Fair or Foul?: SEC Administrative Proceedings and Prospects for Reform Through Removal Legislation

This Article catalogues the long list of criticisms of the Commission’s administrative proceedings. It also evaluates data describing the outcome of litigated matters and finds that, with the exception of insider trading cases, the Commission has an exceptionally high and statistically indistinguishable record of success in administrative and federal court proceedings alike. The data thus seem not to support the view that the Commission has a generalized home-court advantage in administrative proceedings. Nonetheless, the Commission’s virtually unfettered discretion in forum selection decisions, when it can assign cases to a forum that it controls, raises a plethora of institutional design concerns

Brief for Urska Velikonja and Joseph A. Grundfest as Amici Curiae in Support of Neither Party in Lucia v. SEC, No. 17-130 (U.S. Supreme Court)

The amicus brief takes no position on the merits of this case and expresses no view as to its resolution. Instead, we write exclusively to address two empirical questions raised by the debate over the Commission’s reliance on administrative enforcement of the federal securities laws. First, is there statistically reliable evidence that ALJs systematically resolve cases in a manner that differs from the resolution of equivalent Commission actions filed in federal district court? Second, has the Commission steered a disproportionate share of contested proceedings to ALJs because the Commission is more likely to prevail before those ALJs? The amicus brief reports on the findings of an empirical analysis that examines every enforcement action filed by the SEC from the beginning of fiscal year 2007 through September 30, 2017, the end of the SEC’s 2017 fiscal year, and resolved prior to January 1, 2018. Contrary to the suggestions that appear in the press and are cited in the briefing, there is no statistically reliable evidence that the Commission has a “home court” advantage before ALJs. We also find that the SEC has continued to litigate a large majority of contested proceedings in federal district court, and not before its ALJs. There is no statistically reliable evidence that the Commission is steering a disproportionate share of litigation to the administrative forum in order to capitalize on this non-existent advantage

The Pentium Papers: A Case Study of Collective Institutional Investor Activism in Litigation

This article suggests that institutional investors have rational incentives to become more active in the litigation arena, but that the current debate is falsely constrained because it rests on the assumption that institutional investors must participate either by (1) assuming the formal role of lead plaintiff, class representative, or intervenor or, (2) not participating at all. This is a false dichotomy because, as this article demonstrates, institutions have available to them a rich array of flexible, informal, and relatively inexpensive mechanisms by which they can make their views known to litigants and courts alike. Our hypothesis that institutional investor activism is more likely to flourish through flexible, informal mechanisms is rooted in practical experience gathered in connection with the Institutional Investors\u27 Forum at Stanford Law School, a group that first convened in December of 1994. The Forum is a discussion group at which institutional investors meet to learn about and discuss issues of common concern. This article reports in detail on the institutional investors\u27 role in the Pentium litigation, which consisted simply of writing a detailed letter to plaintiff and defense counsel alike. Before turning to the specifics of the Forum participants\u27 involvement in the Pentium litigation, this article first reviews academic literature that helps place institutional activism in a broader theoretical context. Section II provides an overview of the economic analysis of class action dynamics that has emerged over approximately the last decade. Section II extends the literature by analyzing in a more textured way the effects that variable claim size and the presence of positive portfolio values will have on the cost-effectiveness of individual monitoring and on other participatory efforts by class members. Section III begins to place these theoretical observations into a real world setting by examining the formation of the Institutional Investors\u27 Forum at Stanford Law School. This section discusses the initial preparatory meetings of the Forum, the participants\u27 objectives, the types of cases that Forum participants thought might lend themselves to effective institutional activism, and the types of strategies that the participants devised. Section IV then turns to the Pentium litigation itself. The section describes in some detail the flaw that was discovered in the Pentium chip and how Intel\u27s response to that problem exacerbated the situation the company faced. The section also describes how these events affected Intel\u27s stock price, and describes the allegations lodged against Intel in the ensuing securities class action, derivative litigation and consumer class actions. Section V describes the Forum participants\u27 evaluation of the Pentium litigation and the strategy they devised to make known their concerns about the merits of the securities class action and the derivative litigation. The section also describes the outcome of those interventions. Section VI briefly describes the Forum participants\u27 assessment of the consumer class actions against Intel. It describes why the institutions decided not to participate actively in those actions, despite concerns about the proposed consumer class action settlement and, more particularly, about Intel\u27s and plaintiffs\u27 class counsel\u27s agreement concerning attorneys\u27 fees. Finally, Section VII describes some of the preliminary lessons learned from the institutions\u27 activities to date and evaluates some of the provisions of the 1995 Reform Act in light of the Forum\u27s experience. Appendix A reproduces a copy of the Pentium Letter forwarded by the institutional investors to plaintiff and defense counsel