{"id":3487,"date":"2013-10-15T20:37:30","date_gmt":"2013-10-16T00:37:30","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?page_id=3487"},"modified":"2025-02-18T18:01:08","modified_gmt":"2025-02-18T23:01:08","slug":"volume-3-issue-2","status":"publish","type":"page","link":"https:\/\/journals.law.harvard.edu\/hblr\/volume-3-issue-2\/","title":{"rendered":"Volume 3, Issue 2 (2013)"},"content":{"rendered":"
SECURITIES & FINANCIAL REGULATION \u2022 LEGAL & REGULATORY COMPLIANCE<\/h5>\n

PRIVATE REGULATION OF INSIDER TRADING IN THE SHADOW OF LAX PUBLIC ENFORCEMENT: EVIDENCE FROM CANADIAN FIRMS<\/a><\/h3>\n
Laura Nyantung Beny and Anita Anand<\/strong><\/em><\/h6>\n

Like firms in the United States, many Canadian firms voluntarily restrict trading by corporate insiders beyond the requirements of insider trading laws (i.e., super-compliance). Thus, we aim to understand the determinants of firms\u2019 private insider trading policies (ITPs), which are quasi-contractual devices. Based\u00a0on the assumption that firms that face greater costs from insider trading (or\u00a0greater benefits from restricting insider trading) ought to be more inclined than\u00a0other firms to adopt more stringent ITPs, we develop several testable hypotheses.\u00a0We test our hypotheses using data from a sample of firms included in the\u00a0Toronto Stock Exchange\/Standard and Poor\u2019s (TSX\/S&P) Index. Our empirical results suggest that Canadian firms do not randomly restrict insider trading, but\u00a0rather do so predictably and with a predictable level of intensity, suggesting that\u00a0some firms wish to control insider trading to enhance corporate performance.\u00a0Our most robust finding is that firms with a greater prevalence of controlling\u00a0shareholders are more likely to have adopted a super-compliant ITP than firms\u00a0with fewer such shareholders, implying that influential shareholders may oppose\u00a0insider trading and challenging the claim that private restrictions of insider\u00a0trading would not arise in the absence of insider trading laws.<\/p>\n

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SECURITIES & FINANCIAL REGULATION<\/h5>\n

RECALCULATING “LOSS” IN SECURITIES FRAUD<\/a><\/h3>\n
Scotland M. Duncan<\/strong><\/em><\/h6>\n
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Quantifying the amount of actual loss within securities fraud cases is crucial to criminal sentencing. The United States Sentencing Guidelines recently adopted a \u201cmodified rescissory method,\u201d whereby loss is measured by comparing average stock prices during and after the fraud. This paper argues that the Guidelines imprudently opt for ease of judicial application over precise culpability. The new law\u2019s arithmetic suffers from a number of serious flaws, including upward bias with respect to the number of damaged shares and skewed sentencing disparity (both upward and downward) due to the inclusion of extrinsic factors wholly unrelated to a defendant\u2019s conduct. This paper instead proposes conforming criminal sentencing for securities fraud with its civil counterpart, as promulgated by the Supreme Court in Dura Pharmaceuticals, Inc. v. Broudo. A \u201cmarket-adjusted method,\u201d which focuses on normalized change in a damaged security\u2019s value, is a more precise way to calculate actual loss. And such precision need not come at the expense of ease of application.<\/p>\n

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SECURITIES & FINANCIAL REGULATION \u2022 LEGAL & REGULATORY COMPLIANCE<\/h5>\n

MANAGERS VS. REGULATORS: POST-ENRON REGULATION AND THE GREAT RECESSION<\/a><\/h3>\n
Sharon Hannes<\/strong><\/em><\/h6>\n
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Combating managerial opportunism is a difficult task. Managers do not tend to sit idle when facing a regulatory attempt to restrict their activities. They often seek ways to circumvent the regulation or new, alternative avenues for enriching themselves. This Article uncovers one recent and pervasive form of this phenomenon. Specifically, I show how managers tend to take excessive risks in response to regulation that hinders stock price manipulation, stock option backdating or repricing and a variety of additional ill-conceived schemes. This novel theoretical argument is particularly pertinent in the wake of the recent financial crisis in the American market. Indeed, the lesson for regulators should be that any reform that improves disclosure and prevents managerial rent-seeking must also curb risk-taking tendencies.<\/p>\n

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MERGERS & ACQUISITIONS \u2022 CORPORATE LAW & GOVERNANCE<\/h5>\n

DO DIFFERENT STANDARDS OF JUDICIAL REVIEW AFFECT THE GAINS OF MINORITY SHAREHOLDERS IN FREEZE-OUT TRANSACTIONS? A RE-EXAMINATION OF SILICONIX<\/em><\/a><\/h3>\n
Fern\u00e1n Restrepo<\/strong><\/em><\/h6>\n
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Freeze-out transactions have been subject to different standards of judicial review in Delaware since 2001, when the chancery court, in In re Siliconix Inc. Shareholders Litigation, held that, unlike merger freeze-outs, tender offer freeze- outs were not subject to \u201centire fairness review\u201d. This dichotomy, in turn, gave rise to a tension in the literature regarding the potential impact of Siliconix, as well as the treatment that freeze-outs should receive. While some defended the regime established by Siliconix, others argued for doctrinal convergence through a universal application of entire fairness, and still others proposed alternative variations of convergence based on how the negotiation process is conducted. The Delaware Chancery Court itself, in fact, subsequently made a partial step toward convergence by narrowing the scope of its precedent, as reflected in In re CNX Gas Corporation Shareholders Litigation. The empirical evidence on the effect of Siliconix (and, therefore, on the practical relevance of different standards of judicial review), however, is limited. In particular, in \u201cPost-Siliconix freeze-outs: Theory and Evidence,\u201d Guhan Subramanian found that minority shareholders obtain lower cumulative abnormal returns (CARs) in tender offer freeze-outs relative to merger freeze-outs, and, based on this finding, Subramanian advocates for doctrinal convergence. That article, however, does not formally examine whether Siliconix generated a structural change in relative CARs in both transactional forms and, therefore, whether the differences in outcomes are actually attributable to the disparity in standards of judicial review. The purpose of this work is, therefore, to fill this gap in the literature. To this end, this work uses a difference-in-differences approach, which compares changes over time (before and after Siliconix) between CARs in tender offers (the treatment group) and CARs in statutory mergers (the control group). As further discussed in the text, the results seem to suggest, in line with Subramanian\u2019s intuition, that Siliconix actually had at least some negative effect on CARs in tender offers, since the estimator of difference-in-differences is consistently negative and generally significant. Based on the results, this work discusses specific policy implications, particularly in terms of regulatory convergence.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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SECURITIES & FINANCIAL REGULATION<\/h5>\n

MATERIALITY: A BEDROOM PRINCIPAL PROTECTING LEGITIMATE SHAREHOLDER INTERESTS AGAINST DISGUISED POLITICAL AGENDAS<\/a><\/h3>\n
Paul Atkins<\/strong><\/em><\/h6>\n

The Committee on the Disclosure of Political Spending recently submitted a petition (\u201cthe Petition\u201d) to the U.S. Securities Exchange Commission (\u201cSEC\u201d or \u201cthe Commission\u201d) urging the Commission to require SECregistered companies to disclose their contributions and expenditures for political activities.1 In support of the Petition, Professors Lucian Bebchuk and Robert Jackson (who are members of the committee that submitted the Petition) have recently published an article in the Georgetown Law Journal entitled \u201cShining Light on Corporate Political Spending,\u201d2 in which they argue for not only the requirement that SEC-registered companies disclose election-related contributions and expenditures, but also for increased disclosure of activities related to government relations and public affairs.3 Bebchuk and Jackson present several arguments and respond to a range of objections to their Petition. Unfortunately, these arguments play into the hands of specialinterest activists who are pursing ends that are unrelated to the economic success of SEC-registered companies and the wellbeing of their shareholders.<\/p>\n

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SECURITIES & FINANCIAL REGULATION<\/h5>\n

AGAINST AN SEC-MANDATED RULE ON POLITICAL SPENDING DISCLOSURE: A REPLY TO BEBCHUK AND JACKSON<\/a><\/h3>\n
James R. Copland<\/strong><\/em><\/h6>\n
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Professors Lucian Bebchuk and Robert Jackson argue that the Securities and Exchange Commission (SEC) should engage in rulemaking to consider rules mandating new corporate political-spending disclosures, but their rationale is inconsistent with the agency\u2019s statutory purpose of protecting investors, improv- ing market efficiency, and facilitating capital formation. Corporations\u2019 political expenditures are tiny in relation to corporate budgets and clearly immaterial, in and of themselves, to investors\u2019 financial interests. Bebchuk and Jackson\u2019s argument that corporate political spending is more related to agency costs than to corporate leaders\u2019 legitimate desire to ameliorate the potential adverse impacts of government action on businesses\u2019 earnings, and that such agency costs could helpfully be reduced by further disclosures, is highly speculative. Instead, evidence strongly suggests that special-interest groups with viewpoints adverse to corporate interests have attempted to leverage existing disclosures to chill corporate political participation. Finally, shareholder proposals involving corporate political spending and political-spending disclosure have been overwhelmingly sponsored by some of these same special-interest groups and universally rejected by shareholders at large, when opposed by boards of directors.<\/p>\n

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SECURITIES & FINANCIAL REGULATION<\/h5>\n

A CASE FOR THE STATUS QUO: VOLUNTARY DISCLOSURE<\/a><\/h3>\n<\/div>\n<\/div>\n
Matthew Lepore<\/strong><\/em><\/h6>\n

I favor private ordering and voluntary disclosure of corporate political spending (that is, voluntary beyond the existing state and federal disclosure obligations). While certainly not without its challenges, I believe the current system best reflects the perspectives held by the majority of the investor community. While some investors may be interested in the political landscape and find this issue to be particularly interesting today in the space of corporate governance (I certainly do), I do not believe a majority of investors are seeking or would benefit from mandatory and costly disclosures as sought by Bebchuk and Jackson or by the authors of the Petition.<\/p>\n

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POLITICS & ECONOMICS \u2022 LEGAL & REGULATORY COMPLIANCE<\/h5>\n

THE NON-EXPERT AGENCY: USING THE SEC TO REGULATE PARTISAN POLITICS<\/a><\/h3>\n
Bradley A. Smith and Allen Dickerson<\/strong><\/em><\/h6>\n
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Over the past 15 years advocates of campaign finance reform, frustrated by the structure and design of the Federal Election Commission (FEC), have at- tempted to offload the duties of campaign finance regulation to other federal agencies, most notably the Internal Revenue Service (IRS) but also the Federal Communications Commission (FCC). Recently, these efforts have expanded to include the Securities and Exchange Commission (SEC).<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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SECURITIES & FINANCIAL REGULATION \u2022 POLITICS & ECONOMICS<\/h5>\n

THE SECURITIES EXCHANGE ACT IS A MATERIAL GIRL, LIVING IN A MATERIAL WORLD: A RESPONSE TO BEBCHUK AND JACKSON’S “SHINING LIGHT ON CORPORATE POLITICAL SPENDING”<\/a><\/h3>\n
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J.W. Verret<\/strong><\/em><\/h6>\n<\/div>\n<\/div>\n

This Article responds to a piece by Lucian Bebchuk and Robert Jackson, \u201cShining Light of Corporate Political Spending,\u201d which argues in favor of a rulemaking petition submitted by the authors to initiate a mandatory rule pursuant to the Securities Exchange Act requiring companies to disclose political expenditures, including contributions to politically active non-profits. This Article explores the economic cost-benefit analysis requirements that constrain SEC rulemaking and argues that when making a mandatory disclosure rule the SEC must demonstrate that the subject of the disclosure is material to investors. It shows how Bebchuk and Jackson have not made a sufficient case that corporate political expenditures meet that materiality threshold, nor that a mandatory disclosure rule would meet the SEC\u2019s cost-benefit analysis requirements. This is true particularly in light of how a mandatory disclosure rule risks inhibiting corporate freedom of speech.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

SECURITIES & FINANCIAL REGULATION \u2022 LEGAL & REGULATORY COMPLIANCE PRIVATE REGULATION OF INSIDER TRADING IN THE SHADOW OF LAX PUBLIC […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-3487","page","type-page","status-publish","hentry"],"jetpack_shortlink":"https:\/\/wp.me\/PgKEUK-Uf","jetpack-related-posts":[{"id":5259,"url":"https:\/\/journals.law.harvard.edu\/hblr\/securities-financial-regulation\/","url_meta":{"origin":3487,"position":0},"title":"Securities & Financial Regulation","author":"wgu","date":"February 15, 2025","format":false,"excerpt":"VOLUME 15 \u2022 COLUMNS THE DUAL CLASS DILEMMA AND THE SUNSET-CLAUSE SOLUTION\u00a0 Adrian Brown The desirability of dual-class stock has been a source of substantial controversy. Some scholars, commentators, and industry participants are wholly in favor of such arrangements. Others are wholly opposed. While neither of these diametrically opposed views\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1214,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-1-issue-1\/","url_meta":{"origin":3487,"position":1},"title":"Volume 1, Issue 1 (2011)","author":"wpengine","date":"June 24, 2011","format":false,"excerpt":"FOREWORD Lucian A. Bebchuk SECURITIES & FINANCIAL REGULATION ON THE DODD-FRANK ACT Edolphus \"Ed\" Towns SECURITIES & FINANCIAL REGULATION ON THE DODD-FRANK ACT Bobby L. Rush SECURITIES & FINANCIAL REGULATION DERIVATIVES AND THE LEGAL ORIGIN OF THE 2008 CREDIT CRISIS Lynn A. 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This paper explores\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5073,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-13-issue-2\/","url_meta":{"origin":3487,"position":3},"title":"Volume 13, Issue 2","author":"wgu","date":"March 27, 2024","format":false,"excerpt":"BANKING BANKING ON A CURVE: HOW TO RESTORE THE COMMUNITY REINVESTMENT ACT Peter Conti-Brown and Brian D. Feinstein\u00a0 This Article suggests that the federal government\u2019s primary financial-regulatory tool for combating wealth inequality is broken. Intended to push banks towards deeper engagement with lower-income and minority communities, the Community Reinvestment Act\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4452,"url":"https:\/\/journals.law.harvard.edu\/hblr\/hblr-online-volume-8\/","url_meta":{"origin":3487,"position":4},"title":"Volume 8 (2017-2018)","author":"ehansen","date":"January 2, 2018","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION BLURRING THE EDGES OF CORPORATE LAW: INSIDER TRADING AND\u00a0THE MARTOMA DECISION Azfer A. Khan In its recent decision, the Second Circuit in United States v. Martoma overturned key aspects of its decision in United States v. Newman. Justifying this departure based on the Supreme Court\u2019s ruling\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5347,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-15-issue-1\/","url_meta":{"origin":3487,"position":5},"title":"Volume 15, Issue 1","author":"wgu","date":"March 4, 2025","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION CAN SECTION 11 BE SAVED?: \u201cTRACING\u201d A PATH TO ITS SURVIVAL John C. 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