May 14, 2020

Disclosure

Disclosure

Disclosure of Equity Holdings by Institutional Investment Managers: An Analysis of Section 13(f) of the Securities Exchange Act of 1934
      Thomas P. Lemke and Gerald T. Lins, 43(1): 93–119 (Nov. 1987)
As institutional equity holdings have grown over the past decade, filings under the federal securities laws have assumed greater importance, both as a source of public information and as part of the securities practitioner's practice. This Article focuses on one required filing, the form 13F report, and discusses its purposes as well as the mechanics of filing it.

The Proper Role of Securities Act Section 12(2) as an Aftermarket Remedy for Disclosure Violations
      Robert N. Rapp, 47(2): 711–27 (Feb. 1992)
The trend among courts to limit security purchasers' rescission remedy under section 12(2) of the Securities Act to the new issue setting is unwise and unsupported in the legislative history. This Article examines the mission of section 12(2) as a general remedy for disclosure violations and sheds new light on the intended scope of its protection that has been misconstrued by limiting courts.

Disclosures that "Bespeak Caution"
      Donald C. Langevoort, 49(2): 481–503 (Feb. 1994)
Recently, many courts have embraced the "bespeaks caution" doctrine under the federal securities laws, holding that, when adequate cautionary language accompanies estimates or projections in a disclosure document, those forward-looking disclosures are not actionable as securities fraud. This Article analyzes the doctrine, offering a critique and refinement.

United Paperworkers International Union v. International Paper Company: Environmental Disclosure and the "Total Mix" Concept of Materiality
      Stephen Dolan, 49(3): 1225–41 (May 1994)
In United Paperworkers International Union v. International Paper Co., 985 F.2d 1190 (2d Cir. 1993), the U.S. Court of Appeals for the Second Circuit ruled that, under certain circumstances, a company's Form 10-K report filed with the SEC is not part of the "total mix" of information reasonably available to shareholders. In so holding, the court refined the total mix concept of materiality to exclude publicly filed documents from the total mix when their availability is asserted to establish the immateriality of a management proxy statement misrepresentation. More important, this author argues, is the court's willingness to carefully scrutinize management proxy statement disclosures regarding a company's environmental record, signaling that courts may now join the SEC and other government agencies in carefully reviewing corporate environmental disclosure.

The Meaning of Item Four of Schedule 13D of the Securities Exchange Act of 1934: A New Framework and Analysis
      Albert J. Li, 52(3): 851–84 (May 1997)
Five-percent beneficial ownership in registered equity securities subjects persons who acquire stock in a company to the troublesome disclosures required under Item Four of Schedule 13D of the Exchange Act. This item, which requires divulging the "Purposes of [the] Transactions," is generally considered the most important disclosure item in the schedule, especially when corporate control is at issue. The SEC and courts have struggled with what information the item requires because the motives of stockholders, corporate management, and bidders toward information disclosure are at odds. As a result, the Item Four disclosure often wavers between " over" and "under" disclosure, questioning the accuracy and veracity of its informative value. This Article synthesizes and elaborates on much of the current law used to approach this issue, proposes a new framework to use when approaching this issue, which helps to define the disclosure process and provides a detailed view of its application.

Clarifying and Protecting Materiality Standards in Financial Statements: A Review of SEC Staff Accounting Bulletin 99
      Kenneth C. Fang and Brad Jacobs, 55(3): 1039–64 (May 2000)
Companies issuing financial statements for many years have used only quantitative methods to determine materiality. In August 1999, the SEC released SAB 99, eliminating this practice. SAB 99 now requires companies to use a qualitative analysis to determine the materiality of misstatements or omissions. Although qualitative materiality must be used in some instances, with this almost purely subjective test, companies are now left open to liability for arguable choices in judgment. Furthermore, SAB 99 leaves open the question of issuer liability for immaterial misstatements contrary to standing statutory guidance and case law.

Financial Statement Fraud: The Boundaries of Liability Under the Federal Securities Laws
      Richard C. Sauer, 57(3): 955 (May 2002)
Accurate information about public companies is fundamental to the operation of our capital markets. The recent spate of major accounting scandals, however, reminds us that the reported performance of public companies can be highly vulnerable to manipulation. The result is the squandering of billions in investor funds and the erosion of faith in the securities markets. This Article describes common approaches employed to misrepresent the operating results of public companies. Taking examples from recent SEC enforcement actions, it discusses a range of earnings management techniques and analyzes their status under present standards of legal liability, with particular emphasis on those areas of financial reporting in which standards are unclear or evolving.

2002 MENDES HERSHMAN STUDENT WRITING CONTEST PRIZE ESSAY
Disclosing Toxic PIPEs: Why the SEC Can and Should Expand the Reporting Requirements Surrounding Private Investments in Public Equities

     Leib M. Lerner, 58(2): 655 (Feb. 2003)
A PIPE is an investment method where the issuing company privately sells convertible preferred shares to a limited number of investors who may then convert their preferred shares and sell the underlying common shares on the open market. Frequently, PIPE investment contracts contain reset provisions where the investors receive a greater number of shares the lower the common share price at the time of conversion. PIPE investors might therefore seek to encourage the devaluation of the issuing company's common shares by selling the common stock short on a large scale between the time of their initial investment and the time of their conversion. Private equity investors profit by covering their short positions using their shares upon conversion or by gaining control of the company while the general public is left holding worthless shares. By selling the stock short, toxic PIPE investors are indirectly acquiring more shares in the issuing company and control the price of the stock. Therefore, the SEC can and should expand its interpretation of Rule 13d-3 to require PIPE investors possessing reset sale provisions to make disclosure statements when they sell short.

The New Portfolio Society, SEC Mutual Fund Disclosure, and the Public Corporation Model
      Henry T. C. Hu, 60(4):1303—1367 (August 2005)
The Securities and Exchange Commission's disclosure philosophy has largely focused on a single model: the publicly held corporation. From its inception, the SEC's disclosure framework for mutual funds has been a relative backwater and based largely on the disclosure framework for publicly held corporations. This situation is untenable. The use of the public corporation model leads to fundamental flaws in the SEC's fund disclosure system. The inherent differences between a public corporation and a mutual fund and the markets for their respective shares are significant and have manifold implications for disclosure. Moreover, the stakes have changed: far more households own stock funds than own stocks. Ours has become a portfolio society, a society in which household investments will largely define retirement well—being. This Article proceeds to outline a new SEC fund disclosure framework. One element in this new framework is the adoption of investor education as a supplemental principle for guiding disclosure requirements; this departure from the disclosure philosophy found in the public corporation context in fact furthers classic SEC regulatory tenets. In addition, the new framework contemplates moving away from the fund—specific focus of the current framework, a carryover from the firm—specific focus of the public corporation model. In most situations, a fund should instead be viewed primarily as the asset class or asset classes in which it invests, coupled with a managerial overlay. The implications of such a reconceptualization are set out in respect of the three key elements that together will largely determine how a typical fund will perform over the long run: asset class returns net of deadweight costs comprehensively defined, asset class risks, and the locus of asset class decisionmaking. The longstanding SEC fund disclosure framework not only has the potential for misleading investors as to risks and returns but can result in the very absence of rational decisionmaking as to the surprisingly important matter of asset class choice. A new fund disclosure framework can play a role in helping a massively unprepared public.

Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms
     Henry T. C. Hu and Bernard Black, 61(3):1011–1070 (May 2006)
Most American publicly held corporations have a one-share, one-vote structure, in which voting power is proportional to economic ownership. This structure gives shareholders economic incentives to exercise their voting power well and helps to legitimate managers' exercise of authority over property the managers do not own. Berle-Means' "separation of ownership and control" suggests that shareholders face large collective action problems in overseeing managers. Even so, mechanisms rooted in the shareholder vote, including proxy fights and takeover bids, constrain managers from straying too far from the goal of shareholder wealth maximization.

In the past few years, the derivatives revolution, hedge fund growth, and other capital market developments have come to threaten this familiar pattern throughout the world. Both outside investors and corporate insiders can now readily decouple economic ownership of shares from voting rights to those shares. This decoupling—which we call "the new vote buying"—is often hidden from public view and is largely untouched by current law and regulation. Hedge funds, sophisticated and largely unfettered by legal rules or conflicts of interest, have been especially aggressive in decoupling. Sometimes they hold more votes than economic ownership, a pattern we call "empty voting." That is, they may have substantial voting power while having limited, zero, or even negative economic ownership. In the extreme situation of negative economic ownership, the empty voter has an incentive to vote in ways that reduce the company's share price. Sometimes hedge funds hold more economic ownership than votes, though often with "morphable" voting rights—the de facto ability to acquire the votes if needed. We call this "hidden (morphable) ownership" because under current disclosure rules, the economic ownership and (de facto) voting ownership are often not disclosed. Corporate insiders, too, can use new vote buying techniques.

This article analyzes the new vote buying and its corporate governance implications. We propose a taxonomy of the new vote buying that unpacks its functional elements. We discuss the implications of decoupling for control contests and other forms of shareholder oversight, and the circumstances in which decoupling could be beneficial or harmful to corporate governance. We also propose a near-term disclosure-based response and sketch longer-term regulatory possibilities. Our disclosure proposal would simplify and partially integrate five existing, inconsistent share-ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed; we briefly discuss possible strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.

Cross–Border Tender Offers and Other Business Combination Transactions and the U.S. Federal Securities Laws: An Overview
      Jeffrey W. Rubin, John M. Basnage, and William J. Curtin, III, 61(3):1071—1134 (May 2006)
In structuring cross–border tender offers and other business combination transactions, parties must consider carefully the potential application of U.S. federal securities laws and regulations to their transaction. By understanding the extent to which a proposed transaction will be subject to the provisions of U.S. federal securities laws and regulations, parties may be able to structure their transaction in a manner that avoids the imposition of unanticipated or burdensome disclosure and procedural requirements and also may be able to minimize potential conflicts between U.S. laws and regulations and foreign legal or market requirements. This article provides a broad overview of U.S. federal securities laws and regulations applicable to cross–border tender offers and other business combination transactions, including a detailed discussion of Regulations 14D and 14E under the Securities Exchange Act and the principal accommodations afforded to foreign private issuers thereunder.

Independent Directors as Securities Monitors
     Hillary A. Sale, 61(4):1375-1412 (August 2006)
This paper considers the role of independent directors of public companies as securities monitors. Rather than engaging in the debate about whether independent directors are good or bad, important or unimportant, the paper takes their existence and basic governance role as a given, focusing instead on what recent statements from Securities and Exchange Commission officials indicating an increased focus on independent directors and their role in preventing securities fraud. The paper notes that the SEC believes that independent directors are on the board to act, at least in part, as securities monitors. This securities monitor role is another aspect of the information-forcing-substance disclosure model that the SEC has used to achieve improved corporate governance. Although directors face heightened risk when they draft or sign disclosure documents, they also have an ongoing responsibility to be informed of developments within the company, ensure good processes for accurate disclosures, and make reasonable efforts to assure that disclosures are adequate. Independent directors with expertise should be involved in reviewing and, sometimes, drafting statements. All directors, however, should be fully aware of the company's press releases, public statements, and communications with security holders and sufficiently engaged and active to question and correct inadequate disclosures. In addition to defining the role of independent directors as securities monitors, the article reviews the liability independent directors might face under private causes of action and contrasts it with the SEC's enforcement powers and remedies. The article describes some of the SEC's prior statements that emphasize the role of independent directors as securities monitors and the importance of their providing both guidance and check and balance.

Internal Investigations and the Defense of Corporations in the Sarbanes-Oxley Era
     Robert S. Bennett, Alan Kriegel, Carl S. Rauh, and Charles F. Walker, 62(1): 55–88 (Nov. 2006)
Internal investigations long have been an integral part of the successful defense of corporations against charges of misconduct, as well as an important board and management tool for assessing questionable practices. With the heightened standards of conduct and increased exposure created by Sarbanes-Oxley, this essential instrument for safeguarding corporate interests has become even more crucial in identifying and managing risk in the enforcement arena. This article examines from a practitioner's standpoint when and how internal investigations should be conducted in order to protect the corporation in criminal, civil and administrative proceedings. Particular attention is paid to the issues created by a concurrent government investigation and in dealing with employees and former employees in the course of an investigation. The article also addresses the role of the Audit Committee under Sarbanes-Oxley, and the important issue of reporting the findings of the investigation to appropriate corporate officials. The subject of self-reporting by the Company to enforcement authorities is considered as well. In this context, the article explores the SEC's position on crediting self-reporting and cooperation as set forth in the Seaboard report; Department of Justice policy as embodied in the Thompson Memorandum; and the impact of the Federal Sentencing Guidelines for Organizations.

The Erosion of the Materiality Standard in the Enforcement of the Federal Securities Laws
      Richard C. Sauer, 62(2):317-358 (February 2007)
The disclosure requirements at the heart of the federal securities involve a delicate and complex balancing act. Too little information provides an inadequate basis for invest¬ment decisions; too much can muddle and diffuse disclosure and thereby lessen its usefulness. The legal concept of materiality provides the dividing line between what information companies must disclose-and must disclose correctly-and everything else. Materiality, however, is a highly judgmental standard, often colored by a variety of factual presumptions. Recent years have witnessed an effort by the Securities and Exchange Commission to recast certain such presumptions to make the standard more inclusive. This article examines the practical effects of this development on corporate disclosure obligations and considers how well it squares with judicial pronouncements on the materiality standard.

Consumer Arbitration: If the FAA "Ain't Broke," Don't Fix It
     Alan S. Kaplinsky and Mark J. Levin, 63(3): 907–920 (May 2008)
During 2007, Congress showed significant interest in mandatory pre–dispute consumer arbitration agreements. Some in Congress focused on whether to prohibit them altogether. This Article argues that such legislation is unnecessary because the current system of consumer arbitration works well and needs no fix. The authors review case law and empirical studies showing that the current system of checks and balances in the area of consumer arbitration law is sufficiently protective of consumers' rights. These protections emanate from: (1) the Federal Arbitration Act ("FAA") itself, (2) the careful drafting of arbitration agreements, (3) the use of third–party arbitration administrators, and (4) the rigorous enforcement of the FAA by state and federal courts.

Backdating
     Jeffrey L. Kwall and Stuart Duhl, 63(4): 1153–1186(August 2008)
Backdating is a much misunderstood and largely unexplored subject. It involves a wide range of conduct, some of which is an integral part of everyday law practice. To the layperson, backdating connotes wrongdoing. The propriety of backdating, however, depends upon its purpose and effect. Every lawyer should be capable of distinguishing legitimate backdating from improper backdating. Unfortunately, the dividing line is often far from clear. Little guidance exists on backdating, notwithstanding its pervasiveness, the complexity of determining its propriety, and the serious consequences of a misjudgment. An in-depth examination of the day-to-day backdating issues that most business lawyers face cannot be found in the literature. This Article begins to fill that void.

This Article explains the different meanings of backdating, explores the reasons why it is difficult to distinguish legitimate backdating from improper backdating, examines the impact of disclosure on the propriety of backdating, and develops an analytical approach to assist business lawyers in wrestling with the difficult situations most will confront in their daily practices. By illuminating the subject, it is hoped that this Article will begin a much-needed dialogue about backdating.

The Clawback Provision of Sarbanes-Oxley: An Underutilized Incentive to Keep the Corporate House Clean
      Rachael E. Schwartz, 64(1): 1-36 (November 2008)
The Sarbanes-Oxley Act of 2002, passed in the wake of corporate scandals involving misstated financial reports, included a provision for certain compensation and profits from the sale of company stock to be "clawed back" from chief executive officers and chief financial officers of companies that are required to restate their financials, due to material non-compliance with any financial reporting requirement of the securities laws as a result of misconduct. Courts have determined that only the Securities and Exchange Commission may sue to enforce this clawback provision. In the six years following passage of the law, there have been Sarbanes-Oxley clawbacks in only a small number of cases, each one an options backdating case involving allegations that the officer affected personally committed fraud. This Article takes the position that the clawback provision has no scienter requirement and its application should not be limited to officers who have personally engaged in misconduct. Rather, the wording of Sarbanes-Oxley, its legislative history, and the policies it serves call for the clawback to be applied to the chief executive officers and chief financial officers of companies that are required to restate their financials due to material non-compliance with any financial reporting requirement of the securities laws as a result of misconduct, regardless of whether those officers actively participated in the wrongdoing, knew of and failed to correct the wrongdoing, or were oblivious to wrongdoing by employees subject to their control. This general rule can be made subject to an exemption for circumstances involving certain misconduct by non-management employees.

Negative Assurance in Securities Offerings (2008 Revision)

Report of the Subcommittee on Securities Law Opinions, Committee on Federal Regulation of Securities, ABA Section of Business Law, 64(2): 395-410 (February 2009)

Disclosure Obligations Under the Federal Securities Laws in Government Investigations
      David M. Stuart and David A. Wilson, 64(4): 973-998 (August 2009)
With the prevalence of government investigations into corporate conduct, public companies frequently face decisions about whether, when, how, and where to disclose to investors the existence of such investigations and the facts learned in the course of, or as a result of, those investigations. While the federal securities laws (and the rules and regulations promulgated thereunder) require disclosure of specific events that may arise during an investigation, neither those laws nor the courts that have interpreted them provide clear guidance for many of the disclosure decisions that must be made over the course of an investigation. As a result, counsel must carefully analyze numerous facts and circumstances, understand the company's previous disclosures, make "materiality" assessments, and determine whether to make disclosure in a current report or wait until the next periodic filing. This Article seeks to present, through an analysis of precedent disclosures, caselaw, rules, and practical ramifications, the considerations counsel must take into account in evaluating disclosure decisions in the context of an investigation. These considerations can help counsel avoid having a disclosure decision worsen the already difficult circumstances posed by the investigation itself.

Report of the Task Force of the ABA Section of Business Law Corporate Governance Committee on Delineation of Governance Roles & Responsibilities
      Task Force of the ABA Section of Business Law Corporate Governance Committee on Delineation of Governance Roles & Responsibilities, 65(1): 107–152 (November 2009)

The SEC and the Financial Industry: Evidence from Enforcement Against Broker-Dealers
     Stavros Gadinis, 67(3): 679 - 728 (May 2012)
The Securities and Exchange Commission plays a central part in the U.S. regulatory framework for the supervision of the financial industry. How hasthe SEC carried out this mission? Despite recurrent crises, systematic studies of SEC performance data are surprisingly scarce. As the SEC reforms itself to address the shortcomings revealed in 2007–2008, a systematic examination of the agency’s past record can help identify priorities and evaluate the agency’s renewed efforts. This study takes a first step in studying empirically SEC enforcement against investment banks and brokerage houses, examining the agency’s record in the period right before the 2007–2008 crisis. This data suggests that defendants associated with big firms fared better in SEC enforcement actions as compared to defendants associated with smaller firms in three important dimensions. First, SEC actions against big firms were more likely to involve corporate liability exclusively, with no individuals subject to any regulatory action. Second, big-firm defendants were more likely to end up in administrative rather than court proceedings, controlling for types of violation and levels of harm to investors. Third, within administrative proceedings, big-firm employees were likely to receive lower sanctions, notably temporary or permanent bars from the industry. These patterns have important implications for major debates concerning corporate liability, regulatory capture, and the public and private enforcement of securities laws.

From Regulation to Prosecution to Cooperation: Trends in Corporate White Collar Crime Enforcement and the Evolving Role of the White Collar Criminal Defense Attorney
     Robert S. Bennett, Hilary Holt LoCicero, and Brooks M. Hanner; 68(2): 411-438 (February 2013)
This article traces the steady growth of criminal law into fields that had previously been addressed by civil statutes, particularly in relation to the concept of corporate criminal liability. The article also describes the means through which the federal government has encouraged cooperation between corporations that are being investigated and their investigators. This fundamental shift in how corporate misconduct is treated by the federal government has reframed the role of a criminal defense attorney who defends corporations and executives. Any lawyer facing such a task must be willing to incorporate new strategies into daily practice while also evaluating the theoretical considerations governing what it means to “bet the company.”

SEC Enforcement Actions and Issuer Litigation in the Context of a "Short Attack"
     Charles F. Walker and Colin D. Forbes; 68(3): 687-738 (July 2013)
Issuers faced with a short attack—short selling of the issuer’s stock combined with the spread of negative rumors—may contemplate defensive strategies such as litigation and contacting government regulators, in addition to the investor and public relations efforts that are typically utilized in the wake of negative media coverage. Precedent calls for caution in these circumstances, as the record shows that the results of such strategies are mixed, with the SEC often turning its investigative focus to the issuer, and with costly litigation frequently resulting in compromise. This article begins with a discussion of the recent history of regulatory and legislative efforts to address concerns around short attacks and “naked” short selling. It then turns to a discussion of the SEC enforcement cases and private litigation relating to short attacks, and concludes that the SEC has appropriately brought enforcement cases only in clear-cut instances of fraud, while policing the margins through enforcement of the technical requirements of Regulation SHO. The article shows that the SEC enforcement record in this area, and the proof issues generally attendant to these cases, present important considerations for issuers who perceive themselves under siege in a short attack.

Massey Prize for Research in Law, Innovation, and Capital Markets Symposium—Foreword
     70(2): 319-320 (Spring 2015)

Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency
     Henry T. C. Hu; 70(2): 347-406 (Spring 2015)
Financial innovation has fundamental implications for the key substantive and information-based mechanisms of corporate governance. “Decoupling” undermines classic understandings of the allocation of voting rights among shareholders (via, e.g., “empty voting”), the control rights of debtholders (via, e.g., “empty crediting” and “hidden interests”/ “hidden non-interests”), and of takeover practices (via, e.g., “morphable ownership” to avoid section 13(d) disclosure and to avoid triggering certain poison pills). Stock-based compensation, the monitoring of managerial performance, the market for corporate control, and other governance mechanisms dependent on a robust informational predicate and market efficiency are undermined by the transparency challenges posed by financial innovation. The basic approach to information that the SEC has always used—the “descriptive mode,” which relies on “intermediary depictions” of objective reality—is manifestly insufficient to capture highly complex objective realities, such as the realities of major banks heavily involved with derivatives. Ironically, the primary governmental response to such transparency challenges—a new system for public disclosure that became effective in 2013, the first since the establishment of the SEC—also creates difficulties. This new parallel public disclosure system, developed by bank regulators and applicable to major financial institutions, is not directed primarily at the familiar transparency ends of investor protection and market efficiency.

As starting points, this Article offers brief overviews of: (1) the analytical framework developed in 2006−2008 for “decoupling” and its calls for reform; and (2) the analytical framework developed in 2012−2014 reconceptualizing “information” in terms of three “modes” and addressing the two parallel disclosure universes.

As to decoupling, the Article proceeds to analyze some key post- 2008 developments (including the status of efforts at reform) and the road ahead. A detailed analysis is offered as to the landmark December 2012 TELUS opinion in the Supreme Court of British Columbia, involving perhaps the most complicated public example of decoupling to date. The Article discusses recent actions on the part of the Delaware judiciary and legislature, the European Union, and bankruptcy courts—and the pressing need for more action by the SEC. At the time the debt decoupling research was introduced, available evidence as to the phenomenon’s significance was limited. This Article helps address that gap.

As to information, the Article begins by outlining the calls for reform associated with the 2012−2014 analytical framework. With revolutionary advances in computer- and web-related technologies, regulators need no longer rely almost exclusively on the descriptive mode rooted in intermediary depictions. Regulators must also begin to systematically deploy the “transfer mode” rooted in “pure information” and the “hybrid mode” rooted in “moderately pure information.” The Article then shows some of the key ways that the new analytical framework can contribute to the SEC’s comprehensive and long-needed new initiative to address “disclosure effectiveness,” including in “depiction-difficult” contexts completely unrelated to financial innovation (e.g., pension disclosures and high technology companies). The Article concludes with a concise version of the analytical framework’s thesis that the new morphology of public information—consisting of two parallel regulatory universes with divergent ends and means—is unsustainable in the long run and involve certain matters that need statutory resolution. However, certain steps involving coordination among the SEC, the Federal Reserve, and others can be taken in the interim.

SEC Cybersecurity Guidelines: Insights into the Utility Risk Factor Disclosures for Investors
      Edward A. Morse, Vasant Raval, and John R. Wingender, Jr., 73(1): 1-34 (Winter 2017/2018)
In October 2011, the SEC issued new guidelines for disclosure of cybersecurity risks. Some firms responded to these guidelines by issuing new risk factor disclosures. This article examines the guidelines and cybersecurity disclosures in the context of existing laws governing securities regulation. It then examines empirical results from firm disclosures following the new guidelines. Evidence shows a relatively small proportion of firms chose to modify their risk factor disclosures, with most firms choosing not to disclose any specific cybersecurity risk. Moreover, disclosing firms generally experienced significant negative stock market price effects on account of making new disclosures. Rather than viewing disclosure as a positive signal of management attentiveness, investors apparently viewed it as a cautionary sign.

A Case for Eliminating Quarterly Periodic Reporting: Addressing the Malady of Short-Termism in U.S. Markets with Real Medicine
     W. Randy Eaddy, 74(2) 387-416 (Spring 2019)
The author maintains that “short-termism” is a serious malady for which the only effective remedy is (1) elimination of quarterly periodic reporting on Form 10-Q, and the companion disclosure regime of quarterly earnings releases and conference calls, (2) conversion to annual-only periodic reporting on Form 10-K, coupled with a new annual earnings guidance requirement, and (3) retention of current interim disclosure of select material events on Form 8-K. The author reviews how the current quarterly disclosure regimes lead inevitably to short-termism behaviors, and are temptations to other problematic conduct, by corporate actors and market participants. The author contends that the proposed disclosure regime would reduce substantially such behavior and temptations, without compromising the quality of disclosures, protection of investors, or effectiveness of the capital markets system. The author argues that only such a fundamental change from the short-term timetable of the current disclosure regimes can curb short-termism, promote longer term and more strategic focus by corporate actors, and lead analysts, investors, and other market participants to focus on longer-term value propositions.