Revisiting Enron: The Outside View

By Ben Dell’Orto IAC Student Intern Fall 2018

Everybody is interested in a shooting star.

By the end of the year 2000, while people were concerned about Y2K, Enron was valued at $83.13 per share after growing from a natural gas company to a diversified behemoth. Over the prior two years, the company had experienced huge increases in value, a miracle investment, reaching a 52-week high of $92.56 on August 23, 2000. By August 14, 2001, the value had dropped to $42.93. By December 2, 2001, the company had filed for bankruptcy.

We’ll address what caused this spectacular downfall, and the response afterward, over the next few posts. For now, we’re going to consider a simple question: what did this fund look like to the average investor at the time? Continue reading

Helping Harmed Investors

By Brook Ptacek, Fall 2018 IAC Student Intern

My clinic story is a year-long project in the making and fortunately for me, it is not over. My story here will continue on until next semester up until the point when I graduate from law school, but it is interesting to look back and see how this all started. I first joined the investor advocacy program unsure of exactly what it was. It was my first year of law school and I wanted to get involved but did not know how. For those of you who are non-lawyers, the first year of law school is essentially taking in a lot of information thrown at you from seasoned professionals and trying to decide, based on the information you heard, which of the paths you most want to follow. For me, I loved everything I heard. I wanted to learn it all, but, practically speaking, I needed to tailor my focus. Coincidentally, at the time I was looking into joining a clinic, my sister was working in finance at a large, well-known bank. I was just fascinated in what she did and the world she lived in and wanted to learn more. Little did I know after signing up for the Investor Advocacy Clinic a whole new world would open up to me. Continue reading

Musk Mondays: Be an Informed Investor

By: Dowdy White, Fall 2018 IAC Student Intern

It’s a good philosophy not believe everything that you read, which is ironic considering the fact that you’re reading this. However, it’s probably easier to believe something if you know that it comes directly from the SEC. Throughout this “Elon Musk tweet” fiasco we’ve learned just how powerful words are and how important it is that we second-guess everything we read—especially on social media.  But how do we protect ourselves as investors?

The SEC has been talking about how to be safe about investing when social media comes into play long before its case against Elon Musk.  In 2014, the SEC released an investor alert informing investors how to avoid fraud when it comes to social media and investing. Well, the SEC simply states that the key to avoiding investment fraud on the Internet is to “be an educated investor.” That tried and true advice is important, and you should use it whenever you think you might want to invest.  To become an educated investor, the SEC recommends that you follow these five steps: Continue reading

Jump Starting my Legal Career

By G. Kevin Mathis, Fall 2019 Investor Advocacy Clinic Student Intern

I enrolled in the Clinic thinking that I could gain some valuable practical legal experience.  I expected to support Professor Iannarone as she handled FINRA arbitration claims.  I thought my fellow clinic colleagues and I would meet with Professor Iannarone weekly to receive a few assignments, give her updates on my progress, ask some questions, and seek advice.  I did receive experience I sought but not as I expected.

The other clinic interns and I did meet with Professor Iannarone weekly but not so that she could direct us on how we could support her.  We met with Professor Iannarone so that she could offer us her support.  Professor Iannarone expected us to act as more than just supportive interns.  I learned that to gain the practical legal experience I sought I needed to fully engage and immerse myself in real-world legal issues.

Thanks to the Clinic I learned to identify legal issues in a law school setting that was not a timed hypothetical.  I was able to analyze legal matters for individuals who would normally not be able to receive legal assistance.  While helping these individuals I was able to learn how to use incomplete information to identify legal issues and draft substantive legal documents.     The Clinic gave me an opportunity to truly experience law practice while under the supportive guidance of Professor Iannarone.

My Clinic experience gave me the opportunity to gain more than just some practical legal experience.  The Clinic gave me a chance to jumpstart my legal career.

Musk Mondays: Pesky Business

By: Dowdy White, Fall 2018 IAC Student Intern

I’ve always heard that if you aren’t able to say something nice, then it’s best to say nothing at all. This phrase was always especially applicable when I got in trouble as a child. As soon as I opened my mouth to say something “smart” back to my parents, my punishment would just get infinitely worse. While I took this lesson to heart, some people still take a shot at insulting or demeaning the authority figure when he or she gets into hot water.

One of the most notable examples of this type of situation is Elon Musk and his feud with the U.S. Securities and Exchange Commission. On October 4, 2018, weeks after the SEC filed a complaint against Musk and Tesla for a variety of reasons, Musk sent out a sarcastic tweet stating: “Just want to [say] that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!” Continue reading

Killing the Messenger: A Deep Dive into Lorenzo v. SEC (Part 3 of 6)

By: Matthew Haan, IAC Student Intern Fall 2018

Hello again, faithful readers! In this six-part series, we are chronicling Francis Lorenzo’s dispute with the SEC as it makes its way through the courts. Last time, you read about the fateful e-mails sent by Lorenzo that got us where we are. In case you missed that, take a look at yesterday’s post. Today you will read about what we in the legal community like to call the procedural history. The procedural history covers everything that happened in the lower courts before the Supreme Court agreed to hear the case. Sounds interesting, right?

Let’s start with the SEC Rule at issue here. Rule 10b-5 is an antifraud provision, meaning that a violation requires proof of “scienter.” Like you, I had no idea what that word meant when I first heard it in my Contracts class. All it really means for this case is the SEC must have shown that Lorenzo had “an intent to deceive, manipulate, or defraud.” It is important to know that scienter can be shown by a high degree of recklessness. In other words, Lorenzo must have wanted to trick people with those e-mails, or at least acted with enough recklessness to show he ignored the potential falsity of the statements. The first part of Rule 10b-5 at issue is subpart (a). Rule 10b-5(a) prohibits employing “any device, scheme, or artifice to defraud” in connection with buying or selling securities. Subpart (b) is not as broad; it prohibits making an untrue statement of material fact or failing to state a material fact in order to make a statement not misleading. A claim under 10b-5(b) here would require proof that Lorenzo made an untrue statement, or failed to include a material fact necessary to make his statements true. Continue reading

Killing the Messenger: A Deep Dive into Lorenzo v. SEC (Part 2 of 6)

By: Matthew Haan, IAC Student Intern Fall 2018

Welcome back to our six-part series discussing an important upcoming Supreme Court case involving the Securities and Exchange Commission. Last time, I gave you a brief introduction to Lorenzo v. SEC. If you missed it, go back and catch up. This time, I will give you the factual background you need to understand what is going on in this case. Without further ado, let’s get to it.

All the way back in 2009 (this actually is not a long time in Supreme Court context), Francis Lorenzo—the petitioner in the case—was the director of investment banking at Charles Vista, LLC, an SEC-registered broker-dealer. One of Charles Vista’s clients was a public company called Waste2Energy Holdings, Inc. (W2E). According to Lorenzo’s certiorari petition, W2E made representations about a new technology and included the technology in its June 2009 Form 8-K, which valued W2E’s tangible assets just over $10 million. When the new technology did not work out, W2E filed an amended Form 8-K on October 1, 2009 in which it valued its assets at $370,552 as of March 2009. On the same day, W2E filed a Form 10-Q in which it valued its assets at $660,408 as of June 2009. Continue reading