The misappropriation theory

1
The misappropriation theory

• Chiarella, Dirks and OHagan
• Basis of liability deception
• Illustration springloading
• What type of fiduciary duty Chestman
• Other requirements
• Materiality?
• Scienter?

2
Why federal law?

• Exchange regulation
• State law contract and fiduciary duty
• Federal law based on state duty
• Scope of state remedy
• Federal preemption
• Choice of law

3
Frontiers of regulation

• Outsider trading Ayres/Choi and excessive
  search
  
• Selling and . . .
• Voting (encumbered shares)
• Competing
• Suing
• Squealing
• Picketing
• Prediction markets

4
Takeover example
Sale of Mylan shares
Perry
Retention of vote
Mylan (bidder) Icahn
King (target)
5
Relation to other issues

• Jurisdictional competition
• Executive compensation
• Fiduciary duties
• Takeovers
• Market efficiency
• Disclosure regulation and fraud remedies
• Comparative corporate law
• The role of the media Wall Street

6
Civil remedies for fraud

• The problem of the implied remedy
• Breach of duty
• Scienter
• Materiality Bespeaks caution
• Duty to disclose Basic
• Remedy
• Purchaser-seller
• Reliance requirement (in general)
• Fraud on the market
• Damages
• Aiding and abetting

7
Fraud on the market

• Basis of theory
• Reliance requirement
• Class certification
• Efficient market
• Severing link between market efficiency and. . .
• Price paid
• Decision to trade
• Specific issues
• Informed plaintiff
• Informed market
• Effect of behavioral finance

8
Damages issues

• Difference between actual price and predicted
  price based on disclosure
  
• What is the price based on disclosure?
• Optimal deterrence Aggregate damages vs. social
  harm
  
• Compensation and diversified shareholders
• Who pays?
• Social costs of liability

9
Class action reform

• Abusive litigation problem
• Potential damages
• Who pays?
• Discovery costs
• Settlement incentives
• Responses
• PSLRA
• State actions and SLUSA
• Settlement of federal claims Matsushita
• Holder actions and Dabit

10
Relation to other issues

• Efficient market
• Insider trading
• Fiduciary duties
• Duty to speak?
• Duty to tell the truth?
• Waiver?
• Jurisdictional competition
• Internal affairs rule
• Preemption
• Waiver?
• Sarbanes-Oxley and the litigation time bomb
• International and comparative corporate law
• Cross-listing and bonding

11
Wall Street

• Takeovers and corporate governance
• Milkens role
• Insider trading and takeovers
• Narrative and technique
• Political impact
• General role of the media