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Litigator Warns of Rightward Shift in Federal Courts on Retirement Funds

Mark C. Rifkin, a securities lawyer, warns of growing politicall rightward shift in federa courts.
Mark C. Rifkin, a securities lawyer, warns of a growing politically rightward shift in federal courts.
December 23, 2014
By Marc Bussanich 

New York, NY—A securities litigator warned on December 12 that the growing rightward shift in the federal courts, along with a recent decision by the United States Court of Appeals Second Circuit, may subject big institutional investors like the New York State Common Retirement Fund to the vagaries of the stock market. 

Mark Rifkin is a partner at Wolf Haldenstein Adler Freeman & Herz LLP and has been practicing securities litigation for more than 25 years. He spoke at an event hosted by the Business and Labor Coalition where the state’s comptroller Thomas DiNapoli also spoke. He is the guardian of the state’s $177 billion retirement fund that covers over 1 million employees and retirees. (A video of Mark Rifkin’s speech is available on Vimeo via )

Mr. Rifkin stressed that he favors strong regulations overseeing the securities exchanges as a means to prevent and deter shenanigans such as insider trading.

“For 25 years, I’ve been a securities litigator. I have come to very strongly advocate and favor protecting the rights of investors to sue under federal securities laws in order to keep the market honest and open,” Rifkin said.

He pointed to numerous empirical studies that show that vigorous enforcement of federal securities laws is absolutely essential to the growth of the American financial market.

“There are three major studies in the last 15 years that have demonstrated the importance of transparency, openness and honesty in the federal securities field in order to attract capital to the American markets, which is of vital importance to a fund like the New York Common [Retirement] fund, because with almost $200 billion under management it’s impossible for the fund as a practical matter to avoid being subject to the broadest of broad market swings,” said Rifkin.

But the strong securities laws he believes are vital to American financial markets are now being undermined by a politically rightward shift in the federal courts that dates back to President Ronald Reagan’s second term.

“Any weakening of federal securities laws will [lead] to more and more wild swings in the market, which I’m sure Mr. DiNapoli will tell you is absolutely not good for large institutional investors like the Common fund. The IPO tech bubble in the late 1990s and the mortgage meltdown and financial crisis of 2008, I think, have their roots in a pronounced anti-regulation, anti-federal securities enforcement environment.”

The weakening of those laws only makes the Comptroller’s job more difficult, especially when investors create financial products that are difficult to comprehend.

“It seems to me that every time I turn around there’s a new investment that’s harder and harder, not just for investors to understand, but for regulators and even market experts, to understand. Put yourself in the position of Mr. DiNapoli who has to both understand these products and has to expose the fund to these products if he wants to be able to enjoy the benefits of being exposed to the broad market. It’s a wonder how the Comptroller is able to sleep at night,” Rifkin said.

By which the Comptroller replied, “Sometimes I don’t.”  

Mr. Rifkin then described a recent decision by the U.S. Court of Appeals 2nd Circuit, which is the most influential securities court in the country save for the Supreme Court, in which he believes the Second Circuit’s decision will make it almost impossible to convict someone for insider trading.

“The Second Circuit decided in United States V. Newman [to] reverse two very high profile convictions for insider trading, where someone who gets information from an insider, to be liable under the federal securities laws the government has to prove that not only that they knew inside information, and that it was material and that they knew it was confidential information and they knew the information was wrongfully obtained and wrongfully provided to them, but they also have to know that the insider personally profited from the exchange of that information to the tippee,” Rifkin said.

He added that unless the decision is changed, it will have a chilling effect on major institutional investors such as New York State’s Common Retirement Fund.

“Until that law is changed, it will have a chilling effect on the willingness of major institutions, who have a choice about it, of investing in American markets. I think that has a significant long-term adverse potential affect on all of our investments including, unfortunately, the Common Fund. Mr. DiNapoli will tell you it’s not as if he can take that money out of the New York Stock Exchange and go invest somewhere else. The Fund and all major institutional investments are exposed to the vagaries of the market. I think we need to pay attention to what’s happening as this constant drumbeat of conservatism in the federal courts threatens the foundation of our capital markets.”



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