An economic analysis of liability for continuing corporate disclosures in English law

I analyse and evaluate the effectiveness of the English law regime governing public companiesâ continuing disclosures with a focus on the incentives it creates. In this area, EU regulation stipulates most of the disclosure content as well as the process for how and when to disclose, while the design of disclosure liability is left almost entirely to member states. Nonetheless, perceptions of an increasingly strained relationship between EU regulation and the common law caused the UK to introduce in 2006 its first statutory regime for issuer liability for continuing disclosures. The design of this regime provided the original motivation for this inquiry. I make four principal claims that I believe to be new to the literature. First, the statutory liability regime fails to address the main problem it was introduced to solve â preventing an expansionary development of the common law tort of negligent misstatement into the corporate disclosure context â and both heads of liability could now be available in many cases. Second, the substantive rules of the EUâs continuous disclosure regime are well-designed to support the work of information traders and this is also a suitable policy goal for disclosure regulation. Third, issuer liability regimes (such as the new UK regime) will be ineffective in deterring disclosure misstatements, but could potentially have some compensatory justification by protecting information traders. However, information traders do not need issuer liability and should perform a more useful role in the markets when not offered such protection. The new regime is therefore unnecessary and unhelpful. Fourth, the FCAâs recent initiative of requiring that a misstating issuer establish an investor restitution scheme is a significant development. Investors may find such schemes attractive compared to private litigation since the FCA appears to consider itself unrestrained by the doctrine preventing shareholder compensation for corporate losses.</p

Private Investor Meetings in Public Firms: The Case for Increasing Transparency

While developments in the law of insider trading usually attract significant scholarly interest, far less attention has been paid to the design and effects of the Securities and Exchange Commission’s complementary Regulation Fair Disclosure. Yet, this Article argues that the SEC’s current quandaries relating to insider trading enforcement are largely self-inflicted and could have been avoided if it had better aligned its Reg. FD with the Supreme Court’s insider trading jurisprudence. Introduced sixteen years ago to prevent senior officers of public firms from leaking material information to preferred investors and financial analysts, Reg. FD was designed to function as a backstop for undesirable favoritism that insider trading law, as developed by the Supreme Court, could not reach—in particular, the situation where a corporate manager divulges valuable information to a preferred investor not for any obvious personal benefit (which would trigger insider trading law) but for the ostensible benefit of the firm. This Article analyzes Reg. FD through the lens of private investor meetings—personal conversations between corporate managers and investors they select—to find that Reg. FD should not be expected to deter selective disclosure. The regulation was disjointed from the outset and professional market participants rationally appear to have taken advantage of its permissive design to obtain preferential access to inside information. For example, through one recently introduced service offering, “corporate access,” selected investors spend billions of dollars on private access to corporate managers in return for the opportunity to lawfully trade on valuable information before it is released to the public. This Article argues that the design of Reg. FD causes undesirable effects and that the SEC should redraft the regulation to follow the Supreme Court’s classification of corporate information as firm property. The SEC could then regulate selective disclosures as transactions in this property that require public disclosure, similar to how insiders must report their personal transactions in firm stock. By increasing transparency to inform investors of selective disclosure events, concerns recently expressed by the SEC and the Department of Justice relating to insider trading enforcement could be alleviated and their requests for Supreme Court intervention in insider trading law reconsidered