October 9, 2010
I realize I'm behind the gadget-acquisition curve of many here, but I just got my new Kindle in the mail yesterday. One of the things I'm hoping for is that this new device will allow me to do away with the stacks of printed-out articles that accompany my typical research project. Kindle allows you to transfer PDF and Word docs, so this should definitely be possible. And with the highlighting and notetaking function, there is at least some chance I won't miss my legal pad and highlighter. Mostly, I'm just looking forward to not having to conduct legal-research triage when I travel. The lack of any notepad function (at least that I could find), however, means my dream (yes, that would be a "geek" dream) of taking a project from research to detailed outline on one of these devices will probably have to wait till the iPad comes down in price. Having said that, I found the experimental web browser to be highly usable--but I have yet to see if I can do meaningful Westlaw research on it.
One additional point: fingernails really seem to help one manage the keyboard and since (file the following under excessive self-disclosure) I fluctate between having my fingernails too long (according to my wife, and as they are right now) and bitten down to the nub--I may find the keyboard less user friendly when I find myself in the latter state. Manicure, anyone?
Anyway, I'd love to hear from others who have tried to move their scholarly process to one of these devices.
October 8, 2010
Radio Host Gone (Financially) Wild
This should be interesting . . .
Securities and Exchange Commission today charged a talk radio show host and two other executives at a Monterey, Calif.-based firm with misappropriating $2.5 million of approximately $7 million they raised through the fraudulent sale of interests in two real estate investment funds.
October 7, 2010
Handicapping the Upcoming Supreme Court Business Cases
Does the Roberts Court favor business? Law.com has a rundown of many of the pending cases, specifically identifying ten as business cases. Of those, the three that interest me the most are Matrixx Initiatives v. Siracusano, Janus Capital Group v. First Derivative Traders, and FCC v. AT&T. ScotusBlog sets out the relevant issues in "plain english." I'll offer my predictions here, based solely on the theory that the Roberts Court favors business:
Matrixx: "Does a drug company violate federal securities laws by failing to disclose reports of patients having adverse reactions to its drugs when the number of incidents was not statistically significant?" Predicted answer: No.
Janus Capital: "When a corporation makes false statements in a prospectus in violation of federal securities laws, can victims also sue companies that assisted the corporation in writing the prospectus?" Predicted answer: No.
FCC v. AT&T: "The Freedom of Information Act has an exception that permits the government to withhold information gathered during law enforcement investigations if disclosing the information would constitute an invasion of 'personal privacy.' Does the exemption apply to protect the privacy of a corporation?" Predicted answer: Yes.
Obviously, a "business wins" approach to handicapping Supreme Court cases is so simplistic as to beg being mocked. Nonetheless, how much predictive power does it have to have before we have to start taking it seriously?
A Filing Proposal That Would Make Noah Proud: SEC Seeks Comment on Asset-Backed Securities
The SEC yesterday issued proposed reuglations on Asset-Backed Securities (ABS) Representations and Warranties (pdf here) as part of their plan to comply with Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires such regulations be in place by Jan. 14, 2011. Comments are due by Nov. 15, 2010.
The proposal would:
(1) Require Disclosure of Repurchase History,
(2) Require Disclosure of Repurchase History in Prospectuses and Ongoing Reports, and
(3) Require Nationally Recognized Statistical Rating Organizations (NRSROs) to Provide Disclosure in Any Report Accompanying a Credit Rating.
This is all fine, I suppose, but I'm inclined to think this is another area of regulation where the market would have gotten this right if this information actually would have mattered to investors pre-meltdown. That is, I really don't see how this would have helped avert the meltdown, and I don't think this is going to prevent another meltdown.
So what's the cost? Well, the SEC estimates "that it would take a total of 87,480 hours for a securitizer to set up the mechanisms to file the initial Rule 15Ga-1 disclosures." That calculation comes from "972 hours to adjust existing systems per securitizer" multiplied by 90, which is the "average number of unique securitizers."
By the way -- 972 hours is a little over 40 days (and 40 nights).
October 6, 2010
First Sale Doctrine
Another Supreme Court case being watched is Costco v. Omega. This case is an intellectual property case dealing with the first sale doctrine. The first sale doctrine says that if you buy a copyrighted work (such as a book, CD, etc), you have the right to sell that copyrighted work without permission of the copyright owner. The question becomes what happens when there is a foreign intermediary. So far, the cases dealing with the first sale doctrine have been factually where the copyrighted items were made or manufactured in the United States. Omega sold watches they manufactured outside the United States to foreign distributors, who then resold it to companies like Costco for US distribution. Omega has asserted that Costco cannot use the first sale doctrine as a defense to the watches because the first sale doctrine only applies to items manufactured in the United States. For me, I think the Ninth Circuit’s opinion created a dichotomy between goods manufactured in the United States and abroad that is unsupported by the Copyright Act’s text.
One of the upcoming business law cases is Staub v. Proctor Hospital. This case revisits the doctrine of whether a principal can be held liable for the acts of his agents in an employment context, if the principal does not make the decision him/herself, but can influence the agent. The case involves a military reservist, Staub, who worked for Proctor Hospital as a medical technician. He was discharged purportedly for insubordination and attitude problems, but he successfully sued the hospital for discrimination on the grounds the reasons for his dismissal were a pretext for the hospital’s superiors’ animosity toward the US military. The Seventh Circuit reversed the trial court, holding that the trial court never determined whether there was enough evidence of the principal’s influence on the agent on this issue.
October 5, 2010
Those Other Regulators...
like FINRA, which although being the largest in the securities industry, still fulfills only "quasi-governmental" duties, sometimes reach across the ocean to conclude cooperative Memoranda of Understanding.
Late last month, FINRA executed such an agreement with the UK's chief regulator; in 2009, a similar agreement was signed with the industry regulator in France. These MOUs remind not only that the market is hopelessly global but also that government delegates much of its standard setting to private industry.
The press release announcing the accord is available at http://www.businesswire.com/news/home/20100920006158/en/FSA-FINRA-Sign-Cooperation-Agreement .
October 4, 2010
Business Law and Regulation in the Roberts Court
On September 16th and 17th, my friend Jonathan H. Adler hosted a colloquium at Case Western Reserve University School of Law on Business Law and Regulation and the Roberts Court. Videos from the event have been posted on YouTube and include Adam Pritchard on Securities Regulation, Thomas Lambert on Antitrust, Matthew Bodie on Labor & Employment, and Brian Fitzpatrick on Pleading Standards. The speakers were uniformly excellent, and I can't speak highly enough of Professor Adler's work as director of the Center for Law and Business Regulation at CWRU.
Conference Announcement - The Role of Fiduciary Law and Trust in the 21st Century: A Conference Inspired by the Work of Tamar Frankel
Professor Kenneth Simons kindly sent me the following conference announcement:
On October 29, 2010, Boston University School of Law is proud to honor Professor Tamar Frankel with a conference featuring outstanding scholars and legal practitioners giving papers and commentaries on the role of fiduciary law and trust in the 21st century. Boston University Law Review will publish the papers and proceedings.
Fiduciary law is designed to encourage people to rely on experts and other fiduciaries, to facilitate fair and efficient terms of those relationships, and to prevent (and provide remedies for) abuse of power entrusted to the fiduciary. This Conference highlights the nature and scope of fiduciary law, and its relationship to other legal doctrines and categories. It considers how fiduciary law can be illuminated by viewing it through the lens of such disciplines as economics, psychology, history, political science, and philosophy. It also investigates current debates about recognizing fiduciary duties in the determination of executive compensation, in the prohibition of insider trading under the federal securities laws, in the largely unregulated world of securities and mortgage broker-dealers, and in modern capital structure and governance. It further explores the relevance of fiduciary law principles to the abuse of power by public officials and to other issues of democratic legitimacy, as well as the relevance of constraints on political power to the duties of private actors.
All are welcome to attend. There is no registration fee, but if you plan to attend, please RSVP to Andrea Larsen, email@example.com. If you have academic questions about the program, please contact Professor Kenneth W. Simons, firstname.lastname@example.org.
The program for the event looks outstanding, and the recognition of Professor Tamar Frankel's contributions in this area is well-deserved. You can find a pdf of a postcard describing the event here and the schedule for the event here.
Justice Department v. American Express
The Justice Department has sued American Express because it claims that AmEx has been anti-competitive in how it deals with merchants and some of the rules it imposes on merchants who accept their cards.
I am having a hard time seeing how this is a high priority antitrust case. It's not as though consumer don't have other options -- most places take cash, and even if they don't, they usually accept multiple cards. I should be able to figure out which card in my wallet is my best option, even if the merchant is restricted in what they can tell me about other options.
I'm not against questioning the big card issuers if they are colluding to raise fees and/or other costs that raise the consumer cost of using any credit card. Similarly, if the information that consumers get with regard to their cards is fraudulent or misleading, then I'm all for Justice Department inquiries. Once the card is in my pocket, though, it seems that I have to take a little responsibility for figuring out how and when I use it.
SEC Complaint Against Mark Cuban - Round II
There was but select and discreet commentary on the 5th Circuit's recent decision to reinstate the SEC's complaint against Mark Cuban. While technically all the appellate court did was permit discovery and/or the trial to proceed, the decision is noteworthy to observers of trends in business law for at least three reasons.
First, by requiring that courts evaluate scienter in consideration of the whole Complaint (and attendant, plausible theory), the 5th Circuit sounded a subtle harmonic with civil case law. Note that in the 2007 Tellabs decision, the Supreme Court held that a "strong inference" of scienter must be "at least as compelling as any plausible opposing inference." It's rare that adminstrative and civil standards so echo each other in the land of 10b-5.
Second, in terms of the consistency of the SEC's Enforcement porgram, the reversal quells the District Court's speculation about the soundness of Commission Rule 10b5-2, the demise of which would unsettle both court holdings and corporate preventive measures that have been in place for nearly a decade.
Finally, in terms of public perceptions and deterrence, the decision was a shot across the industry bow. Remember, this is a defendant accused of knowingly selling shares in violation of insider trading law and allegedly "pumping" an issuer representative for relevant details.
Overall, the 5th Circuit reminded that - at this juncture, pre-trial - the SEC interpretation was entitled to at least as much deference as that of Cuban. In these troubled times for the Commission, while it seems that each policy, procedure, and priority of the agency is subject to scrutiny, such judicial confirmation that its insider trading program remains vital may be priceless.
October 3, 2010
The following is from an email I received from Alan Parness, Chair of the ABA's State Regulation of Securities Committee:
The following is an edited version of an e-mail I sent out back in June to my Committee members, soliciting articles for the just-published issue (the Dodd-Frank Act was still pending in Congress at that time):
It would be appreciated if those of you with a literary bent and some free time on your hands could put together a brief article on a subject our readership might find of interest; remember, articles need not be restricted to developments in the wonderful world of Blue Sky law, but may also cover federal securities laws and those lovable SRO's (particularly FINRA). For example, I think that the financial reform follies now going on in Washington should provide ample fodder for several articles; while the current bill may not be making many of our financial services clients happy, it certainly has potential as the securities lawyers' full employment act (as my investment tip du jour, assuming that the bill is enacted in its current size, I recommend purchase of any paper manufacturer's stock). As always, footnotes and rigid adherence to Blue Book format is unnecessary for Bugle articles (and, in fact, discouraged), and while there's no minimum or maximum word count for articles, brevity is appreciated, since Martin Hewitt (the editor) is not paid or given, directly or indirectly, any commission or other remuneration for his editorial duties (now where did I see that phrase before?).
While I'll concede that an article in the Bugle doesn't carry the same prestige as a lead article in the Harvard Law Review, Yale Law Journal or comparable publication, and I can't promise Bugle authors instant fame, an appearance on America's Got Talent, or, for that matter, a listing in Superlawyers (which, in a blatant slight to our particular field of interest, doesn't include a Blue Sky law category), Bugle authors do enjoy the following noteworthy benefits:
- the Bugle is highly regarded in the Blue Sky community, and I can pretty well assure you that there will be at least one person out there (other than yourself) who will be interested in your subject matter (at least I can guarantee that Martin will read it);
- you can add the publication of your article to your resume, thereby giving you a potential advantage over an unpublished competitor for future employment;
- you can proudly announce to your colleagues, significant other, and the rest of your family and friends that you're now a published author, although don't count on any of them to actually read your article - I know I generally can't get my wife to read the pieces I write for the Bugle (the old "too technical" excuse); and
- since the Bugle is posted on the Committee's website and archived for posterity, your article should readily pop up in a search on Google or other Internet search engines, thereby enhancing your bragging rights and your chances of winning a bet with a colleague, friend or relative as to whose name turns up more hits in such a search.
By the way, the Bugle doesn't discriminate, so Martin does welcome substantive contributions from state regulators (although a thinly-disguised press release lauding a particular state regulator's activities will not be welcome). Also, for you Committee members who are law school faculty members, we welcome student articles, so feel free to encourage your securities law scholars to submit their tomes (keeping in mind the guidelines described in the first paragraph above).