The Future of Securities Fraud Litigation Conference

Friday, February 8, 2008
Sponsored by: LRN-RAND Center for Corporate Ethics, Law, and Governance
and the Financial Economics Institute, Claremont McKenna College

The Future of Securities Fraud Litigation conference was held on Friday, February 8th at the Claremont Graduate University’s Drucker School of Management. Hosted by the Financial Economics Institute and the LRN-RAND Center for Corporate Ethics, Law, and Governance, the conference provided a unique perspective into the law and economics of financial market regulations, with an emphasis on the Securities and Exchange Commission. The conference, which was generously underwritten by Jones Day and Entwistle & Cappucci, attracted over 60 attendees, including accomplished professors, members of the SEC, and various analysts from top law firms.

Pamela Gann, President of Claremont McKenna College, welcomed everyone to the conference and introduced Prof. Janet Smith, the Von Tobel Professor of Economics and Director of the Financial Economics Institute, who explained the day’s activities. The conference included two morning sessions that were followed by a luncheon and practitioner panel at CMC. The conference continued with a final session at the Drucker School and concluded with a reception and dinner at Harvey Mudd College.

The topic for the morning’s first session was “Plaintiffs, Settlements and Litigation Reform.” The session was chaired by the U.S. Securities and Exchange Commission’s Cindy R. Alexander. Speakers during this session included Eric Zitzewitz, of Dartmouth College, who presented his paper “An Eliot Effect? Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-07,” Adam Pritchard, who teaches at the University of Michigan, summarized his paper “The Screening Effect of the Private Securities Litigation Reform Act,” and Lynn Bai, a Professor at the University of Cincinnati, discussed her paper “There are Plaintiffs and…There are Plaintiffs: An Empirical Analysis of Securities Class Action Settlements.” Following the presentations, Ms. Alexander offered her comments and criticisms which were followed by a lively discussion.

After a brief refreshment break, the second session, focusing on market efficiency, reliance, and damages, was chaired by Michael Perino, the Dean George W. Matheson Professor of Law at St. John’s University School of Law. Prof. Perino’s primary areas of scholarly interest are securities regulation and litigation, corporations, and complex litigation. The first presentation was given by Prof. Alicia Davis Evans of the University of Michigan and was entitled “Do Investors’ Gains and Losses from Securities Fraud Equal Out Over Time? Some Preliminary Evidence.” The following paper, “The Paradox of ‘Fraud-on-the-Market’ Theory,” was presented by Richard L. Smith of Claremont Graduate University. The second session concluded with a presentation of the paper called “A Simple, Nonparametric Approach to Asymptotically Valid Inference in Single-Firm Event Studies with One Event Date” by Prof. Jonathan Klick of Florida State University. Prof. Perino challenged some of the papers’ findings and complimented others on their results. After opening the discussion to all participants, many comments offered further ideas for analysis while others provided constructive criticism.

Following the second session, the participants were escorted to the Claremont McKenna College Marian Miner Cook Athenaeum for a luncheon. During lunch, John C. Coffee, the Adolf A. Berle Professor of Law at Columbia Law School and the Director of the Center on Corporate Governance of Columbia University, provided the conference’s keynote address. The talk, which was entitled “Accountability, Competition and Collusion: The Dilemma of the Securities Class Action,” included a discussion of a paper that Professor Coffee recently completed regarding the role of attorneys in class action lawsuits.

Prof. Coffee’s presentation was followed by a practitioner panel which addressed current issues in securities fraud litigation. The panelists included Vincent Cappucci, a Partner at Entwistle & Cappucci; Prof. Brad Cornell, a Senior Consultant at CRA International and a professor at California Institute of Technology; James Farrell, a partner at Latham & Watkins, LLP who specializes in securities litigation and professional liability; Larry Fine, Senior Vice President of AIG; and David Tabak, Senior Vice President of NERA Economic Consulting. The panel was moderated by Eric Landau, a Partner at Jones Day who specializes in securities and shareholder litigation. Following the panel, CMC students escorted the participants back to the Burkle Building at the Drucker School of Management.

Stanford University’s Michael Klausner, the Nancy and Charles Munger Professor of Business and Professor of Law, chaired the third and final session which centered on securities litigation and corporate governance. Prof. Klausner shared his expertise in corporate law and corporate governance while discussing papers by the University of Alabama’s Prof. Anup Agrawal (“Insider Trading Before Accounting Scandals”), the University of Washington’s Prof. Jonathan M. Karpoff (“The Determinants of Managerial Decisions to Cook the Books.”), Boston College’s Christopher Baum and UHY Advisors’ James G. Bohn (“Securities Fraud Class Actions and Corporate Governance: New Evidence on the Role of Merit”), and Eric Helland (“The Impact of the Securities Litigation on the Directors’ Labor Market”) who is a Professor at Claremont McKenna College and the Associate Director for Research at the RAND Institute for Civil Justice.

Following the conference, students and participants dined at Harvey Mudd’s Green Room and enjoyed a Mexican fiesta. Robert Reville, a Senior Economist and Director of the RAND Institute for Civil Justice, provided an informative and entertaining presentation following dinner. The conference ended on a successful note, with many praises from the participants regarding the conference, the topics covered, and the professional attitudes of the Claremont McKenna students.