Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions

By motivating lawyers to handle class actions, fee awards enable millions of people to obtain access to justice every year and strengthen the effect of regulatory laws. But the process by which judges decide how much to pay lawyers has long been a black box. Settlements go in one side; fee awards come out the other. Researchers have studied the inputs and the outputs, but not the process that connects the two. Consequently, it is difficult to know why judges award the amounts they do.

Our new study, to be published this fall in the Columbia Law Review, seeks … Read more

Morrison & Foerster discusses Supreme Court Decision Allowing Agencies to Reinterpret the Law at Their Discretion

In a decision published on March 9, 2015, the Supreme Court ended the D.C. Circuit Court’s Paralyzed Veterans doctrine, which required administrative agencies to utilize the Administrative Procedure Act’s (APA) notice-and-comment process in order to substantially alter an interpretation. See Perez v. Mortgage Bankers Assoc., 575 U.S. ___, No. 13-1041, slip op. (March 9, 2015). According to the Court, this doctrine improperly imposed procedural requirements on agencies that are not required by the APA.

Pursuant to the APA, legislative rulemaking requires a period for notice and comment by industry stakeholders because, unlike interpretive rules, a legislative rule has … Read more

More on Navinder Singh Sarao, the Alleged Market Manipulator with Responsibility for the Flash Crash

For those interested in the allegations against Navinder Singh Sarao and Nav Sarao Futures Limited PLC, which implicate them in extensive market manipulation and the “Flash Crash” of 2010, here are the complaints from the DOJ and CFTC as well as an ex parte order obtained by the CFTC against the defendants: United States of America v. Navinder Singh Sarao; CFTC v. Navinder Singh Sarao and NAV Sarao Futures Limited PLC; and Ex Parte Statutory Restraining Order, Navinder Singh Sarao and NAV Sarao Futures Limited PLC.… Read more

Foley & Lardner discusses Important Regulatory Developments for Proprietary Trading Firms and Broker-Dealers Using Algorithmic Trading Strategies

SEC Proposes Rule Extending FINRA Membership Requirement to Currently Exempted Proprietary Trading Firms

On March 25, 2015, the U.S. Securities and Exchange Commission (SEC) voted unanimously to issue a proposed rule amendment that would significantly narrow the existing exemption that permits many proprietary-trading broker-dealers to operate without being a member of the Financial Industry Regulatory Authority (FINRA).

Section 15(b)(8) of the Securities Exchange Act of 1934 requires a registered broker-dealer to belong to a registered national securities association, i.e., FINRA, unless it is a member of a national securities exchange and trades securities only on that exchange. SEC Rule 15b9-1 … Read more

James Coleman (2)

Two Audiences, Two Stories: Comparing What Companies Tell Regulators With What They Tell Investors

In 2010, the Securities and Exchange Commission (SEC) issued guidance that requires companies to tell shareholders how they may be harmed by proposed energy regulations, unless the company determines that the regulation will be unlikely to affect the company.[1] Since then, shareholder groups, environmental organizations, and proxy advisory firms have complained that companies are ignoring or skirting this requirement.[2] And this criticism has only grown louder as the Obama administration has adopted new greenhouse gas emission standards that apply to a wide range of old and new power plants, refineries, and factories.

But in another forum, companies have … Read more

John Coffee, Headshot

The DuPont Proxy Battle: New Myths, Old Realities—and Even Newer Data About Hedge Fund Activism

A watershed moment is coming for shareholder activism and corporate governance generally, as the proxy contest brought by Trian Management Fund, seeking effectively to break up DuPont, enters its final stages (with the vote being less than a month away). Technically, the contest is to elect four Trian Fund nominees to the DuPont board, but, as a column in the New York Time’s Dealbook put it more bluntly, the real fight is over whether to break DuPont into three parts and “shut down DuPont’s central research labs.”[1] Much about this contest is unusual: unlike other targets of activism, DuPont … Read more

Shearman & Sterling discusses Capital Markets Unions: the EU’s Next Focus for Reforms

On 18 February 2015, the European Commission published a green paper on building a Capital Markets Union, alongside two complementary consultation papers on a revised EU framework for securitisation and a review of the Prospectus Directive. The proposals are part of an initiative to develop a more integrated single market for raising capital across the EU. The proposals in the green paper are in outline form because the ideas for creating the Capital Markets Union remain at an early stage of development. However, with an action plan due to be published later in 2015, they provide insight into the early … Read more


Commissioner Gallagher’s Remarks on Building the Financial System of the 21st Century: An Agenda for Europe and the United States

Thank you, Hal [Scott], for that kind introduction. I apologize for not being able to address you in person. Back in 2013, I opened a speech to the American Academy in Berlin with a bit of German.[1] While I managed not to call myself a jelly donut, my German was nonetheless so bad that I have been banned from entering the country to speak in a public forum.

I applaud Professor Scott and the Harvard Law School for sponsoring this important and timely symposium. After the financial crisis, regulators around the world rushed to take action — any action, … Read more

Morgan Lewis discusses SEC Consideration of Active ETF Listing Standards, Approval of Paired Class ETP

Two recent developments could have significant consequences for the exchange-traded fund (ETF) industry and the regulatory landscape for such products. The first development is a proposed rule change to create “generic listing standards” for actively managed ETFs. The second is the Securities and Exchange Commission’s (SEC’s) approval, accompanied by a dissenting opinion, of listing standards for a new type of “paired class” exchange-traded product (ETP). In addition, Commissioner Michael Piwowar’s recent comments that concerns about leveraged ETFs and volatility are overblown may be a signal that the SEC’s stance on such products could be softening. In this post, we discuss … Read more


SEC Commissioner Aguilar discusses Regulators Working Together to Serve Investors

Good morning. Thank you for that kind introduction. It is my honor to deliver the opening remarks for today’s North American Securities Administrators Association (“NASAA”) and Securities and Exchange Commission (“SEC”) 19(d) Conference. For those who are keeping count, this is my seventh year as the SEC’s liaison to NASAA. It has been a privilege to serve you in this role, which I have done since my early days as a Commissioner. Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views … Read more

Latham & Watkins explains how SEC Sent Message Via Enforcement Action: Don’t Stifle Employee Whistleblowing

On April 1, 2015, the US Securities and Exchange Commission filed its first whistleblower protection case involving confidentiality obligations imposed on employees.[1] The SEC charged Houston-based technology and engineering firm KBR Inc. with violating Rule 21F-17, which prohibits all persons, including companies, from taking any action to impede an individual from communicating with the SEC staff about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. In a press release, the SEC Enforcement staff warned, as they have numerous times in the past, that they will vigorously enforce this provision.

What KBR Allegedly Read more

Alon Brav and J.B. Heaton

Is the Event Study Methodology Reliable In Securities Litigation?

In Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), known as Halliburton II, the U.S. Supreme Court held that defendants may defeat the fraud-on-the-market presumption of reliance at the class-certification stage with evidence that the misrepresentation did not in fact affect the stock price. Securities litigants typically use event study methodology to detect and measure price impacts. Halliburton II will increase the ever-present role of event study methodology in securities litigation. Our new paper, Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias, explores the reliability of event studies in … Read more

K&L Gates discusses Ninth Circuit Opinion That May Open Litigation Doors Most Thought Closed

A recent Ninth Circuit Court of Appeals opinion charts potential new pathways for claims for damages resulting from portfolio losses by mutual fund shareholders against both a fund’s trustees and its investment adviser. However, much of the sweeping language and analysis in the court’s opinion is not merely novel but is inconsistent with established principles of investment company governance and litigation, which could limit the precedential impact of the opinion.

The case, Northstar Financial Advisors Inc. v. Schwab Investments et al., No. 11-17187 (9th Cir. Mar. 9, 2015), involved a mutual fund’s alleged failure to comply with its fundamental … Read more

WINIR Conference on the Nature and Governance of the Corporation

Questions of corporate governance and responsibility have been heightened by a number of corporate scandals and other events leading up to the financial crisis of 2008. In the meantime, philosophers and lawyers have been questioning the very meaning of corporate agency and responsibility, while progress by economists in the theory of the firm is widely perceived to have slowed. The aim of the first WINIR Symposium “The nature and governance of the corporation”, which will be hosted in Lugano at Università della Svizzera italiana (USI, Lugano) from 22th to 24th April 2015, is to contribute to our understanding of the … Read more

Sarah Dadush, headshot

Regulating Social Finance: Can Social Stock Exchanges Meet the Challenge?

“Poverty should be eradicated, not seen as a money-making opportunity.”[1]

–Mohamed Yunus, founder of the Grameen Bank,
and winner of the 2006 Nobel Peace Prize.

Social finance makes a compelling promise, to make the world a better place by harnessing the power of the market to address pressing global social challenges. To do well financially by doing good socially.[2] In order to fulfill this promise, however, social finance must strike a delicate balance between two historically opposed imperatives, profit and social benefit. And when this balance tips in favor of profitability, social finance can end up harming the … Read more

Goldstein and Associates explain the “Knockout” Option: A New Form of Stock Option

The popularity of stock options as a compensatory tool has been waning at public companies for years. While there have been a number of factors that have contributed to their decline over the past decade or so, three chief concerns about compensatory options have been: (1) the accounting expense associated with stock options often exceeds their perceived value from the perspective of employees, (2) if a company’s stock price falls dramatically and the options have little chance of being in-the-money, the company must still recognize an expense and still incur the overhang of options with no way of getting rid … Read more

Morrison & Foerster discusses Regulation A+ Final Rules’ Important Capital-Raising Alternatives

On March 25, 2015, the Securities and Exchange Commission voted unanimously to adopt final rules to implement the rulemaking mandate of Title IV of the JOBS Act by adopting amendments to Regulation A. In December 2013, the SEC had released a proposed rule that essentially retained the current framework of Regulation A and expanded it for larger exempt offerings. The proposed rules were generally well-received. The final rules addresses a number of issues raised by commenters, while retaining substantially the same approach outlined in the proposed rule.

Briefly, by way of background, existing Regulation A provides an exemption from the … Read more

Seth Oranburg Headshot

The Law & Economics of the Series A Gap

Scholars agree that crowdfunding regulations in Title III of the Jumpstart Our Business Startups (JOBS) Act are broken. My latest article addresses their concerns and proposes a solution for crowdfunding based on a deeper understanding of the startup fundraising market—a solution called “bridgefunding” for its ability to provide capital to startups at a particular time when they need it most. The broader theme is that a new exemption from securities regulation should consider how a new entrant will fit into an existing market. A narrower point is that startup funding may have a persistent market failure that regulations could solve. … Read more

Wachtell Lipton discusses SEC Charging Schedule 13D Filers for Failing to Timely Disclose Steps Taken to Pursue Going-Private Transactions

The Securities and Exchange Commission announced [several weeks ago] that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D.  The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions.  The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not … Read more

Skadden discusses New Reporting Requirements on the Horizon for US Financial Services Providers Doing Business with Non-US Persons

Following closely on the heels of the reinstated reporting requirements for inbound and outbound direct investment involving U.S. entities,[1] the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) has announced plans to require U.S. financial service providers to respond to the Form BE-180 Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons. As proposed, responses to Form BE-180 will be required by October 1, 2015, from all U.S. financial service providers that, during their 2014 fiscal year, had financial transactions totaling $3 million or more on a consolidated basis directly with non-U.S. persons (including … Read more