Securities Regulation

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    Along with my co-authors J. Kelly Strader, Mihailis E. Diamantis, and Sandra D. Jordan, I am pleased to announce that the Fourth Edition of our textbook White Collar Crime: Cases, Materials, and Problems has gone to press and is expected to be available through Carolina Academic Press by June of 2021, in plenty of time for Fall 2021 adoptions.

    Professor Diamantis and I are excited to join Professors Strader and Jordan in the new edition. We hope that our unique practice experiences and theoretical perspectives will add value to what is already a popular White Collar casebook. We have posted the current drafts of Chapter 1 (Overview of White Collar Crime) and Chapter 5 (Securities Fraud) on SSRN as samples for review. Here, also, is an excerpt from the Preface summarizing our approach to the new edition:

[W]e have endeavored to write a problem-based casebook that provides a topical, informative, and thought-provoking perspective on this rapidly evolving area of the law. We also believe that the study of white collar criminal law and practice raises unique issues of criminal law and justice policy, and serves as an excellent vehicle for deepening our understanding of criminal justice issues in…

If you read the title, you’ll see that I’m only going to ask questions. I have no answers, insights, or predictions until the President-elect announces more cabinet picks. After President Trump won the election in 2016, I posed eleven questions and then gave some preliminary commentary based on his cabinet picks two months later. Here are my initial questions based on what I’m interested in — compliance, corporate governance, human rights, and ESG. I recognize that everyone will have their own list:

  1. How will the Administration view disclosures? Will Dodd-Frank conflict minerals disclosures stay in place, regardless of the effectiveness on reducing violence in the Democratic Republic of Congo? Will the US add mandatory human rights due diligence and disclosures like the EU??
  2. Building on Question 1, will we see more stringent requirements for ESG disclosures? Will the US follow the EU model for financial services firms, which goes into effect in March 2021? With ESG accounting for 1 in 3 dollars of assets under management, will the Biden Administration look at ESG investing more favorably than the Trump DOL? How robust will climate and ESG disclosure get? We already know that disclosure of climate

…

Many of us have been looking for new opportunities to raise and discuss issues of diversity and inclusion (including, but not limited to, race, gender, and LGBTQ issues) in our Business Associations and Securities Regulations classes. Along these lines, I’ve been inspired by a number of my BLPB co-editors’ recent posts. (See, e.g., here, here, and here—just in the last week!) With these thoughts in mind, and as we start preparing our course syllabi for the spring semester, I recommend you read Professor Ellen Podgor’s forthcoming article, Carpenter v. United States, Did Being Gay Matter?, 15 Tenn. J. L. Pol’y 115 (2020). Here’s the abstract:

Carpenter v. United States (1987) is a case commonly referenced in corporations, securities, and white collar crime classes. But the story behind the trading of pre-publication information from the “Heard on the Street” columns of the Wall Street Journal may be a story that has not been previously told. This Essay looks at the Carpenter case from a different perspective – gay men being prosecuted at a time when gay relationships were often closeted because of discriminatory policies and practices. This Essay asks the question of whether being…

In a recently published article just posted to SSRN, I examine spousal misappropriation as a basis for an insider trading claim.  The article, Women Should Not Need to Watch Their Husbands Like [a] Hawk: Misappropriation Insider Trading in Spousal Relationships, leverages the facts of a specific Securities and Exchange Commission enforcement action (SEC v. Hawk, No. 5:14-cv-01466 (N.D. Cal.)), to undertake an analysis of applicable statutory and regulatory principles, existing decisional law, and the realities of the legal and social context.  The SSRN abstract, derived from the text of the article, follows.

This article endeavors to sort through and begin to resolve key unanswered questions regarding spousal misappropriation as a basis for U.S. insider trading liability, some of which apply to insider trading more broadly. It identifies and describes misappropriation insider trading liability under U.S. law, recounts and analyzes probative doctrine and policy relevant to spousal misappropriation cases, and (before briefly concluding) offers related observations about the impact of that doctrine and policy on a specific motivating Securities and Exchange Commission (“SEC”) enforcement action and other spousal misappropriation cases.

The analysis undertaken in the article supports enforcement actions based on a strong threshold presumption of a relationship of trust…

The courts have interpreted Section 10b of the Securities and 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 scienter for insider trading liability is sometimes tricky for regulators and prosecutors to satisfy because insiders who possess material nonpublic information at the time of their trade will often claim they did not use that information. The insider may claim that her true motives for trading were entirely innocent (e.g., to diversify her portfolio, to pay a large tax bill, or to buy a new house or boat). Such lawful bases for trading can be easy for insiders to manufacture and are often difficult for regulators and prosecutors to disprove.

Historically, the SEC and prosecutors sought to overcome this challenge by taking the position that knowing possession of material nonpublic information while trading is sufficient to satisfy the “on the basis of” test. This strategy met mixed results before the courts, with some circuits holding that proof of scienter under Section 10b requires proof that the trader actually used the inside information in making the trade.

Facing a circuit split, the SEC attempted…

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The NYU Pollack Center for Law & Business, Indiana University Maurer School of Law, and Securities and Exchange Commission Historical Society invite you to a virtual program entitled “Insider Trading: Honoring the Past｜A Program Commemorating the 40th Anniversary of Chiarella v. United States,” which will take place on Thursday, November 5th from 10am-noon Eastern Time.

The program will explore the fascinating backstories of the Chiarella prosecution and the Supreme Court argument as well as the SEC’s and DOJ’s insider trading enforcement strategies in the wake of the Court’s ruling. The Chiarella case is also the subject of Donna Nagy’s recent essay, Chiarella v. United States and its Indelible Impact on Insider Trading Law.

A webinar link will be circulated to all those who RSVP, which you can do here. Conference details and schedule are below.

Conference Organizers:

Stephen Choi, Murray and Kathleen Bring Professor of Law, NYU School of Law, Co-Director Pollack Center for Law and Business
Donna M. Nagy, C. Ben Dutton Professor of Law, Indiana University Maurer School of Law
Jane Cobb, Executive Director, SEC Historical Society

Schedule:

10:00am Welcome by Stephen Choi, Murray and Kathleen Bring Professor of Law, NYU School of…

No. You didn’t miss Part 1. I wrote about Weinstein clauses last July. Last Wednesday, I spoke with a reporter who had read that blog post.  Acquirors use these #MeToo/Weinstein clauses to require target companies to represent that there have been no allegations of, or settlement related to, sexual misconduct or harassment. I look at these clauses through the lens of a management-side employment lawyer/compliance officer/transactional drafting professor. It’s almost impossible to write these in a way that’s precise enough to provide the assurances that the acquiror wants or needs.

Specifically, the reporter wanted to know whether it was unusual that Chevron had added this clause into its merger documents with Noble Energy. As per the Prospectus:

Since January 1, 2018, to the knowledge of the Company, (i), no allegations of sexual harassment or other sexual misconduct have been made against any employee of the Company with the title of director, vice president or above through the Company’s anonymous employee hotline or any formal human resources communication channels at the Company, and (ii) there are no actions, suits, investigations or proceedings pending or, to the Company’s knowledge, threatened related to any allegations of sexual harassment or other sexual misconduct by any…

This is the fourth installment of a multi-part guest blog presenting some of the results of the first comprehensive, large-scale, national survey of public attitudes regarding insider trading. My co-authors (Jeremy Kidd and George Mocsary) and I present the survey’s complete results in our forthcoming article, Public Perceptions of Insider Trading. This installment focuses on the public’s views concerning the ethics of insider trading in different factual scenarios.

The survey presented each respondent with five basic insider-trading scenarios. In each scenario, the inside information pertained to the acquisition of a small company by a larger company. Respondents were placed in the shoes of (1) the CEO of the small firm being acquired by the larger firm; (2) a janitorial employee of the small firm; (3) an outside accountant hired to audit the small firm; (4) the friend of a middle manager of the small firm who learns the inside information at a holiday party; and (5) a stranger who overhears the material nonpublic information in an elevator. The survey instrument randomly directed respondents down multiple question paths for each of these scenarios. I will summarize just some of the results for the CEO scenario in this post…

This is the third installment of a multi-part guest blog presenting some of the results of the first comprehensive, large-scale, national survey of public attitudes regarding insider trading. My co-authors (Jeremy Kidd and George Mocsary) and I present the survey’s complete results in our forthcoming article, Public Perceptions of Insider Trading. This installment focuses on the public’s views concerning the morality of insider trading.

The survey asked participants (1) whether they would trade on inside information if it came into their possession; (2) whether they believe that insider trading is morally wrong; and (3) whether they believe that insider trading should be illegal. The following table offers a demographic breakdown of the results.

 

Would you trade based on inside info?

Is insider trading morally wrong?

Should insider trading be illegal?
 

Yes

No

Yes

No

Yes

No

Overall

44.9%

55.1%

62.8%

35.5%

66.7%

33.3%

Gender

Female

45.9%

54.1%

59.4%

39.3%

62.5%

37.5%

Male

43.6%

56.4%

66.7%

31.2%

71.5%

28.5%

Race

Asian

56.1%

43.9%

56.1%

42.4%

62.1%

37.9%

Black

59.0%

41.0%

43.3%

55.1%

45.5%

54.5%

Latinx

61.5%

38.6%

45.8%

51.8%

48.2%

51.8%

Native Am.

66.7%

33.3%

58.3%

41.7%

58.3%

41.7%

White

39.7%

60.2%

68.6%

29.7%

72.6%

27.4%

…

This is the second installment of a multi-part guest blog presenting some of the results of the first comprehensive, large-scale, national survey of public attitudes regarding insider trading. My co-authors (Jeremy Kidd and George Mocsary) and I present the survey’s complete results in our forthcoming article, Public Perceptions of Insider Trading. This installment focuses on some of our results pertaining to the effect of insider trading on the public’s confidence in the integrity of our capital markets.

It turns out that most Americans believe that insider trading is pervasive. The following table breaks down respondents’ answers to the question, “How common do you think insider trading is?”

 

Very Common

Common

Rare

Very Rare

Overall

25.4%

55.0%

15.0%

4.6%

Gender

Female

24.0%

57.0%

14.4%

4.5%

Male

26.8%

52.7%

15.9%

4.6%

Race

Asian

25.8%

51.5%

18.2%

4.5%

Black

41.6%

38.8%

15.2%

4.5%

Latinx

25.3%

55.4%

14.5%

4.8%

Native Am.

25.0%

58.3%

0.0%

16.7%

White

22.3%

58.3%

15.1%

4.3%

Other

22.7%

54.6%

13.6%

9.1%

Trading Status

Invest

30.5%

52.1%

14.4%

3.0%

Abstain

21.5%

56.9%

15.9%

5.7%
           

Approximately 80% of Americans believe insider trading is common or very common. If insider trading’s perceived pervasiveness…