The Illinois Business Law Journal

Limited Liability: Is Stoneridge a Threat to U.S. Markets?

I. Introduction

      The idea that by engaging in fraudulent behavior one incurs liability for the foreseeable harm caused by such behavior is a cornerstone of the law.  Therefore, it seems reasonable that by engaging in fraudulent transactions designed to manipulate financial statements and market valuations a company should expect to incur liability to investors relying on those statements and valuations.  In a 5-3 opinion (Justice Breyer recused himself) authored by Justice Kennedy,the Court, in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., limited such liability in private actions based on SEC Rule 10b-5. [1] In doing so, the Court drastically restricted the types of private actions that are critical to investor confidence and market stability, and to the success of U.S. securities markets.   

Securities and Exchange Commission: Transforming Rule 14a-8 To Allow Shareholders Increased Voting Power

I. Background

While the decision of the Second Circuit Court of Appeals binds many public companies of that specific jurisdiction, the SEC must now decide whether to propose a clarifying change to Rule 14a-8(i)(8) ("the Rule"), binding all companies subject to Federal Securities Law and alleviating courts of difficult interpretation. A letter from shareholders to the Honorable Christopher Cox, requesting a return to the pre-1990 interpretation of the Rule, stressed an important distinction: ". . . between using a shareholder resolution as a back-door device to contest a specific election and using a shareholder resolution in order to change the rules for election so as to further the long-term interests of shareholders."[1] It is this distinction which also divides the opinions of Stephen Bainbridge, Margaret Blair and Lynn Stout on one side from those of Lucian Bebchuk. Bainbridge, Blair and Stout espouse theories such as "director primacy" and hold views opposing the shareholder primacy norm.[2] Their views appear to coincide with a decision against shareholder resolutions as a means to undermine a board’s power through elections. Their views appear to greatly differ from those of Bebchuk’s, who proposes allowing shareholders to alter "rules-of-the-game" decisions or else elect a new team of directors who will.[3] This report will use Bainbridge, Blair and Stout’s theories in support of an amendment seeking to expand the rule’s exclusions regarding shareholder proposals to limit shareholders’ input dealing with elections in general, while Bebchuk’s theories will be relied upon to amend the Rule in order to empower shareholders.[4] This assumption arises primarily from a grand simplification of both groups’ views: "director primacy" v. "shareholder primacy norm," respectively and this report will utilize their theories to weigh the arguments in favor and in opposition to an amendment.

SEC’s recent report on Executive Compensation Disclosure

INTRODUCTION

On this October, the Securities and Exchange Commission published observations from its review of the executive compensation disclosures from 350 public companies that were filed during the latest proxy season.[1] This report is very important for both companies and public because it is the first SEC’s review for how well companies were adapting to the significant revisions to the executive compensation disclosure rules that took effect last year.[2]

Economically Reprehensible Behavior, or Benefits and Risks of Morality? (2 of 2)

This second article in the series first identifies past assumptions of the traditional investment model.  Possible additional benefits and drawbacks of morally responsible investing (MRI) as compared to the traditional model are pointed out along the way.  Finally, future legal issues that MRI may raise are identified, and the court’s likely treatment of such issues is hypothesized. 

SEC’s Proposals For Shareholder Access To Proxy Statement

INTRODUCTION:
The war between the supporters of the shareholder democracy and its opponents has getting hot in these years. One of the important battlegrounds is the shareholder access to the proxy statement because giving shareholders access to ballot can enormously empower the shareholders. SEC recently released two proposals for the shareholder access to proxy statement and revealed its intent to settle this battle in next proxy season.[1]

The Combination of Reverse Mergers + PIPEs: an Alternative Strategy for Foreign Small and Mid-Sized Companies

According to the SEC’s website, 144 domestic Chinese companies have registered with the Commission.[1] However, as Ms. Barbara A. Jones, a partner with Kirkpatrick & Lockhart Nicholson Graham LLP, suggested, this number is deceiving because many Chinese companies entered the U.S. public capital market through “business combinations with U.S. domestic listed companies or through off-shore holding companies, utilizing the wholly-owned foreign enterprise structure.”[2]

Economically Reprehensible Behavior, or Benefits and Risks of Morality? (1 of 2)

Whether it is through mutual funds, pensions or direct purchases of shares in companies, some investors are taking more than profit maximization into consideration when investing. These investors seek to promote individual social or moral preferences by choosing investments based on the products and procedures of an investment, rather than solely on accounting profitability. Essentially, these investors are looking to use their money for both moral and monetary profit. Of course, when it comes to capital markets, the customer, i.e. the investor, is still the boss. Thus understanding this trend is not merely an academic exercise but perhaps a lesson to those seeking funding.

Does SOX reduce the competitiveness of New York Stock Exchange (NYSE) in the cross-listing market

INTRODUCTION:
In this Post-post-Enron era, people are moving from the regulatory boom to a new awareness of the costs of the Sarbanes-Oxley (SOX) Act.[1] One of this awareness is that SOX hurts the competitiveness of New York Stock Exchange (NYSE) in the cross-listing market. Indeed, a popular explanation for the recent decrease in foreign listings on the exchanges in New York is that the passage of the Sarbanes-Oxley (SOX) Act of 2002 has made U.S. listings significantly less attractive to foreign companies.[2] However, two recently studies provide different view on the impact of the SOX to the competitiveness of NYSE in the cross-listing market.[3]

The Hurdle of "Loss Causation"

Loss causation is one of the elements that have to be satisfied in a securities fraud action under § 10(b) of the Securities Exchange Act and Rule 10b-5. [1] The Supreme Court in Dura Pharmaceuticals, Inc. v. Broud, set up six elements of a securities fraud claim "involving publicly traded securities and purchases or sales in public securities." [2] Among those elements, the loss causation element seems to be one of the most difficult hurdles that a plaintiff in a securities fraud action needs to overcome. If a plaintiff cannot show that there is a genuine issue of material fact as to the loss causation element, he or she won't have a chance to go beyond a summary judgment stage. [3] Not only is this element a great hurdle for a plaintiff, but also the difficulty of showing it can keep many securities fraud claims from moving forward beyond summary judgment. The Seventh Circuit in a recent case, Ray v. Citigroup Global Markets, Inc., was able to grant a summary judgment in favor of the defendants just by looking at the loss causation element without further addressing other elements. [4]

Get off the Radar of Sarbanes-Oxley: NYSE’s Merger of Equals with Euronext

    Hank Paulson, the US Treasury Secretary, started his speech at the Economic Club of New York in November, 2006, saying, “it’s good to be in New York City, the financial capital of the world,” which was well taken by the audience as a joke. [1]  Indeed, in 2005 only one of the top 25 IPOs by value took place in New York. [2] In the year to October 19, 2006, London Stock Exchange and Alternative Investment Market raised almost $40bn from the IPOs of 172 companies. [3]  In comparison, NYSE and Nasdaq only raised short of $30bn from 137 IPOs in the same period. [4] Concern haunted Wall Street: have the Big Apple’s glory days passed?  [5]