Out of curiosity, I pulled the cases that Sotomayor decided as a trial judge or reviewed as an appellate judge that had Section 10(b)/Rule 10b-5 of the Securities Exchange Act as at least one issue.  For these purposes, I did not include either cases involving other sections (a handful of Section 11, 12 and 5 cases, for example) or cases involving post-judgment issues (such as attorney fees, sanctions, Fair Funds, etc.).  Using the Westlaw database Sotomayor-nom, I gathered 26 cases, dating back to 1994.  Of these 26 cases, three were actions brought by the SEC, and two were criminal actions brought by the U.S. government.  Of those cases, the SEC won all three and the U.S. government won both of its prosecutions.

The remaining 21 lawsuits seem to have results typical to those of most private securities lawsuits:  the defendant wins, usually on a motion to dismiss, which is affirmed by the court of appeals.  Specifically, in 16 cases the defendant was granted relief.  In four cases, the defendant was granted some, but not all, of the relief requested or one defendant was granted relief, but not all.  Of these four cases, no plaintiff won on a core 10b-5 securities law issue (was there reliance?  materiality?  loss causation?).  For example, in one case, the second circuit held that although the federal securities claims were dismissed, a state law duty existed for a fiduciary duty claim.  In another, several individual defendants were not granted a motion to dismiss on Section 11 claims.  In another, even though the case was dismissed, the court held that the lead plaintiff had standing.  The other case in which plaintiffs won partial relief was Dabit v. Merrill Lynch, which Sotomayor probably got right and the Supreme Court (reversing) probably got wrong.  (My colleague Larry Ribstein's post on this is here.)  In the one case where the plaintiff won outright, the plaintiff won summary judgment in a bench trial against a foreign bank. 

Although pundits are scouring her other opinions to find judicial activism, there's none here in the 10b-5 arena.  If we're worried about the nominee showing empathy instead of following the law, there's no evidence of runaway shareholder empathy!

I did enjoy reading this passage, however, in Sotomayor's order granting summary judgment for the SEC in SEC v. Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997), rebuking the SEC for seeking penalties against two co-defendants that were not inconsistent with a default judgment asked for and received against a third:

The Court is deeply troubled by the manner in which penalties have been sought by the SEC in this case. Co-defendant Cosby, whose conduct was equal to or more egregious than Stoecklein's, was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Cosby Default J. signed 8/23/96.) Similarly, co-defendant Lane, whose conduct was equal to or only slightly less egregious than Stoecklein's, also was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Lane Default J. filed 6/11/96.) The SEC, however, sought and obtained an order from this Court assessing against co-defendant Remington a civil penalty of $847,248, which is triple the amount that it profited, with Stoecklein, from insider trading. (Remington Default J. filed 6/11/96.) The Court believes this represents a fundamental inconsistency. Accordingly, the civil penalty assessed against Remington is reduced to $100,000.

How rare to strive for porportionality and fairness in white-collar criminal penalties.

And finally, for those keeping score at home, of the 21 cases, one (Dabit), was reversed by the Supreme Court, one circuit court case sought rehearing and was denied, and certiorari to the Supreme Court in four other circuit cases was sought but denied.  One district court case opinion was reversed in part, and affirmed in part.  I'm pretty sure that within the realm of reason, reversal rates are red herrings (similar to counting errors in baseball), but there they are.

Permalink | Supreme Court | Comments (0) | TrackBack (0) | Bookmark

I've got a post on the main options up at The Hearing - it draws on my paper with Larry Cunningham on the three or four basic choices for reform, which is available here.  Given them a look and let me know what you think!

Permalink | | Comments (0) | TrackBack (0) | Bookmark

That's the program whereby the government would provide leverage to private investors to buy toxic assets from the banks.  It sounded plausible at the time, but it has taken forever to get going, and it still isn't working.  Here's the FDIC's hold-the-phone speech, here's comment from Clusterstock and the Baseline Scenario.  And here's the Times.

The government has been coming up with a new program every fortnight, and tons of them have gone nowhere.  Some blame goes to the "press release, get in the Post, and we'll worry about implementation later" culture of Washington (which I think is a Democrat problem more than a Republican one).  But some of these programs might not go anywhere because they may not be necessary.  Skeptics still abound, but here's the related case for the rehabilitation of Henry Paulson, economy-saver.

Permalink | Financial Crisis | Comments (0) | TrackBack (0) | Bookmark

Danny Sokol has the scoop, here.  The comments are amusing too.

Permalink | Antitrust | Comments (0) | TrackBack (0) | Bookmark

• The banks will, in fact, be permitted to get out of the TARP next week, the Times reports.  The good governance question turns on how much they will have to pay to do it; Steve Davidoff prices one bank's underpayment via Black-Scholes here.  Which raises the question: if the money is that cheap, is the reason everyone wants out exec comp?  And if so, what does that say about the quality of bank management?
• Regulatory reform is coming, but it might not be the rationalization that Henry Paulson and Paul Volcker asked for in separate reports last year.  Instead, every agency may survive except the OTS.  Slightly incoherent, but Larry Cunningham and I both expected that this would happen, and think there is a case to be made for disaggregated domestic regulation, a la, the race to the top.  Paper here.
• I am convinced, however, that better international cooperation would be a good thing, and contributed a chapter to the Committee on Capital Markets Regulation's reform proposal outlining why.  That is Hal Scott's, John Thornton's and Glenn Hubbard's shop, and you can read the proposal here, international is at the end, and everything else is well worth your consideration.

Permalink | Financial Crisis | Comments (4) | TrackBack (0) | Bookmark

Is the proposed quickie sale of Chrysler to New Chrylser/Fiat a taking under the constitution?  Many think yes, I tentatively think no, and Rick Hills expressed some concerns here.  What does the bankruptcy court think?

It has obviously learned from its administrative law counterparts, in that it has used the standing doctrine to duck the issue - or at least to conclude that the Indiana pension funds making the most of the takings argument had not established a likelihood of success on the merits:

And that's it - classically unsatisfying in the we're-ducking-this-because-there-might-be-standing-issues vein, and you'd think the Indiana funds either hold interests in secured Chrysler debt or they don't (if they do, they would seem to have the prospect of injury if they get less than whatever the value of the collateral is, which would seem to be enough for standing).  I don't even think that intervenors have to demonstrate standing other than through their complaint/intervention motion, though the court seems to be requiring something more here.  But the court is being tentative, no final decisions, and it certainly has plenty of other things to do.  You can find the order here by searching for the term "Indiana."

Permalink | Financial Crisis | Comments (1) | TrackBack (0) | Bookmark

My blogging's been a bit light lately because I was scrambling to get our paper ready for this year's Stanford/Yale Junior Faculty Forum.  For the uninitiated, this event alternates between the 2 schools and between private and public law--meaning, among other things, that private law scholars always get the benefit of Stanford's beautiful campus and clime. Junior scholars submit their pieces for blind review, and the selected authors present their works to the other juniors and their commentators.  You get the benefit of comments from a senior scholar in your field and lively audience remarks.  Here's our schedule: as you can see, we were a learned (not to mention well-fed) bunch.

I unsuccessfully submitted to the forum 2 years ago, so I was thrilled to be chosen this time.  I always kind of wondered what the Forum would be like, so I thought I'd list some random observations.

1. It's scary.  My commenter was Ian Ayres, Yale Law School professor, best-selling author, whose work regularly appears in Slate and Forbes.  No pressure.

2. It's supportive and collaborative.  I received extremely sophisticated comments both from Ian and from the audience, all clearly made from the perspective of trying to make our work better.  It was a rare experience to have so many smart people focused on my work, and I loved it.

3.  It offers unscientific evidence that even if blogging isn't scholarship (yes, Kate was there!), the two can go hand in hand, even for juniors. In terms of regular bloggers,  Adam Levitin blogs at creditslips, Gaia Bernstein at Law and Technology Theory.  Anna Gelpern, David Fagundes and David Schleicher have all guestblogged, Anna right here at the Glom.

4. You can't win if you don't play.  The deadline this year was February 16th, and our draft was still pretty rough, and I shrank from the thought of showing it to anyone, much less erudite prawfs at Stanford and Yale.  I'm sure glad I did.

Permalink | Junior Scholars | Comments (2) | TrackBack (0) | Bookmark

Rick Hills asks if we can be so sure that what the United States is doing to the debtholders of the auto companies isn’t a taking.  I opined over at the Hearing that Chrysler’s debtholders did not have a great Takings Clause argument.  I pointed to cases suggesting that the government can alter debt contracts to the detriment of the debtholder in bankruptcy, provided it doesn’t destroy all value; the judge dismissed the argument of the debtholders too.   

But the Takings Clause has something to do with bankruptcy, see this case and this one.  It goes beyond con law and even into the real world (where con law does not always tread).  The government has a stake in Chrysler and GM even as it manages those companies through bankruptcy.  That raises the specter of self-dealing.  The distinction mattered to Joseph Sax in the 1960s, and Rick wonders if it matters today.  I tread cautiously here, because I’m an expert in neither bankruptcy nor constitutional law. 

I think this might be one of those cases where logic (self-dealing is a bad idea) and precedent point in different directions.  The government often has interests in bankruptcy proceedings it supervises, and it has written in the ultimate self-dealing default rule into the code – it takes (bankrupts often owe taxes to the government), before even the senior debtholders.  We don’t live in East Germany or the 1970’s UK, but the government often has an interest in firms over which it exercises some degree of supervision, especially through contract.  And the US Trustees supervise bankruptcy trustees running estates with obligations to the US as well as other creditors. 

These conflicts of interest do not occasion much comment.  What the government is doing to GM’s stakeholders is bigger and perhaps in some ways badder, but I think the difference is one of degree, not of kind. 

You may disagree - give James Steven Rogers, The Impairment of Secured Creditors' Rights in Reorganization: A Study of the Relationship Between the Fifth Amendment and the Bankruptcy Clause, 96 Harv. L. Rev. 973, (1983), and Julia Patterson Forrester, Bankruptcy Takings, 51 Fla. L. Rev. 851 (1999), a look if you want to think about things more.

Permalink | Financial Crisis | Comments (2) | TrackBack (0) | Bookmark

If you aren't at least a little worried about inflation, you aren't paying attention. If you are a lot worried about inflation, join the so-called Black Swan Fund (Universa Investments L.P.) in placing your bet:

So let's get the story straight ... Nassim Nicholas Taleb writes The Black Swan, and we all love the book. His "long-time collaborator," Mark Spitznagel, makes some bets against the market and gains big in 2008. Money from new investors starts flowing, and Spitznagel's funds go from $300 million in January 2007 to about $6 billion today. He starts looking for places to put that much money, and he lands on hyperinflation.

Do you see anything wrong with this story? We had an endearing expression for this sort of thing when I was growing up in Wisconsin, but I don't use that crass expression anymore. Let's just say that the Black Swan Fund looks to be doing things exactly backwards. Rather than allowing a great idea to drive financing, the Black Swan Fund is allowing the financing to drive the creation of a new idea. But the new idea they are betting on is supposed to be a black swan, which is, by definition, rare and unpredictable!

UPDATE: Someone else is skeptical of the Black Swan Fund.

Permalink | Investing | Comments (0) | TrackBack (0) | Bookmark

Following up on Christine's post, I note that Larry Ribstein has an excellent post on Judge Sotomayor's opinion in Dabit v. Merrill Lynch, which was overturned by the Supreme Court 8-0. Larry thinks Sotomayor got it right and the Supreme Court was wrong. More or less. I don't have strong feelings on this case, but Larry's post is worth reading if you care about the federalization of corporate law.

Permalink | Securities, Supreme Court | Comments (0) | TrackBack (0) | Bookmark

As Glom readers know, we aren't quick to blog about political issues, but many times the political realm overlaps into the business law realm, and there we are.  As such, last week while in Denver at the Law & Society Conference, all I was wondering about the potential Justice Sonia Sotomayor was what this would mean for securities law issues.  Although much of the MSM and blogosphere likes to talk about Sotomayor's humble roots, her role as a Latina lawyer and then judge, and her view on hot-button political topics, not much has been said about the fact that she's been a judge at the heart of securities litigation -- the Southern District of New York and the Second Circuit.  Unfortunately, according to this National Law Journal article, no senator will waste his/her moment of televised glory to ask about Sotomayor's thoughts on the PSLRA!

With journalists and academics out there scouring her opinions for clues as to her leanings on issues such as affirmative action, employment discrimination and abortion, someone should take a look at her actions on private securities litigation!  But, my associate dean tells me it won't be me today.  I'm a little behind on grading. . . .

Permalink | Supreme Court | Comments (0) | TrackBack (0) | Bookmark

There's a blog-related happy hour at Marlowe's tonight at 9:00 in Denver, Concurring Opinions and Prawfsblawg being the organizers, details here, and do drop by, we'd love to see you.

Permalink | Law & Society | Comments (0) | TrackBack (0) | Bookmark

This is a fascinating presentation, which I found on Althouse:

Permalink | Economic Development | Comments (2) | TrackBack (0) | Bookmark

Thanks again Gordon for the invitation, as always I enjoy my time here. Before I go I thought I would write briefly about one growing concern involving the Federal Reserve's TALF program. (For other interesting TALF related issues, see Zaring, Ribstein, and the Deal Professor). As part of the term asset backed lending facility, or TALF, the Federal Reserve has been offering low cost loans to stimulate markets for a variety of financial products. Much of TALF has been geared thus far toward loans to facilitate purchases of commercial mortgage backed securities, which back consumer financing for cars, credit card debt and other consumer loans. As yet there has been tepid interest in this program, with only $15 billion in TALF loans being made out of the nearly $1 trillion in loans expected in the original plan. TALF will also be used to finance the public/private investment partnerships that form the center of the Administration's re-invented TARP (a.k.a. the Legacy Securities Program). TALF loans are being extended for increasingly longer periods such that it may threaten the Federal Reserve's ability to manage interest rates. Originally the Fed was adamant that it would only make one-year loans. The commercial mortgage industry pushed back, and the Fed compromised with three-year loans. Now, the Fed is offering five-year, non-recourse, rate subsidized loans. The non-recourse nature, and the subsidized rates, are risky enough. But the extended terms could severely limit the Fed's ability to manage interest rates if the market's appetite for TALF loans grows. If the Fed finds it needs to sell its holdings in the future to scoop up excess liquidity, its hands will be tied with respect to TALF debt. And selling assets to take money off the street is how the Fed manages interest rates upward. The Fed would need to sell the debt at an enormous discount, if it can find a market at all. Treasuries, assets which the Fed normally holds, are much easier to unload. There is some growing concern that TALF debt will remain locked in the Feds hands for the term of the loan, and future monetary policy flexibility will be constrained.

Permalink | | Comments (3) | TrackBack (0) | Bookmark

While many people fret about Judge Sotomayor's views on abortion or executive power, others wonder about her views on business cases. Elizabeth Nowicki thinks this is "a pivotal time in American securities and corporate law jurisprudence" and infers, from Judge Sotomayor's service on the Second Circuit that she "has a strong background in sophisticated corporate and securities law cases." Indeed, she has written a number of securities law opinions, including the lower court opinion in Merrill Lynch v. Dabit, which the Supreme Court reversed 8-0, but Jill Fisch seems to have Sotomayor pegged on business law: "I don’t see this as one of her core interests.”

Given the growing importance of business law cases with the increasing federalization of business regulation, one of the factors that President Obama should consider in selecting his next nominee is whether that nominee is sophisticated about matters of business. Why not appoint a transactional lawyer? David Frum is right: our current justices don't know much of anything about business. And it shows when they try to write opinions.

Permalink | Supreme Court | Comments (2) | TrackBack (0) | Bookmark