Global Capital Markets Center
|
Professor Jim Cox 47 N.Y.U. L. Rev. 674 (1972) |
ABSTRACT:
Although much has been written concerning Section 10 (b) of the Securities Exchange Act, confusion over the application of these provisions remains. In this article, the author posits an artificial framework for clarifying one of the most troublesome issues - namely, the establishment of a standard to determine which kinds of corporate mismanagement are considered fraudulent under the Act. After examining the Supreme Court's holding that an alleged fraud need only touch the purchase or sale of securities, and after focusing on the purposes of the Act, the author proposes that the standard for applying rule 10b-5 to acts of corporate mismanagement should depend on the participants in the corporate decision making process. When only the board of directors is involved, the search for deceit and the use of agency fictions should be rejected in favor of a standard requiring a lack of independence in the board of directors' investment judgment coupled with either an economic loss or want of a corporate purpose. However, when both the board and the shareholders participate in the decision making process, although this same standard should apply to the directors, rule 10b-5 should require only the traditional full disclosure at the shareholder level.
Email the author to request a copy of the article
Return to the Securities Law Index
Return to the Research Index