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securities litigation

Prof. Bainbridge flags this disturbing Wall Street Journal piece:

The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court.

Previously, the agency had tended to use the ALJs (administrative law judges) for relatively cut-and-dried enforcement actions, while taking more complex or cutting-edge disputes to federal court. Now, following the Dodd-Frank expansion of its powers, it prefers ALJs even for many complex and demanding cases arising from charges such as insider trading. Defendants enjoy a range of protections in federal court that are not provided in administrative litigation, including juries as well as the presence of federal judges who are independent of agency control, held to a more demanding ethical code, and drawn generally from higher and more sophisticated circles within the legal profession. Read the entire Bainbridge commentary, with followups linking Henry Manne (adjudicatory actions are ways to avoid the more demanding process of rulemaking) and Keith Bishop (current system open to constitutional challenge?).

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Banking and finance roundup

by Walter Olson on September 21, 2014

  • SEC regs suppress small business capital formation and that’s a shame [Commissioner Daniel Gallagher via Bainbridge]
  • Federally sponsored gripe site for financial institutions not likely to end well [Hester Peirce and Vera Soliman, Mercatus via Kevin Funnell]
  • Alleged terror payments “routed through” sued bank also went through major New York banks, which shouldn’t be surprising [Fisher]
  • Did mid-level managers in securitized mortgage finance know they were in a housing bubble but cynically go ahead? Evidence against [Cheng et al., American Economic Review via MR]
  • Shareholder litigation: “New ‘loser pays’ standard could curb abusive lawsuits” [Examiner editorial] Delaware take note: corporate by-law changes that cut off fee-seeking opportunism deserve acclaim [Keith Paul Bishop via Bainbridge]
  • NYT was hot on “Goldman Sachs manipulated aluminum market” allegations but judge wasn’t [Reuters, July 2013 NYT]
  • CFPB might shrug off discrimination and retaliation charges, but many of the firms it regulates could not afford to [Hans Bader]

The Supreme Court’s refusal to revisit the fraud-on-the-market presumption in securities litigation leaves intact an economically irrational system that mostly benefits lawyers. “Indeed, the Court’s decision almost certainly will make this litigation even more expensive by increasing the scope of the class certification inquiry (while not changing the result in many cases). That means even more money out of the pockets of shareholders and into the pockets of lawyers and economic experts.” [Mayer Brown, earlier]

In yesterday’s Supreme Court decision in Halliburton v. Erica P. John Fund, the Court unanimously agreed to narrow procedural relief for the corporate defendant, but declined 6-3 to revisit its 1988 mistake in creating from whole cloth the “fraud on the market” theory in Basic, Inc. v. Levinson. I have more at Cato at Liberty. Earlier on Halliburton v. Erica P. John Fund here. More: Kevin LaCroix, & welcome Stephen Bainbridge, SCOTUSBlog readers.

More: Alden Abbott and Thom Lambert at Truth on the Market; Bainbridge with roundup of commentary; Beck, Drug & Device Law, on implications for concept of reliance in that area.

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“Delaware’s Supreme Court has ruled that corporations can adopt bylaws requiring an investor who sues and loses to pay the company’s legal costs, potentially upending the economics of a booming type of shareholder litigation.” [Tom Hals, Reuters via Federalist Society Blog]

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Andrew Grossman reports on yesterday’s oral argument in Halliburton v. Erica P. John Fund, which “may be the biggest business case of the term. …Basic [Basic v. Levinson, 1988, in which the Court dispensed with the reliance requirement in favor of the "fraud on the market" theory] came at the tail-end of the Court’s decades-long experiment in policymaking by creating and defining the contours of civil actions. … The chief barrier to overturning Basic may not be its logic, its wisdom, or even its correctness as a matter of law, but instead stare decisis.” Earlier here, here, here, and here.

More: Kaye Scholer (possible “midway position” with impact on stock price considered at stage of class certification).

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  • Following vindication, Mark Cuban begins transcribing transcripts of other SEC trials on his blog [Blog Maverick, background] “Why Settling With The SEC Can Be Worse Than Losing At Trial” [John J. Carney, David Choi and Francesca Harker]
  • Congress needs to investigate whether administration browbeat Standard & Poor’s over sovereign debt rating [John McGinnis]
  • As regs squeeze banks out of small business lending, will we like non-bank alternatives as well? [John Cochrane] More: Kevin Funnell;
  • Cash business can’t bank its proceeds: “Robber gangs terrorize Colorado pot shops” [NBC News]
  • “Will Plaintiff Lawyers Cut Down On The Choices In Your 401(k)?” [Daniel Fisher]
  • Does Delaware have an incentive to keep securities lawyers happy with big fees? [Bainbridge]
  • “It’s Time To Grill the Federal Reserve About Bitcoin” [Ira Stoll]
  • SCOTUS to hear case of Susan B. Anthony List v. Driehaus, First Amendment challenge to state laws regulating truth of political speech [IJ/Cato amicus cert brief]
  • Groups of law professors file amicus briefs in Halliburton Co. v. Erica P. John Fund, Inc. arguing that retreat from “fraud on the market” theory is consistent with modern scholarship on capital market efficiency [John Elwood] and sound statutory construction [Elwood, Bainbridge]
  • Behind the Michigan affirmative action plan in Schuette, including colorful background of litigant BAMN (“By Any Means Necessary”) [Gail Heriot, Federalist Society "Engage"]
  • Court dismisses Mulhall v. UNITE HERE (challenge to employer cooperation agreement with union as “thing of value”) as improvidently granted [Jack Goldsmith, On Labor, earlier]
  • Affordable Care Act saga has taken toll on rule of law [Timothy and Christina Sandefur, Regulation]
  • Lol-worthy new Twitter account, @clickbaitSCOTUS, with content like “The nine words no appellate advocate wants to read” [re: Madigan v. Levin]
  • Drug War vs. Constitution at Supreme Court, 1928: Drug War won by only one vote and you might not predict who wrote the most impassioned dissent [my Cato post]

Banking and finance roundup

by Walter Olson on November 21, 2013

  • J.P. Morgan and the Dodd-Frank system: “With Wall Street’s capable assistance, government has managed to institutionalize and monetize the perp walk.” [Michael Greve, related from Greve on the self-financing regulatory state]
  • Harvard needs to worry about being seen as endorsing its affiliated Shareholder Rights Project [Richard Painter]
  • Under regulatory pressure, J.P. Morgan “looking to pull back from lending to politically incorrect operations like pawn shops, payday lenders, check cashers” [Seeking Alpha]
  • Rare securities class action goes to trial against Household lending firm, HSBC; $2.46 billion judgment [Reuters]
  • Car dealers only thought they were winning a Dodd-Frank exemption from CFPB. Surprise! [Carter Dougherty/Bloomberg, Funnell]
  • “Memo to the Swiss: Capping CEO Pay is not an Intelligent Way of dealing with Income Inequality” [Bainbridge]
  • American Bankers Association vs. blogger who compiled online list of banks’ routing numbers [Popehat]

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Fortune reporter Erika Fry profiles the lawyer-allied Louisiana Municipal Police Employees’ Retirement System, pronounced “Lampers,” which has been called a “serial plaintiff,” a “frequent filer,” and in one legal brief “the most prolific filer of shareholder litigation in U.S. history.”

Banking and finance roundup

by Walter Olson on October 22, 2013

  • “Dodd-Frank and The Regulatory Burden on Smaller Banks” [Todd Zywicki]
  • Side-stepping Morrison: way found for foreign-cubed claims to get into federal court? [D&O Diary]
  • “Alice in Wonderland Has Nothing on Section 518 of the New York General Business Law” [Eugene Volokh, swipe fees]
  • “Financial Reform in 12 Minutes” [John Cochrane]
  • Why the state-owned Bank of North Dakota isn’t a model for much of anything [Mark Calabria, New York Times "Room for Debate"]
  • Regulated lenders have many reasons to watch SCOTUS’s upcoming Mount Holly case on housing disparate impact [Kevin Funnell]
  • Cert petition: “Time to undo fraud-on-the-market presumption in securities class actions?” [Alison Frankel]

Matt Levine concludes that a large share of it was for making dumb trades, as opposed to intentional malfeasance. (Earlier on whether regulators had taken a bead on Morgan because of chief Jamie Dimon’s perceived bad attitude.) Will Morgan’s admissions materially help plaintiff’s lawyers in the inevitable shareholder class action? Don’t be so sure [Alison Frankel, Reuters] More: WSJ (sees politics), Hank Greenberg via FedSocBlog, Iain Murray.

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Banking and finance roundup

by Walter Olson on September 5, 2013

  • With arbitrary power to order capital levels, FDIC is Death Star to community banking [Kevin Funnell]
  • “Oh please. We’re not going too easy on [convicted inside trader] Raj Rajaratnam.” [John Carney]
  • “Ronald Coase and the nature of shadow banking” [also John Carney]
  • “Say-on-pay” as “lawyer-driven” litigation [Pepper Hamilton via Bainbridge]
  • I’m a guest on Jim Puplava’s “Financial Sense” podcast [link]
  • Wall Street, housing lobby to get their way again: “I’m afraid that the fix is in on housing finance reform.” [Arnold Kling]
  • Channeling Bernie Sanders? Thumbsucker on decline of IBM as employer fingers shareholder value theory promoted by ever-so-wicked Chicago school [Washington Post]
  • Wells Fargo gets a lending-discrimination class action tossed, but there’ll be others where it came from [Andrew Trask]
  • After bank burglarizes Ohio woman, law will give her curiously little satisfaction [Popehat]
  • North Las Vegas scheme to seize underwater mortgages through eminent domain raises constitutional opposition [Kevin Funnell]
  • “The SAC Insider Trading Indictment” [Bainbridge, WSJ MoneyBeat]
  • “He who sells what isn’t his’n/Must buy it back or go to prison.” Most naked short selling driven by fundamentals, study says [Daniel Fisher]
  • NY AG Schneiderman to Thomson Reuters: don’t you dare sell early access to the market-moving survey you pay for [Bainbridge]
  • “The Confidential Witness Problem in Securities Litigation” [Kevin LaCroix]
  • “The puzzling return of Glass-Steagall” [Tabarrok]
  • “FATCA: How to Lose Friends, Citizens and Influence” [Colleen Graffy, WSJ via Paul Caron/TaxProf, earlier]

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