Conservative & Libertarian Legal Scholarship: Securities Law

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XXI. Securities Law

The Form and Function of the SEC

Frank H. Easterbrook & Daniel R. Fischel, Mandatory Disclosure and the Protection of Investors, 70 Va. L. Rev. 669 (1984). Questions the traditional justifications for the federal securities laws. Part of a symposium marking the fiftieth anniversary of federal securities regulation.

Jonathan Macey, Administrative Agency Obsolescence and Interest Group Formation: A Case Study of the SEC at Sixty, 15 Cardozo L. Rev. 909 (1994). Argues for the abolition of the SEC, in part on the theory that the agency is now a trough at which businesses seek regulations in an effort to harm competitors. Ten years later, Professor Macey returns to the same topic, focusing on the federalist competition over corporate regulation that exists between State Attorneys General and the Federal SEC.  Jonathan R. Macey, The SEC at 70: Positive Political Theory and Federal Usurpation of the Regulation of Corporate Governance: The Coming Preemption of the Martin Act, 80 Notre Dame L. Rev. 951 (2005).

Jonathan R. Macey and Maureen O'Hara, From Markets to Venues: Securities Regulation in an Evolving World, 58 Stan. L. Rev. 563 (2005).  An exploration of the change of stock exchanges from the central market to one of many venues trading securities, along with the change's implications for securities regulation.  The professors recognize the troubled history of self-regulation in the United States, but make a forceful recommendation for separating out regulation of internal operations of securities trading from regulation of the overall market, whereby exchanges would regulate internal operations and the SEC would focus on regulation of the overall market.

Troy A. Paredes, On the Decision to Regulate Hedge Funds: The SEC's Regulatory Philosophy, Style, and Mission, 2006 U. Ill. L. Rev. 975 (2006).  A key piece of scholarship by an SEC Chairman on SEC decision-making using the example of the requirement of hedge fund managers to register under the Investment Advisers Act.  Prof. Paredes favors using default rules over mandatory rules and emphasizes the potential benefit of a lighter touch by the SEC.

The Role of Markets

Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984). Explains the ways in which real-world markets operate in such a way as to vindicate the "efficient capital market hypothesis."

Roberta Romano, Empowering Investors: A Market Approach to Securities Regulation, 107 Yale L. J. 2359 (1998). A proposal for a market-oriented approach of competitive federalism, which would expand the role of the states in securities regulation and fundamentally reconceptualize the regulatory scheme.

Jonathan R. Macey, Efficient Capital Markets, Corporate Disclosure, and Enron, 89 Cornell L. Rev. 394 (2004).  An argument that market forces should fix the lack of confidence in capital markets in the post-Enron world, rather than government regulation attempting to fix the crisis in confidence.  Prof. Macey contends that government regulation will only exacerbate the problem, leading to an increase in convoluted and bewildering disclosure instead of clear, informative disclosure that the market requires for efficient functioning.

Sarbanes-Oxley

Stephen Bainbridge, Sarbanes-Oxley: Legislating in Haste, Repenting in Leisure, 2 Corporate Governance L. Rev. 69 (2006). Professor Bainbridge's critique of the Sarbanes-Oxley Act, passed immediately in the wake of the Enron scandal. He argues that the Act has failed in three respects: first because the legal ethics rules added to the Act have proven incapable of dealing with the incentives that condition lawyers to turn a blind eye to client misconduct; second, because the structure Congress chose for the Public Company Accounting Oversight Board (PCAOB), the accounting oversight board created by SOX, turns out to have serious constitutional defects; and third, because corporate compliance costs have gone up far more and for far longer than anyone anticipated.

Insider Trading

Henry Manne, Insider Trading and the Stock Market (1966). This seminal work calls into question the securities laws' prohibition on "insider trading."

Gary Lawson, The Ethics of Insider Trading, 11 Harv. J.L. & Pub. Pol'y 727 (1988). Jonathan R. Macey, Ethics, Economics, and Insider Trading: Ayn Rand Meets the Theory of the Firm, 11 Harv. J.L. & Pub. Pol'y 785 (1988). Professor Lawson tentatively advances a novel moral justification for the laws against insider trading: such trading is immoral in such cases where the trader makes use of someone else's information without his consent. Professor Macey concludes that Lawson has failed to enhance the moral arguments against insider trading. Macey then suggests alternative "socio-biological" and economic explanations for the persistence of insider trading laws, in spite of the absence of a firm moral foundation for such a prohibition.

Shareholder Class Actions

Joseph A. Grundfest, Disimplying Private Rights of Action under the Federal Securities Laws: The SEC's Authority, 107 Harv. L. Rev. 961 (1994). Argues that the SEC should exercise its rulemaking authority to curb private rights of action under Rule 10b-5. Although Professor Grundfest's argument has been made less urgent by the passage in late 1995 of the Private Securities Litigation Reform Act, his discussion of "implied" rights of action and the scope of the SEC's rulemaking powers remain very timely.

John C. Coffee, Jr., Reforming the Securities Class Action: An Essay on Deterrence and its Implementation, 106 Colum. L. Rev. 1534 (2006). An argument by one of the leading securities scholars that securities class actions benefit corporate insiders and plaintiff attorneys, but do not benefit investors, along with a series of recommendations to mitigate this problem involving settlements and attorneys' fees.

A.C. Pritchard, Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc.: The Political Economy of Securities Class Action Reform, Cato Sup. Ct. Rev. (2008). An argument that corporate shareholders, rather than institutional actors, should remedy the abuses of the current flawed class action regime by amending corporate articles to waive compensatory damages in lawsuits relying on the "fraud on the market" theory.

Richard A. Booth, The Paulson Report Reconsidered: How to Fix Securities Litigation by Converting Class Actions into Issuer Actions (January 2008). In this working paper Professor Booth argues that courts could rectify the harm to investors caused by stock-drop class actions by deeming such actions under the 1934 Act and Rule 10b-5 to be derivative actions rather than direct (class) actions.

Internet resources: "The Securities Lawyer's Deskbook," maintained by the Center for Corporate Law at the University of Cincinnati, http://www.law.uc.edu/CCL/, contains the full text of the 1933 and 1934 acts and their associated regulations and forms.

Last updated March 2010

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