Posts Tagged ‘Joseph Grundfest’

Damages and Reliance under Section 10(b) of the Exchange Act

Posted by Joseph Grundfest, Stanford Law School, on Tuesday September 24, 2013 at 9:17 am
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Editor’s Note: Joseph A. Grundfest is the W. A. Franke Professor of Law and Business at Stanford University Law School.

A textualist interpretation of the implied private right of action under Section 10(b) of the Exchange Act concludes that the right to recover money damages in an aftermarket fraud can be no broader than the express right of recovery under Section 18(a) of the Exchange Act. The Act’s original legislative history and recent Supreme Court doctrine are consistent with this conclusion, as is the Act’s subsequent legislative history.

Section 18(a), however, requires that plaintiffs affirmatively demonstrate actual “eyeball” reliance as a precondition to recovery and does not permit a rebuttable presumption of reliance. Accordingly, if the Exchange Act is to be interpreted as a “harmonious whole,” with the scope of recovery under the implied Section 10(b) private right being no greater than the recovery available under the most analogous express remedy, Section 18(a), then Section 10(b) plaintiffs must either demonstrate actual reliance as a precondition to recovery of damages, or the Court should revisit Basic, as suggested by four justices in Amgen, and overturn Basic’s rebuttable presumption of reliance. A textualist approach thus provides a rationale for reversing Basic that avoids the complex debate over the validity of the efficient market hypothesis, an academic dispute that the Supreme Court is not optimally situated to referee.

…continue reading: Damages and Reliance under Section 10(b) of the Exchange Act

Alternatives to LIBOR

Posted by Joseph Grundfest, Stanford Law School, on Thursday August 8, 2013 at 9:26 am
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Editor’s Note: Joseph A. Grundfest is the W. A. Franke Professor of Law and Business at Stanford University Law School. The following post is based on an article co-authored by Professor Grundfest and Rebecca Tabb.

Revelations that bank traders attempted to manipulate LIBOR, the London Interbank Offer Rate, on a widespread and routine basis over the course of many years have rocked the global financial community and fueled international calls for reform. In response, the U.K. Government completely overhauled the governance of LIBOR, adopting in full the recommendations of the Wheatley Review, an independent review of LIBOR led by Martin Wheatley, CEO of the new Financial Conduct Authority (FCA) in the UK. Among other reforms, effective April 1, 2013, both “providing information in relation to” LIBOR and administering LIBOR are regulated activities in the United Kingdom. In addition, a new, independent administrator will provide oversight of LIBOR. NYSE Euronext, selected as the first administrator under the new regime, will begin oversight of LIBOR at the beginning of next year.

These reform efforts are an important first step towards restoring the credibility of LIBOR as an interest rate benchmark. The reforms instituted to date, however, do not address more fundamental concerns with LIBOR. In particular, even non-manipulated submissions sometimes bear little relation to actual market transactions because few market transactions occur in certain interbank unsecured lending markets, particularly in times of market stress. As Mervyn King has observed, LIBOR “[i]s in many ways the rate at which banks do not lend to each other…it is not a rate at which anyone is actually borrowing.”

…continue reading: Alternatives to LIBOR

Regulation FD in the Age of Facebook and Twitter

Posted by Joseph Grundfest, Stanford Law School, on Thursday February 28, 2013 at 9:36 am
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Editor’s Note: Joseph A. Grundfest is the W. A. Franke Professor of Law and Business at Stanford University Law School.

The Staff of the Securities and Exchange Commission has announced its intention to recommend to the Commission that enforcement proceedings alleging a violation of Regulation FD be instituted against Netflix, Inc. and its CEO, Reed Hastings, because of a posting on Mr. Hastings’ personal Facebook page. Mr. Hastings’ webpage had more than 200,000 followers, including reporters who covered the posting in the traditional press. The posting was also the subject of a tweet by TechCrunch, which has approximately 2.5 million followers on Twitter.

This article, Regulation FD in the Age of Facebook and Twitter: Should the SEC Sue Netflix?, is in the form of an amicus Wells Submission suggesting that the Commission would, for nine distinct reasons, be prudent not to initiate an action on the facts of the Netflix posting. In particular, the public record suggests that the posting did not contain material information, was not a selective disclosure, and because of its spread through social media constituted a “broad non-exclusionary distribution” that did not violate Regulation FD. A prosecution would also diverge dramatically from all prior Regulation FD enforcement proceedings, and would violate the Commission’s prior representations not to “second guess” good faith efforts to comply with Regulation FD. In addition, the posting is not inconsistent with the Commission’s 2008 Guidance on the Use of Company Webpages — guidance that is seriously outdated because of the emergence of social media.

…continue reading: Regulation FD in the Age of Facebook and Twitter

Moderate Decrease in Federal Securities Fraud Class Action Filings in First Half of 2011

Posted by John Gould, Cornerstone Research, and Joseph A. Grundfest, Stanford Law School, on Tuesday August 16, 2011 at 9:33 am
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Editor’s Note: John Gould is Senior Vice President at Cornerstone Research, and Joseph A. Grundfest is the W. A. Franke Professor of Law and Business at Stanford University Law School. This post is based on a report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, available here.

Federal securities class action activity decreased in the first six months of 2011, according to Securities Class Action Filings—2011 Mid-Year Assessment, a semiannual report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research. A total of 94 federal securities fraud class actions were filed in the first half of the year, representing a 9.6 percent decrease from the 104 filings in the second half of 2010. This decline includes a drop in credit-crisis filings; there were just two such filings in the first half of 2011. Twenty-four filings related to Chinese reverse mergers accounted for 25.5 percent of all filings in the first half of 2011. There were 21 traditional M&A filings in the first half of 2011, which constituted 22.3 percent of all filings. Taken together, Chinese reverse mergers and traditional M&A filings constituted 47.9 percent of all securities fraud class action complaints filed during the last six months, up from 32.7 percent in the last six months of 2010.

…continue reading: Moderate Decrease in Federal Securities Fraud Class Action Filings in First Half of 2011

Internal Contradictions in the SEC’s Proposed Proxy Access Rules

Posted by Joseph Grundfest, Stanford Law School, on Wednesday August 5, 2009 at 9:13 am
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Editor’s Note: Professor Grundfest’s post is based on extracts (with footnotes removed) from his Working Paper of the same name published by the Rock Center For Corporate Governance on July 24, 2009; the complete Working Paper, including footnotes, can be downloaded from Social Sciences Research Network Electronic Paper Collection here.)

Administrative agencies are wise not to contradict themselves when rulemaking: contradictions invite courts to overturn agency action as arbitrary and capricious. Also like Charles Barkley’s claim that he was misquoted in his autobiography, contradictions spawn skepticism as to the credibility of an entire enterprise.

This simple observation strikes a death knell for the Securities and Exchange Commission’s 2009 proposed Proxy Access Rules. If adopted, these rules would dramatically transform the process by which directors of publicly traded corporations are nominated and elected. They would establish a “Mandatory Minimum Access Regime” under which corporations would be compelled, even against the will of the shareholder majority, to provide proxy access in accordance with SEC-established standards. Shareholders could, by majority vote, set less stringent access standards, but could not adopt more stringent proxy access rules.

The Commission proposes to add one new rule and amend an existing rule:

• Proposed Rule 14a-11 would provide for proxy access in the event a nominating shareholder, or group of shareholders, of a large accelerated filer have, for at least one year, held one percent or more of the company’s voting securities. Access would not be available to stockholders seeking a change in control, or to stockholders seeking more than a limited number of seats on a board. Nominating stockholders would be required to make certain disclosures, subject to the antifraud provisions of Rule 14a-9. These disclosures include representations that the nominees satisfy the objective criteria for director independence set forth in listing standards, that there is no agreement with the company regarding the nomination of the nominees, and that the nominating stockholders intend to continue holding the requisite number of shares through the date of the stockholder meeting. Disclosure would also be required of relationships between the nominating stockholders, the nominee, and the company, if any.

• Modifications to Rule 14a-8(i)(8) would recast the election exclusion so as to require that companies include in their proxy materials stockholder proposals that would amend, or propose to amend, the company’s governing documents regarding shareholder nominations. The proposals could not, however, weaken or eliminate the proxy access criteria prescribed by proposed Rule 14a-11.

Taken together, the Proposed Rules create a mandatory form of proxy access to be imposed on all publicly traded corporations subject to the rule, even if the majority of each corporation’s shareholders object strenuously to the operation of the Proposed Rules. The Proposed Rules would permit modifications making access easier for stockholder-nominated directors, but forbid modification making access more difficult. Again, the will of the shareholder majority is irrelevant to the Commission. The Proposed Rules are thus accurately described as creating a “Mandatory Minimum Access Regime.”

The text of the Proposing Release is, however, at war with the text of the Proposed Rules in a clash that generates two profound contradictions. Each contradiction is sufficiently material that there is little prospect that the Proposed Rules can withstand challenge under the Administrative Procedure Act (“APA”).

…continue reading: Internal Contradictions in the SEC’s Proposed Proxy Access Rules

 
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