Exam 4 Flashcards
Know where regulatory agencies get their rulemaking powers from
Answer: Regulatory agencies get their power from Congress. Congress delegates authority to them.
(From Book)
Congress has the authority under the commerce clause and the necessary and proper clause in the Constitution to create agencies and give them powers to enact rules.
Know what the Taylor v. Huerta case said about agency actions that go beyond their authority from their enabling legislation. (Also, explain the context of the case.)
ANSWER - The court held that the FAA went beyond its authority
Dummy summary - The FAA was given authority to manage not create rules, they created a rule against drones, Taylor challenged it and the appellate court said they weren’t allowed to create rules thus they over stepped their authority.
Case Background -
The Federal Aviation Administration (FAA) Modernization and Reform Act was passed in 2012. It directs the FAA to “Promote safe flight of civil aircraft” and to set operating standards for aircraft operation in the United States. Basically saying it requires “Aircraft” to be registered with the FAA before operating. The statute states, in Section 336, that the FAA “MAY NOT PROMULGATE ANY RULE OR REGULATION REGARDING MODE AIRCRAFT.”
+ In 2015, the FAA issued the registration rule regarding model aircraft. This includes small drones used for recreation. Taylor petitioned the FAA, contending it did not have statutory authority to issue the Registration Rule that requires him to register his drone. The FAA rejected so he appealed
Know the definition of agency procedural rules
“Under the Administrative Procedure Act or other legislation, the process that an administrative agency must follow for its actions to be valid.”
Know the two (First and Second) ways agencies enforce regulations.
- Direct examination ( They go observe the businesses themselves)
- They can make businesses monitor their own behavior (aka) (self-report)
Can Corporations use the 5th Amendment protection against self-incrimination when being required to self-report to an administrative agency
Corporations cannot use the 5th amendment only real people can enact the 5th amendment
Know the textbook’s example of Agency Direct Observation enforcement
Book examples
- Worksite safety inspections by OSHA inspectors
- Testing by the EPA for excessive air pollution emissions.
More information on what Direct observation is and limitations.
No warrant is required if obtained from an “open field” observation, that is, if the evidence is gathered by an inspector through observations from areas where the public has access to.
If cops don’t need a warrant to enter and search then agencies don’t need one either.
“Open field” refers to places where it’s public or the area is inviting people in.
Know the requirements for an agency to obtain evidence from public access areas against potential violators
Since it’s a public area there is no need to obtain a search warrant.
Know the ruling of the Dow Chemical v. United States case
Case details: Dow Chemical did not allow anyone into its property but the agency flew over Dow chemical and could see all the terrible things they were doing and used it against them A case was build saying they couldn’t use the information because they obtained it illegally.
Decision: but the court ruled that the area above them was open to the public thus they violated no rule, if the public can fly over then the agency can too.
How are agency inspections cleared up?
Most violations discovered by agency inspections are cleared up informally
The agency’s don’t have to do it informally but majority of cases go this route
Know what the court in Black Beauty Coal Co. v. Federal Mine Safety and Health Review Commission decided
Case Background
- Mine safety and health administration (MSHA) inspector Franklin entered a mine in Indiana operated by Black Beauty. The company assigned Hammond to escort Franklin. When he entered the mie, he smelled burning coal. He asked some miners about it. Hammond said he would have someone fix the problem. Franklin said to shut down the belts, but Hammond refused to do so, thus he got a caution.
Answer:
- They denied their appeal of the citation based on historical history,
-Black Beauty had been cited for several past accumulation violations.
- The burning smell existed for a significant time period
- Villain “should have seen and noted” the coal turning in the tail
- Vogel and the other miners did not alert management after noticing a burning smell.
Thus Black Beauty’s petition for a review is denied.
In-Class answer
- There was sufficient evidence to uphold the citation
Know what a business does if it does not agree with the outcome of an agency’s adjudicatory hearing
They can appeal, they usually appeal to the head of the agency.
Know the standards for courts reviewing informal agency procedures
Background information: agencies rely heavily on formal procedures that allow Leeway into forcing compliance. Because informal procedures generally require less time and money than formal procedures, agencies preferred to use them when possible.
Broad Answer: in reviewing agency procedures the courts are generally most concerned with whether that agency procedure was fair and whether that decision was consistent with the legislative intent of Congress.
In-depth answer.
When it’s an interpretation of the law
- the court interprets the law thus they don’t rely on what the agency said.
When it’s an interpretation of administrative function
- they give reference to the agency, because “the agency was set up to do that so they know what they are doing” unless they are being arbitrarily and capricious.
Know what an administrative law judge is
Primarily they are an employee of the agency.
Know what the Lujan v. Defenders of Wildlife Court held about an environmental group’s concern about crocodiles in Egypt
They weren’t injured by what happened to crocodiles in Egypt so since they weren’t injured, they had no standing. AKA they weren’t being affected by what was happening thus they had no standing.
Know the court’s holding regarding standing in Summers v. Earth Island Institute
Case Background
- After a 2002 forest fire, the Forest Service approved a 238-acre salvage timber sale without an Environmental Impact Statement (EIS) or formal notice, citing regulatory exemptions. Earth Island Institute challenged the decision, leading to court rulings halting the sale. The government sought a review on whether Earth Island could challenge the regulations.
Answer
- The plaintiff could not demonstrate standing and thus could not challenge the Forest Service actions in court.
Can Congress prohibit judicial review of a particular administrative decision
Yes, they can in their enabling legislation or any other law they pass about the agency they can say these kinds of decisions cannot go to court the agency is the final word.
Simple answer - they can and they do
Know the final determination of the Fish and Wildlife Service’s actions in M. Farm & Livestock Bureau v. Dept. of Interior
Answer - It is arbitrary and capricious they are not following their own rules, and they are not keeping track of the Jaguars.
Case Background
- The Fish and Wildlife Service designated 1,200 square miles in Arizona and New Mexico as critical jaguar habitats. Plaintiffs challenged the designation of two units, arguing a lack of confirmed jaguar sightings. The court upheld the FWS’s decision, finding it arbitrary or capricious thus reversing the decision.
Know how an agency’s statutory interpretation is reviewed by courts
A court’s review of an agencies is statutory interpretation is given a greater scope of review. In contrast to the technical judgments required of the agency and implementing a statute, the courts have responsibility for the interpretation of the meaning of statute enacted by Congress.
Simple answer - the courts are the ones who make the statutory decisions. They don’t rely on the agencies interpretations.
Know the three statutes from the textbook that are indirect control on agencies. What are they and what do they do?
- ⭐️ Freedom of information
- the freedom of information act (FOIA) makes most documents held by federal agency is available to the public. Unless the document falls within certain exempt categories, it must be released upon request from a citizen, although the process is often very slow and can be expensive.
- Privacy Act
- the privacy act informs citizens about what information is collected about them and how the information is used. It requires that unless an exception applies notice and prior consents are required before an agency can disclose information that concerns and identifies an individual.
- Government in the Sunshine Act
- the government in sunshine act limits secret meetings by agencies. The public is entitled to at least one weeks notice of the time, place and subject matter of agency meetings.
Be able to define the term Security
Security is either debt from a publicly traded corporation or equity from a publicly traded corporation. Debt is usually called bonds and equity is usually called stocks or shares.
Know the four elements of a security under the Howey test. KNOW ALL FOUR FOR THE TEST.
- An investment of money.
- In a common enterprise.
- With an expectation of profits.
- Generated by the efforts of persons other than the investor.
Know the purpose of the disclosure provisions in federal securities law
We want potential investors to have good clear information so it’s even an is fair to everyone. The investors have all the information which then they can make good decisions.
Know what must be included in the second part of an SEC registration statement
- The first part must have some very specific things.
- The second part is detailed information required by the SEC.
- More history on the financial background
- Past experience of the issuers is required
- More information about the proposed business and the issuers
Know what SEC can and cannot do when reviewing a registration statement
⭐The SEC [CAN] issue a deficiency letter if they think the issuer is not doing a good job with what they are disclosing
It [CANNOT] give an opinion on the likelyhood of success of a proposed business.
Know the term for the entity that is hired to market new securities
Underwriter
Know the definition of publicly held company
Any large company that sells its securities in the open stock exchanges
Know the definition of private company
They have less than 500 shareholders and their securities are not publicly available
Know what SEC Rule 10b-5 does
Section 10(b) of the 1934 act is about manipulative or deceptive devices that are used to create securities fraud.
Know the three things prohibited by Rule 10b-5
- To employ any device scheme or artifice to defraud
⭐️ 2. To make any untrue statement of material fact, or to admit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. - To engage in any act practice, or course of business which operates or would operate as a fraud or deceits upon any person in connection with the purchase of sale of any security.
Know the example of securities law misleading information from the text
Defenition
- Securities law imposes liability for misstatements or omissions (failure to reveal information) about the financial status of a business that has issued securities.
{{Text Example}}
- Overly optimistic statements by executives can cause expectations of higher profits, leading investors to bid up the price of the stock. When the statements are found not to be related to actual performance, the stock price falls, thereby imposing losses on those who bought the stock on the basis of the positive statements
Know what the court said in the Smallen v. Western Union Co. case said about the intent needed to show a company committed securities fraud
Case background:
-People were using Western Union to commit money laundering. And when word got out one of their shareholders said that the company should have told him about that. Because they could have sold their stock early and not taken such a loss.
Answer -
The court says that when you are going after someone with the rule 10b-5 you have to show evil will or bad intent (Scienter). Since there was no (Scienter) there was no violation.
Know what the Securities Litigation Uniform Standards Act of 1998 requires
That all security litigation has to be in federal court.
Know what CEO’s and CFO’s of publicly traded companies are required to do under Sarbanes-Oxley
The Sarbanes-Oxley Act requires that the Chief Executive Officer [CEO] and Chief Financial Officer [CFO] of large companies that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and that the information in the reports is accurate.
Know what enabling legislation created the Public Company Accounting Oversight Board
Sarbanes-Oxley
Know what the Supreme Court said about non-corporate insiders who luck into inside information on securities
If a person obtains insider-information by pure chance aka not actively trying to acquire it and has no obligation to say anything about it, they can trade using the information, it’s not ethical, but they will not go to jail.
Short answer - If you are lucky enough to hear insider information and don’t have a responsibility to say anything you can use it to trade and it’s not illegal.
Know what the U.S. v. Kosinski case said about insider trading for a scientist conducting tests for a publicly traded company.
Case Background
- A dude that had a non-disclosure agreement he violated it by realizing the test he was making we’re gonna be terrible and the company’s drug was not gonna be approved so he went and sold all the stock. Even though he wasn’t an employee of the company he did have a non-disclosure agreement so he had an obligation to protect the shareholders on it and he violated it so he went to jail.
Short answer
- he had a non-disclosure agreement which meant he had the responsibility to protect the shareholders which he violated thus he went to jail.
Know what is considered illegal practices for security professionals
[[Churning]]
- This occurs when a broker who has control of a client’s accounting buys and sells an excessive amount of stock to make money from the commissions earned on transactions.
[[Scalping]]
- This is when a professional buys stock for personal benefit, and then urges investors to buy the stock so that the price rises to the benefit of the professional.
