Securities Law

1. Securities Law Breena Meng

2. Introduction Enron, WorldCom, Quest, Parmalat, Martha Stewart—securities litigation has been at the forefront of American consciousness (and often the leading news story) for the past two years. At a time when more Americans than ever before have had access to investment opportunities, the future of securities law finds itself at a cross-road. Gone are the heady dot-com days in which people eagerly checked the stock market every morning, if only to view their overnight double-digit gains. Now, the securities industry has been rocked by waves of scandal, some so infamous that the company name has a place of dubious honor on the Securities and Exchange Commission’s homepage (look for Enron on the lower left hand corner of the screen). Securities scandals have left many investors feeling misled and betrayed, and the number of potential plaintiffs increases everyday. For the seasoned securities lawyer, this presents a large yet manageable workload. For the new securities lawyer, it can be a daunting nightmare. Because the scope of securities law is extremely large, this presentation has been tailored to provide a guide to plaintiff’s council. This presentation is not intended to be exhaustive; however, it is intended to give the new securities lawyer an easy to read resource and starting point. Securities Law -- Breena Meng

3. Important Note The primary basis for claims will either be a federal statutory violation or a common law claim. Although many states have “blue sky” laws (state securities laws) which closely follow federal statues and allow a private right of action, some states do not allow their citizens a private right of action against securities brokers/firms. It is imperative that every securities lawyer check their particular jurisdiction before filing a claim to ensure that the claim and case theory are both valid. Therefore, a prudent securities lawyer could utilize the following research strategy: 1. Evaluate the applicable state statutes 2. Evaluate the applicable federal statutes 3. Decide on a common law or federal claim 4. For background reading, consult a looseleaf service or legal encyclopedia 5. Search the federal and state agency websites for other regulations (for a listing of all state agency sites, please refer to the ‘Government Websites’ section on the Internet slide) 6. Find applicable case law (ideally) within your jurisdiction 7. Research broker obligations by utilizing industry websites 8. Create a strategic case theory Securities Law -- Breena Meng

4. Securities Acronyms…Learning the Language • ADR—American Depository Receipt • AMEX—American Stock Exchange • Board—Federal Reserve Board • Dow—Dow Jones Industrial • FRB—Federal Reserve Board • Fed—chair of the Federal Reserve Board • IPO—initial public offering • MIDAS--Market Information Data Access System • NYSE—New York Stock Exchange • OTC—over-the counter securities • PSLRA—the Private Securities Litigation Reform Act of 1995 • SEC—Securities and Exchange Commission Securities 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 ownership Securities 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 Litigation: Damages. Michael J. Kaufman. West Group—KF 1439. K38 v. 26 Volume 26 Chapter 1—Overview Chapter 2—Regulation of Limited Liability Companies under the Federal Securities Laws Chapter 3—The Private Securities Litigation Reform Act of 1995 Chapter 4—Empirical Analysis of Class Action Securities Litigation under the Private Securities Litigation Reform Act Chapter 5—The Scope of Federal Securities Regulation Chapter 5A—The Sarbanes-Oxley Act of 2002 Chapter 5B—The Sarbanes-Oxley Act’s unnoticed enhancement of private civil liability under the Securities Law Chapter 6—Section 11, Securities Act of 1933 Chapter 7—Damages for Violations of Section 12, Securities Act of 1933 Chapter 8—Sections 9(c), 16(b), and 18 Damages Chapter 9—Nature of Implied Remedies Chapter 10—Rule 10b-5 Chapter 11—Loss Causation in Rule 10b-5 Cases Chapter 12—Statutory Guidance for Rule 10b-5 Damages Looseleaf Services Securities Law -- Breena Meng

8. Federal Materials American Jurisprudence Trials: • Broker-Dealer Fraud: Churning, 36 Am. Jur. Trials 1. • Stockbroker Liability Litigation, 88 Am. Jur. Trials 1 American Jurisprudence Proof of Facts: • 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. Am. 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 8836. A45 v. 22 2001, 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 8836. A45 v. 22 2001, 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 8836. A45 v. 22A 2001, 2001. Causes of Action: Securities Fraud Under § 10(b) of the 1934 Securities Exchange Act and/or Rule 10b-5 Expert proof, 9 COA 2d 271 § 73 Misrepresentation or omission, 9 COA 2d 271 §§ 5, 16-18, 31 Statute of Limitations, 9 COA 2d 271 § 38 Federal…continued Securities Law -- Breena Meng

10. Moore’s Federal Practice KF8840 .M633 Securities Laws Discovery in securities actions, scope of…26.46[14] Pleading requirements under Private Securities Litigation Reform Act for alleging securities fraud…8.04[8][b]; 9.03[6][a]; 9.10[1] Rule 11 Sanctions under PSLRA…11.29 Wright’s Federal Practice and Procedure KF8840 .W68 Securities Discovery, relevancy of material sought, Civ § 2009 Limitation of actions, federal common law, Juris § 4519 Sales, fraud, pleading, Civ § 1297 Federal…continued Securities Law -- Breena Meng

11. Federal…continued Applicable Forms Examples of forms required by the Securities and Exchange Commission: • Insiders (Officers, Directors & Significant Shareholders) • Proxy Statements & Tender Offer and Acquisition Statements • Investment Adviser Forms • Broker-Dealer Registration & Reporting • SROs, Exchanges & Alternate Trading Systems Securities Law -- Breena Meng

12. State Materials West’s Colorado Law Finder • Securities • Investor 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 § 1514A West’s Colorado Practice Series • Part I. Business Organizations • § 1.41 Issuance of Stock—Securities Law Requirements • § 3.61 Securities Considerations Securities Law -- Breena Meng

13. State…continued Colorado Law Annotated: • Securities • § 32.1. Liability for Misrepresentations and Omissions by Seller of Securities Under the Colorado Securities Act • A. Statutory Scheme • B. Definition of a Security—Generally, investment contracts • C. Elements of claim—Generally • D. Elements of claim—State of mind • E. Elements of claim—Materiality • F. Statute of Limitations • G. Arbitration • H. Attorney fees • I. Claims under Securities Act in federal court • J. Collateral references Applicable Forms: • Please see previous reference to the required SEC forms, Colorado forms, and Am Jur Pleading and Practice. • American Jurisprudence Legal Forms, KF170 .A542 • Form Drafting Checklist: Am Jur Practice Guide, KF170 .F67 Securities Law -- Breena Meng

14. Other Materials Jury 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—1587786656 • Securities Offerings, magazine subscription, ASIN—B00006KWK3 • United States Securities Law: A Practical Guide by James M. Bartos, ISBN—9041198962 Securities Law -- Breena Meng

15. Conclusion Securities 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.

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