Federalism, Full Disclosure, and the National Markets in the Interpretation of Federal Securities Law
Dennis S. Karjala
Arizona State University College of Law
Northwestern University Law Review, Vol. 80, 1986
Under federal securities law, emphasis on both Santa Fe Industries, Inc. v. Green, principles, disclosure and federalism, is misguided. While the Court rightly attempted to limit the otherwise almost unbounded application of rule 10b-5, emphasis on a 'philosophy of full disclosure' fails to take into consideration crucial differences between provisions that regulate specific transactions and general, catchall provisions like rule 10b-5. The result is an overly limited interpretation of the specific federal regulatory provisions, which can frustrate Congress' purpose in adopting them and fails to limit the reach of the catchall rules. There should be a much more limited role for general principles of 'full disclosure' in the interpretation of both specific regulatory provisions and the rule 10b-5 catchall.
The author suggests a general principle of interpretation, called the 'Disclosure principle,' pursuant to which all references to a general philosophy or policy of full disclosure are avoided in interpreting the Securities Exchange Act of 1934, whether the provision in question regulates a specific transaction or is a general catchall. The Disclosure Principle provides a well-defined and sharply limited role for disclosure as such - that is, independent of a more comprehensive fraudulent scheme - in the interpretation of rule 10b-5.
The author also suggests Federalism Principles 4 and 5, based on the distinction between the specific regulatory provisions of the federal securities statutes and the catchall provisions. Appeals to general principles of federalism usually will not be helpful in interpreting the specific regulatory provisions of federal securities law, but that the federal interest in maintaining free and honest national markets can and probably should play an important role in interpreting and applying the catchall provisions.
Keywords: Federalism, Federal Securities Law, Santa Fe Industries, Inc. v. Green
Date posted: May 30, 2009
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