Federalism and Investor Protection: Constitutional Restraints on Preemption of State Remedies for Securities Fraud

During the past five years we have experienced unprecedented success in our capital markets, marked by a record number of registered public offerings, a record amount of capital raised in the primary market for securities, and a record volume and appreciation in our nation’s secondary markets for securities. For the first time, investors have invested more money in mutual funds than the amount on deposit in our commercial banks. These positive developments have occurred not in a laissez-faire system, but in a dual regulatory system providing both federal regulation and remedies and state regulation and remedies. This dual regulatory system and the accountability it demands from corporate management have provided the foundation for market confidence and market success. The paradox is that this very success cyclically undermines the regulatory process. In a bull market so strong that even the dart throwers make money and corporate issuers who have never produced earnings are enjoying oversubscribed offerings of equity securities, no one wants to hear about fraud and