A New Trend in Securities Fraud: Punishing People Who Do Bad Things
31 Pages Posted: 28 Mar 2019
Date Written: February 1, 2019
In the last few years, data privacy issues have taken center stage. The responsibility of corporations to safeguard personal user data has become a mainstream political issue in the wake of the 2016 presidential election. Social media giants have been repeatedly hauled in front of Congress to explain how the consumer data they have been charged with protecting has ended up in the public domain. But absent a regulatory scheme to punish irresponsibility and encourage vigilance, public floggings in various congressional hearings is the only major consequence for this conduct. However, because many of these companies are public, the Securities and Exchange Commission, the Department of Justice, and private shareholders all have used federal securities law as a means of recourse when these companies have attempted to hide data breaches or other misconduct. But, as the author notes, this strategy is not limited to data privacy issues, and although the author devotes most of this article to enforcement actions against Facebook, the parallel to many other industries is obvious.
This article seeks to articulate a distinct view of federal securities law as it is increasingly used in non-traditional enforcement actions commenced to punish corporate bad behavior. This paper argues that these non-traditional enforcement mechanisms should be viewed with skepticism. This skepticism should not be misinterpreted as cynicism, as the author believes that these non-traditional enforcement actions are beneficial vehicles to accomplish the admirable governmental objective of “punishing people who do bad things.” However, the author recognizes that such use of securities law does not fall into a category of clearly defined criminal law and carries a significant risk of abuse. The author also recognizes the “admirable governmental objective” may be thwarted when it comes to private companies. Finally, the author is uneasy with the societal values conveyed when the government sanctions corporate misbehavior in the name of protecting shareholders from deception.
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