Common sense, flexibility, and enforcement of the federal securities laws

Business Lawyer

Volumn 51, Issue 4, 1996, Pages 1221-1239

  McLucas, William R ^a   Lewis, Mark B ^a   Angotti, Alma M ^a  

^a NONE

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EID: 21444435770     PISSN: 00076899     EISSN: None     Source Type: Journal    
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References (172)

1. Philip K. Howard, The Death of Common Sense-How Law is Suffocating America (1994) [hereinafter Howard, Common Sense].
2. Id. at 186.
3. "Responsibility is the last thing bureaucrats want." Id. at 181.
4. Id. at 180.
5. James M. Landis, a former Dean of the Harvard Law School, was a member of the Securities and Exchange Commission from 1934 to 1937 and its Chairman from 1935 to 1937.
6. Howard, Common Sense, supra note 1, at 180-181 (footnote added).
7. The general antifraud rules of the federal securities laws are § 17 (a) of the Securities Act of 1933 (Securities Act), 15 U. S. C. § 77q (a) (1994), and § 10 (b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. 15 U. S. C. § 78j (b) (1994);
8. C. F. R. § 240. 10b-5 (1995).
9. See § 13 of the Exchange Act, 15 U. S. C. § 78m (1994), and the rules thereunder.
10. In a landmark report to the Senate Banking, Housing and Urban Affairs Committee, the SEC summarized information it had gathered in the course of its inquiries concerning improper foreign payments by major U. S. companies, along with the actions it had taken to date addressing resulting violations of the federal securities laws. REPORT OF THE SECURI-TIES and Exchange Commission on Questionable and Illegal Corporate Payments and Practices, 94th Cong., 2d Sess. (Comm. Print 1976) [hereinafter SEC Report].
11. See id. at 3.
12. Id. at a.
13. Id.
14. The SEC Report summarizes the facts of various injunctive actions brought by the SEC concerning improper foreign payments. In most of the actions, the SEC alleged violations of one or more of §§ 10 (b) (antifraud), 13 (a) (reporting/books & records) and 14 (a) (proxy solicitation) of the Exchange Act and the various rules promulgated thereunder. SEC REPORT, supra note 9. Among the companies the SEC brought enforcement actions against were American Ship Building Company, Ashland Oil, Inc., Gulf Oil Corporation, Minnesota Mining and Manufacturing Company, Phillips Petroleum Company, Northrop Corporation, Braniff Airways, Inc., General Tire & Rubber Corporation, Kalvex, Inc., Lockheed Aircraft Corporation, Missouri Public Service Company, Sanitas Service Corporation, United Brands Company, and Waste Management, Inc.
15. Id.
16. Id. at 4.
17. Id.
18. The voluntary program was announced in several public statements. See, e.g., Hearings Before the Subcomm. on International Economic Policy of the House Comm. on International Relations, 94th Cong., 1st Sess. (1975) (testimony of SEC Commissioner Philip A. Loomis).
19. In its report, the SEC included a table which summarized the disclosures to date by 89 companies concerning improper payments by the company. SEC REPORT, supra note 9, at Exhibit A.
20. Id. at 8 n. 7.
21. Roberta Karmel, Regulation by Prosecution 158 (1982).
22. Kenneth H. Bacon, Telling All: Full-Disclosure Push by SEC on Companies Worries Some Critics, Wall St. J., May 15, 1975, at 1.
23. See Why Americans Pay Bribes to Do Business Abroad, U. S. News & WORLD REPORT, June 2, 1975, at 57;
24. William A. Shumann, Foreign Payouts Defended as Necessary, Aviation Wk. & Space Tech., Aug. 11, 1975, at 21.
25. "Basic to the system is the principle that all funds belonging to the corporation, and thus to its shareholders, are adequately maintained within the corporation's system of financial accountability."
26. SEC REPORT, supra note 9, at 23.
27. Congress subsequently prohibited specific practices, including the payment of foreign bribes, when it passed the Foreign Corrupt Practices Act of 1977, part of which became § 30A of the Exchange Act. Pub. L. No. 95-213, 91 Stat. 1494 (1977) (codified in scattered sections of 15 U. S. C.).
28. SEC Report, supra note 9, at 15.
29. These efforts coincided with a substantial SEC effort under Chairman Harold Williams to impose corporate governance and to sensitize corporate directors to their fiduciary duties. See Harold Williams, Corporate Accountability, Address Before the Fifth Annual Securities Regulation Institute, at 26 (Jan. 18, 1978) (on file with The Business Lawyer, University of Maryland School of Law);
30. Harold Williams, Corporate Accountability and Corporate Power, Address Presented at the Fairless Lecture Series (Oct. 24, 1979) (on file with The Business Lawyer, University of Maryland School of Law).
31. See generally Marc I. Steinberg, Corporate Internal Affairs (1983).
32. The federal securities laws require that brokerage firms maintain a certain amount of net capital to continue in business: In calculating its regulatory net capital, a broker-dealer, pursuant to Rule 15c3-1, 17 C. F. R. § 240.15c3-1, must deduct specified percentages from the fair market value of the securities it holds. The deduction.. varies according to what type of security the broker holds and whether the security is readily marketable.
33. See, 17 C. F. R. § 240.15c3-1 (c) (2) (vi) (J) (30% deduction for most securities);
34. § 240.15c3-1 (c) (2) (vi) (K) (40% deduction for securities having a limited market).. Arnold M. Axelrod, 46 S. E. C. 752, 753 n. 5 (December 28, 1976).
35. See Capital Securities [43 S. E. C. 758 (Mar. 14, 1968)]
36. Sumner B. Cotzin [45 S. E. C. 575 June 12, 1974)].
37. But see Hibbard & O'Connor, 46 S. E. C. 1045, 1047-49 (September 12, 1977) (scheme involving parking of bonds with a bank). William R. McLucas & Stephen M. Detore, A Review of Recent SEC Enforcement Actions Against Members of the Securities Industry Involving Parking, Net Capital and Related Violations (1988) (on file with The Business Lawyer, University of Maryland School of Law) [hereinafter McLucas & Detore, Recent SEC Enforcement Actions].
38. See SEC v. Jefferies, Litig. Release No. 11370, [1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 93, 171 (S. D. N. Y. Mar. 19, 1987). The SEC alleged that Boyd Jefieries entered into an agreement at Ivan F. Boesky's ('Boesky') request whereby Jefferies & Co. received transfers of securities from Seemala Corp. ('Seemala'), a registered broker and dealer, which were structured to appear in form as bona-fide 'purchases' by Jefferies & Co. but which were, in substance, 'parks' because Jefieries agreed with Boesky that Jefieries & Co. would hold the securities for Seemala and that Seemala would 'buy' back the same securities shortly thereafter, receive all profits or sustain all losses from those transactions and compensate Jefferies & Co. for its cost of carrying such securities.. Jefferies & Co. parked approximately S56 million [dollars] worth of three securities for Seemala.
39. Id. at 95, 761. As a result, Seemala appeared to have the minimum net capital required by the SEC, thus enabling it to continue to operate despite net capital deficiencies. (Jefferies also parked S47 million dollars in six of its own securities positions at Boesky-controlled entities).
40. See also SEC v. Kidder Peabody & Co., Litig. Release No. 11452, [1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 93, 271 (S. D. N. Y. June 4, 1987);
41. SEC v. Michael Davidoff, Litig. Release No. 11390, 38 S. E. C. 61 (S. D. N. Y. Apr. 7, 1987).
42. When major market participants take part in these schemes, doubts about the industry's ability and willingness to police itself effectively are inevitable.. the parking cases may further weaken the industry's ability to command investor confidence.. The willingness of established firms to participate in schemes of this magnitude, which circumvent a fundamental element of the regulatory framework is alarming. McLucas & Detore, Recent SEC Enforcement Actions, supra note 26, at 2, 11.
43. See SEC v. Blinder Robinson & Co., 542 F. Supp. 468 (D. Co. 1982)
44. aff'd, [1983-1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 99, 491, (10th Cir. 1983). The case involved a best efforts "all or none" underwriting of a stock offering by a new company, American Leisure Corp. The underwriter, Blinder Robinson, was required to sell all of the offered shares of stock within ninety days. If Blinder was unable to complete the undenvriting, however, all proceeds were to be refunded to the investors and the offer terminated. Such a requirement protects the investor who "is comforted by the knowledge that unless his judgment to take the risk is shared by enough others to sell out the issue, his money will be returned."
45. Id. at 476. Blinder Robinson employed "parking" to disguise its inability to complete the offering, thus removing the protections afforded to investors by the "all or none" underwriting.
46. For example, § 13 (d) of the Exchange Act, and the rules thereunder, require parties who acquire more than five percent of a company's stock to file a report with the Commission stating, among other things, why they bought the stock. 15 U. S. C. § 78m (d) (1994);
47. C. F. R. §§ 240.13d-1 to-6 (1995). By parking stock, corporate raiders could avoid filing the appropriate disclosure statements.
48. See SEC v. First City Fin. Corp., 688 F. Supp. 705 (D. D. C. 1988)
49. aff'd, 890 F.2d 1215 (D. C. Cir. 1989) (involving First City Financial Corporation, owned by the Belzberg family, which entered into a parking arrangement with Bear Stearns in order to avoid disclosing their purchases of shares of Ashland Oil Company).
50. See, e.g., Jefferies, [1987 Transfer Binder] Fed, Sec. L. Rep. (CCH) at ¶ 93, 171;
51. See also Kidder Peabody, [1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) at ¶ 93, 271;
52. Davidoff, 38 S. E. C. at 61.
53. See Blinder Robinson, 542 F. Supp. at 468.
54. Pub. L. No. 90-439, 82 Stat. 454 (1968) (codified in scattered sections of 15 U. S. C.).
55. See First City Fin. Corp., 688 F. Supp. at 705.
56. See Gandolfo V. DiBlasi & Norman Feit, Should Slock Parking Be a Criminal Offense?, Nat'l L. J., Sept. 21, 1987, at 21;
57. Sherry R. Sontag, The Securities Dragnet Widens; 'Parking' Examined, Nat'l L. J., Dec. 21, 1987, at 1.
58. In Jefferies, the SEC alleged that Jefferies aided and abetted Seemala's violations of the SEC's net capital regulations, as well as violating, or aiding and abetting violations, of the beneficial ownership reporting requirements (failure to file a schedule 13D and amendments disclosing their joint holdings). The SEC also alleged that Jefferies violated, or aided and abetted violations relating to books and records and reporting requirements of brokerdealers and public companies, by inaccurately recording or failing to disclose information concerning such purchases and sales, and losses and recompensation relating to the parking arrangement. Finally, the SEC alleged that the parking arrangement resulted in violation of margin requirements because the scheme effectively extended to Seemala 100% credit on securities instead of the 50% credit permitted by the applicable rules.
59. SEC v. Jefferies, Litig. Release No. 11370, [1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 93, 171 (S. D. N. Y. Mar. 19, 1987);
60. See also SEC v. Kidder Peabody & Co., Litig. Release No. 11452, [1987 Tranfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 93, 271 (S. D. N. Y. June 4, 1987);
61. SEC v. Davidoff, Litigation Release No. 11390, 38 S. E. C. 61 (S. D. N. Y. Apr. 7, 1987).
62. SEC News Release 93-26 (Aug. 4, 1994) (on file with The Business Lawyer, University of Maryland School of Law);
63. The Investment Company Industry: Hearings Before the Subcommittee on Telecommunications and Finance of the House Committee on Energy and Commerce, 103d Cong., 2d Sess. (1993) (testimony of SEC Chairman Arthur Levitt).
64. See generally Richard Roberts, Update on Municipal Securities Ethical Initiatives, Remarks to the MSRB Rule G-37 Program (June 1, 1994) (on file with The Business Lawyer, University of Maryland School of Law).
65. Arthur Levitt, Public Funds and Public Trust at the Dawn of the Twenty-First Century, Remarks Before the Government Finance Officers Association (June 13, 1995) (on file with The Business Lawyer, University of Maryland School of Law).
66. SEC v. Citron, Litig. Release No. 14792, 1996 WL 26753 (S. E. C.) (CD. Cal. Jan. 24, 1996);
67. In re County of Orange, California, Exchange Act Release No. 36760, 61 S. E. C. 310 (Jan. 24, 1996);
68. In re Thorn, Alvis, Welch, Inc., Securities Act Release No. 7069, 56 S. E. C. 2590 (June 23, 1994).
69. SEC v. Busbee, Litig. Release No. 14387, 58 S. E. C. 1822 (N. D. Fla. Jan. 23, 1995).
70. In re First Fidelity Sec. Group, Exchange Act Release No. 36694, 61 S. E. C. 40 (Jan. 5, 1996);
71. SEC v. Stifel, Nicolaus and Co., Litig. Release No. 14587, 59 S. E. C. 2446 (W. D. Okla. Aug. 3, 1995);
72. SEC v. Rudi, Litig. Release No. 14421, 58 S. E. C. 2330 (S. D. N. Y. Feb. 23, 1995);
73. Busbee, 58 S. E. C. at 1822.
74. In re Lazard Freres & Co., Exchange Act Release No. 36419, 60 S. E. C. 1449 (Oct. 26, 1995);
75. Stifel, 59 S. E. C. 2446.
76. First Fidelity, 61 S. E. C. 40;
77. Rudi, 58 S. E. C. 2330.
78. In April 1994, however, the Municipal Securities Rulemaking Board's (MSRB's) rule G-37 became effective. MUNICIPAL SECURITIES R. ULEMAKING Board Manual, Rules of the Municipal Securities Rulemaking Board ¶ 3681 (1996). Under this rule, a broker-dealer who makes political contributions to an issuer/client is barred from doing negotiated business with that client for two years afterward.
79. Id. The MSRB proposed the rule to address pay-toplay practices.
80. See § 3 (a) (2) of the Securities Act, 15 U. S. C. § 77 (c) (a) (2) (1994).
81. Indeed, Section 15B of the Exchange Act expressly limited the Commission's and the MSRB's ability to establish municipal issuer disclosure requirements. Section 15B (d) (1) of the Exchange Act prohibits the Commission and the MSRB from requiring municipal securities issuers, either directly or indirectly, to file any application, report, or document with the Commission or the MSRB prior to any sale by the issuer.. Section 15B (d) (2) of the Exchange Act prohibits the MSRB, either directly or indirectly, from requiring issuers to furnish investors or the MSRB with any "report, document, or information" not generally available from a source other than the issuer.. These sections are collectively known as the "Tower Amendment."
82. * 60 in. 5 (July 26, 1995) (testimony regarding Municipal Securities Market before the Subcommittee on Capital Markets, Securities and Government Sponsored Enterprises Committee on Banking and Financial Services, United States House of Representatives) (citation omitted) (hereinafter Maco Testimony).
83. See In re Washington Pub. Power Supply Sys. Sec. Litig., 623 F. Supp. 1466, 1477-78 (W. D. Wash.)
84. aff'd, 823 F.2d 1349 (9th Cir. 1987);
85. Statement of the Commission Regarding Disclosure Obligations of Municipal Securities Issuers and Others, Securities Act Release No. 7049, 59 Fed. Reg. 12, 748 (1994) [hereinafter Interpretive Release].
86. Leslie Wayne, There's a New Sheriff in Town, N. Y. Times, Nov. 10, 1995, at D1.
87. Id.
88. The standard applied in determining materiality of an omitted fact is whether there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Basic Inc. v. Levinson, 485 U. S. 224, 231-32 (1988)
89. (quoting TSC Indus., Inc. v. Northway Inc., 426 U. S. 438, 449 (1976)).
90. See Lynn Stevens Hume, Bond Lawyers Grapple With Disclosure, SEC Enforcement, The BOND BUYER, Oct. 2, 1995, at 22;
91. Lynn Stevens Hume, Bond Lawyers Clash With SEC Officials Over Enforcement, THE BOND BUYER, Sept. 22, 1995, at 1.
92. See City of Philadelphia v. SEC, 434 F. Supp. 281 (E. D. Pa. 1977)
93. Appeal dismissed, 434 U. S. 1003 (1978).
94. See Roeder v. Alpha Indus., Inc., 814 F.2d 22, 25 (1st Cir. 1987) (holding undisclosed bribe as material because information could cause a reasonable investor to question competency of management);
95. United States v. Fields, 592 F.2d 638, 649-50 (2d Cir. 1978)
96. Cert. denied, 442 U. S. 917 (1979) (finding kickbacks received by corporate officers could be material);
97. In re Franchard Corp., Securities Act Release No. 4710, [1964-66 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 77, 113 (1964) (stating that self-dealing reflects on quality of management, which is "[o]f cardinal importance in any business");
98. John M. Fedders, Law Enforcement Against Those Who Fail to Disclose Illegal Behavior, Remarks to Meeting of the Fed. Reg. of Sec. Comm. of the ABA Section of Corp., Banking and Bus. Law
99. Reprinted in [1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 83, 279 (Nov. 19, 1982).
100. Interpretive Release, supra note 48, at 12, 751.
101. The success of Oliver Stone's movie, Wall Street, and Tom Wolfe's popular novel Bonfire of the Vanities, in the late 1980s were among the more visible indication of the extent to which insider trading had captured the fascination of the public at large. Insider trading story lines followed in the daily TV "soap operas" and played a part in other Hollywood movies such as The Secaucus Seven.
102. James Stewart's Den of Thieves, depicting the worst of the 1980s insider trading cases, became a best-seller.
103. See SEC v. Milken, 88 Civ. 6209 (MP)
104. Litig. Release No. 12454, 1990 SEC LEXIS 766 (S. D. N. Y. April 24, 1990);
105. SEC v. Siegel, No. 87 Civ. 0963
106. Litig. Release No. 11354, 1987 SEC LEXIS 2581 (S. D. N. Y. Feb. 13, 1987) (consent judgment);
107. SEC v. Boesky, No. 86 Civ. 8767 (RO)
108. Litig. Release No. 11288, 1986 SEC LEXIS 363 (S. D. N. Y. Nov. 14, 1986) (consent judgment);
109. SEC v. Levine, No. 86 Civ. 3726 (RO)
110. Litig. Release No. 11095, 1986 SEC LEXIS 2328 (S. D. N. Y. May 12, 1986) (consent judgment).
111. "Insider trading" is, however, contained in the caption to the Insider Trading Sanctions Act of 1984, Pub. L. No. 98-376, 98 Stat. 1264 (1984)
112. The Insider Trading Securities Fraud Enforcement Act of 1988, Pub. L. No. 100-704, 102 Stat. 4677 (1988)
113. (both codified in scattered subsections of 15 U. S. C. § 78 (1994)), but not in the text.
114. See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968)
115. Cert. denied, 394 U. S. 976 (1969).
116. The SEC first addressed the issue of insider trading in In re Cady, Roberts & Co., 40 S. E. C. 907 (Nov. 8, 1961).
117. Id.
118. Id. at 911.
119. See Chiarella v. United States, 445 U. S. 222 (1980).
120. There were signs that judicial approval of this approach seemed likely. For example, in Chiarella, the three dissenting justices expressed approval for such a theory.
121. See Chiarella, 445 U. S. at 240, 245. Actually, the term "misappropriation" is a misnomer in that misappropriation cases usually involve persons who lawfully possess the confidential information, but misuse the information entrusted to them by making securities trades prior to any public disclosure of the information.
122. United States v. Newman, 664 F.2d 12 (2d Cir. 1981)
123. aff'd after remand, 722 F.2d 729 (2d Cir.)
124. Cert. denied, 464 U. S. 863 (1983).
125. To date the Second, Seventh and Ninth Circuit Courts of Appeal have adopted the misappropriation theory. The misappropriation theory was first adopted by the Second Circuit in Newman.
126. Id. at 17 (finding the defendants' theft of information from their employers "defrauded those employers as surely as if they took their money").
127. The Ninth Circuit adopted the theory in SEC v. Clark, 915 F.2d 439, 449 (9th Cir. 1990) ("the misappropriation theory fits comfortably within the meaning of 'fraud' in § 10 (b) and Rule 10b-5")
128. The Seventh Circuit in SEC v. Cherif, 933 F.2d 403, 410 n. 5 (7th Cir. 1991)
129. Cert. denied, 502 U. S. 1071 (1992) ("There is little question that the vague term 'fraud' as used in Section 10 (b) and Rule 10b-5 can encompass the misappropriation theory.").
130. 745 F.2d 197 (2d Cir. 1984)
131. Cert. denied, 471 U. S. 1053 (1985).
132. Id. at 203.
133. See Elkan Abramowitz, A Lost Opportunity to Clarify Law on Insider Trading, N. Y. L. J., Nov. 7, 1995, at 3 [hereinafter Abramowitz, Lost Opportunity];
134. Harvey L. Pitt & Karl A. Groskaufmanis, A Tale of Two Instruments: Insider Trading in Non-Equity Securities, 49 Bus. LAW. 187 (1993);
135. Susan Lorde Martin, Insider Trading and Rule 14e-3 After Chestman, 29 AMERICAN Bus. L. J. 665 (1992).
136. See Abramowitz, Lost Opportunity, supra note 69.
137. From time to time there have been calls for a legislative effort to define insider trading beyond the analyses developed by the courts.
138. See Abramowitz, Lost Opportunity, supra note 69;
139. John Sturc, Where Insiders Trade, Law Treads Uncertainly, TEXAS Lawyer, Aug. 13, 1990, at 33;
140. Elkan Abramowitz, Define or Abstain, The Congressional Gap in Insider Trading, N. Y. L. J., July 3, 1990, at 3;
141. Harvey Pitt & Karl Groskaufmanis, Second Circuit's Recent Insider Trading Decision Invites Legislative Fix, LEGAL TIMES, May 21, 1990, at 9. While the SEC had historically taken the position that a codified definition of insider trading was unnecessary and indeed, counterproductive; two proposals offering definitions of insider trading were submitted to Congress in 1987, one supported by then SEC Chairman David Ruder. No legislative efforts in this area have been successful, however, and the Commission did not press the Ruder position after he left office.
142. 58 F.3d 933 (4th Cir. 1995).
143. Id. at 944.
144. Id. at 946-47.
145. Id. at 949.
146. Id. (citing Santa Fe Indus. Inc. v. Green, 430 U. S. 462, 473 (1977)).
147. Id. at 946-47
148. (citing Santa Fe Indus., 430 U. S. at 472). The Bryan court stated that the Second Circuit must have been "unaware of the existence of the Supreme Court's decision in Santa Fe Industries" when it first adopted the misappropriation theory in 1981.
149. Id. at 953. It is improbable that the Second Circuit overlooked Santa Fe Industries because it reversed a Second Circuit decision. It is equally improbable that the Second Circuit continued to overlook Santa Fe Industries in subsequent cases approving the misappropriation theory, that every other court of appeals to consider the issue and approve of the misappropriation theory has overlooked the case, or that the four Justices who expressed approval of the theory in Chiarella and Carpenter were unaware of it.
150. United States v. Newman 664 F.2d 12, 19 (2d Cir. 1981)
151. aff'd after remand, 722 F.2d 729 (2d Cir.)
152. Cert. denied, 464 U. S. 863 (1983).
153. Id.
154. Bryan, 58 F.3d at 943.
155. 484 U. S. 19 (1987).
156. Id. at 25-28.
157. Bryan, 58 F.3d at 959.
158. Id. at 946.
159. Superintendent of Ins. v. Bankers Life & Casualty Co., 404 U. S. 6, 12-13 (1971).
160. SEC v. Materia, 745 F.2d 197, 203 (2d Cir. 1984).
161. 463 U. S. 646 (1983).
162. 114 S. Ct. 1439 (1994).
163. The Bryan court adopted a standard so narrow that virtually no case could be brought employing the misappropriation theory. Yet, in many if not most of those cases, the person who was defrauded has a very strong interest in the defendant's purchase. Commonly, for example, the defrauded person in a misappropriation case is a company that is planning to bid for or otherwise acquire the securities of another company. The bidder obviously has a strong stake in secret securities transactions by persons who have misappropriated its plans. Such purchases are likely to drive up the price of the company's securities, making the bidder's acquisition of those securities more expensive.
164. The court's decision in Bryan also fails to recognize the fact that Congress, in legislation passed in 1984 and 1988, implicitly approved application of the misappropriation theory. In 1984, the House Report accompanying the Insider Trading Sanctions Act explained that "[i]n other areas of the law, deceitful misappropriation of confidential information by a fiduciary.. has consistently been held to be unlawful.. [and] Congress has not sanctioned a less rigorous code of conduct under the federal securities laws." H. R. Rep. No. 355, 98th Cong., 1st Sess. 5 (1983)
165. Reprinted in 1984 U. S. C. C. A. N. 2274. Similarly, Congress noted in the House report accompanying the Insider Trading and Securities Fraud Enforcement Act of 1988 that the misappropriation theory "fulfills appropriate regulatory objectives in determining when communicating or trading while in possession of material nonpublic information is unlawful." H. R. Rep. No. 910, 100th Cong., 2d Sess. 26-27 (1988)
166. Reprinted in 1988 U. S. C. C. A. N. 6043.
167. Bryan, 58 F.3d at 951.
168. Id.
169. A recent article in Financial World described the SEC as an agency that is one of the "models for efficiency in some areas."
170. Katherine Barrett & Richard Greene, The Big Vision Meets the Real World, FIN. WORLD, Oct. 26, 1993, at 32, 33. The article analyzed the management of eight agencies that are of particular interest to business. While the average grade was a C +, the authors rated the SEC the highest grade of the group, an A-: "The [SEC] defies all stereotypes. Members of the securities industry, academics, even attorneys who are suing the SEC speak about it in glowing terms."
171. Id. at 49.
172. Howard, Common Sense, supra note 1, at 177.