Mapping the American Shareholder Litigation Experience: A Survey of Empirical Studies of the Enforcement of the U.S. Securities Law

In this paper, we provide an overview of the most significant empirical research that has been conducted in recent years on the public and private enforcement of the federal securities laws. The existing studies of the U.S. enforcement system provide a rich tapestry for assessing the value of enforcement, both private and public, as well as market penalties for fraudulent financial reporting practices. The relevance of the U.S. experience is made broader by the introduction through the PSLRA in late 1995 of new procedures for the conduct of private suits and the numerous efforts to evaluate the effects of those provisions. We believe that the evidence reviewed here shows that the PSLRA\u27s provisions have largely achieved their intended purposes. For example, many more private suits are headed by an institutional lead plaintiff, such plaintiffs appear to fulfill the desired role of monitoring the suit\u27s prosecution and their presence is associated with suits yielding better settlements and lower attorneys\u27 fees awards. SEC enforcement efforts, while significant, have tended to focus on weaker targets, suggesting that the big fish get away. Equally importantly, markets impose their own discipline on companies whose managers release false financial reports and, in turn, firms discipline the managers who are responsible for false misleading reporting, perhaps because of the presence of, or potential for, private enforcement actions

Mapping the American Shareholder Litigation Experience: A Survey of Empirical Studies of the Enforcement of the U.S. Securities Law

In this paper, we provide an overview of the most significant empirical research that has been conducted in recent years on the public and private enforcement of the federal securities laws. The existing studies of the U.S. enforcement system provide a rich tapestry for assessing the value of enforcement, both private and public, as well as market penalties for fraudulent financial reporting practices. The relevance of the U.S. experience is made broader by the introduction through the PSLRA in late 1995 of new procedures for the conduct of private suits and the numerous efforts to evaluate the effects of those provisions. We believe that the evidence reviewed here shows that the PSLRA\u27s provisions have largely achieved their intended purposes. For example, many more private suits are headed by an institutional lead plaintiff, such plaintiffs appear to fulfill the desired role of monitoring the suit\u27s prosecution and their presence is associated with suits yielding better settlements and lower attorneys\u27 fees awards. SEC enforcement efforts, while significant, have tended to focus on weaker targets, suggesting that the big fish get away. Equally importantly, markets impose their own discipline on companies whose managers release false financial reports and, in turn, firms discipline the managers who are responsible for false misleading reporting, perhaps because of the presence of, or potential for, private enforcement actions

UA66/14/3 Nursing Pinning Ceremony

Pinning ceremony program listing graduates of the WKU Nursing program

Public Pension Funds as Shareholder Activists: A Comment on Choi and Fisch

article published in law reviewIn an important paper recently appearing in the Vanderbilt Law Review, Professors Stephen Choi and Jill Fisch generate survey evidence from public pension fund respondents that documents the low cost activism practiced by public pension funds.1 The results of their survey show, among other things, that public pension funds do a limited amount of non-litigation oriented activism mostly centered on supporting other types of activist investors. For example, these funds follow advice from their proxy voting advisors in withhold the vote campaigns or similar low cost voting initiatives. Furthermore, larger public funds demonstrate higher levels of non-litigation forms of activism than smaller sized public funds. However, the survey responses show that many public funds act as lead plaintiffs in securities fraud class actions and that the level of participation in litigation-oriented activism does not appear to vary by fund size. These are important and very interesting results that shed light on a number of key issues but also raise a number of important questions about shareholder activism and the SEC's regulatory approach to it. For that reason, it is important to examine critically the survey evidence provided as well as the authors' interpretation of their results

Efficiently searching through large tACS parameter spaces using closed-loop Bayesian optimization.

BACKGROUND: Selecting optimal stimulation parameters from numerous possibilities is a major obstacle for assessing the efficacy of non-invasive brain stimulation. OBJECTIVE: We demonstrate that Bayesian optimization can rapidly search through large parameter spaces and identify subject-level stimulation parameters in real-time. METHODS: To validate the method, Bayesian optimization was employed using participants' binary judgements about the intensity of phosphenes elicited through tACS. RESULTS: We demonstrate the efficiency of Bayesian optimization in identifying parameters that maximize phosphene intensity in a short timeframe (5 min for >190 possibilities). Our results replicate frequency-dependent effects across three montages and show phase-dependent effects of phosphene perception. Computational modelling explains that these phase effects result from constructive/destructive interference of the current reaching the retinas. Simulation analyses demonstrate the method's versatility for complex response functions, even when accounting for noisy observations. CONCLUSION: Alongside subjective ratings, this method can be used to optimize tACS parameters based on behavioral and neural measures and has the potential to be used for tailoring stimulation protocols to individuals

The Missing Monitor in Corporate Governance: The Directors\u27 & Officers\u27 Liability Insurer

This article reports the results of empirical research on the monitoring role of directors\u27 and officers\u27 liability insurance (D&O insurance) companies in American corporate governance. Economic theory provides three reasons to expect D&O insurers to serve as corporate governance monitors: first, monitoring provides insurers with a way to manage moral hazard; second, monitoring provides benefits to shareholders who might not otherwise need the risk distribution that D&O insurance provides; and third, the bonding provided by risk distribution gives insurers a comparative advantage in monitoring. Nevertheless, we find that D&O insurers neither monitor corporate governance during the life of the insurance contract nor manage litigation defense costs once claims arise. Our findings raise significant questions about the value of D&O insurance for shareholders as well as the deterrent effect of corporate and securities liability. After exploring various explanations for these findings, we conclude that the absence of monitoring is due, at least in part, to the agency problem in the corporate context. Our analysis thus suggests that the existing form of corporate D&O insurance both results from and contributes to the relatively weak constraints on corporate managers. Corporate managers buy D&O coverage for self-serving reasons, and the coverage itself because it does not control moral hazard, reduces the extent to which shareholder litigation aligns managers\u27and shareholders\u27 incentives

The Missing Monitor in Corporate Governance: The Directors\u27 & Officers\u27 Liability Insurer

This article reports the results of empirical research on the monitoring role of directors\u27 and officers\u27 liability insurance (D&O insurance) companies in American corporate governance. Economic theory provides three reasons to expect D&O insurers to serve as corporate governance monitors: first, monitoring provides insurers with a way to manage moral hazard; second, monitoring provides benefits to shareholders who might not otherwise need the risk distribution that D&O insurance provides; and third, the bonding provided by risk distribution gives insurers a comparative advantage in monitoring. Nevertheless, we find that D&O insurers neither monitor corporate governance during the life of the insurance contract nor manage litigation defense costs once claims arise. Our findings raise significant questions about the value of D&O insurance for shareholders as well as the deterrent effect of corporate and securities liability. After exploring various explanations for these findings, we conclude that the absence of monitoring is due, at least in part, to the agency problem in the corporate context. Our analysis thus suggests that the existing form of corporate D&O insurance both results from and contributes to the relatively weak constraints on corporate managers. Corporate managers buy D&O coverage for self-serving reasons, and the coverage itself because it does not control moral hazard, reduces the extent to which shareholder litigation aligns managers\u27and shareholders\u27 incentives

Taking Certification Seriously – Why There is No Such Thing as an Adequate Representative in a Securities Fraud Class Action

Securities fraud class actions (SFCAs) arising under Rule 10b-5 are well established as a feature of the legal landscape, but they are a vestige of a largely outdated view of investor behavior and preferences. In the 1960s, most investors were undiversified stock pickers. Today, most investors hold stock through well diversified institutions. As a result, most investors are net losers from SFCAs. Moreover, it is arguable that it is irrational for most investors not to be diversified. A passive investor who fails to diversify assumes unnecessary risk for the same expected return that diversified investors enjoy. Given that federal securities law is intended to protect reasonable investors, it follows that it should be interpreted and applied consistent with the interests of diversified investors where the interests of diversified and undiversified investors diverge. For a diversified investor, gains and losses from securities fraud net out over time. But they lose to the extent of attorney fees and they lose when they are holders (which is most of the time) to the extent that defendant companies must compensate purchasers. In short, diversified investors would prefer that SFCAs be abolished. The one exception arises when insiders gain from the fraud such as by selling their shares before the release of bad news. But the appropriate remedy in such a case is a derivative action by which the company recovers from the wrongdoers. The thesis here is that the courts should decline to certify securities fraud actions as class actions under FRCP 23 because of the conflicting interests of class members. Undiversified stock pickers – usually a minority of the plaintiff class – may favor SFCAs. But many diversified investors – particularly those who follow a portfolio balancing strategy – would prefer that the courts refuse to certify such actions as class actions because such investors usually lose more on stock they hold than they gain on stock they bought during the class period. To be sure, many diversified investors (including institutional investors) engage in some stock picking (although some such as index funds eschew it altogether). Such an investor might favor certification of actions in which he has bought a large amount of the subject stock during the class period relative to preexisting holdings even though the same investor would favor the abolition of SFCAs generally. Moreover, not even a strict portfolio balancing investor who would oppose certification because she loses more on stock she holds than she gains on stock she bought would dare to opt out of the SFCA if it is certified. Thus, it does no good for the courts to rely on investors to vote with their feet. Investors who opt out of the action effectively pay those who stay in by forgoing compensation for their losses. The bottom line is that the courts should refuse to certify securities fraud actions as class actions unless it is shown that the plaintiff class is composed wholly of undiversified investors. If the action involves allegations that insiders have somehow gained from the fraud or that the corporation itself has been damaged by the fraud, the action should proceed as a derivative action. And given that a derivative action is a form of class action, it is quite clear that the courts have the power under FRCP 23 (and FRCP 23.1) to recast any purported SFCA in such terms. This is not to say that individual investors should not continue to have standing to sue under Rule 10b-5. Indeed, an investor who seeks to gain control or influence over a target company is likely to be undiversified. If such an investor suffers a fraud in connection with his purchase of target stock, he has standing to sue the wrongdoers if he can make out a claim. Nor does the argument here imply that there is a fundamental problem with remedies under the 1933 Act. In essence, the 1933 Act provides for disgorgement by issuers in cases in which they have effectively misappropriated capital from the market by false pretenses. Similarly, in the context of an SFCA under Rule 10b-5 in which insiders have gained from misappropriation (such as insider trading) during the fraud period or have visited loss on the issuer by damage to reputation or otherwise, the appropriate remedy if for the issuer to seek compensation. In other words, the approach advocated here is wholly consistent with the general scheme of federal securities law

Does the Plaintiff Matter?: An Empirical Analysis of Lead Plaintiffs in Securities Class Actions

With the enactment of the Private Securities Litigation Reform Act of 1995 (PSLR) the U.S. Congress introduced sweeping substantive and procedural reforms for securities class actions. A central provision of the Act is the lead plaintiff provision, which creates a rebuttable presumption that the investor with the largest financial interest in a securities fraud class action should be appointed the lead plaintiff for the suit. The lead plaintiff provision was adopted to encourage a class member with a large financial stake to become the class representative. Congress expected that such a plaintiff would actively monitor the conduct of a securities fraud class action so as to reduce the litigation agency costs that may arise when class counsel\u27s interests diverge from those of the shareholder class. Now, more than ten years after the enactment of the lead plaintiff provision, the claim that the lead plaintiff, and particularly the lead plaintiff that is an institutional investor, is a more effective monitor of class counsel in securities fraud class actions continues to be intuitively appealing, but remains unproven. In this study, Professors Cox and Thomas inquire anecdotally and empirically whether the lead plaintiff provision has performed as projected. The anecdotal evidence they uncover is mixed: in some instances demonstrating the virtues of the lead plaintiff provision, while in others showing that the provision has encountered difficulties, including hesitance among institutional lead plaintiffs to take on the burden of serving as lead plaintiff (though recently more institutional investors are taking on the role of lead plaintiff) and allegations of pay-to-play schemes between plaintiffs\u27 law firms and potential lead plaintiffs. Professors Cox and Thomas then conduct a series of statistical analyses of the lead plaintiff provision\u27s costs and benefits. Surprisingly, their results indicate that the ratio of settlement amounts to estimated provable losses in securities class actions---the most important indicator of whether investors have been compensated for their damages---has been lower since the passage of the PSLRA and that settlement size has not increased since the passage of PSLRA. However, they also find that the presence of an institutional investor increases the dollar amount of settlements in those cases in which they appear, suggesting that the current trend for institutional investors to be lead plaintiffs in securities class actions will positively affect average settlement size in such actions in the future. Their analysis also sheds new light on the relative impacts other types of lead plaintiffs, such as individuals versus an aggregation of individuals, have on the outcome of settlements. They conclude with a discussion of the policy implications of their findings