January 17, 2021

Volume XI, Number 17

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A Dozen Securities Law Professors Stake Absolutist Position On Adviser Duties

I teach securities regulation at the University of California, Irvine and so have a toe hold in academia.  In my view, law schools are placed on the "isthmus of a middle state".  As such, they must continually wrestle with the question of whether they are a mere trade school or a scholarly institution.  If you lean too heavily towards the former, you lack prestige and if you lean too heavily on the latter, you lack practicality.  

Yesterday, a dozen eminent securities law professors issued a statement expressing concern about the Securities and Exchange Commission's Interpretation Regarding Standard of Conduct for Investment Adviser.  In their statement, these professors assert without qualification "In short, the investment adviser must seek to avoid conflicts of interest, not merely disclose them".  

It is easy to wax eloquent when speaking of fiduciary duties, as Benjamin Cardozo did in Meinhard v. Salmon,  249 N.Y. 458, 464 (1928) ("Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.").  The reality for investment advisers is much more difficult.  Some conflicts, or potential conflicts, may be unavoidable or may result in transactions that are in the client's best interest.  Further, taking an absolutist position deprives adviser and client of the ability to tailor their relationship. 

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© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 177
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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