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One of the topics I’ve repeatedly discussed in this space is how layers of doctrine have been so piled on top of inquiries like materiality and loss causation in the Section 10(b) context that the legal analysis  has become completely unmoored from the ultimate factual inquiry, namely, did the fraud actually result in losses to investors.  As I put it in one post:

[A]ll of our measures of impact and harm and loss are, at this point, so far removed from reality as to border on complete legal fiction.  Materiality is a construct from case law, with numerous additional doctrines piled on to it by courts without any heed for actual evidence of how markets behave. …. [W]hat we call “harm” and “damage” for the purpose of private securities fraud lawsuits have become so artificial that it no longer seems as though we’re even trying to measure the actual real-world effects of fraud.  I believe private lawsuits are an essential supplement to SEC action but a system of fines or statutory damages would make so much more sense.

This week, I call attention to another recent example of the phenomenon.  In Mandalevy v. BofI Holding, 2018 WL 3250154…

Earlier today, the Justice Department announced that it had reached a non-prosecution agreement with Credit Suisse.  The bank admitted to hiring the relatives of Chinese government officials and exempting them from performance reviews in order to curry favor.  The DOJ press release lays out the issue:

“In the banking industry, not every undertaking is fair game,” said Assistant Director-in-Charge Sweeney.  “Trading employment opportunities for less-than-qualified individuals in exchange for lucrative business deals is an example of nepotism at its finest. The criminal penalty imposed today provides explicit insight into the level of corruption that took place at the hands of Credit Suisse Group AG’s Hong Kong-based subsidiary.”

According to CSHK’s admissions, between 2007 and 2013, several senior CSHK managers in the Asia Pacific (APAC) region engaged in a practice to hire, promote and retain candidates referred by or related to government officials and executives of clients that were state-owned entities (SOEs).  The employment of these “relationship hires” or “referral hires” was part of a quid pro quo with the officials who referred the candidates for employment, whereby CSHK bankers sought to and did win business from the referral sources.  Employees of other subsidiaries of CSAG were aware of the referral

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One of the odd things about teaching business and securities in the Trump era is that it’s been one of the few areas of law that’s been left largely unchanged by this singularly, umm, disruptive presidency.

That may be about to change.

As most readers are likely aware, the Supreme Court recently ruled in Lucia v. SEC that SEC ALJs are inferior officers, and therefore must be appointed by the Commission directly (instead of, as has been traditional, by the SEC staff).  The SEC, anticipating this holding, altered its procedures to have the Commission ratify the staff’s selection.  But – even assuming the ratification is sufficient – the next obvious question is whether, as inferior officers, ALJs must have fewer restrictions on their removal – an issue that, it should be noted, the Solicitor General’s office urged the Court to resolve against the SEC.  This is a much bigger deal, because leaving aside questions about how such a deficiency would be remedied as a technical matter, without such protections, the impartiality of the ALJs – and thus the fairness and, I suspect, the constitutionality of the entire administrative adjudicative process – would be open to question.  Cf. Kent Barnett…

If you’re teaching securities regulation and touch on GAAP v. Non-GAAP metrics, you may catch millennial attention by talking about National Beverage Corp., notable to millennial audiences as the maker of LaCroix.  National Beverage’s CEO put out a press release saying that:

National Beverage employs methods that no other company does in this area – VPO (velocity per outlet) and VPC (velocity per capita)… Unique to National Beverage is creating velocity per capita through proven velocity predictors. Retailers are amazed by these methods.

If you’re looking to evaluate the company’s financial situation, more clarity on these metrics might help.  The SEC reached out to ask for that information and got an odd response from a company executive, claiming that the “information is as secretive as the formulas of our beverages and should not be disclosed to our competition.”

It’s odd to tell the market that it should get excited about particular metrics and then refuse to provide information about what the metrics mean.  This little tempest may also be a good way to touch on puffery again.

The Supreme Court just granted cert in Lorenzo v. Securities & Exchange Commission to decide the scope of primary liability/scheme liability under the federal securities laws.  It’s an important issue and I’m glad that the Court seeks to clarify the law, but I have to say that procedurally speaking, this strikes me as an odd grant.

Below is way too long a post; it’s so much easier to write long than take the time to edit down, so forgive the extended backstory.  (Also, for the record, I pulled a lot of the citations from my  – very first! – real law review article, Slouching Towards Monell: The Disappearance of Vicarious Liability Under Section 10(b), which contains a long discussion of Janus, primary liability, and secondary liability, so, you know, enjoy if you’re into that).

[More under the jump]

A few days ago, the SEC’s Investor Advisory Committee convened at Georgia State University’s law school.  They took testimony from the AARP about how to structure disclosures about financial professionals for use with retail customers.  Retirement security will be a bigger and bigger issue as more and more Baby Boomers enter retirement.

The AARP pointed out that effective disclosure needs to be short, simple, and clear:

We believe that the current four page relationship is too long, technical, and therefore too onerous for the average investor and household to process. The text of the relationship summary should be simply written and should avoid technical terms like “fiduciary” and “asset‐based fee” unless such complex terms are clearly defined. Behavioral science has shown that when faced with a complicated choice, people often simplify by focusing on only two or three aspects of the decision. The less they are able to frame the decision in narrow terms, the more likely they will end up overwhelmed, undecided or procrastinating. As with other disclosure statements, it is best if key information can be included on one page – additional secondary information can be attached as supplemental information. A good disclosure statement will highlight the information most important to the consumer.

As the SEC thinks about…