Chinedu Okonkwo vs Jessica Tripp EXAM 4 (CH 15,17,20,21)

an administrative agency

A board, bureau, commission set up by a state government

How do administrative agencies get their power?

Executive, Quasi-Legislative, Quasi-Judicial

Quasi-judicial

Adjudicating violations of laws or regulations
Power to decide controversies

Reasons for Administrative Agencies

specificity, expertise, protection, regulation, services

What administrative agency is in charge of rulemaking?

Quasi-Legislative

Regulations

administrative rules that guide the operation of a government program

Guidelines

Advisory but do not have the force and effect of law

True or False, regulations must allow time for public to comment after proposing regulations

True

Tools that Quasi-Judicial agencies can use for Adjudicating

Cease and Desist Order, Consent Order

Cease and Desist Order

An order that the violator must stop objectionable activity and refrain from any further violation

Consent Order

An order entered by the agency that is agreed upon by the accused and requires the accused to waive rights to judicial review

Will a regular court review the case once you settle?

No

Advising

Reporting to the President
Recommending legislation to congress
Reporting to the general public
Issuing Advisory Opinions to Business or individuals

The Advising investigating function

Subpoena powers to require reports, examine witnesses under oath and examine documents.

Agencies, Boards, or Commissions consist of how many members?

5-7

How does a member of agency become a chairsperson?

They are appointed with confirmation from the Senate

True of False? Appointees are not permitted to engage in other employment during the terms

True

Chairperson

presiding officer at meetings, most visible, usually belongs to same political party as the president

Secretary

responsible for the minutes and the records , Signs orders and official correspondence

Not employed by the agency;
Provide interaction between regulators and those being regulated

Advisory Council

Chief law officer and legal advisor

General Counsel

Duties vary across agencies

Director of operations

Chief operating officer who supervises administrative functions

Executive Director of Administration

investigate alleged violations of the law

Regional Offices

Immunity

Protection of judges from liability for damages based on decisions

Perform the adjudicative fact-finding functions
Hear cases of alleged law violations and apply the law to the facts

Administrative Law Judges

Case: Lucia vs SEC,

Are administrative law judges “Officers of the US) requiring appointment by the President, Courts of Law or Heads of Departments OR are they mere employees of the Federal Government? 

Administrative law officers are officers of the US so they DO need to be appointed.

In order to establish standing, the challenging party must address two issues:

Reviewability and Aggrieved Party

Questions to consider Reviewability

Is the action or decision of the agency subject to judicial review?
Did Congress, through statute direct that certain types of disputes undergo an administrative process (exhaust all administrative remedies) before a party has standing to bring an action challenging the agency's action?
Is the agency action committed to agency discretion by law?

Aggrieved party consideration

Person suffered legal wrong because of agency action OR
Adversely affected or aggrieved by agency action

Basic issues challenging the validity of the rule

Is delegation valid? (Must be definite and limited)
Does the Cngoress intend for this administrative agency to regulate a particular area?
Has the Agency exceeded it's authority?

Case: FDA VS Brown & William Tobacco: FDA is trying to regulate tobacco within the company, Did the FDA have authority to regulate this matter?

Congress said that the FDA doesn't have control over that and Congress has authority it.

Review of Adjudications: Procedural Aspects

Judicial review of agencies' adjudications is limited
Courts exercise restraint and resolve doubtful issues in favor of an agency
Agencies develop a own rules of procedure
Allows agencies to design rules peculiar to the industry and the tasks of the agency
Courts lack the authority to substitute judgment for agency
Doctrines that guide courts in the review of agency adjudications:

Exhaustion of remedies:

Limits when courts can review administrative decisions

True or False, courts will review administrative actions before a complaining party has exhausted all the administrative remedies and procedures available to him or her

False, you have a exhaust all resources

Applies when a claim is originally filed in the courts

Primary Jurisdiction

Kathy is 42 and is diagnosed with a rare case of Alzheimer's and there are drugs that can control the disease but no cure, Later she finds out that there is a cure in Sweden but the drug is illegal in the US and you cannot purchase it online, Kathy files a lawsuit to the federal court, the case got suspended and referred to the FDA for initial review and determination, What is the requirement that the district court judge is following?

That is the Primary jurisdiction

Review of Factual Determinations (Before 2024)

Courts presume the agency was right
Evidence is assessed by analyzing the record of the agency's proceedings

Criticisms of Administrative Agencies relating to personnel

Difficulty in hiring and retaining the best qualified people
Difficult to discharge unsatisfactory employees
Personnel in top positions are selected for political reasons

Criticisms of Administrative Agencies relating to procedures

Delay in the decisions-making process
Administrative process is overwhelmed with paperwork and meetings
Rules and regulations are written in complex legal language
Dictatorial in nature

Criticisms of Administrative Agencies relating to substance

Rules and regulations overlap and conflict
Actions for illegal conduct end only with consent orders
Enforcement of laws varies over time

How does regulation affect cause of business

Regulation increases the cost of doing business
Consumer pays both direct (in taxes ) and indirect (when purchasing products & services) cost of regulations
Companies are forced to create an internal bureaucracy to deal with the agency
Cost of paperwork - additional cost to the business communtiy

How does regulation affect cost of society

Public is forced to pay for things that are not needed
Inefficient regulatory process increases the cost significantly
Agencies are required to publish guidelines and rules in the Federal Register

There have been recent changes as to how we handle interpretations of ____________ __________ when an administrative agency is involved.

ambiguous statues

Does a change for interpretations apply other states aside from ambiguous statues?

No

In the regulatory process Historically: We have relied upon the

Chevron Chase

Chevron had rested on the assumption that, when there was an _________or ___ in a statute, Congress intended for it to be filled by an agency rather than by the courts.

ambiguity or gap

The Court, rather than imposing its own interpretation of the statute, in the PAST would defer to

Agency's interpretation as long as the agency's interpretation was based on a permissible construction of the statute

Short summary of the old regulatory process

Whatever the agents say stands and the courts must follow that.

What happened on June 28, 2024

Overturning Chevron, the Supreme Court has authorized federal courts to draw their own conclusions about the correct legal interpretation of otherwise ambiguous federal statues

Summary of the new regulatory process

The courts can consider the agent's conclusion but they don't have to follow him

Additional Changes: On July 1st 2024

Corner Post Inc v Board of Governors of the Federal Reserve System (2024)

the Court held that the statue of limitations to challenge an agency action under the Administrative Procedure Act (APA) does not begin to run until a plaintiff is injured by final agency action.

Reading the Ticker Tape Symbols

- Ticker Symbol: unique characters used to identify company
- Shares Traded: volume for trade being quoted (thousands, millions, etc)
- Price Traded: price per share for particular trade (last bid price; comes right after @)
- Change Direction: Shows whether stock is trading higher or lower than previous day's closing price
- Change Amount: different in price from previous day's close

Security

any note, stock, treasury or bond investment company

Why do we have securities regulation?

To protect uninformed people from investing their without sufficient information.

True or False? A security involves an investment in a common enterprise with profit to come solely from the efforts of persons other than the investor.

True

The Howey Test (Must meet ALL of these)

An investment of money
In a common business activity
With a reasonable expectation of profit
Based on the efforts of someone other than the investor

Does investing money into someone taking care of trees and making money from them selling the fruits, meet the criteria of the Howey Test?

Yes

Responsible for administering the federal securities laws.

Securities and Exchange Commission (SEC)

How many people are apart of the SEC and how long do they serve?

Consists of five commissioners appointed by the President for 5 year terms

What powers do the SEC possess?

Possess quasi-legislative and quasi-judicial powers

Applies only to the INITIAL SALE of the security to the public

Goal:  Make sure that investors can make informed decisions

Requires the disclosure of information to potential investors

The Securities Act of 1933 (AKA the '33 Act)

Goal of the Securities Act of 1933

To assure that investors have sufficient information on which to make an informed investment decision.

Does the Securities Act need the disclosure of information to potential investors?

Yes

Omitting immaterial facts about filing a securities registration statement is basis for liability True or False?

False

What section is Insider Trading under (Rule10b)?

Section 10B-5

What type of people does insider trading under 10b and Rule10b-5 focus on

Trading nonpublic information between Officers, directors and employees of the firm

Who is an insider under Section 16?

A person who owns more than 10% of any security and is a director or officer of the issuer of the security

What is a Tippee?

A person who receives inside information.

True or False? Section 16 prohibits in a publicly traded company from reaping short term profits.

True

Under Section 16, If your an insider and buy a stock for $20 and sell it for $30, you would have to return what amount?

$10

Section 16 Requires company insiders to return to the company any profits made from the purchase and sale of company stock if BOTH TRANSACTIONS occur within a six month period. This is to prevent what?

Short-Swing Profits

Case Lorenzo vs SEC: This case went over whether a person who is not a maker of statement (3rd party) but disseminates false or misleading information with intent to defraud can be liable under Rule 10b-5. In this case the maker was the boss, and Lorenzo sent a fraudulent on his behalf, what the verdict for Lorenzo

Lorenzo was fined and was barred for life. You cannot send an email that your boss made with fraudulent statements.

Classical Theory of Insider Trading

Committed trading inside a company (Officers, Employees, etc)

Missapropriation theory

Committed trading by individuals outside a company

 State statues designed to protect the public from the sale of fraudulent stocks and bonds 

Blue Sky Laws

Allows issuers to offer securities for sale automatically after a certain time frame expires (unless the administrative agency takes action to prevent the offering)

Registration by notification

requires a detailed disclosure by the issuer
A security can't be offered for sale until administrative agency grants the issuer a license or certificate to sell securities

Registration by qualification

Exemptions from Blue Sky Laws

- Isolated transaction
- Limited offer to a limited number of offerees within a stated time period
- Private offering
- Sale in which the number of holders after the sale does not exceed a specified number

Registration by coordination

For issuers who must register with the SEC, state registration becomes effective when the federal registration is deemed effective.

Assume a security is exempt from blue sky registration requirements if the issuer sells (or offers to sell) securities to no more than 35 investors during any 12-month period. Furthermore, assume the following transactions occur, with each investor being a different person or entity:

• On February 1, 2013, issuer sells to five investors.
• On June 1, 2013, issuer sells to ten investors.
• On September 1, 2013, issuer sells to ten investors.
• On December 1, 2013, issuer sells to five investors.
• On March 1, 2014, issuer sells to five investors.
• On May 1, 2014, issuer sells to ten investors.

\Are they exempt from Blue Sky Law?

Only 30 investors are involved during the 12-month period following February 1, 2013. However, 40 investors are purchasers during the 12 months following June 1, 2013. Therefore, this security and the transactions involved are not exempt from the blue sky law.

Prospectus

Contains key information contained in the company's registration statement

Provided to interested investors
Company has to describe important information about business operations, financial condition, results of operations, risk factors, and managements
Includes audited financial statements

Prospectus

How many parts does a Registration Statement have

2

What are the 2 parts of the registration statement?

 Part 1 The prospectus (Have to give to investors) and

Part 2 the additional information (Dont have to give to investors but have to file with SEC) 

Primary Purpose of the Sarbanes-Oxley Act of 2002 (SOX)

To ensure accuracy and integrity in the financial reporting of public companies.

What does the Public Company Accounting Oversight Board (PCAOB)

Monitors accounting firms that audit public companies
Requires auditing firms to refrain from conducting non-auditing services

True or False? Members of a public company's audit committee must be independent from the control of the company under SOX

True

Whistleblower Protection under SOX

Encourages individuals to report corruption
Whistleblowers can recover civil damages for retaliation
Improperly terminated employees can be reinstated

Section 302 of SOX and Section 404 of SOX

Requires CEOs and CFOs to certify the accuracy of the quarterly and annual financial statements filed with the SEC

Mandates the certification of internal financial controls

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Addresses many issues of financial reform
Required safety and soundness measures (stress testing, liquidity requirements, etc.) for large financial institutions
Congress authorized the creation of new administrative agencies to achieve the goals of Dodd-Frank Act

The difference between SOX act and Dodd Frank ACT

Sox act prevents fraudulent financial scandals/statements
Dodd Frank prevents financial crisis or depression

Parties regulated by securities act of 1933

issuer, underwriter, controlling person, seller

Tombstone ads

The advertising to sell securities and it happens during the waiting period

Securities and Exchange Act of 1934

An act that regulates the trading of securities such as stocks and bonds in the secondary market (The 34 Act is for everything AFTER the initial sale)

Difference between securities act of 33 and 34

Act of 1933 only applies to the initial sale while Act 34 is for after the initial sale to the public

Defenses recognized by the '33 Act

Materiality (Misleading information didnt effect decision making process)
Statue of Limitations (Happened a over a year ago)
Due Diligence (Information was not meant to be false)

Scienter

guilty knowledge by the misrepresenting party

Difference between Section 10b and Section 16 when it comes to reliance

You must prove reliance in Section 10b but not you don't need reliance in Section 16

True or False, Liability does not requires proof of the defendant's intent to deceive under Section 10b Rule 10b-5

False