Thoughts while waiting (and waiting) for Halliburton
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Transcript of Thoughts while waiting (and waiting) for Halliburton
Stephen M. Bainbridge
National Business Law Scholars Conference
June 20, 2014
Thoughts While Waiting (and Waiting) for Halliburton
Part I
The Illegitimacy of Basic
Basically Bad Statutory Construction
• Bare majority of a bare quorum
Birth by judicial fiat
Ignored the basic
question
Overlooked the obvious
analogy
Basically Bad Statutory Construction
• Bare majority of a bare quorum
Birth by judicial fiat
• The “awkward task” of inferring what Congress would have done
Ignored the basic
question
Overlooked the obvious
analogy
Basically Bad Statutory Construction
• Bare majority of a bare quorum
Birth by judicial fiat
• The “awkward task” of inferring what Congress would have done
Ignored the basic
question
• i.e., Section 18(a) of the Securities Exchange Act
Overlooked the obvious
analogy
Part I
The Irrelevance of Economic Analysis to Fraud on the Market
Financial Economics Common Sense
The irrelevance of financial economics
Fraud Price-setting investors react
Price changesOrdinary Investors Affected
No FotM = No Class Action
8
The Henderson/Pritchard Proposal Problems
The continuing irrelevance of financial economics
Invoke fraud on the market if “the challenged disclosure artificially inflated ([or] deflated) the market price of the particular security.”
“The event study Is the best available tool to examine market distortion and show reliance”
“A direct analysis of the market impact of a specific alleged misstatement, rather than examination of general market efficiency, is a more straightforward and reliable test for whether the fraud on the market theory should be invoked”
Serious problems:• Define the event correctly• Setting horizons• Sample selection
Assumes validity of CAPM Perpetuates the battle of
financial experts• De facto mini-trial
Fisch critique:• Event studies ineffective re
statements are in line with market expectations
• Securities fraud more often arises from an effort to cover up an unexpected problem than from making false statements about positive development
Part III
Why the Supreme Court Routinely Gets it Wrong
Supreme Court Securities law Decisions Widely Criticized
Why?
Bainbridge & Gulati, How do Judges Maximize? (The Same Way Everybody Else Does—Boundedly): Rules of Thumb in Securities Fraud Opinions, 51 Emory Law Journal 83 (2002)
Typically lack a broad, consistent understanding of the relevant public policy considerations.
Frequently lack such basics as doctrinal coherence and fidelity to prior opinions.
Lack of expertise among Justices• What incentive do they have to deal with “dog” cases?
Lack of expertise among clerks
11
What not to do
What to do
Implication for Reading SCOTUS Opinions in Securities Law
Courts and commentators read SCOUS opinions as though:• Those decisions were statutes to be interpreted from strict textualist
perspective• One could ascribe intentionality to the justice’s utterances
Do not ascribe intentionality to the courtInterpret Supreme Court decisions in this area narrowly, as reaching only the specific issues before the court• Dictum should be largely ignored