Category: Securities

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Confidential Securities Trading v. Disclosure Requirements Of Bankruptcy Rule 2019

I. Introduction 

Bankruptcy reorganizations do not come without their fair share of issues. As large companies teeter on the verge of bankruptcy, affected parties begin to configure their positions. Some creditors, before a bankruptcy, will sell their claims in the debtor’s estate to interested third parties. Of course, these third party investors wouldn’t buy these claims unless they thought they could receive a return on their investment. However, sometimes these third party investors have incentives to receive less back on their claims in the bankruptcy reorganization process. This not only creates a stall in the reorganization process, but it can also force other creditors to receive less back on their claims. 

This paper focuses on these abusive third party investors and the rule that is used to combat these types of abusers, Rule 2019 of the Bankruptcy Code. Rule 2019 requires disclosure of these third party investor’s economic interests … Read the rest

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Should Section 10(b) Rule 10b-5 of the Securities Acts be amended to allow private right of action for aiding and abetting?

I. Introduction

The Securities Act of 1933 and the Securities Exchange Act of 1934 were enacted in response to the Stock Market Crash of 1929 that ushered in the Great Depression. [1]  In passing the Acts, Congress’ intention was to implement regulations that would govern the ways securities were bought and sold in the United States and to protect individual consumers from securities fraud. Specifically, Section 10(b) of the 1933 Act and Rule 10b-5 of the 1934 Act regulate fraud in connection with the purchase or sale of a security. [2] To obtain a conviction under these provisions, it must be proved that:

(1)     (a) the defendant engaged in a fraudulent scheme, or

(b) made a material misstatement, or

(c) omitted material information to one to whom the defendant
    owed a duty;

(2)    the scheme, misstatement, or omission occurred in connection with the purchase or sale of a

… Read the rest
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Salute Your Shorts

I. A Short Introduction

With the recent collapse of numerous financial institutions,
the practice of short-selling (“shorting”) has come under fire. Some authors have gone so far to claim that
the actions of short-sellers (“shorters”) are among the core reasons for the
current credit crisis.[1] In response to this outcry, the United States
has imposed temporary bans on the shorting of certain stocks, particularly the
stocks of firms in the banking and finance sector, citing the need to protect
investors and markets.[2] Furthermore, New York Attorney General Andrew
Cuomo has launched an investigation into shorters for allegedly spreading false
rumors in the financial market.[3] These enforcement responses prompt the question;
do shorters have a legitimate role to play in a fair and open market?

II. History, in Short

There is a
long history of animosity towards shorters. Following the collapse of tulip craze in the Netherlands in the 1630s,
England … Read the rest

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Hedge funds are getting rich, but who is really taking the risk?

There have been a number of calls lately for increased regulation of the hedge fund industry, however, the Bush Administration has said that no new regulations are necessary.  Despite the rapid growth of the industry and the increasingly large risks hedge funds are taking, the recently released report by the President’s Working Group on Financial Markets, which was led by the Treasury Department, did not call for any new regulations, but instead called for a set of principles to be implemented, such as accurate disclosures by fund managers and more due diligence by creditors.  [1] Nevertheless, the Group of Seven (G7), of which the United States is a member and comprises the seven wealthiest countries in the world, vowed to continue looking into what new measures should be taken in order to impose stricter scrutiny over the risks being taken by hedge funds, and the risks they pose to the

… Read the rest
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Securities and Exchange Commission: Transforming Rule 14a-8 To Allow Shareholders Increased Voting Power

I.Introduction

While the decision of the Second Circuit Court of Appeals binds many
public companies of that specific jurisdiction, the SEC must now decide
whether to propose a clarifying change to Rule 14a-8(i)(8) ("the
Rule"), binding all companies subject to Federal Securities
Law and alleviating courts of difficult interpretation. A letter from
shareholders to the Honorable Christopher Cox, requesting a return to
the pre-1990 interpretation of the Rule, stressed an important
distinction: ". . . between using a shareholder resolution as a
back-door device to contest a specific election and using a shareholder
resolution in order to change the rules for election so as to further
the long-term interests of shareholders."[1] It is this distinction
which also divides the opinions of Stephen Bainbridge, Margaret Blair
and Lynn Stout on one side from those of Lucian Bebchuk. Bainbridge,
Blair and Stout espouse theories such as "director primacy" and hold
views opposing

… Read the rest
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Economically Reprehensible Behavior, or Benefits and Risks of Morality? (2 of 2)

I. Introduction

This
second article in the series first identifies past assumptions of the
traditional investment model.  Possible additional benefits and
drawbacks of morally responsible investing (MRI) as compared to the
traditional model are pointed out along the way.  Finally, future legal
issues that MRI may raise are identified, and the court’s likely
treatment of such issues is hypothesized. 

II. Getting Past Those Assumptions

Several assumptions from traditional economic theory and law
seemingly hinder MRI.  However, the premises underlying these
assumptions are not on as solid footing as once perceived.  Some of
these assumptions include A) the decreased profitability of MRI, B) the
legal doctrine that a director’s sole responsibility is to maximize
profits and C) the gap between ownership and control in the public
corporation cannot be closed. 

Assumption A.  Traditional economic theory assumes that MRI is
less profitable than traditional instruments because profit
maximization is not the only

… Read the rest
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Economically Reprehensible Behavior, or Benefits and Risks of Morality? (1 of 2)

I. Introduction

Whether it
is through mutual funds, pensions or direct purchases of shares in
companies, some investors are taking more than profit maximization into
consideration when investing. These investors seek to promote
individual social or moral preferences by choosing investments based on
the products and procedures of an investment, rather than solely on
accounting profitability. Essentially, these investors are looking to
use their money for both moral and monetary profit. Of course, when it
comes to capital markets, the customer, i.e. the investor, is still the
boss. Thus understanding this trend is not merely an academic exercise
but perhaps a lesson to those seeking funding.

II. Analysis

These
moral considerations raise issues of manager responsibility, in light
of the traditional role of corporate and fund managers. The proposition
that corporate directors and fund managers have a duty to their
trustors, shareholders and investors, respectively, to maximize profits
is so

… Read the rest
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UN Sanctions on Iran and the Possible Effects on the Global Oil Market

The United Nations Security Council voted unanimously at the end of March to impose new sanctions on Iran in order to persuade Tehran to abandon its plans to enrich uranium.  [1] There have been mixed reactions to the move, with some saying that sanctions will effectively isolate the rogue Iranian regime and it’s President, Mahmoud Ahmadinejad, who has been a thorn in the side of the United States and the Bush administration as it has tried to achieve its policy objectives in the Middle East.  Others, however, have called the latest sanctions a weak attempt with little chance of success in regards to actually bringing about the end of Iran’s nuclear ambitions. 

The reasoning behind this criticism is that the new U.N. resolution, which most notably places a ban on arms trade with Iran and freezes some the country’s overseas bank accounts, does not touch the oil trade, which is

… Read the rest
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Regulation FD: Siebel Fought the Law and Siebel Won

Five years after the Securities & Exchange Commission (SEC) passed Regulation FD (“Fair Disclosure”) a court finally had a chance to interpret its application.  On September 1, 2005 the United Stated District Court for the Southern District of New York dismissed the SEC’s claims against Siebel Systems, Inc. [1]  Regulation FD prohibits a company from disclosing information to analysts and investors that is non-public. [2]   Adopted
in 2000, the regulation has often been criticized for being overly
broad. However until Siebel no company challenged the regulation in
court.

 

Regulation
FD is based on the idea that no group should have advance access to
information about a public company that may impact stock prices or that
may influence trading.  Unsurprisingly, one of the regulation’s main purposes is to prevent insider trading.  In
an effort to help companies comply Regulation FD considers information
to become … Read the rest