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Benjamin P. Edwards

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Benjamin Edwards joined the faculty of the William S. Boyd School of Law in 2017. He researches and writes about business and securities law, corporate governance, arbitration, and consumer protection.

Prior to teaching, Professor Edwards practiced as a securities litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. At Skadden, he represented clients in complex civil litigation, including securities class actions arising out of the Madoff Ponzi scheme and litigation arising out of the 2008 financial crisis. Read More

The Securities and Exchange Commission’s (SEC) Chairman, Gary Gensler, recently directed the staff to present recommendations to “freshen up” and tighten some provisions in Exchange Act Rule 10b5-1. In response, the SEC’s Investor Advisory Committee proposed new restrictions on the use of 10b5-1(c) trading plans as an affirmative defense against insider trading liability. The proposed changes are designed to address concerns that “some plans are used to engage in opportunistic trading behavior that contravenes the intent behind the rule,” and they are consistent with recommendations outlined in the  Promoting Transparent Standards for Corporate Insiders Act that passed the House of Representatives in April 2021.

But any proposed restrictions to trading plans must be considered in light of the broader context of Rule 10b5-1, and the motivation behind the affirmative defense’s adoption.

The courts have interpreted Section 10b of the Exchange Act as prohibiting insiders from trading in their own company’s shares only if they do so “on the basis” of material nonpublic information. This element of intent for insider trading liability can be difficult for regulators and prosecutors to satisfy because insiders who possess material nonpublic information at the time of their trade can often claim that they did…

I suggested in my last two posts (here and here) that as Congress and the SEC contemplate reforms to our current insider trading regime, it is important for us all to explore our intuitions about what we think insider trading is, why it is wrong, who is harmed by it, and the nature and extent of the harm. If we are going to rethink how we impose criminal and civil penalties for insider trading, we should have some confidence that the proscribed conduct is wrongful and why. One way to do this is to place ourselves in the shoes of traders and ask, “What would I do?” or “What do I think about that?” With this in mind, I developed some scenarios designed to test our attitudes regarding trading scenarios that distinguish the four historical insider trading regimes (laissez faire, fiduciary-fraud, equal access, and parity of information).

In the previous post, I offered a scenario that would result in liability under equal-access and parity-of-information regimes, but not under the fiduciary-fraud and laissez-faire models. Those of you who were not convinced that the trading in that scenario was wrongful may favor one of the less restrictive models.

In today’s…

As Congress and the SEC continue to contemplate reforms to the U.S. insider-trading enforcement regime, I suggested in my last post that it is important for us all to explore our intuitions about what we think insider trading is, why it is wrong, who is harmed by it, and the nature and extent of the harm. If we are going to rethink how we impose criminal and civil penalties for insider trading, we should have some confidence that the proscribed conduct is wrongful and why. One way to do this is to place ourselves in the shoes of traders and ask, “What would I do?” or “What do I think about that?” To this end, I have developed some scenarios designed to test our attitudes regarding trading scenarios that distinguish the four historical insider trading regimes (laissez faire, fiduciary-fraud, equal access, and parity of information).

In the last post, I offered a scenario that would result in liability under a parity-of-information regime, but not under the other three. Those of you who were not convinced that the trading in that scenario was wrongful may favor one of the less restrictive models.

In this post, I offer the following scenario to…

In January of 2020, The Bharara Task Force on Insider Trading released its report recommending that Congress adopt sweeping reforms of our insider trading enforcement regime. And it appears there is at least some momentum building to act on this recommendation. In April of 2021, the House of Representatives passed the Promoting Transparent Standards for Corporate Insiders Act, and in May of 2021, the House passed the Insider Trading Prohibition Act.  I have expressed some concerns about these bills (see, e.g., here and here). But, as I argue in my book, Insider Trading: Law, Ethics, and Reform, I am in complete agreement with the claim that our current insider trading regime is broken and needs to be reformed.

We should not, however, rush to adopt a new insider trading regime without first thoughtfully considering what constitutes insider trading; why it is wrong; who is harmed by it; and the nature and extent of the harm. The answers to these questions have been subject to endless academic debate, but are crucial for determining whether insider trading should be regulated civilly and/or criminally (or not at all), as well as for determining the nature and magnitude of any…

Anthony Rickey and I wrote about hidden conflicts in securities class action litigation and used the State Street case as a key example.  When the special master investigated in that action, discovery revealed an email from Damon Chargois to Labaton, stating:

“We got you ATRS as a client after considerable efforts, political activity, money spent and time dedicated in Arkansas, and Labaton would use ATRS to seek legal counsel appointments in institutional investor fraud and misrepresentation cases. Where Labaton is successful in getting appointed lead counsel and obtains a settlement or judgment award, we split Labaton’s attorney fee award 80/20 period.”

The New York Times reported on the revelations and indicated that the court, client, and class had not been informed of the relationship:

The payment to the lawyer, Damon Chargois, had not been previously disclosed. Mr. Rosen’s investigation unearthed documents showing that Mr. Chargois did no work on the litigation other than help introduce the Arkansas Teacher Retirement System to Labaton roughly a decade ago. In 2011, Labaton filed a lawsuit for the retirement fund that was later consolidated with similar lawsuits filed by a few other law firms.

None of those other law firms, nor Judge Wolf, were

…

Professor Martin Edwards (Belmont University College of Law) and I are excited to moderate a discussion group titled, “A Very Online Economy: Meme Trading, Bitcoin, and the Crisis of Trust and Value(s)—How Should the Law Respond,” at the 2022 American Association of Law Schools Annual Meeting. The discussion group is scheduled to take place (virtually) on Friday, January 7, 2022. We welcome responses to the call for participation (here). Here’s the description:

Emergent forces emanating from social and financial technologies are challenging many underlying assumptions about the workings of markets, the nature of firms, and our social relationship with our economic institutions. The 21st century economy and financial architecture are built on faith and trust in centralized institutions. Perhaps it is not surprising that in 2008, a time where that faith and trust waned, a different architecture called “blockchain” emerged. It promised “trustless” exchange, verifiable intermediation, and “decentralization” of value transfer.

In 2021, the financial architecture and its institutions suffered a broadside from socialmedia-fueled “meme” and “expressive” traders. It may not be a coincidence that many of these traders reached adulthood around 2008, when the crisis called into question whether that real money, those real securities, or that…

Last year, Anthony Rickey and I published a paper highlighting potential conflicts of interest that can arise between securities class action plaintiffs, their counsel, and the class.  Our article suggested that courts could discourage troublesome practices by requiring law firms to disclose past findings of misconduct when they apply for lead counsel appointments.  The idea is to make sure that future judges know what happened in past cases so they can protect the class.

Recently, Judge Alsup of the Northern District of California issued this type of order after two of the country’s largest plaintiff-side securities litigation firms hurled allegations of misconduct back and forth.  The fallout from this decision demonstrates a potential shortcoming of mandatory disclosure orders:  they are not self-enforcing.

The Case:  SEB Investment Management AB v. Symantec Corp., et al., No. 3:18-cv-02902-WHA (N.D. Cal.)

Judge Alsup’s April 20, 2021 order briefly summarizes the troublesome facts of a securities class action involving Symantec Corporation.  When SEB Investment Management AB (“SEB”) became lead plaintiff in 2018, the court ordered SEB to interview law firms to serve as class counsel.  SEB selected Bernstein, Litowitz, Berger & Grossman, LLP (“BLBG”), its original counsel, to lead the litigation “even though BLBG…

I noted in a January post that Professor Mihailis E. Diamantis and I are joining Professors J. Kelly Strader, and Sandra D. Jordan as co-authors of the 4th edition of White Collar Crime: Cases, Materials, and Problems. I am pleased to announce that the text is now available for fall 2021 adoption, and instructors can request an electronic copy for immediate review here. Here is a description of the new edition:

White Collar Crime: Cases, Materials, and Problems is a unique, problems-focused approach to teaching and learning about federal white collar crime. The authors draw from their practice experience in prosecuting and defending white collar crime cases to present both foundational and current issues of law, policy, and theory as they arise in statutes and cases. The text includes:

  • Comprehensive coverage of the substantive law of various white collar crimes (topics include conspiracy, mail fraud, wire fraud, securities fraud, computer crimes, bribery, extortion, perjury, false statements, obstruction of justice, tax fraud, currency transaction reporting crimes, money laundering, and RICO);
  • Chapters dedicated to the practical and procedural issues that typically arise in, and often are unique to, white collar cases (topics include internal investigations, compliance programs, civil actions

…

A little while ago, Anthony Rickey and I published an article looking at the settlement approval process in class actions with a particular focus on the State Street Case.  Our article noticed that Judge Wolf found that class counsel made deceptive, less than fully candid statements when it submitted hourly rates to a court which no client had ever actually paid:

In theory, a vigorous lead plaintiff actively supervises its lead counsel, examining fee requests to maximize the portion of the settlement retained by the class. The efforts that ATRS undertook to supervise its class counsel remain unclear, but they do not seem to have been effective. In the State Street litigation, Judge Wolf harshly criticized Thornton for declaring, under oath, that one attorney’s regular rate was $500 per hour, when the firm could only identify one case in which that attorney had been charged at even $300 per hour. He similarly noted that Labaton submitted as “regular rates” for services hourly rates that had “never been charged to paying clients.” ATRS did not volunteer these facts. They were only discovered because the State Street court took the apparently unprecedented step of appointing a special master to investigate.(footnotes omitted) 

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    Now that the spring commencement address season has come to a close, I’ll take a moment to reflect on one of the most infamous commencement speeches in history. Thirty-five years ago, on May 18, 1986, Ivan Boesky addressed the graduating class of UC Berkeley’s Haas School of Business. In his speech, he famously claimed that

[g]reed is all right, by the way. I want you to know that. I think greed is really healthy. You can be greedy and still feel good about yourself.

In response, James B. Stewart notes that the “crowd burst into spontaneous applause as students laughed and looked at each other knowingly.” Den of Thieves p.261 (1992). And why not? This was the 1980s, the “Decade of Greed” (see, e.g., here and here). Boesky’s claim garnered so much attention that it was famously paraphrased by the fictional Gordon Gekko in Oliver Stone’s iconic 1987 movie, Wall Street.

    But, of course, by definition greed is not good. As Aristotle explained, greed is a vice. It is the opposite of the virtue of generosity. The greedy are “shameful love[rs] of gain” who “go to excess in taking, by taking anything from any source.” Aristotle…