This article responds to a proposal by Professor John C. Coffee, Jr. for a modified form of strict liability for gatekeepers. Professor Coffee’s proposal would convert gatekeepers into insurers, but cap their insurance obligations based on a multiple of the highest annual revenues the gatekeepers recently had received from their wrongdoing clients. My proposal, advanced in 2001, would allow gatekeepers to contract for a percentage of issuer damages, after settlement or judgment, subject to a legislatively-imposed floor. This article compares the proposals and concludes that a contractual system based on a percentage of the issuer’s liability would be preferable to a regulatory system with caps based on a multiple of gatekeeper revenues.
Both proposals mark a shift in the scholarship addressing the problem of gatekeeper liability. Until recently, scholarship on gatekeepers had focused on reputation – not regulation or civil liability – as the key limitation on gatekeeper behavior. Indeed, many scholars have argued that liability should not be imposed on gatekeepers in various contexts, and that reputation-related incentives alone would lead gatekeepers to screen against fraudulent transactions and improper disclosure in an optimal way, even in the absence of liability. From a theoretical perspective, this article is an attempt to move the literature away from a focus on reputation to an assessment of a potential reinsurance market for securities risks, where gatekeepers would behave more like insurers than reputational intermediaries.
Accounting Law | Banking and Finance Law | Business Organizations Law | Commercial Law | Economics | Insurance Law | Law | Law and Economics | Organizations Law
Date of this Version
Partnoy, Frank, "Strict Liability for Gatekeepers: A Reply to Professor Coffee" (2004). University of San Diego Law and Economics Research Paper Series. 5.
Accounting Law Commons, Banking and Finance Law Commons, Business Organizations Law Commons, Commercial Law Commons, Economics Commons, Insurance Law Commons, Law and Economics Commons, Organizations Law Commons