Teaching Securities in Law School (Part 1)
The new semester has started at the University of Denver Sturm College of Law and I am, among other things, teaching a basic securities class. If I compare what I am teaching this semester with what I taught in say the 1990s, the classes are vastly different. Other than personal preference, what has changed?
Classes in this area have traditionally emphasized the Securities Act of 1933, as well as some discussion about the function and structure of the SEC (the agency was created in Section 4 of the Exchange Act). The courses usually covered the definition of a security, the public offering process, the exemptions from registration (small offering, private placement, intrastate, crowdfunding), and liability (Section 11 and 12 in the 1933 Act). If there was time left over, some aspects of the Securities Exchange Act could be tossed in. Rule 10b-5 and insider trading were always obvious candidates.
Teaching that kind of course has a certain logic. Many students who intersect with the securities laws do so accidentally. That is, they deal with instruments that are not on their face a security but nonetheless fall within the definition. This can apply, for example, to a vending machine accompanied by certain types of servicing agreements or a condominium accompanied by certain types of rental agreements. So students need to know something about the definition of a security. Finally, the approach does not really provide a hands on feel for how practicing under the federal securities laws really works.
To the extent that they actually represent clients on securities matters, most will likely do so in the context of litigation (probably under the anti-fraud provisions) and capital raising (which for the most part means devising methods to ensure that offerings are exempt from registration), so these matters also need to be covered.
But this type of course is, in my opinion, no longer adequate. There are a number of things missing. First, it does not put adequate emphasis on the Exchange Act. The Exchange Act regulates public companies, brokers, and self regulatory organizations and contains the most widely used antifraud provision, Rule 10b-5. The approach also does not really address market structure, something that is always important but, in an era of Michael Lewis and Flash Boys, is undergoing a dramatic shift.
In the next post, I'll discuss some of the ways I've restructured the course.