Business Law Prof Blog

More Kindle Research

For the two other people on the planet still not in the know: WestlawNext allows you to transfer docs directly to Kindle (thanks to "akronstudent" for the 411 posted here).  The process is relatively fast (you just have to set your Kindle account to accept emails from westlawnext@westlawnext.com), and the benefits over simply downloading and dragging-and-dropping a PDF file to your Kindle are that: (1) you can adjust text size without exceeding the Kindle's screen size limits; and, (2) the Kindle formatted doc is able to take advantage of Kindle's text-to-speech function.  This latter point should be particularly appealing to those of you who commute to work, like I do.  In fact, I'm thinking about using this function to keep up with all the blog posts I routinely miss.  I'd have to cut and paste the days posts into a Word doc and then send it to Kindle for formatting, but if I do this in the evening I should have a blog "podcast" ready for my morning commute.  Am I peaking the geekmeter yet?

SJP

Increasing Gender Diversity Requires . . . A Commitment

A recent McKinsey Global Survey found that 72% of the respondents believe that gender diversity in the workforce has a direct link to a company's financial success. (The survey is available here, free registration required.) The survey found that companies with gender diversity as a top-three agenda item were significantly more likely (32% more likely to be specific) than other companies to have at least 15% of their C-level positions held by women. (Incidentally, C-level means high-level executive, such as Chief Executive Officer or Chief Information Officer).

It's hardly shocking that companies with a focus on gender diversity would be more successful in having a more diverse workforce, especially at the higher level.  It is also not a shock that the most-cited barrier to gender diversity is "a lack of awareness of or concern for gender diversity as a critical matter.

Interestingly, the survey found that monitoring policies were not very hard to put in place: only 7% of all respondents said there was "difficulty in implementing a top-management monitoring policy."   Beyond that, if the company implemented a monitoring policy in the past five years, the policy was likely to have an impact (according to 65% of such respondents).

The report concludes:

The actions that senior executives indicate boost diversity the most may be a good place for other companies to start: visible monitoring by the CEO, skill building specifically aimed at women, and mentoring, perhaps even on a mandatory basis. 

Of course, making a commitment to gender diversity is still probably the best place to start. 

--Joshua Fershee

BP Spill Victims Beware: SEC Warns of Scams (Available in Creole)

I was happy to see that the SEC issued a warning (here) to those receiving payouts from BP for losses from the Gulf oil spill. The SEC warns that "[r]ecipients of highly-publicized payouts often become targets for investment fraud."  Links to additional investment resources are provided to assist those receiving lump sum payments.  Additional information is available about Affinity Fraud, Oil Spill Stock Scams, and Ponzi Schemes. 

The best part, in my view, is the offering on Affinity Fraud. The SEC offers "information on investment scams targeting particular groups," including an Investor Bulletin on Affinity Fraud (here), a publication they also make available in Creole (here).

--Joshua Fershee

Up Next: Suing Ayn Rand for the Financial Crisis

Nassim Nicholas Taleb, author of “The Black Swan,” wants to sue the Swedish Central Bank for legitimizing the theories of economists that he says brought down the global economy.  (HT: Josh Wright.)  Specifically, Taleb argues that the SCB's endorsement has led to people using a portfolio theory "that vastly underestimates the risks they’re taking and overexposes them to equities."  I suggest joining Ayn Rand as a defendant.

SJP

Health Care Constitutionality and Business Law

Judge Steeh issued the first of three expected rulings on the challenges to the health care law's constitutionality (the others coming from Federal courts in Virginia and in Florida. The ruling upheld Congress’ power to regulate health care through the Commerce Clause. I found Judge Steeh’s discussions of US v. Lopez and US v. Morrison interesting. Essentially, the court bypassed these decisions and returned to a Wickard v. Filburn analysis. The court’s rational could theoretically be extended to create a federal business law in that all other economic activity could affect interstate commerce.

Citizens United

The New York Times posted an interested piece about Citizens United, the Supreme Court case striking down some laws regulating corporate spending as a violation of the First Amendment, and how it is affecting the current mid term elections. Despite media reports that campaigns have been collecting monies from donors at record levels, with the implication that it is coming from corporations, the true effect of Citizens United, according to Michael Luo, is a subtle psychological shift in that donors feel more confident that "it was within their constitutional rights to support independent political activity", quoting Steven Law who is the head of American Crossroads organization.

Corporate Free Speech Not the Same as Freedom from Accountability

The Minnesota Star Tribune reports that Minnesota's campaign disclosure law is becoming a model response for many states following the U.S. Supreme Court decision in Citizens United, which permits corporations to contribute to elections without limit. This Minnesota law is what provided disclosure of Target Corp.'s $150,000 contribution to a group supporting Minnesota Republican gubernatorial candidate Tom Emmer. Emmer opposes same-sex marriage, and Target's contribution lead to significant backlash and boycotts from gay rights supporters. 

As one might imagine, not everyone loves the law.  In fact, in September, a federal court refused to issue an injunction as part of a challenge to the Minnesota campaign laws (pdf here).  The court noted that the laws require disclosure and place some limits on direct spending, but the  "Minnesota laws at issue do not constitute a complete ban on corporate speech."

One outspoken critic is former Minnesota Senator Norm Coleman (who lost his seat to Senator Al Franken in a bitter recount).  As the Star Tribune explains:

[C]ritics, like former Minnesota U.S. Sen. Norm Coleman, the CEO of the "action tank" American Action Network, see the Target case as a partisan attempt to stymie political speech, making companies think twice before exercising the free speech rights granted by the Supreme Court.

"The other side simply wants to close down contributions to conservative groups," said Coleman, whose non-profit does not have to disclose its donors. "You can see the tactics on the left: Beat the heck out of a Minnesota corporation. And in the end, I think it instills fear into others in stepping into the political arena."

He lost me at "think twice."  

Free speech doesn't mean freedom to say anything, anywhere, without any repercussions. Freedom of speech means you won't go to jail to for exercising your right to speak.  This means your are free to speak your mind, but it doesn't mean you are immune from public criticism.  

Corporations should be considering carefully the impacts of their speech  -- they should think twice -- whether that speech is political speech, internal corporate communications, investor relations or advertising. The U.S. Constitution protects our freedom of speech, and the business judgment rule protects directors from liability for poor decisions.  But neither rule means the speaker is not accountable for their actions.  

Incidentally, if I ever find out who financed this political ad (touted as the worst of 2010 so far), you can be sure I will be holding them accountable.  

--Joshua Fershee

 

The Usual Suspects...

in the police lineup of recession remedies are all hereby dismissed, especially if we adhere to William Cohan's analysis.  The author of House of Cards (re. the demise of Bear Stearns) recently opined that neither Dodd-Frank nor Basel III nor agencies new and old are likely to prevent another global economic disaster.  See "Make Wall Street Risk It All" (NYT Oct. 7th).  The award winning author's proffered solution?  The creation by each large Wall Street firm of "a new security that represents -- and is secured by -- the entire net worth of its top 100 executives."  In case of default, the security would be subordinated to creditors and all shareholders.  Such a revving up of the "skin in the game" notion would ideally return Wall Street to the days when suicidal leveraging was kept in check by the simple requirement that "every partner put his full wealth on the line every day."

That's some Quixotic thinking, particularly when a White House enjoying control of both Houses is fearful of making waves by appointing Elizabeth Warren to head the new consumer protection agency.  But Cohan's immodest proposal does cause us to acknowledge the paucity of all responses to date.

And to wonder if - much in the tradition of Keyser Soze - Wall Street's greatest victory in the past year has been in convincing us all that there even existed reforms to be tempered or defeated.

And to look with possibly a last glimmer of hope to the report of the Financial Crisis Inquiry Commission, which has concluded hearings and is expected to issue its findings in about 60 days.

---JSC, 10/12/10        

L.A. County Seven Mary Three: SEC Is Looking for You

The SEC last week announced charges in an alleged kickback scheme related to promoters of certain penny stocks.  Among the purported promoters is, as per the SEC release, none other than

Larry Wilcox, who lives in West Hills, Calif., and played Officer Jonathan "Jon" Baker on CHiPs, perpetrated interrelated kickback schemes with two other penny stock company executives. Anthony Mellone, who lives in Fort Lauderdale and was CEO of Tri-Star Holdings Inc., began the process by paying an illegal kickback to a purported employee pension fund trustee who was to purchase 40 million restricted shares of Tri-Star stock. Days later, Mellone paid another kickback for a purchase of 50 million restricted shares of stock. Unbeknownst to Mellone, the corrupt trustee and the trustee's business associate were undercover FBI agents, and another middleman was an FBI cooperating witness. Mellone, satisfied how the deal worked for his own company, sought to implement the same fraud with others. He informed Wilcox and Alex Parsinia of Calabasas, Calif., about the purportedly corrupt trustee, and both agreed to replicate the scheme for their own companies. Mellone demanded and received a $1,000 kickback from the witness for each completed restricted stock transaction he initiated. In each instance, the three attempted to conceal the kickback by entering into a consulting agreement with a phony company the trustee purportedly created to receive the kickback. Parsinia's company is Zcom Networks Inc. and Wilcox's company is The UC Hub Group. 

I'm all for catching and punishing people trying to cheat the system, although I can't help but think this sounds like some pretty small-time stuff for a joint SEC and FBI sting.  Then again, there are those who believe that punishing smaller crimes may have an impact on all crime, notwithstanding the Freakonomics view of such efforts.

--Joshua Fershee

My Two Cents

Is the current economic crisis the result of unbridled greed?  Faulty regulation?  A bedeviled marriage of the two?

Personally, when fortunes are lost to gambling, I rarely find blame in the dice.  And speculative bubbles are nothing new.  Which leaves the visible hand of government regulation as a prime target.  For a scrutiny of public sector contributions to the days of 1% bank interest, see Laws, Sausages and Bailouts: Testing the Populist View of the Causes of the Economic Crisis by yours truly (available at http://www.brooklaw.edu/~/media/PDF/LawJournals/CFC_PDF/cfc_vol4ii.ashx ).

---JSC. 10/11/10

Jennifer Brunner, Ohio Secretary of State, on the Foreclosure Crisis

Democracy Now has an interesting interview with the Ohio Secretary of State here.  The impetus for the interview: "This week, Ohio filed a lawsuit accusing the lender Ally Financial and its GMAC Mortgage division of fraud in approving scores of foreclosures."

Marketplace also did their own interview, which you can find here.  What jumped out at me in listening to the podcast was the following:

At one financial institution, a group of eight notaries sit at tables and notarize 18,000 documents a month. What was described in the depositions was that the person who is signing the documents doesn't really have knowledge of what is in the those documents. In some situations, I've seen examples where one individual signs 2,000 to 5,000 documents a day with an e-signature....

I can't necessarily blame the notaries when you have situations like 18,000 documents processed by the eight notaries in the period of a month. That's a company policy. Those employees are doing what they're told to do. It's a paperwork problem, but it's a bigger problem that an institution that we depend on, that's publicly traded, would think that they can shortcut the laws of the states that they do business in.

Puts a new twist on, "What's good for [GMAC] is good for America."

SJP