Advanced Securities Regulation -- Course Syllabus and Reading Assignments

This course presents a survey of securities regulation that digs deeper and goes beyond Georgetown's introductory securities regulation course.  Lessons will focus on a range of important areas of concern for the securities lawyer such as: Sarbanes-Oxley requirements; broker-dealer regulation and related NASD compliance issues; roadshows; investor relations issues; investment adviser regulation; market manipulation in the 21st Century; SEC enforcement investigation and process topics; and securities offerings and Securities Act reform issues.  This course presents the nuts and bolts of the securities laws of each of these areas, with a strong emphasis on recent SEC developments and emerging items of controversy, reform or public interest.  Given the professor's goal to insure that students are kept informed about the hottest, up-to-the-minute SEC regulation issues, the professor will begin most classes with a discussion of current events pertinent to the topics of this syllabus.  

As the basis for analysis and discussion, every class will feature a multimedia PowerPoint presentation (complete with graphics, sound and video) together with a live Internet hookup beamed by data projector on to a movie screen and several television monitors. 

This course will not only grab the attention of students but will also reinforce the fundamental principles that serve as the basis of some of the more common securities laws, rules and regulations.  Though the emphasis will be on the practical (i.e. the realities of a securities practice), the course will also often venture into some of the more theoretical issues of securities regulation, in particular, recent interesting SEC legal positions and arguments.  Most importantly, given the rapidly changing technological aspects of the securities marketplace, this course will provide students with the requisite tools to handle future, unforeseen legal issues that they will undoubtedly encounter after graduation. 

Attendance and Participation

Regular and punctual attendance at class sessions is required of each student.  Although this course contains a carefully prepared daily schedule of topics, each session is designed to incorporate discussion, particularly to analyze current events and trends in the practice of securities law.  More importantly, student participation results in a more interesting and challenging two hours of class.  Thus, if significant and of a high quality, a student’s contribution to class discussion will result in an automatic raising of a half of a grade point (e.g. from a “B” to a “B+” or a “B+” to an “A-”).  I reserve the right to judge the quality of your participation.  IN THIS REGARD, EVERY STUDENT MUST PLACE A PLACARD STATING THEIR NAME IN FRONT OF THEIR SEATS DURING CLASS.  This is not for the purpose of the Socratic method but rather so I can get to know each of you, insure that you get credit for your participation and potentially help you with a reference after the semester. 

Materials

You will find all required and recommended materials on this web page -- free of charge.    This course is truly paperless and requires no financial commitment to purchase materials.  (I have created this website, at my own expense, not only to make it easier for students to review the required and recommended reading but also to make it easier for me to provide the most up to date materials for students. I took this step of building the website after six years of hearing students ask for an Internet based textbook.) Given the rapidly changing dimensions of the securities laws, there simply does not exist a textbook that is not somewhat out of date, so, in an effort to provide to you the most current and timely materials, all materials, both required and optional, will remain available on this web site at all times.  Occasionally, I will provide additional materials if timely which I shall also place on www.johnreedstark.com.  Students are expected to have read and thoroughly analyzed all assigned reading prior to the class covering those materials.  Note that not all of the reading is assigned -- some reading for certain classes remained merely "optional" for which you are not responsible.  I encourage you to look ahead in the reading because some weeks require more reading than others – plan your schedules accordingly.

Exams, Presentations & Grading

There will be a final exam that will count for 100% of your grade. The final exam will be a THREE-HOUR OPEN BOOK examination. 

(Please download as Adobe Acrobat is sometimes needed)

Course Schedule and Reading Assignments

Class 1:  Goals and Overview of the Course

Complete Review of Entire Syllabus.  Introduction of all the areas covered by this course and a discussion of the top ten reasons to take this course and the top ten reasons not to take this course.  Also, discussion of some interesting enforcement topics that establish the tone for the course.  For example, what is momentum trading?  Can one perpetrate a market manipulation without a false statement or phony scheme?  This lecture focuses on the conduct of some former Georgetown law students and what made their SEC prosecution groundbreaking. 

Optional Reading:        

Classes 2 and 3: 

Topic 1:  the Evolution of Securities Fraud Prosecutions:  A Paradigm Shift?  

Topic 2:    Old wine in New Bottles -- The 21st Century Securities Fraud Paradigm

Are the frauds of today really anything new?  For example, analyzing a so-called prime bank securities fraud is like watching a Drivers Education film -- just about every potential securities regulation issue arises, from the basic question of "is it a security" to the more complex issues of broker-dealer and investment adviser registration and regulation.  This lecture focuses on these strange fictional concoctions known as prime bank instruments, drawing some interesting lessons of securities regulation along the way. 

Also covered is a recent phenomenon in securities regulation is the emergence of the various types of impersonation schemes -- often used as a modus operandi to dupe investors into believing something about a public company that is simply not true.  As these matters have evolved, some surprising issues of securities regulation  have emerged and crystallized.  For example, Gary Hoke never made a nickel from his impersonation scheme concerning PairGain.  In fact, he never even bought any PairGain stock -- but he went to jail for securities fraud.  How can that happen? 

Topic 3:     emerging Threats to the 21st Century Marketplace: Hacking, Identity Theft and Securities Fraud: The Right Place for SEC Intervention?

Recently emerging SEC enforcement matters touch upon technology in innovative and surprising ways.  This lecture analyzes the securities regulation issues that arise in the context of hacking and identity theft.  Is the SEC the right place to take responsibility and handle the investigation and prosecution of these kinds of schemes?

Required Reading:        

Additional References and Optional Materials:

Class 4: "market manipulation" with a Small "m"

Traditional market manipulations historically consisted of boiler-rooms, bucket shops, washed trades, matched orders, etc.. -- it was all intricate and complicated;  that is why congress enacted anti-manipulative statutes like Section 9 of the Securities Exchange Act of 1934, to use as prosecutorial weaponry against the purveyors of these traditional market manipulations.  But after the SEC v. Huttoe matter, a new paradigm of prosecuting market manipulation became solidly implanted into the securities enforcement paradigm.  This lecture analyzes the shift in the SEC's approach to prosecuting market manipulation and the casual acceptance of this approach by most U.S. courts.  This lecture also touches upon some of the more challenging evidentiary issues that arise in the context of the investigation and prosecution of the perpetrators of market manipulations (which now mostly occur in the over-the-counter bulletin, board or "OTC-BB"  or in the infamous "pink sheets").

Required Reading:

Additional References and Optional Materials: 

Classes 5 and 6: Two Topics -- Cybersmears and Spam

Topic 1:     Handling the corporate "Cybersmear" and other Negative rumors

What happens when your client finds his or her company the subject of a negative rumor?  What kind of advice should you provide?  What has the SEC done about false rumors by naysayers, like a short-seller or a competitor?  What are the relevant New York Stock Exchange and NASD rules for such situations?  This lecture focuses on the history of stock market rumors, in particular, the smearing of public companies. 

Topic 2:     Spam & the SEC Arsenal -- From §5 to §10b-5

Spam is now as ubiquitous as dust on a garage floor.  The SEC has quietly undertaken a significant effort to curb spam growth and experienced quite a lot of success.  This lecture analyzes models of spam regulation as it pertains to securities and then engages in a more detailed review of the SEC's efforts at putting spam back in its can. 

Required Reading:        

Additional References and Optional Materials: 

Class 7:  The SEC, Privacy and the First Amendment & "Who Owns an Issuer's Website?"

Issues of privacy and free speech strike a chord with just about every law student.  The issues often seem straightforward on their face but are actually extremely complicated.  This lecture will examine the range of privacy and First Amendment issues that can arise in the context of SEC regulation and enforcement. 

Required Reading:    

SEC v. Agora (D.Md. 2004) (also part of assigned reading for Class 10)

Fraser v. Nationwide Mutual Insurance et al (3rd Cir.,  2003)

Freedman v. AOL (D.Conn. 2004)

Additional References and Optional Materials:

AOL v. Nam Tai Electronics, Inc. (Va.Sup.Ct. 2002)

McViegh v. Cohen (D.D.C., 1998)

John Doe v. John Ashcroft (S.D.N.Y.  2004)

John Doe v. Cahill (Superior Court, Delaware, September, 2005) (setting high bar for discovering an anonymous blog poster's identity in the defamation context)

Class 8: The SEC and Investment Advisers

The SEC's regulation of investment advisers has changed dramatically over time.  This lecture presents the nuts and bolts of investment adviser regulation and then offers an analysis of some of the more major developments during the past decade or so. 

Required Reading:

Lowe, et al v. SEC, 105 S. Ct. 2557 (1985)

Additional References and Optional Materials:

Classes 9 and 10: Regulation FD: What is all of the fuss about? Also, Investor relations in the 21st Century

Never has such a simple and short SEC regulation generated as much controversy as has Regulation Fair Disclosure.  This lecture examines the rule, its efficacy and its future.  Also, investor relations departments and firms and the investment newsletter business are both large and growing industries.  Though only tangentially related, there is some interesting crossover in the regulation of these two kinds of stock promotion enterprises.  This lecture focuses on SEC regulation of investment newsletters and investor relations, provides some best practice tips for advising clients in such matters and reviews principles of selective disclosure.     

Required Reading:       

New York Times (February 5th, 2005) (Does the Voice of Business Think the Bill of Rights Covers Insider Tips?)

Additional References and Optional Materials:

Raytheon

Secure Computing

Flowserve

U.S. Chamber of Commerce Amicus Curae Brief filed in SEC v. Siebel Systems, Inc., et al.

SEC v. Corporate Relations Group (D.C.Fla. 2003)

SEC v. Wenger (10th Circuit, 2005)

          (see also Wenger original district court decision)

Class 11:  Understanding §5 and the SEC Registration Process

What are the three periods of SEC registration and what is permitted during each time period?  How has SEC enforcement of Section 5 evolved?  What are the primary changes established in the 2005 release concerning Securities Act reform?  What works and what doesn't work?  What are the exemptions to Section 5 and how do the exemptions work?  How has the Internet transformed and revitalized the exemptions?  This lecture will analyze the inner-workings of Section 5 and also feature a short presentation on the so-called free stock offerings of the late 1990s, which began a trend towards employing section 5 as an effective SEC enforcement tool. 

Required Reading:        

Additional References and Optional Materials:

Sweep IV  (Free Stock) (July 1999)

Class 12:  Exchanges:  To Be Or Not To Be (regulated)

Traditional exchanges are changing dramatically.  This lecture focuses on the rules pertaining to Exchanges by analyzing a series of no-action letters relating to online trading facilities.    This lecture will also focus upon the emerging role of electronic communications networks as they become more and more integrated with traditional exchanges -- and the SEC's treatment of these so-called ECNs, under current and possible future regulation.      

Required Reading:

Real Goods Trading Corp (June 24, 1996))

Spring Street Letter & Recommendation (April 17, 1996)

Additional References and Optional Materials:

Internet Capital Corp (December 24, 1997)

Internet Capital Corp (January 1998)

Arizona Stock Exchange (January 15, 1997)

Class 13:    The SEC and its (lack of a) Definition of Broker-Dealer (and the so-called Finder exemption)

What are the hallmarks of broker-dealer activity and the nuts and bolts of broker-dealer regulation.  What are the ramifications and responsibilities of acting as a broker-dealer (with or without proper licensure)?  Is it time for the SEC to change the way it regulates broker-dealers and expand, contract or eliminate the so-called finder exemption?  This lecture will present the basics of broker-dealer rules and regulations and analyze a series of no-action letters pertaining to broker-dealer registration.  This lecture will also present a lecture on the SEC's broker-dealer rules' dramatic impact upon the Internet Portal Industry.  This lecture will also analyze the 1991 prosecution of Michael Milken for violating his "broker-dealer-bar" and his fatal reliance on the so-called finder exemption. 

Required Reading:        

IPONet (July 23, 1996)

Oil-N-Gas (June 8, 2000)

Charles Schwab & Co. Inc. I (November 27, 1996)

Paul Anka (July 24, 1991)

Additional References and Optional Materials:

Commscan (February 3, 1999)

Angel Capital Network (October 25, 1996)

Final Exam: Three  Hours, Open Book, Laptops Allowed

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