Legal Analysis Of The Government Securities Act Of 1986 And Its Application To Broker Dealers Convicted Of Insider Trading Violations

Author : Stephen Leacock
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

DOWNLOAD NOW!

Download or read book Liability of Securities Brokers to Investors in American Law written by Stephen Leacock and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Securities brokers and corporate officers in the Unites States now run more serious risks of liability to investors whom they tip. The Supreme Court decision in Bateman Eichler, Hill Richards, Inc. v. Berner will sharply curtail successful use of the in pari delicto defense, which in the past frequently barred liability. Prior to Berner, stockbrokers and corporate insiders had been allowed by the courts to successfully invoke the in pari delicto defense to nullify claims by investors who lost money on the tips. The legal rationale was that such investors as plaintiffs did not come to court with clean hands if they had: (a) accepted information which a reasonable person would have believed to be non-public inside information; and (b) traded in securities without disclosing this information. Such plaintiffs were necessarily active knowing participants in illegal acts, equally at fault with their tippers (i.e., in pari delicto), and therefore precluded from recovery on their claims.Indeed, insider trading is most effectively deterred where enforcement measures are directed against corporate insiders and broker-dealers, the most usual sources of material non-public information and those most likely to respond to deterrent pressure from sanctions. In light of Berner, courts must apply the following two-step analysis to determine when the in pari delicto defense can be successfully invoked in securities actions involving section 10(b) of the 1934 Securities Exchange Act and Rule 10b-5. First, a balancing process is appropriate to determine if the fault of the parties involved was substantially equal. Financial sophistication of the parties will undoubtedly be an important factor in the courts' determination of the relative culpability of the parties. The Supreme Court observed that corporate insiders and broker-dealers are more likely to be informed of securities regulations and what constitutes violations than the average investor. Secondly, the in pari delicto defense will be successful only in situations where the court concludes that preclusion of the suit would not interfere with enforcement of securities laws and protection of the investing public.