"Regulating Insider Trading in the Post-Fiduciary Duty Era: Equal Access or Property Rights?" 
UCLA School of Law, Law-Econ Research Paper No. 12-08
STEPHEN M. BAINBRIDGE, University of California, Los Angeles (UCLA) - School of Law
Email: bainbrid@law.ucla.edu
This essay was prepared for a forthcoming book on the law and economics of insider trading.
In Chiarella and Dirks, the Supreme Court based insider trading liability on a breach of a disclosure obligations arising out of a fiduciary relationship. The resulting narrowing of the scope of insider trading liability met substantial resistance from the Securities and Exchange Commission (SEC) and the lower courts. Through both regulatory actions and judicial opinions, the SEC and the courts gradually chipped away at the fiduciary duty rationale. In recent years, the trend has accelerated, with several developments having substantially eviscerated the fiduciary duty requirement.
The current unsettled state of insider trading jurisprudence necessitates rethinking the foundational premises of that jurisprudence from first principles. This essay argues that the correct rationale for regulation insider trading is protecting property rights in information. Although that rationale obviously has little to do with the traditional concerns of securities regulation, this article further argues that the SEC has a sufficiently substantial advantage in detecting and prosecuting insider trading that it should retain jurisdiction over the offense.
"Risk and Reward in Stem Cell Products: A New Model for Stem Cell Product Liability"
Boston University Journal of Science and Technology Law, Vol. 18, pp. 102-49, 2012
UCLA School of Law, Law-Econ Research Paper No. 12-09
STEPHEN R. MUNZER, University of California, Los Angeles (UCLA) - School of Law
Email: munzer@law.ucla.edu
Stem cell products have the potential to give patients access to treatments and cures for diseases and conditions that are currently beyond the scope of modern medicine. There are not yet many stem cell products on the market in the United States, but soon there will be. It therefore makes sense to explore how we should deal with policy issues concerning these products now.
This Article examines the problem of how best to handle legal liability for any harm that stem cell products cause. At present, a complex patchwork of federal and state statutes and legal precedents determines whether makers of drugs, biologics, medical devices and combination products are liable for defects. None of these legal materials specifically addresses stem cell products. Because stem cell product development is in its infancy, and because the risks of stem cell products are largely unknown, it is critical that the correct legal regime be in force. Too much legal liability could inhibit research into stem cell product development. Not enough legal liability could unnecessarily harm patients and hinder the use of stem cell products.
This Article crafts a proposal for what the legal rules ought to be for stem cell products to best benefit all parties involved. Far from indulging in standard neoclassical economic analysis, I employ work on bounded rationality, game theory, and other developments to come up with a proposal that has a better chance of working in the real world and with actual, non-maximizing individuals who have inadequate information. In brief, the proposal is a qualified system of strict liability for stem cell products in which patients and manufacturers contribute on a per-product basis to a compensation fund and the federal government acts as an insurer of last resort. Unlike most writing in this area, the liability proposal takes the ethics of risk imposition seriously.
"Negligence-Based Proportional Liability: How More Lenient Sanctions Lead to Higher Compliance"
UCLA School of Law, Law-Econ Research Paper No. 12-10
ALEXANDER STREMITZER, UCLA School of Law
Email: stremitzer@law.ucla.edu
Over the past four decades, in an effort to help plaintiffs, US tort statutes have expanded strict liability, and courts have relaxed the causation requirement in negligence liability by often resolving factual doubts about causation in the plaintiff’s favor.
This Article argues that this trend not only contributes to phenomena such as defensive medicine and overly high health care costs but, more surprisingly, also to more people and property being harmed due to negligent treatment and environmental disasters. This is true in the quite common scenarios in which courts suffer from hindsight bias or injurers lack sufficient assets to satisfy judgments against them. Both problems pervade important areas of tort law.
This Article not only cautions against the use of strict liability but also argues for restoring a robust causation requirement in negligence liability. Specifically, this Article proposes a new default regime in torts called “negligence-based proportional liability.” This rule would account for causation in probabilistic terms. It would hold a negligent injurer liable for harm discounted by the probability that the harm was caused by the defendant’s breach of a duty. As a more lenient liability rule than what is generally contemplated by many US courts, negligence-based proportional liability reduces defensive behavior and increases compliance relative to all other liability regimes.
"Patching a Hole in the JOBS Act: How and Why to Rewrite the Rules that Require Firms to Make Periodic Disclosures"
Indiana Law Journal, Vol. 88, No. 1, 2013
Loyola-LA Legal Studies Paper No. 2012-19
UCLA School of Law, Law-Econ Research Paper No. 12-12
MICHAEL D. GUTTENTAG, Loyola Law School Los Angeles
Email: michael.guttentag@lls.edu
This article considers if or when firms in the United States should be required to comply with federal periodic disclosure requirements. Such a consideration is timely. Provisions in the Jumpstart Our Business Startups Act of 2012 have made it much easier for firms to avoid federal periodic disclosure obligations, but these provisions were enacted based upon on a virtually non-existent legislative record and upended rules established only after careful consideration almost fifty years earlier.
Determining which firms should be required to comply with federal periodic disclosure requirements is best done in the context of a broader understanding of the history and economics of periodic disclosure regulation. This article provides such an understanding. The history of periodic disclosure regulation in the United States is traced back to its origins in the eighteenth century, and the economic analysis of periodic disclosure regulation is updated and refined to incorporate recent findings.
Building on this historical and economic understanding of periodic disclosure regulation, I consider anew if or when firms should be required to comply with federal periodic disclosure requirements. The analysis uncovers a flaw in the structure of the rules currently used to determine which firms must make periodic disclosures. To rectify this structural problem, I suggest that firms with a market capitalization of less than $35 million or fewer than 100 beneficial shareholders be granted an automatic exemption from periodic disclosure requirements. All other firms should be provided a choice between: 1) complying with federal periodic disclosure obligations, or 2) implementing measures that would mitigate the need for disclosure regulation, such as restricting share tradability or committing to an acceptable alternative disclosure regime.
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