Securities Regulation

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The following comes to us from Professor Mike Guttentag in response to my recent post on his excellent and thought-provoking new article, Avoiding Wasteful Competition: Why Trading on Inside Information Should be Illegal. This is a worhy discussion I look forward to continuing–and I hope others will engage in the comments below. Now, here is Professor Guttentag’s response:

As always, I am honored and impressed by the seriousness and respect with which Professor Anderson approaches my work.  I would, however, take exception to the reasons he offers for rejecting my conclusions.

The debate about insider trading over the past five decades has suffered from limited evidence of either benefits or harms. Those who have objected to a strict insider trading prohibition have reasonably asked: what evidence is there that the harms of insider trading justify a broad prohibition?

In my article I believe I have answered that challenge.  First, I explain why there is a significant mismatch between private gains and social gains when trading on inside information. This mismatch arises both because of how inside information is produced (largely as a byproduct of other activities) and how trading on this information generates profits (at the expense of others). I…

For some time now, the insider trading enforcement regime in the United States has been criticized by market participants, scholars, and jurists alike as lacking clarity, theoretical integrity, and a coherent rationale. One problem is that Congress has never enacted a statute that specifically defines “insider trading.” Instead, the current regime has been cobbled together on an ad hoc basis through the common law and administrative proceedings. As the recent Report of the Bharara Task Force on Insider Trading puts it, the absence of an insider trading statute “has left market participants without sufficient guidance on how to comport themselves, prosecutors and regulators with undue challenges in holding wrongful actors accountable, those accused of misconduct with burdens in defending themselves, and the public with reason to question the fairness and integrity of our securities markets.”

Congress appears to be responding, and a number of bills that would define insider trading and otherwise reform the enforcement regime are receiving bipartisan support. But it would be a mistake to pass new legislation without first taking the time to get clear on the economic and ethical reasons for regulating insider trading. This is particularly true in light of the fact that the general…

The University of Illinois College of Law, in partnership with UCLA School of Law, University of Richmond School of Law, and Vanderbilt Law School, invites submissions for the Ninth Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, September 23 and Saturday, September 24, 2022 in Chicago, Illinois.

Overview

This annual workshop brings together scholars focused on corporate and securities litigation to present their scholarly works. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible, including securities class actions, fiduciary duty litigation, and SEC enforcement actions. We welcome scholars working in a variety of methodologies, as well as both completed papers and works-in-progress.

Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Illinois College of Law. Participants will pay for their own travel, lodging, and other expenses.

Submissions

If you are interested in participating, please send the paper you would like to present or an abstract of the paper to corpandsecworkshop@gmail.com by Friday, May 13, 2022. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified in June.…

2022 Online Symposium – Mainstreet vs. Wallstreet: The Democratization of Investing

I’m thrilled to moderate two panels this Friday and one features our rock star BLPB editor, Ben Edwards. 

                                                                     REGISTER HERE

The University of Miami Business Law Review is hosting its 2022 online symposium on Friday, March 4, 2022. The symposium will run from 12:30 PM to 3:30 PM. The symposium will be conducted via Zoom. Attendees can apply to receive CLE credits for attending this event—3.5 CLE credits have been approved by the Florida Bar. 

The symposium will host two sessions with expert panelists discussing the gamification of trading platforms and the growing popularity of aligning investments with personal values.

The panels will be moderated by Professor Marcia Narine Weldon, who is the director of the Transactional Skills Program, Faculty Coordinator of the Business Compliance & Sustainability Concentration, and a Lecturer in Law at the University of Miami School of Law.

Panel 1: Gamification of Trading 

This panel will focus on the role of

…

With a recent poll showing that 76 percent of voters think members of Congress have an “unfair advantage” in stock trades, I argued in my last post that Congress should adopt a broad rule against trading in individual stocks by sitting cogresspersons (and perhaps their spouses, children, and staff). I argued that such a move would go a long way toward restoring the perception that members of Congress are public servants, as opposed to the current perception shared by many voters that they are public parasites. In addition to restoring public confidence in the legislative branch, I argued adopting such a prophylactic against insider trading would also help improve public confidence in the integrity of our securities markets—a goal Congress has touted repeatedly for almost a century.

I have since posted a short paper on SSRN, Time for a Broad Prophylactic against Congressional Insider Trading, that develops these arguments. Part I offers a brief summary of the current state of insider trading laws, with a special focus on their application to Congress. Part II surveys some of the proposed insider trading reform bills under consideration. Part III argues that, given congresspersons’ unique role vis-à-vis securities markets, a broad prophylactic…

In 2011, Peter Schweizer published a book, Throw Them All Out, in which he exposed some questionable means by which (according to one study) politicians manage to increase their personal wealth 50% faster than the average American.

According to Schweizer, trading on material nonpublic information appears to be a popular method among congresspersons for achieving outsized returns on their investments. He cites one study finding:

  • The average American investor underperforms the market.
  • The average corporate insider, trading his own company’s stock, beats the market by 7% a year.
  • The average senator beats the market by 12% a year.

Schweitzer’s book was followed by a feature story on the CBS News show, 60 Minutes, highlighting some dubious stock trades by leaders of both political parties. These stories got the public’s attention and spurred Congress to act—adopting the Stop Trading on Congressional Knowledge (STOCK) Act in April of 2012.

The STOCK Act made explicit what many already understood as implicit—that congressional trading based on material nonpublic information acquired by virtue of their position as a public servant was a breach of their fiduciary duties and would therefore violate Section 10b of the Securities Exchange Act of 1934. The Act…

We just wrapped up a fascinating discussion group titled “A Very Online Economy: Meme Trading, Bitcoin, and the Crisis of Trust and Value(s)–How Should the Law Respond?” as part of the AALS 2022 Annual Meeting. I co-moderated the group with Professor Martin Edwards (Belmont University School of Law). 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. Blockchain technologies challenge our assumptions about the need for centralization, trust, and financial institutions. Meme trading puts pressure on our assumptions about economic value and market processes. Environmental and social governance initiatives raise important questions about the relationship between economic institutions and social values. These issues will certainly drive policy debates about social and economic good in the coming years.

The group gathered some amazing presenters and commentators for the discussion, including:

…

I’ve been thinking about environmental, social, and governance issues (“ESG”) for almost twenty years — long before they became mainstream. As an in-house lawyer at a public company prior to joining academia, I had no choice. I teach, research, and consult on these issues now and have a whole lot of thoughts about them, which I’ll share in coming posts. 

I had the honor of presenting on “ESG and India in 2022” yesterday. ESG is a hot topic in India, as it is everywhere – – I have either attended or spoken on half a dozen panels on ESG this year to introduce the topic to lawyers. If you’re not familiar with the term or think it’s completely irrelevant to what you do for a living, here are some common classifications for investors that integrate ESG into their portfolio selection and investment process. 

Environmental: climate change, water, alternative energy, pollution & waste management

Social: human rights, workplace standards, worker health safety, diversity & equal opportunity, labor relations, land grabs

Governance: bribery & corruption, board diversity, corporate political contributions, executive compensation, disclosure & transparency, board independence, tax avoidance

If you’re a transactional lawyer, chances are you or your clients…

It is an exciting time for insider trading law. BLPB coblogger Joan MacLeod Heminway and I will be moderating a discussion group, New Challenges for Insider Trading Compliance,  at the upcoming Southeastern Law Schools (SEALS) Annual Conference (July 27-August 3, 2022). The conference is scheduled to be held in person in Sandestin, Florida. Here’s the description for our discussion group:

Insider trading law in the United States is in a state of flux and uncertainty. In May of 2021, the House of Representatives passed the Insider Trading Prohibition Act. If this bill becomes law, it will impose an entirely new statutory regime for civil and criminal enforcement. Moreover, Securities and Exchange Commission (SEC) Chairman Gary Gensler recently directed the staff to present recommendations to “freshen up” and tighten the operative provisions in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In response, in August of 2021, the SEC’s Investor Advisory Committee proposed extensive new restrictions on the use of 10b5-1(c) trading plans as an affirmative defense for insider trading. Meanwhile, prosecutors and regulators continue to employ novel theories of liability in insider trading enforcement actions. Criminal enforcement actions under 18 U.S.C. § 1348 and civil enforcement…

I was recently honored to be invited to join a panel at the 16th Annual Meeting of the American College of Business Court Judges (ABCBJ), which was held in Jackson, Mississippi, on October 27-29. The meeting was hosted by Chancellor Denise Owens (the current president of the ACBCJ) in association with the Law & Economics Center (LEC) at George Mason University Antonin Scalia School of Law.

Chancellor Owens kicked off the event and introduced the keynote speaker, Haley Barbour (former Governor of Mississippi). Governor Barbour gave an excellent talk about the ways in which Mississippi’s musical traditions have helped to improve race relations over the past century.

The meeting panels covered a broad array of topics, including:

  • Ownership, Transfer and Trading of Intellecual Property Rights.
  • The Cost of Truth, Can You Afford It?
  • Artificial Intelligence, Machine Learning, and Algorithms: Studies in Law, Economics, and Racial Bias
  • Thriving Post Pandemic – Private Practice and Expanding Regulatory Authority After COVID-19.

I joined Professors Todd Zywicki and Donald Kochan on a panel moderated by Judge Elihu Berle (Los Angeles Superior Court). The panel was entitled, Shareholder Wealth Maximization versus ESG and the Business Roundtable: The Growing Debate Over Corporate Purpose. I…