Securities Analysts' Undisclosed Conflicts of Interest: Unfair Dealing or Securities Fraud?

Abstract:     
This article addresses the troubling practice of research analysts' undisclosed conflicts of interest. I first review regulatory developments to proscribe undisclosed conflicts of interest, including ownership interests in recommended securities and the compensation connection between firms' analysts and investment bankers. The article then traces the historical development of the imposition of liability by the courts on securities industry participants for failure to disclose their conflicts of interest, including their intent to trade on the short-term market effect of their recommendations - a practice known as scalping. Finally, I conclude that, in light of the new regulations, analysts should be liable to investors for damages under the federal securities laws for failing to disclose their conflicts of interest in the securities they recommend.

Number of Pages in PDF File: 47

Keywords: securities, analysts, investor rights

JEL Classification: K22

Accepted Paper Series