Strategies","authors":"J. Coffee","doi":"10.7916/CBLR.V2013I2.1797","DOIUrl":"https://doi.org/10.7916/CBLR.V2013I2.1797","url":null,"abstract":"The current law on insider trading is arbitrary and unrationalized in its limited scope in a number of respects. For example, if a thief breaks into your office, opens your files, learns material, nonpublic information, and trades on that information, he has not breached a fiduciary duty and is presumably exempt from insider trading liability. But drawing a line that can convict only the fiduciary and not the thief seems morally incoherent. Nor is it doctrinally necessary. The basic methodology handed down by the Supreme Court in SEC v. Dirks and United States v. O’Hagan dictates (i) that a violation of the insider trading prohibition requires conduct that is 'deceptive' (the term used in Section 10(b) of the Securities Exchange Act of 1934), and (ii) that trading that amounts to an undisclosed breach of a fiduciary duty is 'deceptive.' This formula illustrates, but does not exhaust, the types of duties whose undisclosed breach might also be deemed deceptive and in violation of Rule 10b-5. Many forms of theft or misappropriation of confidential business information could be deemed sufficiently deceptive to violate Rule 10b-5. More generally (and more controversially), the common law on finders of lost property might be used to justify a duty barring recipients from trading on information that has been inadvertently released or released to them without lawful authorization. Still, current law has stopped short of generally prohibiting the computer hacker and other misappropriators who make no false representation. This article surveys possible means by which to rationalize current law and submits that the SEC can and should expand the boundaries of insider trading by promulgating administrative rules paralleling and extending the rules it issued in 2000 (namely, Rules 10b5-1 and 10b5-2). Specific examples are suggested.At the same time, this article acknowledges that the goal of reform should not be to achieve parity of information and that there are costs in attempting to extend the boundaries of insider trading to reach all instances of inadvertent release. Deception, it argues, should be the key, both for doctrinal and policy reasons.","PeriodicalId":376950,"journal":{"name":"Fiduciary Law eJournal","volume":"78 19","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113940820","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 : 2012-11-28DOI: 10.36646/mjlr.45.4.fiduciary
L. L. Hill
Centuries ago, when land represented the majority of wealth, the trust was used primarily for holding and transferring real property. As the dominant form of wealth moved away from family land, the trust evolved into a device for managing financial assets. With this transformation came the use of exculpatory clauses by both amateur and professional trustees, providing an avenue for these fiduciaries to escape liability for designated acts. With the use of exculpatory provisions, discussion abounded about whether fiduciary duties were mandatory or subject to modification. The latter view eventually prevailed, with the majority of jurisdictions viewing fiduciary duties as default rules; that is, part of a private agreement around which the parties are free to contract. Contracting around fiduciary duties is of particular concern when a lawyer suggests himself for a fiduciary role and inserts an exculpatory clause into the governing instrument. Although the lawyer is subject to applicable legal ethics rules, such as those which govern communications and conflicts of interest, this contractarian view of the attorney-client relationship is less than ideal, especially when lawyers and non-lawyer professionals are involved in a reciprocal referral agreement. During the recent revisions to the UPC, mandates relating to the default nature of fiduciary duties were not addressed. Perhaps this was because the matter was outside the scope of the revisionists' review, or perhaps the drafters of the revisions were comfortable with the recent position the Uniform Trust Code and the Restatement of Trusts have taken on exculpatory clauses. However the UPC revisions should have addressed this matter with specificity. Given public policy concerns, client protection, fiduciary responsibilities, and the professional responsibility of lawyers, it may be that the standard of prudence should not be abandoned so easily.
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