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LEGAL ORIGINS AND SECURITIES FRAUD

Lloyd's Maritime and Commercial Law Quarterly

LEGAL ORIGINS AND SECURITIES FRAUD Frank H Easterbrook * The legal-origins literature has not discussed the law of fraud, which on the surface is hard to reconcile with that literature’s picture of the common law as one that prefers contracts over public intervention and uses simple rules—though it is easier to reconcile with the observation that common-law judges have greater authority than civil-law courts to improve the law through adjudication. This short essay discusses six ways in which common-law judges in the United States have simplified the law of fraud and made it a complement to the law of contracts. I am delighted to be back at Oxford after more than 30 years. I am also happy to have a chance to discuss a literature that has fascinated me for two decades, since the first papers appeared in the 1990s. Daniel Fischel and I wrote about corporate and securities law before Rafael LaPorta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny began to consider the differences between common-law and civil-law systems. This talk gives me a chance to reflect on how their work intersects with the sort of arguments Dan Fischel and I made in The Economic Structure of Corporate Law . 1 Doubtless many of you are familiar with the legal-origins work, but, for the benefit of those who are not, here is a summary. 2 Common-law and civil-law countries differ in several respects that may matter to economic growth. Judges play a substantial role in law creation as well as law enforcement in common-law nations, while judges officially play no role in either respect in civil-law nations. Indeed, in France judges are forbidden to interpret the law but must apply it as if it were self-revelatory. Precedents, so important to the common law, play no official role in civil-law systems. Judges in common-law nations tend to come to the bench after careers at the bar or the legal academy; in civil-law nations judges tend to enter adjudication right after law school and work their way up through a hierarchy of judicial institutions—or adjudication mixed with executive functions, as in the Conseil d’État. Common-law nations tend to follow an adversarial model in which lawyers present evidence to judges who act as umpires; civil-law nations rely on the judges to assemble the record as well as adjudicate the controversy. Because judges are in charge, higher levels of * Judge, United States Court of Appeals for the Seventh Circuit; Senior Lecturer, The Law School, The University of Chicago. This lecture was delivered in the series “The common law and finance: perspectives from the bench”, at the University of Oxford, on 23 May 2019. 1. Frank H Easterbrook and Daniel R Fischel, The Economic Structure of Corporate Law (Harvard University Press, Cambridge, Mass, 1991, paperback 1996). 2. More comprehensive summaries may be found in Rafael LaPorta, Florencio Lopez-de-Silanes & Andrei Shleifer, “The Economic Consequences of Legal Origins” (2008) 46 J Econ Lit 285 (2008, and Edward L Glaeser & Andrei Shleifer, “Legal Origins” (2002) 117 QJ Econ 1193. 620

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