The Supreme Court’s decision last December in Salman v. United States settled important issues concerning Rule 10b-5’s reach over trades based on a tip of confidential material information. One important question, however, remains unanswered: In tipping cases based on the misappropriation theory, is it necessary, as some courts have stated, to show that the tipper enjoyed a personal benefit of which the trader was aware? There are commentators who assume the need for such a showing, but in fact the lower courts have split on the issue and the Supreme Court in Salman explicitly said that it was … Read more
Over the last few decades, how stocks are traded in the United States has been totally transformed. Gone are the dealers on NASDAQ and the specialists at the NYSE. Instead, a company’s stock can now be traded electronically on up to sixty competing venues where a computer matches incoming orders. A majority of quotes are now posted by high-frequency traders (HFTs), making them the market makers that are the preponderant source of liquidity in the new market.
This new stock market has spawned a bewildering number of controversies. From the quoting practices of HFTs, to the rise of so-called dark … Read more
Whether last week’s Supreme Court decision in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 (June 23, 2014) (Halliburton II) was a victory for plaintiffs or for defendants remains to be seen. At issue is the decision’s effect on the range of circumstances under which the fraud-on-the-market presumption of reliance continues to be available. Without this presumption, first endorsed by the court in Basic v. Levinson, 485 U.S. 224 (1988), it is impossible for a Rule 10b-5 action for damages against an issuer for a misstatement that inflates its share prices in secondary markets to … Read more
My recent article published in the Stanford Law Review Securities Class Actions Against Foreign Issuers addresses the fundamental question of whether, as a matter of good policy, it is ever appropriate that a foreign issuer be subject to the U.S. fraud-on-the-market private damages class action liability regime, and, if so, by what kinds of claimants and under what circumstances. The bulk of payouts under the U.S. securities laws arise out of fraud-on-the-market class actions—actions against issuers on behalf of secondary market purchasers of their shares for trading losses suffered as a result of issuer misstatements in violation of Rule 10b-5. … Read more