Rule 10b-5: Employment of Manipulative and Deceptive Practices

Adam Smith wrote an interesting article, Rule 10b-5 and Law Schools, where he points out that while law schools need to change, they probably won’t due to one dirty word: tenure.

The article explains that even reducing time in law school from 3 years to 2 years would require laying off 33% of law school faculty and that’s going to happen any time soon thanks to tenure.

He notes the vicious cycle that law schools are all a part of:

Permit me to digress into the annual release of the US News law school rankings…I know that one quite important ingredient is total spending per student. The more a law school spends the better for its ranking. Since law schools tend to lack any meaningful endowments, the only way to raise the more-money you want to spend to goose your rankings is to raise tuition. So here we have the terrible bargain that many schools struck during the boom years:
• They could attempt to raise their US News ranking
• By spending more per student
• Funded by tuition increases
• Leaving graduates with more and more student loan debt
• Which was OK so long as jobs were plentiful at BigLaw starting at salaries of $160,000.

Smith proposes that law school deans should, “subscribe to what I’ll call the “10b-5 Oath.” He explains that under Rule 10b-5: Employment of Manipulative and Deceptive Practices we should:

Focus on clause (b), prohibiting (let’s read it a bit broadly, folks) people from selling things by mis-stating a material fact or omitting a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

He thinks law schools must be required to disclose honest employment data and 1L attrition rates in addtion to average student debt load at graduation. Of course law schools should provide that information; they don’t because no one would go to law school if they did.

I’ll go a step further: In addition to more information, the law schools should have to reimburse tuition for those students who graduate and cannot find jobs in the legal profession one year after graduation.

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