Business Law Prof Blog

Playing Cards While the Oil Spews

The devil on my shoulder told me it was okay to blog about poker while the Gulf of Mexico is filling up with oil ... and I listened.

The 2010 World Series of Poker is underway.  Accordingly, I thought I'd pass on some poker news that might be of interest to readers of this blog.

Mint.com has an article on why some Wall Street firms are recruiting poker players.

Meanwhile, a recent book review brought The Poker Face of Wall Street to my attention.  The book is written by Aaron Brown, an executive director at Morgan Stanley (among other things), who is quoted as saying that "finance can only be understood as a gambling game."

Finally, over at The Huffington Post, Tony Hsieh, CEO of Zappos.com, provides an excerpt of his recent book wherein he describes "the lessons that I learned from playing poker and how I apply them in the business world."

SJP

Unnatural Disaster Is BP's, Not Obama's, Katrina (For Now)

In an interview on NBC’s Today Show this morning, BP CEO Tony Hayward stated that BP has “never in any sense sought to downplay this” disaster. This is hardly accurate, in my opinion. On May 18, Hayward said, “Everything we can see at the moment suggests that the overall environmental impact will be very, very modest.”

Although I doubt it, at the time, he may have even been right. However, this is the essence of “downplaying” the disaster. It sure would have sounded better if he had said something like, “While we expect that the overall environmental impact will be very, very modest, we recognize it could be worse. That is why we’re putting all available resources behind getting this thing under control.”

At least now he is calling it an “environmental catastrophe” and I had been thinking that Hayward finally appears to understand the gravity of the situation. After watching the rest of the Today Show interview, I’m not so sure.

Hawyard went on to say that BP’s response to the ongoing Gulf of Mexico oil spill was to “launch[] the largest response effort . . . this country has ever seen to a natural disaster.”

The thing is, this isn’t a natural disaster. This is not a natural oil fountain that has run amok. The volcano in Iceland: that’s a natural disaster. Hurricane Katrina (at least the storm) was a natural disaster. This is almost completely a man-made problem. Now perhaps Hayward's comment was a slip of the tongue in a stressful situation. That happens, and I can appreciate that is tough to avoid. My concern is that it was planned, in part to start lending credence to the silly notion that this is Obama’s Katrina and deflect blame (and perhaps liability). And no, it’s not.

The fact that Katrina hammered New Orleans and the rest of the coast was not President G.W. Bush’s fault. That was not in his control. The response and the organizations charged with responding were. That’s why it was his fault. Furthermore, hurricanes happened regularly. FEMA and other agencies (normally) know how to deal with these situations. And other than following Katrina, they usually have.

The oil spill, on the other hand, was BP’s fault (and their contractors). And I agree, it was the government’s fault, too. Minerals Management Service (MMS) absolutely should not get a pass on this. But recall who was in control of MMS for the vast majority of this decade. (Clue: Not Obama.) And note, unlike the response to a hurricane, the people with the technology, information, and ability to respond to this disaster are not at FEMA, MMS, or the Army Corps of Engineers. The only people who can fix this, who need to fix this, are the ones responsible in the first place: the people at BP.

Just imagine what would have happened six months ago if the President had suggested a new agency that would be trained and funded to clean up disasters like this, granted the authority to take over an oil well at the first sign of trouble, and this agency would be funded by a large tax on oil companies. You can be sure that the response would have been that the government shouldn’t be in this business because the oil companies are better trained, better prepared, and better able to respond to such problems. I guarantee it.

Yes, perhaps the federal government could have been swifter than it has been, especially with regard to protecting the coast. However, in this situation, President Obama’s primary mistake was likely listening to BP when they said they could, and would, handle the problem. I find it curious that many of the same people who often argue that government should stay out of the way of big businesses now want to lay blame at the feet of a president who did just that.

Now that the federal government and the President, personally, have taken over primary responsibility for BP’s mess, President Obama will be responsible for how fast and how well the clean-up occurs on his watch. If that goes poorly, then perhaps his response to this mess will fairly be called his Katrina. But let’s be clear: as of right now, this is Tony Hayward’s (and BP’s) Katrina.

--Josh Fershee

OTC Derivatives: Closing Clearinghouse Loopholes

My Akron Law colleague, Willa Gibson, has an excellent post up at the Akron Law Cafe arguing that the final version of the financial reform bill should include a grant of "rulemaking authority to the CFTC to identify the types of OTC derivatives transactions it believes should be cleared that have not been submitted to clearinghouses for clearing."  Such authority is apparently a part of the Senate, but not the House version of the bill.

SJP

How the Reckless Pursuit of Profits Can Lead to Jail

Russell Mokhiber of the Corporate Crime Reporter offers some very interesting thoughts on the potential for criminally prosecuting Massey and BP executives here.

In related news, the Wall Street Journal reports today that, "BP made choices over the course of the project that rendered this well more vulnerable to the blowout."

SJP

Just a Little More Shareholder Apathy

The Northrop Grumman Corporation filed its Form 8-K yesterday and reported:

The shareholder proposal to reincorporate the Company from Delaware to North Dakota under the new North Dakota Publicly Traded Corporations Act was not approved with a vote of 226,210,028 shares against, 13,350,892 shares for, and 1,974,740 abstentions.

This is not really shocking, as all the corporations--except American Railcar, which boasts Carl Icahn as majority shareholder--that have considered such a move have rejected the proposal. I have never thought that more than a handful of companies would actually make the move, although I admit I did think that there might be a few closer votes given the way the market has behaved in the past couple years.

Perhaps it is simply the case that shareholders really don’t want more of a voice in their corporations. More likely, though, I suspect that shareholders are, as a group, even more apathetic that I originally thought.

--Josh Fershee

Acharya on Trade and Development

Upendra Acharya has posted Is Development a Lost Paradise? Trade, Environment, and Development: A Triadic Dream of International  Law on SSRN with the following abstract:

International law, as it exists today, has been abused by developed nations in their position of power over underdeveloped nations. The right to development, first formalized by the United Nations in 1986 with the Declaration on the Right to Development, was meant to give people of the developing world a right to development. However, the right to development has been supplanted by the concept of sustainable development, as orchestrated by the developed nations. It was hopeful that organizations like the World Trade Organization would implement the right to development through trade; however, these organizations have become merely a tool for the developed nations and associated corporations to continue their dominance over developing nations. Environmental concerns in recent times have shifted the international focus from the right to development to sustainable development, and the right to development has been overlooked. A legal right to development must be recognized before sustainable development can be applied as a tool to benefit underdeveloped nations through environmental and trade-related policy.

ECC

Summer of George?

Seinfeld fans will recall neurotic George's declaration that he was going to end his second-guessing for one summer.  "A George divided against George cannot stand," he reasoned.

In stark contrast, the Supreme Court yesterday found the 32-team National Football League to be 32 separate entities for purposes of section 1 of the Sherman Act.  American Needle, Inc. v. National Football League et al.  The unanimous decision reversed a 7th Circuit holding dismissing a suit by the former owner of a non-exclusive licensing contract with the unincorporated association.  In his opinion, Justice Stevens emphasized that NFL teams "do not posses either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action" in rejecting the NFL's self-characterization as one (large) business; likewise, the 7th Circuit's rationale that "NFL teams share a vital economic interest in collectively promoting NFL football" failed to carry the ball.    

While American Needle's case now goes back to District Court for adjudication, the Supreme Court decision has potentially far-reaching, practical consequences for both NFL players (who must negotiate collective labor pacts) and consumers (who often pay high prices for replica apparel to vendors heretofore enjoying exclusive licenses).  Further, the holding has ramifications for other leagues such as the NBA and NHL - will this be the end of the Summer of George for any of these groups? 

The Supreme Court decision is available at http://www.supremecourt.gov/opinions/09pdf/08-661.pdf.

---JSC, 5/25/10

 

Did Wall Street Make BP Spill Oil?

Like what appears to be most of the country, I have been following the on-going Gulf oil spill with great horror. As someone who comes from an energy law background, and who teaches and writes in the area (in addition to business law, of course), I find this whole event remarkable and intriguing, as well as appalling.

For now, I’ll focus on the business perspective: I will be curious to see how the derivative suit filed against BPs executives--Firpo v. Hayward et al., 2:10-cv-01430, U.S. District Court, Eastern District of Louisiana (New Orleans)--will play out. The complaint alleges that the BP directors “elected to cut costs, including safety and maintenance expenditures, in pursuit of profitable results to report to Wall Street.”

Ah, the evil Wall Street made them do it. I am starting to wonder if that may actually be viewed as a legitimate defense for the directors if this goes to trial. Judging from recent political statements and media reports, it seems that Wall Street has some mystical (and mostly evil) powers.

Personally, I don’t need the Wall Street boogeyman to find compelling in a derivative suit context the idea that BP may have cut some major corners. If BP’s directors really did ignore a number of safety concerns and fail to even consider what was needed to protect against/mitigate this kind of catastrophic disaster, then they have shirked their duties to their shareholders by putting hundreds of millions of dollars, if not the entire company, at risk. That’s a big “if,” of course.

Having been around the energy industry, I know that most of the people working on these kinds of deepwater projects are smart. Really, really smart. The fact that they can’t stop the gallons upon gallons of oil flowing into the ocean tells me something, somewhere, went even more wrong than we can appreciate right now. Whether that was a lack of resources or concern at the board level, I don't know. But something sure doesn’t smell right.

--Josh Fershee

Reform ! (I think)

The question of whether the Senate would progress the broad array of financial reforms passed by the House in December has been answered in the glorious affirmative. 

Among other things, the Restoring American Financial Stability Act would -

• Create a new consumer protection agency (to be "housed" within the Federal Reserve),

• Create a systemic risk council (staffed by heads of existing agencies such as the SEC and Treasury),

• Enhance derivatives regulation (with jurisdictional lines continuing to be drawn by the SEC and CFTC),

• Require registration of hedge funds (with exceptions for foreign private advisers, venture capital fund advisers, private equity funds not posing a market risk, certain small businesses and those eligible for an intrastate exemption),

• Give shareholders a vote on executive compensation (with such vote being nonbinding),

• Require certain securitizers to keep 5% of their products (with that number being increased or decreased by the SEC), 

• Impose the "Volcker Rule" ban on proprietary trading (on investments that "do not benefit clients"), and

• Impose a uniform fiduciary standard of care (but only on brokers advising institutions on swaps).

Among the notions that failed to muster support are -

• Authorization of private claims against credit ratings agencies,

• A standing fund for future firm bailouts,

• A statutory increase in SIPC protection, 

• The consolidation of banking regulators from 5 to 1,

• A tax on profits to pay for the TARP shortfall, 

• A ban on naked credit default swaps,

• The imposition of a uniform fiduciary standards upon both broker-dealers and investment advisers,   

• Limits on the size of institutions/re-implementation of Glass-Steagall, and

• A tax on excessive compensation.

          My old Professor at NYU liked to say that the SEC "went at a problem with a scalpel, while Congress used a hatchet."  Personally, in light of the compromises still to come as the Senate measure is "reconciled" with that of the House, I'm trying hard not to see the Reform as a largely symbolic gesture.  Overall, I find myself longing for the days of unpredictable, piecemeal, knee-jerk Congressional responses to specific market failures - those laws happened fast and had teeth!

--JSC, 5/24/10

Society of International Economic Law (SIEL) 2010 Conference Program

Colin B. Picker has posted the Society of International Economic Law (SIEL) 2010 Conference Program on SSRN with the following abstract:

The Second Biennial Global Conference of the Society of International Economic Law (SIEL) will be hosted by the University of Barcelona and its IELPO LL.M. Programme at the premises of the University of Barcelona from the 8th July to 10th July 2010.

Over the course of the last two decades, the communities of scholars, practitioners and others active in the area of international economic law have grown and diversified in ways that few could have predicted. The field of international economic law now includes a diverse array of participants and covers many new substantive issues. Inevitably, the term international economic law defies easy definition: it is at once a fully integrated part of public international law and an identifiable field in its own right.

This conference provides a venue for exploring many different faces of international economic law. Given that the aim of the Society includes fostering research in the area of IEL and promoting cooperation among all parts within the field, the SIEL Global Conference offers a forum for those inside and outside academia to share pedagogical and research methods, as well as to explore greater cooperation among the many different constituencies of the field.

ECC