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This Article examines how the two blind spots of economics--markets and the interior of firms--combined over the past 40 years to create the modern corporate governance regime. The focus of [...]

Contents I. Introduction 3 II. The Doctrinal History of the Fraud-on-the-Market Cause of Action 7 A. The Nature of the Fraud-on-the-Market Action 7 B. History of the Cause of Action [...], Event-driven securities suits--ones that arise after an issuer has experienced some kind of disaster--have become increasingly prevalent in recent years. These suits are based on the fraud-on-the-market doctrine, a doctrine that ultimately gives rise to the bulk of the damages paid out in settlements and judgments pursuant to private litigation under the U.S. securities laws. The theory behind fraud-on-the-market cases is that when an issuer's share price has been inflated by a Rule-10b-5-violating misstatement, investors who purchased shares at the inflated price have suffered a compensable injury if they still hold the shares after the inflation is gone. Although these event-driven suits differ in important ways from their more traditional cousins based on the same doctrine, they constitute a kind of stress test for the overall doctrine. The growth of event-driven cases thus provides a unique opportunity to reconceptualize the overall system of adjudicating fraud-on-the-market suits more generally. In this Article, we identify the basic logic behind this cause of action and consider what that logic implies as to when liability should and should not be imposed from a social welfare perspective. The result suggests ways we can both solve the challenges posed by event-driven litigation and improve fraud-on-the-market jurisprudence more generally. In an event-driven case, the plaintiff points to a pre-disaster statement that allegedly underplayed the likelihood that the disaster would occur and argues that the disaster announcement was the corrective disclosure. But in these cases, the price drop on the day of the disaster announcement is almost never a reasonable measure of the misstatement's share price inflation. By focusing on the price drop at the time of a corrective disclosure, as courts generally do in fraud-on-the-market suits, they have lost track of the real issue: whether the misstatement inflated the share price by a meaningful amount in the first place. More often, the answer to that question is better indicated by the price change back at the time of the misstatement. For all fraud-on-the-market suits where the plaintiff can establish a misstatement made with scienter, we argue that liability should be imposed where the misstatement's price impact appears to be at least as great as an inflation threshold chosen to trade off the costs and benefits of adjudicating securities class actions. Liability should not be imposed where both the misstatement's price impact appears to be smaller than this inflation threshold, and the market would not have drawn negative inferences had the issuer stayed silent instead of making the misstatement. Where the misstatement's price impact is less than the inflation threshold, but the market would have drawn negative inferences from issuer silence, liability should be imposed if and only if both the corrective disclosure's price impact is a reliable proxy for how much the misstatement inflated the share price and this impact appears to be at least as great as the inflation threshold.

I. OLD MYTHS AND NEW REALITIES: WHO IS BEHIND THE CORPORATE CURTAIN? 966 A. Shareholders Today 967 B. Senior Managers 969 C. Criminal vs. Civil Offenses 970 II. HOW WELL [...], The debate over corporate criminal liability has long involved a fight between proponents who argue that corporate liability is necessary for effective deterrence and opponents who claim that it "punishes the innocent." This Article agrees and disagrees with both sides. Corporate criminal liability could play a critical role in establishing an effective deterrent to organizational misconduct, but today it largely fails. Currently, we have a system that combines Deferred Prosecution Agreements, Non-Prosecution Agreements, and extraordinarily generous sentencing credits for compliance plans that have failed, and the result is a system that is more carrots than sticks. The evidence seems clear that corporate fines seldom affect the company's stock price (even when they are record penalties), that companies rarely self-report their misconduct (despite legal incentives to do so), and that courts impose penalties that can be easily absorbed as a cost of doing business. This analysis leads many to favor a system that focuses only on corporate executives and dispenses with the corporation as a target of the criminal law. Unfortunately, that approach has even higher costs. Although executives are deterrable, high-ranking corporate executives are much harder to identify and prosecute for a variety of reasons. In this light, the critical role of corporate criminal liability is that it gives the corporation a stronger incentive to self-report, monitor its employees, and turn in those responsible. But this requires that we extend leniency only for objective conduct that generates deterrence. A principal goal of this Article is to provide a roadmap for how we can make the punishment fit the corporation. Leniency can be used as a tool but should not be extended gratuitously. To curb corporate misconduct, society has long faced a choice between either vicarious liability for executives (which is contrary to our legal tradition and would shock civil libertarians) and vicarious liability for shareholders (which has existed for over a century but is always bounded by the ceiling of limited liability). Either choice has its costs, and this Article suggests some possible alternatives.

I. FOLLOWING FISSE'S FOOTSTEPS 912 II. TRANSFORMING THE CRIMINAL INJUSTICE SYSTEM INTO A JUSTICE SYSTEM 914 III. THE ACCOUNTABILITY AND MINIMAL SUFFICIENCY PRINCIPLES 916 IV. CONSIDER TAX OFFENSES 919 V. [...], A criminal injustice system cannot rediscover its promise for justice without invigorating corporate criminal responsibility. However, maximizing corporate punishment is not a path to justice because policymakers must make choices about how much to invest in increased detection of corporate crime, warnings, persuading voluntary commitment to repair harm to victims, deferred prosecution agreements, in addition to increased prosecutions. Funding can shift from carceral punishment of crimes of the powerless to support all these forms of intervention. (1)Ultimately, such transformation might be self-funded by improved tax compliance and reduced corporate sabotage of economic futures by the destruction of ecosystems. When all this is done as a coherent mix, corporate criminal responsibility can contribute profoundly to a good society. This Article develops the idea of minimally sufficient deterrence by building on Brent Fisse's accountability principle for corporate offenders--all who are responsible should be held to account--whether they are individual executives, sub-units of corporations, auditors, ratings agencies, corporations that are criminal actors, or other implicated firms upstream or downstream. (2)

I. INTRODUCTION 1029 II.WHAT REMAINS IF CORPORATE CRIMINAL LIABILITY FALLS? 1030 A. Sanctions 1030 B. Enforcement Considerations 1032 C. Procedures 1034 III. BLAMING AND MESSAGE SENDING FUNCTIONS 1035 IV. WHAT [...]

I. INTRODUCTION 938 II. BASIC CASE FOR CORPORATE CRIMINAL LIABILITY 939 1. Enterprise Liability and the Large Modern Corporation 940 2. Instrumentalism as the Exclusive Methodology 941 3. Blame and [...], This Article, for a collection in which authors were asked to "imagine a world without corporate criminal liability," specifies the material questions that should be addressed if debate about the doctrine is to progress past longstanding and oft-repeated assertions. The strongest case for corporate criminal liability is based on the potential for its unique reputational effects to contribute to the prevention and deterrence of crime within corporations. Further research should take up a variety of unanswered questions about those effects having to do with mechanisms and audiences. The relevant inquiries are both theoretical and empirical. Answers will lie in further understanding of organizational and individual behavior more than in familiar models of the firm and deterrence that have largely shaped the literature to date.

Corporate bribery is bad business. In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate [...]

ABSTRACT Firms sometimes break the law. When they do, a host of government agencies have power to bring enforcement actions against them, which serve to punish past wrongs, compensate victims, [...]

ABSTRACT The agency problem, the idea that corporate directors and officers are motivated to prioritize their self-interest over the interest of their corporation, has had a long-lasting impact on corporate-law [...]

ABSTRACT When organizations act in ways that offend the public interest, parties seeking to change that behavior traditionally turned to litigation to force these organizations to reform, whether by command [...]

B. THE LOGIC OF ACQUIESCENCE The strongest argument in support of Basic's rebuttable presumption of reliance rests on the notion of congressional acquiescence. Congress has been aware of Basic's holding [...]

Abstract With expanding U.S. business operations around the globe, the potential for significant exposure to international corruption increases along with the increased risks associated with anti-bribery laws. Companies who employ [...]

ABSTRACT As Rule 10b-5 approaches the age of seventy, deep familiarity with this supremely potent and consequential provision of American administrative law has obscured its lack of clear conceptual content. [...]