30 Clev. St. L. Rev. 203 (1981)
Towards a Federal Fiduciary Standards Act

handle is hein.journals/clevslr30 and id is 213 raw text is: ARTICLES
fact that the legal standards that govern the conduct of corporate
managers -directors, officers and controlling stockholders -differ in
their source and origin depending on whether one is speaking of rela-
tions with the company itself or of relations with its security holders. At
the security holder level, it is of course the federal securities statutes
that have primary effect. Federal proxy and insider trading rules,
together with federal disclosure requirements, are the prevailing con-
straints where relations between managers and investors are con-
cerned. At the company level, by contrast, it is the statutory and com-
mon law of the state of incorporation that chiefly governs. Fiduciary
limitations on dealings between the company and those who manage or
control the disposition of its property have long been reserved to the
states, of which Delaware, being the principal state of incorporation, is
the most important. In effect, then, despite the economic identity that
exists between the firm and its security holders, fiduciary obligation is
at present dichotomized between federal and state legal systems which
have no very close connection to one another; the federal system
dominates the security holder level while the various state systems
dominate at the firm level.
The reason for the dichotomy just described is in part historical. The
common law of fraud and deceit-with its requirements of privity,
reliance, and so on-was, or was thought to be, too restrictive to cope
with problems of false disclosure or nondisclosure in transactions taking
place on an impersonal stock exchange between anonymous parties.1
Both the 1933 Act,2 with its registration requirement and its broadened
framework of liability, and the insider trading and proxy rules of the
1934 Act,3 were responsive to the need to adapt the law of fraud and
*William Nelson Cromwell Professor of Law, Yale University. Portions of
this article are drawn from an unpublished paper delivered by the author at a
conference on corporate governance sponsored by the American Enterprise In-
L. Loss, SECURITIES REGULATION 20 (2d ed. 1961).
Securities Act of 1933, 15 U.S.C.  77a-77aa (1976).
Securities Exchange Act of 1934, 15 U.S.C.  78a-78jj (1976).

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