Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?

Let\u27s face it. Women and men are different in more than just the biological sense. These differences play themselves out in a variety of contexts. Some of them are meaningful in theory or in reality; others are not. Given an increase in women\u27s involvement in business and finance, it is unsurprising that a multidisciplinary literature is emerging at the intersection of sex or gender differences and corporate governance. Much of the work in this area has centered on women and boards of directors and women in the executive ranks. However, it is important to focus on women not only as corporate directors and officers, but also as investors in firms. Among other things, the identification and analysis of sex-based or gender-related differences in investment behavior may help explain or predict market phenomena and may illuminate defects or gaps in regulatory frameworks or provisions. For example, the investment attributes of female investors may indicate that women are better or less well protected from changes in firms, laws, or the market than their male investor counterparts. Research along these lines is especially relevant at present in light of ongoing allegations of securities fraud and significant volatility in securities markets. With all of this in mind, this article extends scholarship that questions the existing materiality standard used under Rule 10b-5 (and elsewhere in U.S. securities regulation) and its touchstone notion of the reasonable investor. Specifically, the article asks and answers a seemingly straightforward, yet provocative, question: Is the reasonable investor a woman? The article then explores the potentialsignificance of its key findings - women and men exhibit different investment behaviors and achieve different investment outcomes, and the resulting female investor profile is closer to existing conceptions of the reasonable investor than the resulting male investor profile. As women become bigger players in the securities markets, it may be comforting to know that they are relatively well protected by existing conceptions of the reasonable investor. The knowledge that women are not completely protected by these existing conceptions and that men are less well protected than women under the current reasonable investor paradigm, however, gives us pause and forces us to reconsider inaction. To that end, this article continues an ongoing academic and practical conversation about when changes in investor protection should be undertaken and how those changes are best made if they are to be undertaken - not just for the benefit of women or men, but for the benefit of all underprotected investors

Hell Hath No Fury Like an Investor Scorned: Retribution, Deterrence, Restoration, and the Criminalization of Securities Fraud Under Rule 10b-5

This brief article focuses attention on the ineffectual nature of prosecutions of corporations and their insiders - generally, officers and directors - for securities fraud under Rule 10b-5. Specifically, the article begins by briefly summarizing the nature of enforcement actions and related penalties under Rule 10b-5. Next, the article argues that, as currently conceived and executed, criminal enforcement actions under Rule 10b-5 are ineffective as a means of achieving retribution, as deterrents of undesirable behavior, and as enforcement vehicles that vindicate the policies underlying Rule 10b-5. As a means of addressing these criticisms, the article suggests possible enhancements to Rule 10b-5 prosecutions, including more victim involvement in the proceedings. These enhancements, rooted in victims\u27 rights initiatives and restorative justice principles, may better serve societal and regulatory aims

The Best of Times, the Worst of Times: Securities Regulation Scholarship and Teaching in the Global Financial Crisis

This short piece is an annotated version of remarks that I gave to introduce a roundtable discussion on securities regulation scholarship at the University of Maryland School of Law program on “Corporate Governance and Securities Law Responses to the Financial Crisis” held on April 17, 2009. The piece represents my current thoughts about what it is like to teach, research, and write in the area of securities regulation. Ultimately, the message I deliver is a positive one; there is much opportunity for securities regulation teachers and scholars in an environment like the one we have been wrestling with since at least the fall of 2008. The text is quite short, but I have offered many citations in support of my ideas in the hope that they may be helpful to those exploring aspects of the areas I cover

Does Sarbanes-Oxley Foster the Existence of Ethical Executive Role Models in the Corporation?

If compliance with, or the efficacy of, Sarbanes-Oxley and other corporate governance initiatives requires that executives (or other firm leaders) be good ethical role models, then it is important to ask whether Sarbanes-Oxley - or any other attribute of existing corporate governance regulation - in fact promotes or permits the production or preservation of ethical role models in the executive ranks of public companies. An absence of support for ethical role models in public companies may signal the failure of broad-based federal corporate governance initiatives like Sarbanes-Oxley. This Article assumes that ethical roles models may be important to the maintenance of good corporate governance (in general) and the success of Sarbanes-Oxley as a corporate governance initiative (in specific). With that in mind, the Article preliminarily analyzes, using legal and social sciences literature, whether Sarbanes-Oxley may encourage or discourage the existence of ethical role models in the corporation

Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing

With the thought that new perspectives often can be helpful in addressing long-standing unresolved questions, this article approaches an analysis of women’s roles on corporate boards of directors from the standpoint of crowd theory. Crowd theory — in reality, a group of theories — explains the behavior of people in crowds. Specifically, this article describes theories of the crowd from social psychology and applies them to the literature on female corporate directors, looking at the effects on both women as crowd members and boards as decision-making crowds. Unfortunately, while the crowd theory perspective provides some insights, they are not altogether conclusive. Specifically, while women may bring distinct ideas and experience to boards of directors when they become board members, crowd theory does not provide a clear picture of the nature or extent of those differences or how they may contribute to productive, efficient board decision making. More work still is needed in this area. However, existing research does indicate that women encourage productive board development activities — activities that may include, for example, introducing the board to structures and policies that may promote board wisdom. This is a useful insight that should be further explored. Note: This short article was solicited in honor of the 20th anniversary of the William & Mary Journal of Woman and the Law, for which I had earlier authored a symposium piece. The published paper is also part of a February 2015 symposium in celebration of the journal\u27s two decades of publication

What Is a Security in the Crowdfunding Era?

With the advent of the crowdfunding era, financial interests in business enterprises may look less like investment instruments commonly known as common stock or debentures, and more like loans, gambling bets, rights to consumable products or services or charitable or other nonprofit donations. A closer look at innovations in interests, instruments and offerings in the crowdfunding era preceding the enactment of the Jumpstart Our Business Startups Act (JOBS Act) offers a basis for comparisons and contrasts that raises questions about the categorization of instruments regulated as securities. These and other questions are important to a rethinking of the structure of financial and financially related regulation in and outside the realm of U.S. securities law. Specifically, innovations in financial interests and instruments that immediately preceded the JOBS Act raise a number of important questions about regulatory authority and interpretation. How do we classify the instruments that represent complex or hybrid financial interests in business enterprises? What area of regulation should apply to them? Why? What do the answers to those questions tell us, if anything, about the current (and possible future) structure and function of domestic and international financial regulation? This essay preliminarily explores the features of certain financial instruments in an effort to begin to answer these questions by focusing on what a security — a statutory and regulatory category including specific financial instruments — is and should be under federal securities law

Teaching Business Associations Law in the Evolving New Market Economy

Over the past ten years, the doctrinal rules governing business associations have become more complex (with, e.g., the addition of significant federal law on corporate governance and corporate finance and the recent enactment of social enterprise forms of entity). Moreover, a number of us have added experiential learning to the business associations course (or another similarly titled foundational course on business entity law) and have increased the number and types of assessment tools used in our business associations pedagogy. This has made the task of teaching business associations somewhat overwhelming. Law faculty respond to the challenges of teaching introductory business associations courses in many different, valid ways. This essay, originally written as a discussion session paper for the 2012 annual conference of the Southeastern Association of Law Schools, identifies these trends and describes my ways of contending with them. My goal in publishing this work is to offer some help to faculty members interested in developing or revamping a business associations course offering

Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents

In context, corporate law is often credited with creating, hewing to, or reinforcing a shareholder wealth maximization norm. The now infamous opinion in Dodge v. Ford Motor Co. describes the norm in a relatively bald and narrow way: A business corporation is organized and carried on primarily for the profit of the stockholders. As a matter of theory and policy, commentators from the academy (law and business) and practice (lawyers and judges) have taken various views on this asserted norm — ranging from characterizing the norm as nonexistent or oversimplified to maintaining it as simple fact. In an effort to broaden the conversation about the shareholder wealth maximization norm in an applied context, this essay describes shareholder wealth maximization under various state laws (in and outside Delaware) as a function of firm-level corporate governance — corporate law statutes, decisional law interpreting and filling gaps in that statutory law, and corporate charter and bylaw provisions — as applicable to both publicly held and privately held corporations in a variety of states. In this overall context, the essay considers the possibility that holders of shares in for-profit corporations may desire to maximize overall utility in their shareholdings of a particular firm, rather than merely the financial wealth arising from those holdings. To accomplish its purpose, the essay first briefly and generally addresses shareholder wealth maximization as a function of applicable statutory and decisional law and as a matter of private ordering (collecting, synthesizing, and characterizing, in each case, points made in the extant literature) before suggesting the broad implications of that analysis for corporate governance and shareholder wealth maximization and concluding. Ultimately, the essay makes a case for a more nuanced look at the shareholder wealth maximization norm. Given differences in doctrine and public policy among the states and variance in that doctrine and public policy among public, private, and statutory close or closely held corporations within individual states, answers to open questions are likely to (and should) depend on individualized facts assessed through the lens of specific statutory and decisional law and applicable public policy