Adam C. Pritchard

All Stick and No Carrot? Reforming Public Offerings

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The traditional IPO was once the dominant path to raising capital for a growing company, but challengers, most notably SPACs and direct listings, have emerged.  In our essay, we argue that the regulation of public offerings should seek to facilitate the transition from private company to public when this transition maximizes the joint welfare of investors and the issuer. Although the SEC frequently invokes investor protection as the goal of securities regulation, investors bear the cost of regulation, too. A lighter regulatory touch may be appropriate if markets have efficient price discovery.

To identify efficient pricing, we start with the … Read more

The SEC’s Shift to Administrative Proceedings: An Empirical Assessment

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Congress expanded the SEC’s ability to pursue enforcement actions in administrative proceedings in the Dodd Frank Act, bringing the agency’s use of proceedings before its own administrative law judges (ALJs) into the spotlight. A number of respondents have challenged the constitutionality of these proceedings, relying principally on arguments arising out of the Appointments Clause of the Constitution. Those disputes are currently being played out both before the SEC and in the courts, but they are unlikely to be a long-term obstacle to the SEC’s use of administrative proceedings.

In our article, The SEC’s Shift to Administrative Proceedings: An Empirical Assessment… Read more

Piling on? An Empirical Study of Parallel Derivative Suits

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When it comes to corporate litigation, is more necessarily better? The legal system has developed a broad array of litigation options to address corporate wrongdoing. Under state law, shareholders can file a derivative suit or class action alleging that directors and officers breached their fiduciary duty. Under federal law, shareholders can file a securities class actions alleging that the directors and officers misled the market. These private lawsuits are often filed alongside government enforcement actions brought by the Securities & Exchange Commission, the Department of Justice, or state regulators.

In our article, Piling On: An Empirical Study of Parallel Derivative … Read more

Dirks and the Genesis of Personal Benefit

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In United States v. Newman, 773 F.3d 438 (2nd Cir. 2014), the Second Circuit overturned the insider trading convictions of two hedge fund managers who received material nonpublic information from public companies via an extended tipping chain. The Newman court was required to interpret the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1983), to answer the question: What must tippees know about the disclosure of non-public information by the tipping corporate insider in order to sustain a conviction?

Dirks, in an opinion written by Justice Lewis F. Powell, Jr., held that there was … Read more

Facebook, the JOBS Act, and Abolishing IPOs

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The following comes to us from Adam C. Pritchard, the Frances and George Skestos Professor of Law at the University of Michigan Law School.  

A two-tier market system would go a long way toward promoting capital formation and curtailing speculation.

Initial public offerings (IPOs)—the first sale of private firms’ stock to the public—are a bellwether of investor sentiment. Investors must be bullish if they are putting their money into untested start-ups. IPOs are frequently cited in the business press as a key barometer of the health of financial markets.

Politicians, too, see a steady flow of IPOs as an indicator … Read more

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