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Fraudulent Corporate Signals: Conduct as Securities Fraud

66 Pages Posted: 2 Oct 2012 Last revised: 21 Jan 2014

Manuel A. Utset

Florida State University College of Law

Date Written: March 28, 2013


Paying a dividend, repurchasing shares, underpricing an initial public offering, pledging collateral, and borrowing using short-term, instead of long-term debt, are all forms of corporate communications. They are “corporate signals” that tell investors certain things about a company’s operations and current financial position, and about the managers’ confidence in its future performance. This Article provides the first comprehensive analysis of the relationship between corporate signals and securities fraud. The incentive to communicate using corporate signals has increased in recent years, a phenomenon that, I argue, is due to the growing complexity of public corporations, and, importantly, to a number of changes in federal securities laws aimed at better deterring fraud and making companies more transparent. The Article makes three major contributions. First, it identifies this deep connection between the use of corporate signals (both truthful and deceptive) and recent changes in securities laws. Second, it identifies significant social costs associated with corporate signaling, which commentators and policymakers have overlooked: signals can encourage stock bubbles, create costly “signaling races,” and lead to the loss of information about companies and industries. Third, it provides a normative account of how a lawmaker could design antifraud provisions under the securities laws in order to reduce total fraud, instead of simply rechanneling deceptive practices from the realm of written and oral statements to that of deceptive corporate signals.

Keywords: securities regulation, securities fraud, Rule 10b-5, Sarbanes-Oxley, corporate governance, bubbles, scandals, signaling, disclosure, manipulation, efficient markets, firms, transparency, herding, dividends, stock repurchases, short-term debt, executive compensation

JEL Classification: K22, D82, G35, G32

Suggested Citation

Utset, Manuel A., Fraudulent Corporate Signals: Conduct as Securities Fraud (March 28, 2013). Boston College Law Review, Vol. 54, No. 2, p. 645, 2013; FSU College of Law, Law, Business & Economics Research Paper No. 12-13; FSU College of Law, Public Law Research Paper No. 616. Available at SSRN:

Manuel A. Utset (Contact Author)

Florida State University College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
(850) 644-7274 (Phone)


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