Business Law Prof Blog

The SEC and the Foreign Freeze

Late last week, the SEC obtained a court Order authorizing "emergency action" against two Spanish nationals (a research analyst and a brokerage customer) who allegedly engaged in insider trading in Potash Corporation (an NYSE stock) through purchases of options on the CBOE.  The two defendants are alleged to have profited handsomely from advance news of a proposed tender offer made by BHP Billiton to Potash disclosed on August 17th; the charges noted that the analyst works for the company advising BHP, and that a letter constituting the offer was circulated between the two companies four days prior to public disclosure.  The SEC thus sought (as it has in other cases in the past) a freeze of the brokerage assets of these two defendants before "they will be beyond the jurisdiction and reach of United States Courts."

An Illinois district granted the freeze Order on an ex parte basis, with the battle for more sanctions still to come.  Perhaps the daunting Complaint is simply a product of the trend and the times, but the document is much more noteworthy for what it doesn't say.  Undeniably most glaring among the omissions is the absence of any alleged "tip."  The allegations are based largely upon such circumstantial evidence as the existence of the letter offer, the "suspicious" trading in call option contracts, and the huge profits; additionally, it is noted that one defendant subsequently attempted to transfer his profits to a bank in Madrid.  Absent are allegations concerning not only the specific source of the information but also the nature of the Commission's theory of liability (the notion of inside information as contraband absent other circumstances was rejected by the Supreme Court 30 years ago).  

And thus rings the most alarming shot in the Commission's war on insider trading.  Although the statutes, rules and case law contemplate defenses for reliance upon other sources of information, lack of duty to any source, and/or just plain luck in either obtaining news or guessing takeovers, the asset freeze prizes immediacy and deterrence over these possibilities. 

Also noteworthy is the alleged 'inside information' itself:  The news that a tender offer had been rejected.  If the sole consideration in a materiality analysis diminishes to whether or not a company is "in play," then countless are the possibilities for finding alleged Rule 10b-5 violators.  More importantly, such generic news anticipates a rational market reaction; such premise is laid threadbare by the facts of this case alone (investors drove up the price Potash nearly 28% in the day after the disclosure of a tender offer that would have paid a 16% premium).  

Finally, the Complaint alleges (in the conjunctive) violations of all three sub-divisions of Rule 10b-5 (i.e., employing artifice, making untrue statements, and fraudulent acts), whereas the 'untrue statements' charge is normally not included in insider trading cases.  It remains to be seen whether this signals a new, aggressive trend in 10b-5 enforcement.  

The Charges thus make for great discussion of both asset feezes in civil cases and the elements steadily becoming expanded or subsumed in Rule 10b-5 case law.  For the SEC's descriptive Press Release (with a link to the actual Complaint), see www.sec.gov/news/press/2010/2010-153.htm .

 ---JSC, 8/31/10

Explaining Court Ordered Dissolution

The Delaware Court of Chancery issued an opinion on August 2 in Lola Cars International, Ltd. v. Krohn Racing, LLC (pdf) that provides a detailed example of how things can go wrong in a joint venture. The eighty-four page opinion provides a long list of difficulties between two parties to an auto racing joint venture, which led to one party seeking judicial dissolution.

This opinion provides a nice LLC companion to Owen v. Cohen and Collins v. Lewis, which I use for our discussion of partnership dissolution. (Plus, as you may have noticed, I like cars.) I particularly like the way the opinion explains the court's reluctance to impose dissolution where no violations of fiduciary duty or other significant misconduct is shown (but is reasonably alleged). In denying the request for dissolution, the court explains:

If Lola had proven at least some of those claims [of gross negligence and other violations of fiduciary duties], judicial dissolution might very well be appropriate. But without such success, Lola’s frustration amounts to little more than disappointment with how [the joint venture] Proto-Auto is structured and managed and how Proto-Auto is attempting to expand its market presence. Unfortunately for Lola, it agreed to this arrangement when it partnered with Krohn Racing. Given its overzealous role in escalating this dispute, the Court will leave it to Lola to assess whether to exercise the deadlock procedure contained within the Operating Agreement—a provision that provides a no less reasonable means by which the Member Parties may disentangle themselves than dissolution.

The Court concludes by emphasizing that a party to a limited liability company agreement may not seek judicial dissolution simply as a means of freeing itself from what it considers a bad deal. (footnotes omitted) (emphasis added).

Finally, I spend a lot of time talking about how business owners (and, of course, their counselors) need to plan for eventual breakups. This case also provides a nice reminder that breakups are still hard, even when you plan ahead.

--Joshua Fershee

Work-Life Balance: The Best House Music Podcast of the Year

If your thing is business law, then you've likely been quite busy recently.  Please allow me to remind you that it is important to maintain a healthy balance in your life, including spending time with loved ones, getting plenty of rest, eating right, exercising and, of course, listening to lots of that soulful spawn of disco--house music.

Okay, so maybe house music isn't for everyone.  But if you dig it, then I submit for your consideration my current nomination for the best house music podcast of the year: Lee Harris's "House Nation UK" podcast of 8/16/10.  You can find it here (it's currently #2 on the list).

Enjoy!

SJP

Merging Skills and Doctrine in the Classroom: One Professor's Modest Beginning

The AALS Annual Meeting bulletin arrived in my mailbox today, reconfirming that curricular reform, new forms of  assessment, and the need to bring skills into the class are hardly new topics of conversation for most faculties.  From the Carnegie Report to Best Practices, there seems to be an emerging consensus that more skills and professional training are necessary for law students.  What is not always clear is how to do it. 

A number of schools, including University of Detroit Mercy and Washington & Lee, have transitioned to full programs that seek to modify the way students experience law school, especially in their third year. Whether the new programs actually achieve their goals remains to be seen, but such programs certainly provide an interesting new method of one part of legal education.  

Of course, not every school has the resources, consensus, or personnel to make such a change (often, all three are probably lacking to some degree).  But that doesn't mean nothing can be done.  As we consider how best to update and evolve our curriculum at the University of North Dakota School of Law on a school-wide basis, a number of us have also looked at what we can on a micro level to build on our current offerings.  

To me, helping student be come more practice ready is an essential part of our mission.  The emerging importance of teaching students skills is one major part of this.  I believe that this means having a concerted effort of the full-time faculty to at least consider integrating skills into their courses and providing new learning experiences for their students. Despite the often highly specialized and superb talents of many adjuncts, we cannot rely only on non-full-time teachers to handle such a critical part of learning to become a lawyer.    

While it is not realistic to expect that we can prepare law students to handle "partner-level" work on day one of practice, we can do a better job of preparing students to handle life in practice from the moment they join the firm, start at the prosecutor's or public defender's office, or hang out a shingle.  This means giving them a taste of what it's like work think and write in a practice setting. 

For my Business Associations I class, which usually has between 55 and 85 students, I use some exercises and share real-life documents to help provide connections to practice.  Beyond that, though, I haven't found a way to make this a highly skills centered class.  I am okay with that, because I don't think every course needs to (or should) be skills focused in the same way I don't think every class should be taught by, for example, a lecture with a single comprehensive exam at the end.  

In my Labor & Employment Law class, however, I do something a little different.  This is my second time through this iteration of the course, and my students (and I) enjoyed it in the first year.  Here's the plan:   I run the course as a small law firm, where everyone works with me. Enrollment is capped at 24.  I use the Case and Controversy files, which are formerly the CaseFile Method, (available here) as the primary materials, and I have created a number of my own materials, especially for the labor-related issues I cover.  Below the break are some excerpts from my syllabus and course overview.  I welcome questions, comments, and/or suggestions (via comments to this blog or my e-mail, which can be found on the left bar of this page). 

Labor & Employment Law Course Overview and Syllabus (excerpts)

Course Introduction:

Welcome to Labor and Employment Law. By enrolling in this course, you have just joined a virtual law practice, Dewey, Servem & Howe, P.C., in which you and your classmates are entry-level associates. As such, my expectations of you will parallel to those found in the workplace. For example, our classroom will be a casual “office,” but professional dress is expected during times where it would be in the law firm (e.g., a client meeting). Your reading assignments are provided in this syllabus. However, your writing assignments, which are part of how you will be assessed in this course (described in detail below), will be provided via e-mail in the same way you would likely receive assignments in practice. Those assignments will explain your overall audience, such as the client, opposing counsel, or legislators, but at all times you will also be writing for me as your assigning partner. Below you will find a description of the course materials, objectives, and expectations, and a syllabus. I look forward to working with you.

Course Overview and Expectations Objectives: 

Upon successful completion of the course, students should be able to 

• Recognize issues and argue legal positions related to labor and employment law problems, including an understanding of employment markets; hiring, firing, and dispute resolution processes; and contract interpretation and negotiation. 

• Write, reason, and deliver writing projects on deadlines similar to those found in legal practice. 

• Present legal ideas in a clear and cohesive manner for a variety of audiences, including other attorneys, current and potential clients, opposing parties and counsel, judges, arbitrators, and mediators.

Attendance and Participation: For the Case and Controversy materials to be effective, students must attend class regularly and must be prepared for class. Students must be prepared to discuss the cases and other materials and support their clients’ positions, as well as explain the counterarguments. Students will be permitted one opportunity to “pass.” Beyond this, additional “passes” will be counted as an absence. That said, the course is designed to be less formal and have the discussion flow naturally. As such, the goal and expectation is that there will be little need for anyone to “pass.” To be clear, incorrect answers are never a problem in this course. No response or uniformed guesses are a problem. There will never be sanctions for trying in this course, only for not trying. Students are expected to attend every class. Students are permitted to miss up to four classes for other obligations without explanation. This number is to include all absences (except those for religious observance, which are separate), including sickness, out-of-town interviews, etc. If classes in excess of four are missed, to avoid withdrawal from the course a written explanation may be required, including the reason for missing additional classes, the student’s plan to ensure the materials covered in the missed classes will be learned, and the reasons the student should be permitted to continue in the course. Please contact me or Dean McLean with any questions about the attendance policy. 

Evaluation/Grading: Because of the course and assignment structure, grading in this course is not anonymous. 

Short Writing Assignments – 60% of the course grade (3 assignments at 15% each and 3 rewrites at 5% each) For each segment of the course, students must pick three Files upon which to complete their writing assignments. Students may be asked to write a short memorandum, draft proposed legislation, suggest contract language, or craft other practice-related documents. These assignments will be 2-4 single-spaced pages addressing the issues related to the relevant File. Rewrites and/or corrections to the assignments are also required. Once signed up for an assignment day, the specific assignment will be provided by e-mail between 48 and 96 hours before that class. More detailed requirements for these assignments will be provided during the first class meeting. 

Class Participation/In-Class Assignments – 10% of the course grade In-class assignments will be distributed in some of the classes. Some of these assignments will be completed in small groups and others will be individual assignments. These assignments, along with the contributions to the class, will be part of the grade. The expectation is that each student will get all the available points in this segment of the course, assuming each student makes an effort to participate and engage in the discussions. Obviously, regular (but not perfect) attendance is necessary. 

Student-Led Review – 5% of the course grade After the materials for each the Employment Law section of course is completed, there will be two days of review that will be student led. Each student must present a portion of the course (5 minutes) related to one of the CCFs. Students may choose to work in groups of two, if they wish (groups of two would have 10 minutes of presentation time). A sign-up sheet will be provided during class to assign each student a case or group of cases for review. 

Course Material Presentation – 15% of the course grade Each student will be required to teach a portion of one class (15 minutes) in the last third of the semester. The student will be provided the materials to teach and will be responsible for presenting a portion of that day’s materials. 

“Exit Memos” – 10% of the course grade (5% mid-term, 5% end of course) After the review for each portion of the course is completed, students will be asked to write an Exit Memo of 1-2 pages. The Exit Memo is designed to be self-reflective and will explain what the student has learned during that section of the course, what was most important to them in that section, and what they believe is likely to be the most significant impact on the law and practice of law. A detailed description of the exit memo will be provided.

--Joshua Fershee

New Proxy Access Rules

Lisa Fairfax has a nice summary here.  She highlights what I think has to be one of the money quotes from the release:

[C]orporate governance is not merely a matter of private ordering.  Rights, including shareholder rights, are artifacts of law, and in the realm of corporate governance some rights cannot be bargained away but rather are imposed by statute.  There is nothing novel about mandated limitations on private ordering in corporate governance.

Larry Ribstein shares some of his thoughts on the new rules here.  From his perspective, we can "expect months or years of litigation, political wrangling and disruption. Just what corporate America needs in a fragile economy."

Finally, J. Robert Brown notes that the new rules are "in effect a recognition that the use of 'independent' directors nominated by management does not work adequately to protect the interests of shareholders."  He also opines that as for the federalization of corporate law, Delaware has no one but itself to blame:

Delaware may have always had a pro-management approach to corporate law, but cases such as Citigroup, Selectica, and Axcelis, suggest that the approach has shifted much further in that direction.  The approach is almost singularly responsible for the transfer of governance rights from the states to the federal government.

SJP 

Replacing Casebooks With Study Guides

I've been toying with the idea of replacing casebooks with the popular "Examples & Explanations" study guides in at least a few of my classes.  Why?  Because the study guides are significantly less expensive and more likely to be used in practice, and I believe they would allow me to cover more black letter law in less time--thereby allowing me to try "alternative" teaching and assessment methods that I would otherwise not have the time to implement.

What do you think?

SJP

Video Games, Best Efforts, and the Plight of the Long Snapper

Yesterday, I taught Business Associations I for the first time this semester, and today I begin Labor and Employment Law. Despite the name, that latter course is primarily an employment law course that provides an introduction to the NLRA and labor issues as they relate to the employment market. While it may not seem obvious, the overlap between BA and employment law (at least as I teach it) is quite substantial.

I was (am) preparing for my first class of the semester in Labor and Employment Law, and along came an e-mail with an article highlighting this overlap: “Vikings Outraged (Kind Of) Over Exclusion Of Long Snapper In Madden.” (Full disclosure as to another reason why I might find this is relevant: I worked in the videogame industry before I went to law school.)

Madden, of course, refers to the video game Madden NFL 11. Despite the ever-increasing realism of the game (this is along way from Tecmo Bowl), the folks who publish the game at Electronic Arts have decided not to add the long snapper (the center for punts, field goals, and extra points) to the game (save for one). So, Minnesota Vikings long snapper Cullen Loeffler, who has been on the team for seven years, has never been in the videogame.

The often-humorous article provides comments from players that range from over-the-top support to good-natured teasing, and it sounds like Loeffler is taking it in stride. As examples: Punter Chris Kluwe reportedly says , "As an avid gamer, it wrenches my heartstrings to see this unfortunate lack of respect for one of the best snappers in the business. Also, [EA] should bump my stats up." Defensive tackle Pat Williams, in contrast: "I feel good about that, that's the greatest thing I've heard all day."

It got me to think, though, about whether Loeffler would have a legitimate complaint if he really cared. After all, his union, the NFL Players Association (NFLPA), is responsible for such licensing. According to the current collective bargaining agreement (CBA) (pdf), Article V – Union Security, provides:

Section 4. NFLPA Player Group Licensing Program: The NFL recognizes that players have authorized the NFLPA to act as their agent in a Group Player Licensing program (defined below) for their benefit.

. . . . Group Player Licensing shall be defined as the use of a total of six or more NFL players’ names, signatures facsimiles, voices, pictures, photographs, likenesses and/or biographical information on or in conjunction with products (including, but not limited to, trading cards, clothing, videogames, computer games, collectibles, internet sites, fantasy games, etc.) . . . .

The NFL Player Contract, which is Appendix C to the CBA, provides that each player “assigns to the NFLPA and its licensing affiliates, if any, the exclusive right to use and to grant to persons, firms, or corporations (collectively “licensees”) the right to use his name, signature facsimile, voice, picture, photograph, likeness, and/or biographical information (collectively “image”) in group licensing programs.” The contract then reproduces the definition of group licensing from the CBA.

The contract continues:

In consideration for this assignment of rights, the NFLPA will use the revenues it receives from group licensing programs to support the objectives as set forth in the Bylaws of the NFLPA. The NFLPA will use its best efforts to promote the use of NFL player images in group licensing programs, to provide group licensing opportunities to all NFL players, and to ensure that no entity utilizes the group licensing rights granted to the NFLPA without first obtaining a license from the NFLPA . . . . This paragraph shall be construed under New York law without reference to conflicts of law principles.

Which brings me to this: did the NFLPA really use its “best efforts” under New York law to help Loeffler and his similarly situated brethren appear in the game? Although New York law is not clear about what “best efforts” means, some view it to mean “do everything possible” to obtain the outcome; others think is means something more like “must at least try.” (Click here for a good, quick summary.) Regardless, it seems to me that it does require at least some attempt.

Obviously, this does not mean that long snappers and punters should be on the cover of marketing materials or featured parts of advertising. EA would simply say no. But shouldn’t players who are part of every game be more of a priority for the NFLPA than practice squad players who may never, ever see the field in a live game? Shouldn’t they matter to EA, whose early slogan was, “If it’s in the game, it’s in the game?”

Perhaps long snappers were a part of the negotiation and EA did say no. But if I were Loeffler or another long snapper, I'd want to know if the NFLPA even asked about including me. After all, the NFLPA’s best efforts in that regard were the consideration for assigning group licensing rights. They could at least ask.

--Joshua Fershee

The SEC Sues New Jersey

This is no doubt the regulatory season for broad strokes.  Emphasis has been placed on entities so large as to be "systemically significant;" a whole nation has seen its sovereign debt downgraded.   

And, as was recently publicized, the State of New Jersey ran afoul of SEC disclosure rules.  Specifically, on  August 18th, the SEC filed and settled charges alleging inadequate disclosures attending the State's sale of $26 billion in municipal bonds over the course of 79 offerings.  The inadequate disclosures are said to have shielded the State's underfunding of its two largest pension plans.   

Observers will no doubt note that the settlement is a mixed bag.  The facts reach as far back as 2001, (Sarbanes-Oxley increased the SOL for private actions sounding in fraud to a maximum of 5 years).  However, Rule 10b-5 (thought to be the harshest of SEC charges) is not mentioned, even though the flexible anti-fraud prohibtion readily applies equally to misstatements/omissions in both purchases and sales of securities.  Likewise, seemingly applicable books and records violations are absent. 

Further, the State settled with the benefit of the magical "without admitting or denying" language, while the SEC avoided having to prove factual paragraphs littered with fun phrases like "unfunded actuarial accrued liability" and "benefit enhancement funds of...excess valuation assets."  As has been aptly noted, although the settlement represents the imposition of a cease and desist order premised upon fraud, no monetary penalties were implemented (the State agreed to an "enhanced" disclosure process), and no individuals were mentioned.  In short, the SEC gained its second case against a governmental unit for violations of an anti-fraud prohibition, but the resulting precedent, arguably, has limited deterrent effect.

Fans of enforcement decisions will also notice the recurring importance of the 4th estate: The Order notes that an April 2007 news article raised issues of both the State's bond offering disclosures and "New Jersey's funding of its pensions."  Of particular note is the SEC's inclusion of caselaw on Section 17(a) - Basic v. Levinson, and TSC Industries, Inc. v. Northway are re-emphasized as authorities on materiality, while two circuit court decisions from the 1990s are offered for the conclusion that 17(a) violations "may be established by showing negligence."  

For the SEC press release (with a link to the actual Order) see www.sec.gov/litigation/admin/2010/33-9135.pdf .

---JSC, 8/24/10

Investors Skeptical of Stock Market and Housing and . . .

This weekend brought news that many small investors are exiting the stock markets at a rate similar to that of the 1980s.  Similarly, people are (for the most part) not thinking of homes as long-term growth investments in the way they were five or six years ago.  This is not shocking in the near term -- people are scared. Nonetheless, it's odd to me how small investors tend to operate. That is, despite the old adage of "buy low, sell high,"  small investors tend to do just the opposite.  

Of course, not everyone is on the same page.  One survey reports that numerous respondents in California, Boston, and Milwaukee believe that housing prices are poised to increase about 10% per year over the next decade.  (Side note:  I can't help but wonder if some people think just saying it will make it true.)

Perhaps the real lesson in all of this is that, as a group, people tend to have unrealistic expectations, in both directions, of our investments (among other things). We tend to view investments as doomed to fail or destined to make us wildly wealthy.  Isn't it possible that the market, having now corrected in many areas, is poised for slow and steady growth?  

I suppose that's easy to say when you live in North Dakota -- our housing market (but for a few oil-rich areas) has been stable and steady, but unremarkable, for years.  It's why no one even brought sub-prime lending to the state -- little potential for rapid rises in home prices made such loans silly (I mean, sillier).  

As a new semester begins (for me, tomorrow), here's hoping that the next year brings stable and steady growth in both markets in a way that a little confidence in the market, instead of irrational exuberance or its opposite, returns.  

--Joshua Fershee

Web Resources: PLI's Securities Law Practice Center

I'm not sure exactly how new this is, but I was just recently made aware of this site.

SJP

North Dakota Law Review Symposium Issue: Energy Derivatives and More

The North Dakota Law Review held an energy law symposium back in Apri, and a while back, I promised to follow-up on a discussion of energy derivatives. Well, at long last, the the symposium issue is out, and the issue includes the remarks of a friend and former colleague, Chris Schindler. His remarks, Energy Derivatives: The Likely Impact of Derivatives Regulations on North Dakota Utilities, are available here (pdf). The rest of the issue can be found here, and it includes a variety of pieces that look at energy and the business of energy development. For reference, here's the table of contents:

INTRODUCTION

North Dakota’s Energy Landscape - Owen Anderson

ARTICLES

North Dakota Century Code 17-04-06: The First Step Toward a Level Playing Field for Wind Projects and Rural Landowners - Colleen Rice

Minimizing the Environmental Impact of Oil and Gas Development by Maximizing Production Conservation - David E. Pierce

Harmonious Federalism in Support of National Energy Goals — Increased Wind Renewable Energy - Ronald H. Rosenberg

If Cap-and-Trade is the Answer, Somebody is Asking the Wrong Question: An Evaluation of Cap-and-Trade in the North Dakota Context - Tony Clark

A Market Based Approach: The Best Way to Transition to a New Energy Economy While Meeting the Responsibility to Address Global Climate Change — A North Dakota Perspective - Jason Schaefer

ESSAY

The Geothermal Bonus: Sustainable Energy as a By-Product of Drilling for Oil - Joshua P. Fershee

REMARKS

Energy Derivatives: The Likely Impact of Derivatives Regulations on North Dakota Utilities - Christopher A. Schindler

CASE COMMENT

Oil and Gas Law — Rent or Royalties: North Dakota Joins the Majority of States in Adopting the “At the Well” Rule for Calculating Royalties in Oil and Gas Leases Bice v. Petro-Hunt, L.L.C., 2009 ND 124, 768 N.W.2d 496 - Lindsey Scheel

--Joshua Fershee

-

Neurotic Courts?

Earlier this week, my co-blogger J. Scott Colesanti asked whether there was a "New Scrutiny of Settlements" coming from the bench.  This made me think of an earlier post by J. Robert Brown Jr. over at the Race to the Bottom, wherein he noted there was some irony in a Delaware judge criticizing less-than-stellar board oversight when that is precisely what one should expect in light of Delaware's deferential approach to directorial oversight.  Similarly, one might argue that there is some irony in judges criticizing the decision by government agencies to settle cases on less than onerous terms when that is precisely what one should expect when the judiciary repeatedly bends over backwards to protect business from "frivolous" litigation when cases go to trial.  (I set out the various ways this is done in the securities law area here.)  Obviously, the devil is in the details.  But if this trend of criticizing settlements continues, it would be interesting to compare the judicial criticisms to the results of similar cases that are actually litigated.

SJP

The Increasing Role of State Securities Regulators

The Wall Street Journal has an article today about the increased role of state securities regulators in the oversight of hedge funds.  The article notes a difference of opinion as to whether the state regulators are up to the task. 

Speaking of state securities regulators, my co-blogger Eric Chafee and I will be part of a panel on peer-to-peer lending at the 2010 Ohio Securities Law Conference on October 22.  Our fellow panelists will be Geoffrey Rapp of the University of Toledo, and Mark Heuerman of the Ohio Division of Securities.  Commissioner Andrea Seidt will be moderating the panel.

SJP

GM Warns of Anti-Takeover Provisions, But Are They a Risk?

General Motors today filed its SEC Form S-1 for its Initial Public Offering (IPO) (here). The Wall Street Journal has already noted a couple "surprising" risk factors listed in the filing (article here).

I was hardly surprised by the listing of company anti-takeover provisions as one of the "Risks Relating to this Offering and Ownership of Our Common Stock," although there are times when I have to wonder how real a risk this is.

First, this is more and more a risk of investing in any public company. Publicly traded companies commonly have anti-takeover provisions, and they are often strong takeover provisions. (See, e.g.,Lucian Arye Bebchuk, WHY FIRMS ADOPT ANTITAKEOVER ARRANGEMENTS, here) Second, it's not clear that such provisions are a problem. There is at least some evidence that such provisions support long-term value creation and do not facilitate major managerial entrenchment in the way that might be expected. (See, e.g., here.)

Ultimately, I suppose it's best to list them as possible risk factors, but I have to wonder if anyone will really consider such provisions when determining whether to participate in the IPO. In case you are curious, here are the provisions:

Anti-takeover provisions contained in our organizational documents and Delaware law could delay or prevent a takeover attempt or change in control of our company, which could adversely affect the price of our common stock.

Our amended and restated certificate of incorporation, as amended (Certificate of Incorporation), our amended and restated bylaws, as amended (Bylaws), and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our Board of Directors. Our organizational documents include provisions:

--Authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

--Limiting the liability of, and providing indemnification to, our directors and officers;

--Limiting the ability of our stockholders to call and bring business before special meetings;

--Prohibiting our stockholders, after the completion of this offering, from taking action by written consent in lieu of a meeting except where such consent is signed by the holders of all shares of stock of the Company then outstanding and entitled to vote; 26 Table of Contents

--Requiring, after the completion of this offering, advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nomination of candidates for election to our Board of Directors; and

--Limiting, after the completion of this offering, the determination of the number of directors on our Board of Directors and the filling of vacancies or newly created seats on the board to our Board of Directors then in office.

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in management.

--Joshua Fershee

The New Scrutiny of Settlements?

This week - and for at least the third time this year - a federal judge has refused to rubber stamp a monetary settlement between a bank and a U.S. regulator.  Specifically, a Washington court will later today scrutinize a proposed $298 million deal between authorities and Barclays bank concerning alleged violations between 1995 and 2006 of U.S. sanctions prohibiting trade with certain nations.

The higher bar for settlements appears to have been set by Judge Rakoff of the SDNY, who, earlier this year rejected a settlement between the SEC and Bank of America on a host of grounds.  Commentators note that judges appear to be disgruntled with what appears to be the acceptance of a check for very serious misconduct; in the BOA case, Rakoff ultimately and "reluctantly" accepted a deal with a higher monetary penalty, the establishment of a FAIR fund for investors, and attendant policy changes at the bank.

For details on the Barclays case, see "Barclays Follows Citigroup With Court Rejection of U.S. Accord" at Bloomberg.com.   

---JSC, 8/18/10

Dodd-Frank and Bounty Hunters...

...or "Dodd-Frank and Whistleblowers," depending on your point of view.

As previously noted here and elsewhere, the mammoth financial reform legislation touches, in part, upon the bounties paid by the SEC to individuals providing information leading to charges of fraud.

For a thorough (and timely) breakdown of how the new law may affect enforcement of the Foreign Corrupt Practices Act, see Professor Koehler's thoughtful post at http://fcpaprofessor.blogspot.com/2010/07/financial-reform-bills-whistleblower.html .

---JSC, 8/16/10

  

Peak Oil, Peak Stocks

The Wall Street Journal reports that the correlation between stock prices and oil prices is near 70%, which more than doubles the rate in 2008 (article here). There are a variety of theories posed as to why this might be the case: psychological links, algorithmic trading, risk trading, etc.

I think all these things have a role, but I am also inclined to think that the strength of the correlation is likely to come and go over time. Right now, the expectations for oil consumption are tied largely to an economic recovery. The stock market is often used as a proxy for such a recovery. Thus, if the stock market goes up, people expect oil consumption to go up, and oil prices rise, too (and vice versa). If there were some major change in oil supply, regardless of the market, oil prices would go up, even if stock prices plummeted.

I’d be curious to see the data over a longer period of time. I suspect that the correlation is higher today that in years past because it is my sense that there are more people with money in both markets that in prior generations. However, I also suspect that there are periods where the correlation would increase and decrease in the same way it has over the past few years.

--Joshua Fershee

Is the continued vitality of technical stock analysis an affront to the efficient market hypothesis?

Technical stock analysis (predicting future stock prices on the basis of past price movement) remains alive and well.  Just today, a Wall Street Journal headline referenced the "Hindenburg Omen"--a confluence of stock price data points that portend bad news ahead.  Price movement data is indeed an aspect of the efficient market hypothesis, since the weak version of the theory rests on that data being incorporated into market prices.  But we generally suppose our most liquid markets satisfy the semi-strong version of the theory.  That is, those market prices should reflect all publicly available information.  One may then ask whether past price movements should have any relevance to rational investors investing in such a market.  I suppose an argument could be made that price and volume movement might somehow reflect psychological trends of market participants--the "mood" of the market, if you will.  Nonetheless, it's hard for me not to think "superstition" when technical analysis comes up.

SJP

What Happened to Summer?

On Monday, the University of North Dakota School of Law welcomes its Class of 2013 to campus (orientation begins Tuesday).  Regularly scheduled classes begin the following week, on Tuesday, August 24.  I can hardly believe it.  

It's been a productive (if at times hectic) summer, so I suppose I shouldn't be surprised. Everything on my list that I "had" to get done between semesters is finished, and I have just barely scratched the surface of the things I "hoped" to finish.  That should be a very clear indicator it is time for school to begin again. I could use some more time for a couple more projects, but I am ready to start a new year.  The energy and excitement of a new year is always invigorating, even it it comes with some stress for all -- students, faculty, and staff alike.

Welcome to new and returning law students and to new and returning colleagues, here and around the country.  Here's to a great 2010-11 academic year.

--Joshua Fershee

Cleveland Rocks!

Cleveland has been taking a bit of a beating lately.  So, since I'm showing someone around town this week I thought I'd post my top five spots to see when next you visit:

1.  The Rock & Roll Hall of Fame.

2.  University Circle, including the Museum of Art, the Botanical Gardens, and Severance Hall (home of the world-famous Cleveland Orchestra).

3.  The Cleveland Cultural Gardens.

4.  InfoCision Stadium and/or Canal Park (Akron is part of Northeast Ohio).

5.  The Nautica Charity Poker Room (hey, it's my list).

SJP