2 Securities Law -- Breena Meng IntroductionEnron, WorldCom, Quest, Parmalat, Martha Stewart—securitieslitigation has been at the forefront of American consciousness(and often the leading news story) for the past two years. At atime when more Americans than ever before have had access toinvestment opportunities, the future of securities law finds itself ata cross-road. Gone are the heady dot-com days in which people eagerly checked the stock marketevery morning, if only to view their overnight double-digit gains. Now, the securities industryhas been rocked by waves of scandal, some so infamous that the company name has a place ofdubious honor on the Securities and Exchange Commission’s homepage (look for Enron on thelower left hand corner of the screen).Securities scandals have left many investors feeling misled and betrayed, and the number ofpotential plaintiffs increases everyday. For the seasoned securities lawyer, this presents a largeyet manageable workload. For the new securities lawyer, it can be a daunting nightmare. Becausethe scope of securities law is extremely large, this presentation has been tailored to provide a guideto plaintiff’s council. This presentation is not intended to be exhaustive; however, it is intended togive the new securities lawyer an easy to read resource and starting point.Securities Law -- Breena Meng
3 Securities Law -- Breena Meng Important NoteThe primary basis for claims will either be a federal statutoryviolation or a common law claim. Although many states have“blue sky” laws (state securities laws) which closely followfederal statues and allow a private right of action, somestates do not allow their citizens a private right of actionagainst securities brokers/firms. It is imperative thatevery securities lawyer check their particular jurisdictionbefore filing a claim to ensure that the claim and casetheory are both valid.Therefore, a prudent securities lawyer could utilize the following research strategy:1. Evaluate the applicable state statutes2. Evaluate the applicable federal statutes3. Decide on a common law or federal claim4. For background reading, consult a looseleaf service or legal encyclopedia5. Search the federal and state agency websites for other regulations (for a listing of allstate agency sites, please refer to the ‘Government Websites’ section on the Internetslide)6. Find applicable case law (ideally) within your jurisdiction7. Research broker obligations by utilizing industry websites8. Create a strategic case theorySecurities Law -- Breena Meng
4 Securities Acronyms…Learning the Language ADR—American Depository ReceiptAMEX—American Stock ExchangeBoard—Federal Reserve BoardDow—Dow Jones IndustrialFRB—Federal Reserve BoardFed—chair of the Federal Reserve BoardIPO—initial public offeringMIDAS--Market Information Data Access SystemNYSE—New York Stock ExchangeOTC—over-the counter securitiesPSLRA—the Private Securities Litigation Reform Act of 1995SEC—Securities and Exchange CommissionSecurities Law -- Breena Meng
5 Commonly Used Securities Terms Aftermarket—Trading a security immediately following its initial offering to the public.Ask price—The price at which the firm will sell a share of its stock.Bear market—A market in which securities prices are low or declining.Bid/ask spread—The difference between the price a seller will pay (bid price) and the price the firm will sell (ask price) a stock. The difference (spread) increases or decreases according to the supply and demand for the stock offered.Bid price (also called buy price)—The price at which the seller will buy a share of stock.Bull market—A market in which securities prices are high or rising.Commodity—a generic, largely unprocessed good. Commodities are frequently grains, livestock, or metals.Dividend—Payment of cash or stock given to shareholders at the direction of the board of directors.Market order—An order to buy or sell a stock at the best possible price at the time the order was received.Out-of-pocket loss--The difference between the value of what the purchaser parted with, and the value of what he or she has received.Secondary offering (also called secondary distribution)—An offering of a stock that has already been issued to the public. The stock may have been held by large investors or institutions. Proceeds from the sale go to these holders.Security—evidence of a debt or property ownershipSecurities Law -- Breena Meng
6 Practice Materials What are they? Practice materials are resources for practicing attorneys. Often these materials are written by an expert in the particular field of law. The aim of practice materials is to give practitioners a “real life” view of the law.
7 Securities Law -- Breena Meng Looseleaf ServicesSecurities Litigation: Damages.Michael J. Kaufman.West Group—KF K38 v. 26Volume 26Chapter 1—OverviewChapter 2—Regulation of LimitedLiability Companies under the FederalSecurities LawsChapter 3—The Private SecuritiesLitigation Reform Act of 1995Chapter 4—Empirical Analysis of ClassAction Securities Litigation under thePrivate Securities Litigation Reform ActChapter 5—The Scope of FederalSecurities RegulationChapter 5A—The Sarbanes-Oxley Act of2002Chapter 5B—The Sarbanes-Oxley Act’sunnoticed enhancement of private civilliability under the Securities LawChapter 6—Section 11, Securities Act of1933Chapter 7—Damages for Violations ofSection 12, Securities Act of 1933Chapter 8—Sections 9(c), 16(b), and 18DamagesChapter 9—Nature of Implied RemediesChapter 10—Rule 10b-5Chapter 11—Loss Causation in Rule10b-5 CasesChapter 12—Statutory Guidance for Rule10b-5 DamagesSecurities Law -- Breena Meng
8 Securities Law -- Breena Meng Federal MaterialsAmerican Jurisprudence Trials:Broker-Dealer Fraud: Churning, 36 Am. Jur. Trials 1.Stockbroker Liability Litigation, 88 Am. Jur. Trials 1American Jurisprudence Proof ofFacts:Legal Malpractice In A Securities Offering, 22 Am. Jur. POF 3d 559.Participation By Corporate Participation By Corporate Officer In Illegal Issuance of Securities, 9 Am. Jur. POF 2d 577.Proof of A “Security” Under Federal and State Statutes, 22 Am. Jur. POF 3d 485.Proof of Unsuitable and Unsuitable and Unauthorized Trading by Securities Brokers, 28 Am. Jur. POF 3d 87.Securities Law -- Breena Meng
9 Securities Law -- Breena Meng Federal…continuedAm. Jur. Pleadings and Practice:22 Am Jur Pl & Pr Forms, Securities Regulation—Complaint in federal court—Action based on violation of Securities and Exchange Act—Allegations—Claim for declaratory relief—Validity of contract, § 13, Volume 22, KF A45 v , 2001.22 Am Jur Pl & Pr Forms, Securities Regulation—Complaint in federal court—By client against brokerage firm and broker—Fraudulent mismanagement of short and margin accounts, § 27, Volume 22A, KF A45 v , 2001.22 Am Jur Pl & Pr Forms, Securities Regulation—Complaint in federal court—By stockholders—For accounting and Damages for insider trading, § 51, Volume 22A, KF A45 v. 22A 2001, 2001.Causes of Action:Securities Fraud Under § 10(b) of the 1934 Securities Exchange Act and/or Rule 10b-5Expert proof, 9 COA 2d 271 § 73Misrepresentation or omission, 9 COA 2d 271 §§ 5, 16-18, 31Statute of Limitations, 9 COA 2d 271 § 38Securities Law -- Breena Meng
10 Securities Law -- Breena Meng Federal…continuedMoore’s Federal PracticeKF8840 .M633Securities LawsDiscovery in securities actions, scope of…26.46Pleading requirements under Private Securities Litigation Reform Act for alleging securities fraud…8.04[b]; 9.03[a]; 9.10Rule 11 Sanctions under PSLRA…11.29Wright’s Federal Practiceand ProcedureKF8840 .W68SecuritiesDiscovery, relevancy of material sought, Civ § 2009Limitation of actions, federal common law, Juris § 4519Sales, fraud, pleading, Civ § 1297Securities Law -- Breena Meng
11 Securities Law -- Breena Meng Federal…continuedApplicable FormsExamples of forms required by theSecurities and Exchange Commission:Insiders (Officers, Directors & Significant Shareholders)Proxy Statements & Tender Offer and Acquisition StatementsInvestment Adviser FormsBroker-Dealer Registration & ReportingSROs, Exchanges & Alternate Trading SystemsSecurities Law -- Breena Meng
12 Securities Law -- Breena Meng State MaterialsWest’s Colorado Law FinderSecuritiesInvestor protection U.S.C.A. 15 § 78aaa et seq.Secured Transactions C.J.S. Secured Transactions § 1 et seq.Whistleblowers U.S.C.A. 18 § 1514AWest’s Colorado PracticeSeriesPart I. Business Organizations§ Issuance of Stock—Securities Law Requirements§ Securities ConsiderationsSecurities Law -- Breena Meng
13 Securities Law -- Breena Meng State…continuedColorado Law Annotated:Securities§ Liability for Misrepresentations and Omissions by Seller of Securities Under the Colorado Securities ActA. Statutory SchemeB. Definition of a Security—Generally, investment contractsC. Elements of claim—GenerallyD. Elements of claim—State of mindE. Elements of claim—MaterialityF. Statute of LimitationsG. ArbitrationH. Attorney feesI. Claims under Securities Act in federal courtJ. Collateral referencesApplicable Forms:Please see previous reference to the required SEC forms, Colorado forms, and Am Jur Pleading and Practice.American Jurisprudence Legal Forms, KF170 .A542Form Drafting Checklist: Am Jur Practice Guide, KF170 .F67Securities Law -- Breena Meng
14 Securities Law -- Breena Meng Other MaterialsJury Instructions:Colo. Jury Instr., Civil 9:1 (4th ed.) (negligence—general concepts)Colo. Jury Instr., Civil 19:2 (4th ed.) (nondisclosure or concealment—elements of liability)Colo. Jury Instr., Civil 19:4 (4th ed.) (material fact—defined)Colo. Jury Instr., Civil 19:5 (4th ed.) (nondisclosure—duty to disclose)Self Help Books:Federal Securities Laws: Selected Statutes, Rules and Forms, 2004 Edition by John C. Coffee Jr. and Joel Seligman, ISBN—Securities Offerings, magazine subscription, ASIN—B00006KWK3United States Securities Law: A Practical Guide by James M. Bartos, ISBN—Securities Law -- Breena Meng
15 ConclusionSecurities litigation is a complex, rapidly changing, and engaging field of law. Although “securities law” is a broad term encompassing many concepts, it is important to narrow the scope of the search to the particular legal question before you. Utilizing this strategy, securities law research becomes more manageable.