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After The Fraud on the Market Doctrine: What Should Replace It?

Like children on Christmas Eve, securities defense attorneys and corporate executives are waiting in hopeful anticipation for the Supreme Court’s coming decision in Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), which may overrule the “fraud on the market” doctrine (“FOTM”) that was announced over a quarter century ago in Basic v. Levinson.[1] Academics are divided, with probably the majority fearing the loss of general deterrence if the securities class action is substantially undercut. Conversely, a minority (including this author) believe it is remarkable that FOTM has survived as long as it has because it is extraordinarily ill-suited to the real world of securities fraud (as hereafter explained). A third more nervous group of spectators are the managing partners of litigation-oriented law firms, who know that FOTM’s potential abolition would likely imply a steep decline in securities litigation, which is the staple of their practice. Ironically, some of the securities defense attorneys eagerly awaiting FOTM’s demise may next year be learning how to litigate patent cases. Be careful then what you wish for, as you may get it. Read more

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Editor's Tweet: Professor John Coffee on Columbia Law: After The Fraud on the Market Doctrine: What Should Replace It?
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SEC Enforcement: Talking the Talk, But Walking the Walk?

Almost everyone has an opinion about securities enforcement.  Many are disappointed (and even angry) that “few high level executives” have been prosecuted (criminally or even civilly) in connection with the 2008 financial crisis.[1]  Deep in their bunker, the SEC … Read more

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Editor's Tweet: John C. Coffee Jr. of Columbia Law School on SEC Enforcement: Talking the Talk, But Walking the Walk?
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In the Wake of the Whale, What’s Changed?

The “London Whale” is far from the financial crime of the century, but it may well be the financial blunder of the decade. Crimes and blunders are, of course, different, but the slow and inconsistent response by JPMorgan Chase & … Read more

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Editor's Tweet: Columbia Law's John C. Coffee Jr.: In the Wake of the Whale, What's Changed? http://wp.me/p2Xx5U-1tI
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The Institute for the Fiduciary Standard Awards Its First “Oscar”

The Institute for the Fiduciary Standard, a non-profit organization dedicated to the advancement of fiduciary principles, has awarded its first ever Tamar Frankel Fiduciary Prize to Robert A.G. Monks, the corporate governance activist and scholar. The Frankel Fiduciary Prize is … Read more

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Editor's Tweet: The Institute for the Fiduciary Standard Awards Its First “Oscar” http://wp.me/p2Xx5U-1dp
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‘Neither Admit Nor Deny’: Practical Implications of SEC’s New Policy

In a move that appears at once to be shrewd, savvy and largely symbolic, the SEC has modified its longstanding policy that it will not require a defendant to admit or deny liability, or facts that might establish its liability,

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Editor's Tweet: Prof. John C. Coffee, Jr. of Columbia Law School discusses 'Neither Admit Nor Deny': Practical Implications of SEC's New Policy
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Securities Enforcement: 2013 Report Card

This is the season for report cards and grades.  The securities laws are enforced by the plaintiff’s bar and the SEC.  How well are they doing?  What grades do they deserve?

I.  Private Enforcement

In terms of private litigation, 2012 … Read more

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Editor's Tweet: Professor John C. Coffee, Jr. of Columbia Law School discusses Securities Enforcement: 2013 Report Card
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Nominations Invited for First Annual Fiduciary Award Created to Honor Tamar Frankel

The Institute For The Fiduciary Standard, a non-profit organization based in Washington, D.C., has created a prize—to be known as the Tamar Frankel Fiduciary Prize—which will be awarded annually to a person who has made a “significant contribution to the … Read more

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Shareholder Activism and Ethics: Are Shareholder Bonuses Incentives or Bribes?

This is the heyday of institutional investor activism in proxy contests.  Insurgents are running more slates and targeting larger companies.  They are also enjoying a higher rate of success:  66% of proxy contexts this year have been at least partially … Read more

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Editor's Tweet: Professor John C. Coffee Jr. of Columbia Law School discusses whether bonuses from shareholder activists are incentives or bribes?
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The Challenge of the Semi-Public Company

Something new and significant is taking shape. For a variety of reasons—the impact of the JOBS Act, the growing popularity of equity private placements, the appearance of new trading markets for venture capital and other non-reporting companies—a new tier of companies is growing rapidly that is composed of issuers that are not “reporting” companies, but that do have a significant number of shareholders. In terms of the size of their shareholder class, these companies overlap with public companies, but they trade in the dark—and actively. More importantly, as their number grows, it is predictable that existing and new trading venues will begin to compete to attract and capture the trading interest in these stocks. This column will call these firms “semi-public companies” to reflect their intermediate status, midway between truly private firms (such as early stage venture capital startups and family-held firms) and public companies. Read more

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Editor's Tweet: Professor John C. Coffee, Jr. of Columbia Law School discusses the Challenge of the Semi-Public Company.
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M&A Litigation: More and More Dysfunctional

Empirical scholars of corporate law are uncovering a rapidly changing and depressing pattern in M&A litigation. This new research dates from a series of articles in 2012 by Professors John Armour, Bernard Black and Brian Cheffins, which announced that Delaware … Read more

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Editor's Tweet: Professor John Coffee of Columbia Law School discusses M&A Litigation and its increasing dysfunctional
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Insider Trading Rules Need Rationalization

The current scope of the insider trading prohibition is arbitrary and unrationalized. Both sides in the debate should be able to agree on this, as the current scope is at the same time both underinclusive and overinclusive. On the one hand, if a thief breaks into your office, opens your files, learns material, nonpublic information, and trades on that information, he has neither breached a fiduciary duty nor “feigned fidelity” to the source and is presumably immune from insider trading liability under current law. On the other hand, if an employee of an acquiring firm seeks to test out information about a potential target with a friend at a major investor in the target and that investor later acquires more stock in the target based on that conversation, it is possible under SEC v. Obus that the employee will be deemed to have violated Rule 10b-5 on theory that he made a gift of the information, even though no payment or economic benefit is paid to the alleged tipper. This is considerably grayer behavior than that of the thief. Thus, drawing lines so that the thief escapes liability, while the inquiring employee does not, seems morally incoherent. Nor are such lines doctrinally necessary. Read more

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Editor's Tweet: Professor John C. Coffee, Jr. discusses the current scope of the insider trading prohibition and how it can be rationalized
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Gone With the Wind: Small IPOs, the JOBS Act, and Reality

A dramatic reversal occurred in the capital markets, beginning around 2000, and its causes and implications appear to have been widely misunderstood. From 1980 to 2000, an average of 310 operating companies did initial public offerings (IPOs) each year, but … Read more

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Editor's Tweet: Professor Coffee discusses small IPOs, the JOBS Act, and reality. He suggests some alternative explanations for the decline of the IPO.
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SEC Enforcement: Rhetoric and Reality

On January 14, Robert S. Khuzami and George S. Canellos published their response in the National Law Journal to my earlier column, “SEC Enforcement:  What Has Gone Wrong?”  Their column—“Unfair Claims, Untenable Solution”(available here)—minces no words, but … Read more

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Editor's Tweet: Professor John Coffee responds to a critique by SEC Enforcement Director Robert Khuzami and Deputy Director George Canellos
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Reputation is crucial for bank investors

The humbling of two global banks in recent weeks has been greeted very differently on opposite sides of the Atlantic. Still, from the perspective of either side, large fines for interest rate rigging by Swiss bank UBS, and money-laundering by … Read more

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Editor's Tweet: Professor John Coffee of Columbia Law School opines on the importance of reputation for bank investors
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SEC enforcement: What has gone wrong?

A disturbingly persistent pattern has emerged in U.S. Securities and Exchange Commission enforcement cases that involves three key elements: (1) The commission rarely sues individual defendants at large financial institutions, settling instead with the entity only; (2) when it does … Read more

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Editor's Tweet: Professor John C. Coffee Jr. of Columbia Law School opines on the problem of SEC enforcement. Could the private bar be a solution?