Balancing Disclosure and Competitive Advantage in Securities Law

Lessons from Goldman Sachs v. Arkansas Teacher Retirement System

Abstract

As invested capital underpins financial markets and empowers promising firms to grow quickly, the protection of investors and their capital has long been an essential part of stable financial mar- kets. This protection is part of the primary mission of investment protection agencies such as the Securities Exchange Commission and Financial Industry Regulatory Authority within the United States, and foreign organizations such as the European Securities and Markets Authority and Financial Conduct Authority. A myriad of laws, regulations, and court precedents stemming from these agencies require firms to issue accurate, but not always comprehensive, public statements concerning their products and the health of their operations. At the same time, corporate success is also often linked to confidential information, such as the exact makeup of a product, service, or financial instrument. Since this proprietary information gives firms a competitive advantage, it is within the firm’s interest to maintain confidentiality. The right of investors to know the details of their investments and the opposing right of firms to maintain a competitive advantage often results in a gray area around what information should be released and in how much detail. The discrepancy tempts firms to publish misstatements that have the potential to seriously injure investors’ financial positions. Similarly, since firms are not required to disclose all their operations to investors, it is easy for firms without strong guardrails to mask conflicts of interest that potentially endanger investors. For these reasons, it is imperative that both robust and precise legal guidelines be implemented to prevent divided loyalties, thus requiring firms to provide investors with relevant information while maintaining their competitive advantage.