ESG Misrepresentations and Bond Investors
When the Securities and Exchange Commission (SEC) describes its mission as protecting investors, it mainly has stock investors in mind. The stock market crash of 1929 prompted Congress to pass the federal securities laws. It believed that ordinary investors needed protection from Wall Street insiders who exploited the speculative fervor in stock prices that preceded […]
James Park is Professor of Law at UCLA School of Law. This post is based on his recent paper.
When the Securities and Exchange Commission (SEC) describes its mission as protecting investors, it mainly has stock investors in mind. The stock market crash of 1929 prompted Congress to pass the federal securities laws. It believed that ordinary investors needed protection from Wall Street insiders who exploited the speculative fervor in stock prices that preceded the crash to enrich themselves. In contrast, investors in corporate bond markets were viewed as needing less protection. The private placement exemption was meant in part to relieve issuers from the disclosure requirements of the Securities Act of 1933 when selling bonds to sophisticated investors such as insurance companies.
In the modern era, the SEC’s enforcement cases against public companies for misleading investors have most often emphasized stock investor losses. The agency’s accounting fraud cases routinely argue that a company issued materially misleading information to boost its stock price. The losses from the wave of securities fraud in the late 1990s and early 2000s prompted Congress to give the SEC the power to create funds to compensate investors for their losses. The SEC generally distributes fund recoveries to stock investors.
