Saturday, October 10, 2015

I'm calling it a bubble

There's been something of a debate recently about whether there's a bubble in tech startups.  It is believed that 140 have reached "unicorn" status, i.e., valuations of $1 billion or more, and numerous voices have been raised questioning the legitimacy of those valuations.  Venture capitalists insist the valuations are legitimate, but I think Buzzfeed's story about recently-foaled unicorn JustFab is a rather powerful demonstration that something has gone awry.

JustFab offers discount clothing and shoes on a subscription basis; shoppers pay a monthly fee to have access to the products.  The problem is, according to Buzzfeed, JustFab has received thousands of complaints from consumers who claim that they were unaware they would be charged monthly subscription fees, and found themselves unable to cancel the service.   JustFab recently settled a lawsuit brought by district attorneys in Santa Clara and Santa Cruz alleging that it deceived customers.  Even more troubling are the allegations that JustFab's founders have a long history of forming similar companies, on a similar subscription model, that also generated considerable consumer ire - as well as complaints by credit card companies because of all the chargebacks, and an FTC complaint that settled for $50 million.  At least according to BuzzFeed, JustFab's original financing came from investments by these other, now defunct, entities - prompting lawsuits by those entities' creditors.

JustFab may turn out to be a legitimate company, or it may simply be an outlier.  Nonetheless, its unicorn status raises doubts about the herd.


October 10, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, October 3, 2015

Delaware Supreme Court Discovers the Power of Friendship

Yesterday, the Delaware Supreme Court held that plaintiffs had pled demand excusal under Aronson v. Lewis due in part to a director's "close friendship of over half a century with the interested party," in combination with that director's business relationship with the interested party.

Del. County Emples. Ret. Fund v. Sanchez involves a public company that is 16% owned by the Sanchez family.  The plaintiffs challenged a transaction in which the company paid $78 million to a privately-held entity owned by the Sanchezes, ostensibly to purchase certain properties and fund a joint venture.  The question, then, was whether plaintiffs could show that a majority of the Board was not independent, and because the Sanchezes themselves occupied 2 of the 5 seats, all eyes were on one additional Board member, Alan Jackson.

Alan Jackson, it turned out, had been close friends with the Senior Sanchez for "more than five decades," and the Delaware Supreme Court deemed this fact worthy of of judicial notice.  Thus, in a heartwarming passage, the Court noted that though it had previously held in Beam v. Stewart, 845 A.2d 1040 (Del. 2004), that a "thin social-circle friendship" is not sufficient to excuse demand, "we did not suggest that deeper human friendships could not exist that would have the effect of compromising a director's independence....Close friendships [that last half a century] are likely considered precious by many people, and are rare. People drift apart for many reasons, and when a close relationship endures for that long, a pleading stage inference arises that it is important to the parties."

Lest it be accused of being too emotional, however, the Court was careful not to end its analysis there.  Instead, it also noted that Jackson and his brother worked for another company over which the Senior Sanchez had substantial influence, and which counted the Sanchez entities as important clients.

With its tender recognition of the value of "human relationships" thus bolstered by the realer concerns of economics, the Court concluded that the plaintiffs had raised a reasonable doubt that Jackson was independent of the Sanchezes, and excused demand.

I realize it's only a baby step, but has the Snow Queen's heart begun to thaw?


In all seriousness, I do find this significant to the extent it suggests that Delaware may be trying to find some room in its caselaw for recognizing what we all know to be true, namely, that personal ties among directors may substantially influence their decisionmaking.  I mean, I don't expect any radical new recognition of structural bias, but this decision could herald a more realistic approach to evaluating the impact of informal personal relationships.  Or it could just be a one-off due to the extraordinary facts - we'll have to see what future cases bring. 

I do note, however, that one of the more interesting aspects of the opinion is the Court's observation that a Section 220 demand is unlikely to yield results for plaintiffs who allege that personal, rather than professional, ties compromise a director's judgment.  I expect that's going to get some play in plaintiffs' briefing for a while.

October 3, 2015 in Ann Lipton | Permalink | Comments (9)

Saturday, September 26, 2015

Scholarship and SSRN

I've been thinking a lot about the way technology can influence the path of the law - in terms of both judging and scholarship.

For example, the introduction of electronic legal databases like Westlaw has almost certainly changed how judges function.  They may be more reliant on clerks today than they used to be, because the sheer accessibility of so much relevant case information requires assistance to sift through.  I also wonder if precedent - rather than inductive or explicitly policy-based reasoning - has become more important (or is at least given greater emphasis) because of the ease with which earlier caselaw can be located.

Over at Prawfs, they're discussing Judge Posner and the ethics of independent judicial factual research - something that technology has made far easier for judges to do.

Here at BizLawProf, we've talked about the relevance of law reviews in a world where SSRN can make articles immediately available (not to mention a world where law professors can, you know, umm, blog).

A number of law professors post articles to SSRN that aren't articles so much as they are a form of advocacy - legal briefs, after a fashion, intended to sway a deliberations on a particular issue under judicial or political consideration, in situations where an amicus brief may not be procedurally appropriate or possible.  (And sometimes professors just post straight-up legal briefs).  Such postings could herald a shift in the law professors' role - or at least a shift in emphasis - by allowing professors to influence policy outside of traditional channels.

But there's another aspect of SSRN's technology that I think may turn out to be critically influential in the long run.

Every morning I have email delivered to my inbox that tells me about new postings in a variety of areas related to corporate and securities regulation.  And of those articles, about half come from law professors - and the other half come from business professors.  High theory articles are presented to me side by side with in-the-weeds empirical analysis of how slight changes in, say, CEO compensation packages result in slight changes in shareholder returns or discretionary accruals.

This mode of presentation, I think, is necessarily destined to influence legal scholarship - notwithstanding the laments of those who think the academy has gone too far in the direction of "law and."  The architecture of SSRN - and its method of categorizing articles by general subject and without regard for field, method, or source - represents a nonneutral argument about what scholars should be thinking about, should be considering, when they conduct their research.  And it will be interesting to see where that ultimately takes us.


September 26, 2015 in Ann Lipton | Permalink | Comments (1)

Saturday, September 19, 2015

The Curious Case of Page v. Page

I just completed the unit on partnerships in my Business class, and we covered Page v. Page, 55 Cal. 2d 192 (Cal. 1961), the case of the warring brothers who ran a linen supply partnership.  This is a semi-famous case - not as fundamental as Meinhard v. Salmon, but included in several business casebooks and discussed in many law review articles.

The opinion itself is maddeningly short on details of the relationship between the brothers, and how it is that this family dispute came to end up in a courtroom.

What we know from the California Supreme Court is this:

George Page was the sole owner of a corporation that supplies linen and machinery for the operation of industrial linen businesses.

George entered into an oral partnership agreement with his brother, H.B., in 1949.  That partnership was to operate a linen supply business serving Santa Maria.  Each brother contributed $43,000 of capital to the business that apparently went to purchase a few basic assets.  Day to day operations, however, depended on services and materials supplied by George’s corporation.  The partnership was unprofitable for its 10 years of existence, and ultimately came to owe George’s corporation $47,000 for the materials it supplied.

When the Vandenberg Air Force base was established in Santa Maria, the partnership finally began to turn a profit.  Only a few months later, however, George proclaimed that he wanted to dissolve the partnership, and sought declaratory judgment that the partnership was at-will, giving him free rights of withdrawal.  H.B. opposed, arguing that the partnership was intended to last until all obligations were paid, and that George was only trying to dissolve now so that he could take sole advantage of the opportunities afforded by the air force base.  Among other things, H.B. pointed out that a previous partnership between him and George explicitly provided it was to terminate only when obligations were paid off, and therefore this partnership should be interpreted similarly.

Ultimately, the court concluded that the partnership was at-will, but allowed that H.B. might be able to demonstrate a breach of fiduciary duty if George intended to appropriate for himself benefits properly allocated to the partnership.

The opinion offers no further insight into the George/H.B. arrangement, which leaves it to teacher’s manuals to speculate – and two in particular offer wildly divergent interpretations.

[More under the cut]

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September 19, 2015 in Ann Lipton | Permalink | Comments (2)

Saturday, September 12, 2015

The value of transactional lawyering: The law firm

Further to Joan’s and Steve’s posts regarding the value that transactional lawyers can add to deals, Elisabeth de Fontenay at Duke has recently posted an article to SSRN, Law Firm Selection and the Value of Transactional Lawyering, which explores a new dimension along which lawyers can add value for clients: their unique, experience-based knowledge of deal terms.

de Fontenay’s argument is that for complex deals, it may not be readily apparent what the value or cost is for each term, and that lack of transparency impedes bargaining.  Experienced transactional lawyers have a unique knowledge base from which to draw upon, allowing parties to learn of new deal possibilities and value their alternatives.  de Fontenay points out, however, that this model is in tension with traditional notions of client confidentiality, because the lawyer’s value to the client is a function of the lawyer’s ability to pool knowledge drawn from other engagements.  The model also explains why elite law firms continue to be able to charge a premium for their services, and why they have combined into such large organizations: their size allows them to grow their knowledge base, and elite firms, by virtue of their experience, are able to perpetuate their informational advantages.


September 12, 2015 in Ann Lipton | Permalink | Comments (0)

Friday, September 11, 2015

Claire Dickerson

Claire Moore Dickerson, a much-loved member of the Tulane faculty, passed away recently.  I did not have the privilege to know her personally (though I have been grateful to her for her notes while designing my Business Enterprises class), and I know how much she will be missed by my colleagues.

There will be a burial service tomorrow and a memorial service in Rye, New York on October 17.  Christine Hurt at The Conglomerate has more.


September 11, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, September 5, 2015

On the Dole

The Delaware Chancery Court recently issued its opinion in the Dole Food Stockholder litigation (.pdf), and it’s a doozy.

The précis, as has been reported extensively, is that according to the court, Dole’s Chair, CEO, and 40% controlling shareholder David Murdock conspired with C. Michael Carter, another Dole officer, to make Dole look less profitable than it actually was, so that Murdock could buy out the public stockholders at a bargain price.

The opinion is well worth reading if only for the entertainment value – the machinations involved, and the court’s commentary, make for a riveting tale – but I can’t help but read this and wonder, can we expect to see a follow on Section 10(b) complaint?  And what would that look like?

[tl;dr analysis under the cut]

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September 5, 2015 in Ann Lipton | Permalink | Comments (0)

Thursday, September 3, 2015

Wal-Mart and the Social License to Operate

Has Wal-Mart reformed? Last week I blogged about whether conscious consumers or class actions can really change corporate behavior, especially in the areas of corporate social responsibility or human rights. I ended that post by asking whether Wal-Mart, the nation’s largest gun dealer, had bowed down to pressure from activist groups when it announced that it would stop selling assault rifles despite the fact that gun sales are rising (not falling as Wal-Mart claims). Fellow blogger Ann Lipton did a great post about the company’s victory over shareholder Trinity over a proposal related to the sale of dangerous products (guns with high capacity magazines). There doesn’t appear to be anything in the 2015 proxy that would necessitate even the consideration of a change that Wal-Mart fought through the Third Circuit to avoid.

So why the change? Is it due to the growing public weariness over mass shootings? Did they feel the sting after Senator Chris Murphy praised them for ceasing the sale of Confederate flags but called them out on their gun sales? Even the demands of a Senator won’t overcome the apparent lack of political will to enact more strict gun control, so fear of legislation is not a likely factor either. Selling guns doesn't even conflict with the very specific initiatives in their comprehensive GRI-referenced global responsibility report.

Maybe the CEO just wants to do what he believes is the right thing. After all, he announced to great fanfare in February that the retailer would be raising minimum wages for associates. But just this week the chain announced that it would be cutting back on worker hours in many stores. Was the pay raise a “cruel PR stunt” as some have complained or it good business sense for a company that has failed to live up to investor expectations and needs to retain good talent and reduce turnover?

A few weeks ago when I did a crash course in US corporate law and governance in Panama, I had a lengthy debate with the head of CSR for a Latin American company. I (cynically) told her that in my ideal(ist) world, companies should adopt a stakeholder view and look beyond profit maximization. However, I believed that most large companies in fact implemented CSR programs to enhance reputation, avoid onerous legislation, and mitigate enterprise risks. The company that builds the school or the drinking well in a remote area of a third-world country does good for the community but it also has workers who can send their children to school, educates the next generation of employees, and makes sure that the community has potable water so that workers don't get sick. Its CSR builds good will in the community that can be worth more than gold. The smart company makes sure that it has a social license to operate as well as legal license.

So back to Wal-Mart. Does the retailer need a social license to boost sagging sales or does it just need different merchandise?  In other words is the retailer trying to get more customers by stopping the sale of assault rifles? Was that announcement timed to blunt the effect of the announcement about cutting back hours? Or is Doug McMillon simply doing what he believes makes sense for the shareholders and the stakeholders? The cynic in me says that there’s a business reason other than low sales for the change in position on guns and that there was always a business reason for the rise in wages.

September 3, 2015 in Ann Lipton, Commercial Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Legislation, Marcia Narine, Shareholders | Permalink | Comments (1)

Saturday, August 29, 2015

But how will they sleep?

Apparently, Paul Hastings is planning to bring lawyer cubicles to New York.  First and second year associates won't get an office; instead, they'll get a cubicle.  The firm pitches this as a move to enhance creativity; conveniently, it also saves expenses on office space.

Whenever I hear about moves like this - which include offices with glass walls, or offices shares by multiple people - I always wonder: But how will they sleep?

Leaving aside the sleep research demonstrating the cognitive benefits of naps, I know from personal experience that I cannot get through a full working day - let alone the kind of long day that lawyers often must work - without one or two 20-minute naps.  I've talked to other lawyers and I've heard the same thing; they loathe glass walls and other open-office plans not simply for the lack of privacy, but because they need space to sleep.

Google is famous for, among other things, counterbalancing shared offices and glass walls with sleeping pods - which likely benefits employee productivity (and also, presumably,  is part of a strategy to keep employees from ever leaving the complex).  I suppose Paul Hastings could try something similar, but I'm guessing the cultural taboos against napping - especially among lawyers, who take punishing hours are taken as proof of commitment to the firm - would inhibit their use.

I get why firms may feel the need to cut costs - and lots of attorneys, as well as workers in other fields, have long toiled in cubicles or at shared desks - but won't someone think of the nappers? 


August 29, 2015 in Ann Lipton | Permalink | Comments (8)

Saturday, August 22, 2015

En banc we go?

As Marcia just discussed, the D.C. Circuit recently issued its decision in its rehearing in National Association of Manufacturers v. SEC (“NAM”), and it once again held that neither the SEC nor Congress may require public companies to disclose whether they use in their products certain “conflict minerals” that originated in the Democratic Republic of Congo or adjoining countries.  Marcia has a really important discussion of the question whether a disclosure requirement is even likely to be effective to accomplish Congress’s goals, but I also find the new opinion fascinating and fraught in its own right – and, incidentally, deeply disdainful toward the en banc opinion in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (“AMI”).  Probably not coincidentally, neither of the two judges in the NAM majority were part of the en banc decision in AMI, because both have senior status (the third member of the NAM panel, Judge Srinivasan, was in the AMI majority, and dissented in NAM).

[More after the jump]

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August 22, 2015 in Ann Lipton | Permalink | Comments (2)

Saturday, August 15, 2015

Choosing a casebook

The school year begins soon, and I'll be teaching Business Enterprises.  (That's what Tulane calls the basic BA/Corps class.)

One of my first tasks was to select a casebook.  There are a lot of options, and it was interesting for me to analyze how each reflects the philosophy/policy preferences of its authors.  I suppose I should have predicted that the Klein/Ramseyer/Bainbridge book would open its discussion of corporations with the Boilermakers case, and its characterization of corporate governance documents as a "contract" among shareholders.  The Allen/Kraakman/Subramanian book heavily emphasizes economic analyses.   Unsurprisingly, the casebook partially authored by my co-blogger Joan Heminway (i.e., the Branson/Heminway/Loewenstein/Steinberg/Warren book) demonstrates a particular interest in alternative entities, and Hazen/Markham seems to feel derivative actions have dominated far too much academic attention (and also that Dodge v. Ford Motor Co. needs to be retired).

One significant point of variation is how far the books go in integrating state and federal law.  As federal securities regulation expands, it clearly poses a problem for casebook authors (and business professors!) in terms of organizing the material in a coherent fashion.  It's harder to simply divide the class into state governance law and federal disclosure law (which is how I remember learning it, anyway), and the casebook authors all have different approaches.  Ultimately, I chose the Hazen/Markham book, in part because organizationally, it comes closest to reflecting how I think about matters in my own head, so I figured it would be easiest for me to teach. 

I'm still assigning Dodge, though.



August 15, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, August 8, 2015

Amended Pleadings in Securities Cases – Second Circuit to the Rescue

In Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 2015 U.S. App. LEXIS 12800 (2d Cir. July 24, 2015), the Second Circuit reversed the district court’s dismissal of state law fraud claims arising out of the sale of hybrid CDOs.  The court spent an extraordinary amount of time discussing the concept of loss causation, although to be honest, I’m not at all confident that the extended discussion actually clarifies matters, at least in those circuits that already follow Second Circuit law on the subject. 

(There is currently a circuit split on the definition of loss causation under the federal securities laws, and a newly-filed cert petition asking the Supreme Court to resolve it.  But I digress.)

What I actually was excited to see was the Second Circuit’s discussion of the conditions under which plaintiffs should be permitted to amend their pleadings.

As I previously posted, courts are all over the map about allowing amended pleadings in securities fraud cases.  Some courts are extremely permissive; others essentially grant plaintiffs only one bite at the apple (although that standard is usually more applicable to federal, rather than state, claims).  Many courts have held that if plaintiffs want the opportunity to replead their claims in order to meet particularity requirements, they must proffer their proposed amendments prior to the ruling on the motion to dismiss.  The theory is, plaintiffs should not be allowed to sit on relevant evidence, let the court make its ruling, and only then announce that they have new facts in their possession; instead, plaintiffs should promptly alert the court if they have additional facts that bolster their allegations.

That rule sounds logical but, as I argued in my prior post, is actually tremendously unfair in practice, because the particularity requirements for pleading securities fraud – whether under the federal rules or under the PSLRA – are so idiosyncratic that it is very difficult for plaintiffs to be able to tell, in advance, what deficiencies might exist in their complaint and what new facts might fill the holes.  Making matters worse, any newly-proffered facts offered prior to an initial ruling on the motion to dismiss would introduce extensive delays into the process.

Well, in Loreley, the Second Circuit agreed with me (vindication!!).  As the court wrote:

[T]he procedure by which the district court denied leave to amend was improper. The court required the parties to attend a pre-motion conference and to exchange, in preparation, letters of no more than three pages regarding Defendants' anticipated motion to dismiss for failure to state a claim. The Federal Rules of Civil Procedure do not speak to the use of pre-motion conferences. Such conferences are not in themselves problematic, however, and indeed may in many instances efficiently narrow and/or resolve open issues, obviating the need for litigants to incur the cost of more extensive filings. The impropriety occurred not when the district court held the pre-motion conference but when, in the course of the conference, it presented Plaintiffs with a Hobson's choice: agree to cure deficiencies not yet fully briefed and decided or forfeit the opportunity to replead. Without the benefit of a ruling, many a plaintiff will not see the necessity of amendment or be in a position to weigh the practicality and possible means of curing specific deficiencies.

Our opinion today, of course, leaves unaltered the grounds on which denial of leave to amend has long been held proper, such as undue delay, bad faith, dilatory motive, and futility—none of which were a basis for the denial here. No improper purpose is alleged. And while leave may be denied where amendment would be futile, the approach taken by the district court was not rooted in futility. Rather, the court treated Plaintiffs' decision to stand by the complaint after a preview of Defendants' arguments—in the critical absence of a definitive ruling—as a forfeiture of the protections afforded by Rule 15. This was, in our view, premature and inconsistent with the course of litigation prescribed by the Federal Rules…

I totally agree.

August 8, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, August 1, 2015

Halliburton – have we learned nothing?

The Halliburton district court finally issued its decision (.pdf) on the plaintiffs’ renewed motion for class certification – and I’m afraid it’s exactly as incoherent as the most pessimistic predictions might have anticipated.

The district court recognized that, after Halliburton I, it was prohibited from making loss causation determinations as part of the class certification inquiry.  However the district court did hold that if there is no price movement in response to an alleged disclosure (and there is also no price movement when the misstatement is first made), that fact establishes there was no artificial inflation originally. 

In other words, the court believed that the absence of affirmative evidence of price inflation is evidence of absence, and sufficient to carry the defendants’ burden to prove that any misstatements had no effect on prices.  (To be fair, from the opinion, it appears the plaintiffs themselves urged this position).

The court went on to find that the Halliburton defendants had shown there was no price movement on almost all of the alleged corrective disclosure dates – and so class certification would be denied as to those dates.  However, because there was price movement for one disclosure date – December 7, 2001, the last day of the proposed class period – class certification would be granted as to that date.

The problem is, the plaintiffs were seeking class certification for all persons who purchased Halliburton stock from the start of the fraud until the end of the fraud.  The court’s ultimate determination – that one disclosure date was sufficient and others were not – tells the reader nothing about what class can be certified, as though the court had forgotten the entire purpose of the exercise.  I suppose we’ll find out the class definition if an order follows, but for now, the opinion sheds almost no light on that subject.

[More under the jump]

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August 1, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, July 25, 2015

Sauce for the goose ... ?

Caribbean Cruise Line recently won an interesting victory when Florida’s Fourth District Court of Appeal held that it could pursue an unfair trade practices claim against the Better Business Bureau for awarding it an “F” rating.  See Caribbean Cruise Line, Inc. v. Better Bus. Bureau of Palm Beach County, Inc., 2015 Fla. App. LEXIS 8497 (Fla. Dist. Ct. App. 4th Dist. June 3, 2015).

This was an unusual holding, because BBB ratings are usually treated as protected “opinion” speech under the First Amendment.  Caribbean Cruise Lines got around that, however, by claiming it was not attacking the rating itself, but BBB’s allegedly false representations regarding its methodology for generating the rating.  The court accepted that BBB’s statements about its methodology were factual and, if false, could be the subject of a lawsuit.

If that sounds familiar, it should – it’s exactly the argument that plaintiffs have used in litigation involving mortgage-backed securities.  Numerous plaintiffs have successfully argued that statements regarding appraisals and LTV ratios were false not because the appraisers’ opinions were false, but because the securitizers falsely described the methodology used to reach those opinions. 

Considering the complaints that have been lodged against the BBB, I suppose a decision like this was only a matter of time.  Still, I have to wonder how much this decision will be used to challenge local cartels, versus how much it will be used to flyspeck unfavorable reviewers.

July 25, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, July 18, 2015

All Your Stock Are Belong to DTC

A few days ago, Vice Chancellor Laster issued an interesting opinion in In re Appraisal of Dell.  He held that Delaware’s “continuous holder” requirement for appraisal litigation applies at the record holder level – that is, the level of DTC.  Because in this case, due to a technical error, DTC transferred the ownership of the shares to the beneficial owners’ brokers’ names – the street names – the beneficial owners could not maintain their appraisal petition. 

[More under the jump]

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July 18, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, July 11, 2015

Guns versus Butter

This week, the Third Circuit issued is long-awaited decision in Trinity Wall Street v. Wal-Mart Stores, Inc. (.pdf), detailing its reasons for its earlier holding that Trinity Wall Street’s shareholder proposal addressing gun sales was excludable from Wal-Mart’s proxy statement.  The decision is interesting in several respects, not the least of which is an apparent split among the panelists regarding the shareholder wealth maximization norm.

[More under the jump]

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July 11, 2015 in Ann Lipton | Permalink | Comments (3)

Saturday, July 4, 2015

Well, that's a novel use of crowdfunding

Crowdfunding’s a popular topic here at BLPB, but here’s a use that hadn't occurred to me.

Apparently, a former SEC lawyer is using Kickstarter to fund an investigation into the fees that CalPERS pays for its private equity investments.   

It all started when CalPERS announced that it didn’t know what it was paying in private equity fees.

This was somewhat surprising.  CalPERS has the money, and is assumed to have the sophistication, to bargain for its interests and at least require firms to make the appropriate disclosures.

Nonetheless, it appeared to be in the dark about its own fee payments.

To be fair, NYC’s Comptroller recently claimed to be shocked by NYC funds' fees, and the SEC has now begun to aggressively investigate private equity fee and expense disclosure.  It even recently settled a case with KKR alleging that it improperly allocated expenses to fund investors that it should have partially absorbed itself.

 Still, one would have thought that CalPERS, of all funds, could protect itself.

Enter Edward A. H. Siedle, who is seeking public support for his investigation of CalPERS’s fees.  Apparently, he’s done this before: he recently issued a crowd-funded report on Rhode Island’s state pension fund, concluding that the fund experienced $2 billion in “preventable losses.”

I’m not sure what the broader lesson is here, but there are certainly plenty of candidates – the versatility of crowdfunding?  The dysfunctions of public pension funds generally, or CalPERS specifically?  The opacity of private equity?  The problems inherent in the SEC’s assumption that assets correlate with sophistication?   Or maybe it’s a just a story about the decline of local reporting, because honestly, these are the kinds of stories we might once have expected to be covered by local news outlets.  Does the “sharing economy” mean we have to “share” public goods like news reporting? 

Apparently so.

In any event - happy 4th of July!  Have a classic depiction of patriotism in celebration:


July 4, 2015 in Ann Lipton | Permalink | Comments (3)

Saturday, June 27, 2015

Insider Trading Profits as a Proxy for Intrafirm Information Flow

Chen Chen, Xiumin Martin, Sugata Roychowdhury, and Xin Wang have posted a paper to SSRN that attempts to identify firms that suffer from poor internal information flow by comparing the relative insider trading profits of high level managers and low level managers.  They find that when lower level managers make higher profits – suggesting that they have better information than higher level officers – the firm’s external financial reporting suffers.

[More under the cut]

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June 27, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, June 20, 2015

Greetings from New Orleans - and also Musings on the AIG Verdict

I’ve just moved down to New Orleans to join the faculty at Tulane Law School (my bio will be updated  ... um, eventually), where I’ll be teaching Business Enterprises and Securities Regulation to start.  As you can imagine, Louisiana is quite a change from both North Carolina and, before that, NYC.  One thing I noticed right off the bat is that most of the banks in Louisiana are local/regional institutions – not many national banks have branches here.  Which means that, as a former plaintiffs’ attorney, for the first time in my adult memory I have a bank account with a financial institution I haven’t sued.

(Sidenote: That was actually kind of an issue when I worked for the law firm then-known as Milberg Weiss.  I was told we had trouble getting firmwide health insurance because we’d sued all the carriers and they didn’t want to do business with us.)

Anyway, as I procrastinate from unpacking....

*actual representation of my apartment

....the big news that has my attention is the AIG verdict.  There have already been conflicting views on what it portends for future bailouts, but what fascinates me is how much of the opinion is devoted to the judge’s moral condemnation of the Fed’s actions, and his moral absolution of AIG, even though the relative good or evil of either player was really not relevant to his ultimate holding.

[More under the jump]

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June 20, 2015 in Ann Lipton | Permalink | Comments (0)

Saturday, June 6, 2015

Diversity in the legal profession

There have been a few recent articles in the news discussing diversity - or its lack - among lawyers.

First, Deborah Rhode writes in the Washington Post that law is one of the whitest professions.  People of color make up one fifth of law school grads but only 7 percent of law firm partners - and those numbers drop to 2 or 3 percent in BigLaw.  She argues that among other barriers, unconscious bias still plays a role in hindering the advancement of African American lawyers.  She also points out that women, as well, struggle to make partner - perhaps reflecting the difficulty that women have walking the tightrope of being aggressive enough to do their jobs, but not so aggressive that they come off as unfeminine.

Picking up on these themes, the American Lawyer recently published a report on how BigLaw is failing women.  Sometimes, these failures are attributed to demanding work schedules that make it difficult for women to shoulder responsibilities for childcare - which is why one law firm was recently profiled in the New York Times for hiring mainly women, and allowing them to adjust their schedules around their parenting responsibilities.  But flexible work schedules aren't always a step in the right direction; this article about the lack of women's advancement in consulting makes two important points.  First, "family-friendly" policies that allow women to work flexible schedules may undermine their advancement by signaling a lack of commitment to the firm, and second, that many people continue to harbor biases against women - including the assumption that women with children are not fully committed to work - regardless of the hours they keep.  The article suggests that instead of adopting flexible work schedules, firms should simply not require long hours of any employees - a suggestion that, not surprisingly, firms are not anxious to adopt.

Based on my law firm experience, these themes resonate.  I saw very, very few nonwhite lawyers.  There were also far fewer women partners than men partners.  (One thing I remember: in group meetings, men routinely talked over and interrupted the women, making it very difficult even for women partners to have their voices heard.) 

I don't know what the solution is, but I do think the issues are real ones.  And, as Rhode points out, because lawyers often have critical roles in society - in government, and other policymaking roles - it's important that the profession be welcoming to all.

June 6, 2015 in Ann Lipton | Permalink | Comments (2)