Saturday, September 20, 2014

It’s rare to see so many people interested in a proxy battle

But that’s what happened when hedge fund Starboard Value delivered a 294-slide presentation on the terrible food at Olive Garden as part of its fight for control of Darden Restaurants. (You can see the presentation in all of its glory here.)

The presentation not only received news coverage in standard outlets like WSJ and Bloomberg, but even attracted the attention of Slate and Mother Jones, who were amused by such detailed accusations as “Darden stopped salting the water in which it boils pasta,” that the crispy Parmesan asparagus is “anything but,” and Starboard’s lament that Olive Garden wait staff bring multiple breadsticks to the table at once, instead of delivering one per customer with a right of replenishment – which leads, according to Starboard, to cold breadsticks that “deteriorate in quality,” and encourages customers to fill up on the free stuff instead of ordering more things that cost money.

Starboard also complained that the Olive Garden menu has expanded to non-Italian offerings like tapas and burgers, that Olive Garden overstuffs its salads and lards them with too much dressing, and that the wait staff fail to push alcohol sales.

All of this, of course, led to such glorious headlines as “Olive Garden Defends Breadstick Policy,”  and a Business Insider review of Olive Garden restaurants (the verdict: Starboard was right; but for a contrary opinion, see the New Yorker's take).

The real debate, though, isn’t about food – it’s about the value of the real estate on which Darden’s restaurants sit – which didn’t really make it into most of the headlines.

That said, in a fairly ironic bit of timing, just days after the presentation, CalPERS announced that it was dumping all of its hedge fund investments, because they just aren’t delivering enough of a bang for the buck. CalPERS’s announcement, though, didn’t get quite the same news coverage – maybe it should have used power points.

September 20, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, September 13, 2014

The Solicitor General Recommends a Grant in Moores v. Hildes

The Solicitor General recently filed a brief with the Supreme Court recommending that the Court grant certiorari in the Ninth Circuit case of Moores v. Hildes, No. 13-791.  If the Court takes this recommendation (which I’m guessing it will), it will be the third Section 11 case scheduled to be heard this Term.  (I’ve blogged about the prior two here and here.)

[More under the cut]

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September 13, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, September 6, 2014

Mandating Arbitration of Securities Claims via Corporate Governance Documents?

Since Delaware decisions like Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013) and ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), there have been renewed calls for corporations to amend their charters and/or bylaws to require that shareholder lawsuits – including securities lawsuits – be subject to individualized arbitration. 

This is actually a big interest of mine – I’m currently working on a paper concerning the enforceability of arbitration clauses in corporate governance documents.  Critically, I do not believe these decisions support the notion that arbitration provisions can control securities claims – at best, they suggest that arbitration provisions in corporate governance documents can control governance claims (i.e., Delaware litigation – concerning directors’ powers and fiduciary duties). 

[More under the cut]

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September 6, 2014 in Ann Lipton | Permalink | Comments (7)

Saturday, August 30, 2014

MBS Settlements – The Money Got Lost in Standing

Adam Levitin at Credit Slips has an interesting breakdown of MBS litigation settlements.  He points out that of the $94.6 billion in settlement funds, only 2% has gone to private investors alleging securities-fraud-type claims.

He concludes:

First, it shows that legislative reforms and court rulings have seriously impeded the effectiveness of securities class action litigation. If ever there were an area ripe for private securities litigation, private-label RMBS is it, yet almost all of the recoveries are from six settlements.  This should be no surprise, but it's rare to see numbers put on the effect.  This is what securities issuers and underwriters have long wanted, and the opposition has mainly been the plaintiffs' bar, but perhaps investors will take note of the effect too. 

Second, the distribution shows how badly non-GSE investors got shafted. Remember, that private-label securitization was over 60% of the market in 2006. Yet investors have recovered only 38% of that which the GSEs/FHFA have recovered, and most of that is from the trustee settlements or proposed settlements (I'm not sure that any have actually closed). Private securities litigation has recovered a mere 4% of what the GSEs/FHFA have recovered. 

The real question is whether investors have learned that they cannot rely on either trustees or the securities laws to protect them from fraud, and if they have, what they plan to do about it. One sensible thing would be simply to invest in other asset classes. The other would be to try and reform the trustee system and/or the securities laws.

I'm sure there are many reasons for the disparity, but I think one major contributor is a series of rulings narrowing the definition of standing in the class action context. 

 

(okay, that was my attempt to jazz up a procedural post)

Anyway, these standing issues are now pending - sort of - before the Supreme Court, as I previously posted.  What's interesting is that these standing rulings have had a dramatic effect on private investors' ability to bring claims, but they aren't usually mentioned in the same breath as other, more obvious, limitations on securities class actions. 

[More under the jump]

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August 30, 2014 in Ann Lipton | Permalink | Comments (0)

Monday, August 25, 2014

Sex, Lies, and . . . Crowdfunding

This follows on Ann's post yesterday on Gender and Crowdfunding.  Ann, so glad you've joined me and Steve Bradford as securities crowdfunding watchers!  Delighted to have you in that informal, somewhat disgruntled "club."

I have been interested in whether securities crowdfunding will democratize business finance.  (I note here that Steve Bradford's comment to Ann's post raises the broader question of crowdfunding's ability to better engage underrepresented populations in general.)  My interest has, however, been more on the investor (backer) side of the crowdfunding equation than on the business (entrepreneur) side.  

As Ann notes, given the delay in the Securities and Exchange Commission (SEC) rulemaking under Title III of the Jumpstart Our Business Startups (JOBS) Act, the information on gender and crowdfunding that we have so far comes from other types of crowdfunding.  This information may or may not map well to markets in securities crowdfunding.  But it's still worth reviewing the information that we do have.

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August 25, 2014 in Ann Lipton, C. Steven Bradford, Entrepreneurship, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Saturday, August 23, 2014

Crowdfunding and Gender

The SEC is in the process of crafting rules to facilitate crowdfunding of unregistered securities offerings.  There's been a lot of back and forth about the merits of this idea - Michael Dorff, for example, has argued that it's a sucker's game, because the only businesses that will require crowdfunding are those too toxic for angel investors to touch.  Meanwhile, Steve Bradford just posted about a study suggesting that the "crowd" is better at identifying winning business ideas than individual investors - even the professionals.

One idea that's been floated, however, is that crowdfunding will open doors for disadvantaged groups - like women.

Indiegogo, a crowdfunding website, recently boasted that women founders reach their target funding in much greater numbers than do women who seek startup capital through traditional means.  Women have had similar results on Kickstarter.

There's been a lot written recently about how women fare poorly in the tech world when they seek startup funding.  Women report navigating a lot of pretty toxic sexism from the mostly-male angel investors with whom they must negotiate.

I have my doubts about the viability of crowdfunding, but I'll be interested to see whether it can also level playing fields in unexpected ways.

August 23, 2014 in Ann Lipton | Permalink | Comments (2)

Saturday, August 16, 2014

Saturday Movie Blogging

This year, I’m going to be teaching a seminar on the financial crisis with a friend of mine from law school, Tanya Marsh of Wake Forest.  The seminar will be offered at Wake Forest in the Fall and then again at Duke in the Spring.  Among other things, we plan to assign the students to watch several movies about the crisis (some will be watched by the entire class; for others, different groups of students will watch different films, and then discuss them with the class).

In preparation, I watched (or, as the case may be, rewatched) the movies we’re likely to assign.  So here are my comments on the movies – which I assume many of you have already seen, but probably not everyone has seen everything – with the caveat that, I’m commenting at least as much as an audience member/amateur film critic as I am as a professor.

(Tanya tells me the students are unlikely to stumble across this post, but in case you do – these are my opinions only, we’ll want to hear yours!  And for what it’s worth, Tanya and I disagree on at least one of the films.)

[More under the jump]

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August 16, 2014 in Ann Lipton | Permalink | Comments (6)

Monday, August 11, 2014

Securities Regulation at the Public/Private Divide (If There Still is a Divide . . .)

Ah, yes . . . .  The public/private divide . . . .  My co-blogger Ann Lipton fairly begged me to write about this topic today, given that she had to miss the discussion session on the subject (entitled "Does The Public/Private Divide In Federal Securities Regulation Make Sense?") convened by me and Michael Guttentag at last week's Southeastern Association of Law Schools (SEALS) annual conference.  Arm-twisting aside, however, this is a topic of current interest (and actively engaged scholarship) for me.

The discussion session allowed a bunch of our corporate and securities law colleagues to explore historical, present, and projected future distinctions between public and private offerings and public and private companies/firms.  The discussion ranged widely, as did the short papers submitted by the participants.  Some topics of conversation were oriented in part toward corporate governance concerns--comments from Lisa Fairfax on linkages to shareholder empowerment and from Jill Fisch on executive compensation in the post-Dodd-Frank public environment come to mind in this regard.  Other discussion topics engaged securities regulation more centrally, including by, e.g., questioning the coherence of the rationale underlying the Section 12(g) and 15(d) reporting thresholds (with interesting commentary from Amanda Rose and Usha Rodrigues); offering historical observations about the difference between public offerings and private placements and how that history does, should, and may play out in offering markets (Dale Oesterle and Wulf Kaal); expressing concern about  accredited investor status in the wake of the new Rule 506(c) under the Securities Act of 1933, as amended (Jonathan Glater); and analyzing the CROWDFUND Act at the public/private offering and company divides (me).

Different notions of "publicness" and "privateness" were offered up, dissected, and used in the discussion.  Many pointed to the formative work of Hillary Sale (The New 'Public' CorporationPublic Governance, and J.P. Morgan: An Anatomy of Corporate Publicness) and Don Langevoort and Bob Thompson (Redrawing the Public-Private Boundaries in Entrepreneurial Capital-Raising and 'Publicness' in Contemporary Securities Regulation after the JOBS Act) as important touchstones.  Both sets of papers address issues involving the publicness of firms.  The Langevoort and Thompson Redrawing article also addresses public and private offerings of securities on a detailed level.  

Yet, not everyone anchored their ideas to these existing works.  One participant (Ben Means) provocatively suggested, for example, analyzing public disclosure rules using the bumpy-versus-smooth taxonomy for legal rules described in Adam Kolber's recent California Law Review article.  I was not familiar with this piece.  I now plan to read it.

Many discussants denied the continued existence or salience of a public/private divide in securities regulation, believing instead that there is a sliding scale or continuum between public and private.  Although this argument has more traction after the JOBS Act and the Dodd-Frank Act, evidence of an indistinct line both in finance and entity law predates those legislative initiatives.  Some of us were uncomfortable in declaring the death of the public/private divide--or in letting go of the analytical distinction between publicness and privateness because of the role that it serves in scholarship and teaching.  The public/private divide has been a heuristic in securities regulation that people find hard to abandon . . . .

My paper, which is founded on the works of Professors Langevoort, Sale, and Thompson, is forthcoming in the University of Cincinnati Law Review.  Although the draft is not "ready for Prime Time" yet, I am happy to share it with anyone who may be interested in it.  Other papers submitted for the discussion group may or may not be precursors to works in process.  But you can contact any discussion group participant (or ask me to contact one or more participants on your behalf) if you want to explore their ideas further.

Although I am not yet fully ready to step back into the classroom to teach next week, I am better prepared for the experience (and for the research and writing I am doing) thanks to the SEALS conference.  And now, to finish that syllabus . . . .

August 11, 2014 in Ann Lipton, Conferences, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Saturday, August 9, 2014

Causation in Section 10(b), the Comcast v. Behrend Remix

The exact measure of damages in a fraud on the market 10(b) action has long been a bit of a muddle, because it raises many difficult evidentiary and legal issues.  However, because most securities class actions are dismissed or settle, there actually are not many court decisions discussing the problem.   The Supreme Court’s decision in Comcast Corp. v. Behrend (2013), an antitrust case, may have begun to change that – as the BP litigation demonstrates.

[More under the cut]

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August 9, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, August 2, 2014

How can you tell if a market is efficient?

Market efficiency is a concept used by economists to describe markets with certain theoretical characteristics.  For example, a “weak-form” efficient market is one where historical prices are not predictive of future prices, and therefore excess profits cannot be earned by using strategies based on historical pricing.  A “semi-strong” efficient market is one where public information is reflected in stock price to the point where it is impossible to earn excess returns by trading public information.

Market efficiency is also a legal concept, which, it must be said, only roughly tracks the economic definition.  In particular, in Section 10(b) litigation, an “efficient” market is one that absorbs information with sufficient speed and thoroughness to justify allowing plaintiffs to bring claims using the fraud on the market theory to satisfy the element of reliance.

The exact degree of speed/thoroughness that’s required for Section 10(b) litigation is something of a theoretical muddle (as Donald Langevoort has written extensively about) – although the Supreme Court’s recent Halliburton decision may provide more guidance on that (see discussion here and here).

For now, though, most courts try to assess “efficiency” by reference to what are known as the Cammer factors, taken from the case of Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989).  These factors include weekly trading volume (with higher volume taken as an indicator of efficiency), the number of analysts reporting on the security, the number of market makers, and the cause-and-effect relationship between the disclosure of new information, and changes in the security’s price.  Some courts also consider additional factors such as the size of the bid-ask spread and the number of institutional owners.

These factors have frequently been criticized as duplicative or uninformative.  See e.g.,  Geoffrey Christopher Rapp, Proving Markets Inefficient: The Variability of Federal Court Decisions on Market Efficiency on Cammer v. Bloom and its Progeny.  Some commenters have speculated that a few of the factors are counterproductive, and in certain markets might indicate less efficiency.  See, e.g.,  William O. Fisher, Does the Efficient Market Theory Help Us Do Justice in a Time of Madness? (2005).

There’s a new paper that tests this claim, and concludes that the commenters are right, and at least some of these factors really are counterproductive.

[More under the jump]

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August 2, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, July 26, 2014

Private Securities Liability and Voluntary Disclosure

One of the classic arguments against private securities liability – and in particular, Section 10(b) fraud-on-the-market liability, with its high potential damages – is that it overdeters issuers, thus stifling voluntary disclosures rather than encouraging them.  This was in fact the theory behind the PSLRA’s safe harbor: the statute makes it particularly difficult for private plaintiffs to bring claims based on projections of future performance, in part because of Congress’s fear that expansive liability would dissuade issuers from making projections at all.

Two new empirical studies challenge this common wisdom.

The first, Private Litigation Costs and Voluntary Disclosure: Evidence from Foreign Cross-Listed Firms, by James P. Naughton et al., uses the Supreme Court’s decision in National Australia Bank v. Morrison as a natural experiment.  That decision abruptly removed the specter of private Section 10(b) liability based on securities sold on a foreign exchange.  The authors compare voluntary earnings guidance offered by firms whose securities are cross-listed in the US and abroad before and after Morrison to determine how the diminished threat of liability affects issuer behavior. 

As it turns out, the authors found that earnings guidance decreased for those firms whose securities are cross-listed, as compared to counterparts whose securities are listed solely in the United States.  The authors also found that the effect was stronger for firms whose home country had a weak regulatory structure – i.e., firms that did not expect that enforcement in their home country would fill the void left by Morrison.  Finally, the authors found stronger effects for firms with a greater proportion of non-US listed shares – i.e., firms most affected by the Morrison decision.

The second study, Carrot or Stick? The Shift from Voluntary to Mandatory Disclosure of Risk Factors, by Karen K. Nelson and Adam C. Pritchard, analyzes “risk factor” disclosures.  Under the PSLRA, issuers are insulated from liability for false projections of future performance if the projections are accompanied by sufficiently detailed “cautionary statements,” i.e., descriptions of the variables that could cause actual results to differ from the projections.  In this study, the authors compared risk factor disclosures by firms with a high risk of litigation to firms with low litigation risk, and found that higher litigation risk was correlated with more detailed risk disclosures that were more frequently updated from year to year and were presented in more readable language.  The effect was strongest prior to 2005, when risk disclosure was voluntary; after 2005, when the SEC made risk disclosure mandatory, the effect recedes, although higher risk firms continue to provide more risk factor disclosure.  The authors also show that investors absorb this information: for higher risk firms, there is a correlation between risk factor disclosures and investors’ post-disclosure risk assessments.

These two studies together provide interesting evidence that firms react to the specter of private liability by increasing, rather than decreasing, disclosures.  Moreover, the Nelson/Pritchard study in particular concludes that these increased disclosures are in fact meaningful to investors.

July 26, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, July 19, 2014

Drama on the Delaware Supreme Court

As Haskell Murray previously noted, after Justice Jack Jacobs of the Delaware Supreme Court announced his retirement, Governor Jack Markell quickly nominated a replacement – Karen Valihura – who would be only the second woman justice in the Court’s history.  Valihura was confirmed on June 25.

But shortly after Justice Valihura’s nomination was announced, Justice Carolyn Berger – Delaware’s first woman justice – announced her own retirement.  Subsequently, Justice Berger stated that she was retiring because Governor Markell had not taken her seriously as an applicant for the Chief Justice slot, which was eventually filled by Leo Strine.  She further stated that women face an uneven playing field in judicial nominations in Delaware.

I won’t even begin to speculate about the truth behind Justice Berger’s comments, but I will say that these issues highlight, for me, the extremely problematic nature of Delaware’s dominance in shaping the nation’s corporate law.  Most public companies are incorporated in Delaware; companies reincorporate in Delaware when they expect to undergo large transactions likely to be challenged by shareholders, and other states tend to follow Delaware’s lead when interpreting their own law.  (In response to a claim that Delaware is only one state, Stephen Bainbridge rejoined with "Which, in context, is sort of like saying Delaware is only one 800-pound gorilla.")

It’s an old issue, and scholars have extensively debated the substantive merits of Delaware’s law.  But my concern is a democratic one:  I am deeply troubled by the suggestion that sexism may play a role in who gets nominated to such an important court (which I take to be Justice Berger's implication), but I don’t get a vote in Delaware.  I have no voice.  Even though Delaware’s law has national implications, and its judiciary is incredibly important in shaping national policy, I cannot express my views at the ballot box.

The importance of Delaware’s corporate law is even more apparent in light of decisions like Citizens United and Hobby Lobby.  As Elizabeth Pollman observed, the Supreme Court seems to be placing a lot of weight on the mechanisms of state corporate law, and shareholder democracy, to decide complex political and moral issues.

For example, shareholder voting mechanisms, the Court is confident, will control corporate speech, including campaign donations.  State corporate law may decide whether a director does – or does not – violate fiduciary duties to the corporation when he places religious concerns among profit motive (assuming, of course, that the First Amendment does not mandate a particular outcome).  State corporate law may decide required disclosures regarding the religious attitudes and intentions of controlling shareholders.  

The Supreme Court has delegated these decisions to the states – and in no small part, that means to Delaware, which houses about 3% 0.3% of the nation’s population.*

If Delaware is going to have that kind of power, I want a vote.

 

*that'll teach me to do math on Saturdays

July 19, 2014 in Ann Lipton | Permalink | Comments (2)

Saturday, July 12, 2014

Yet another person weighs in on Hobby Lobby

Since I suspect there is something of an obligation for all corporate law bloggers to weigh in on Hobby Lobby, I offer my thoughts.  I admit to some trepidation posting them because (and I blush to confess it) I haven’t been as immersed in the case as most other corporate professors have, so I feel like a bit of an outsider to the debate.  So, take these thoughts as coming from someone whose knowledge of the case comes chiefly from, well, the Supreme Court’s opinion.

[More under the cut]

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July 12, 2014 in Ann Lipton | Permalink | Comments (2)

Saturday, June 28, 2014

Halliburton II – An Unexpected Gift to Plaintiffs

So, Halliburton Co. v. Erica P. John Fund, Inc. (2014) (“Halliburton II”)  came down, and to call it a change in the law is too generous – at best, it might qualify as a “clarification.”  After all of the angst  over the possibility that the Court might give plaintiffs the burden of proving the price impact of a particular misstatement, the Court soundly rejected that argument, reaffirmed Basic, Inc. v. Levinson (1988), and instead merely allowed defendants to rebut the fraud on the market presumption.  Because demonstrating a lack of price impact is as difficult as showing price impact in the first place, I don’t expect Halliburton II to change much in existing law – if anything, some of the rhetoric may make matters easier for plaintiffs.

[More under the cut]

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June 28, 2014 in Ann Lipton | Permalink | Comments (2)

Saturday, June 21, 2014

Increased director independence as a substitute for regulatory intervention

Professor Urska Velikonja has just published a new article arguing that the trend toward corporate boards with a "supermajority" - not merely a majority - of independent directors is part of a strategy by large institutional investors and corporate managers to fend off more substantive forms of corporate regulation that would reduce shareholder wealth.  Her thesis is that when corporations engage in risky and illegal behavior, they - and their shareholders - capture gains while externalizing losses; thus, large shareholders and managers have an interest in staving off real regulation.  The easiest way to do that is by advocating for greater board independence - it's functionally a call for self-regulation. 

I think the thesis has an intuitive appeal - similar to, for example, The Failure of Mandated Disclosure, which, as Steven Bradford pointed out, argues that we too often default to additional and wasteful disclosures as a substitute for substantive regulation (see also Joan Heminway's post on disclosure creep).

In the case of Professor Velikonja's argument, though, I think the picture is slightly more complicated.  Many institutional investors are employee or union pension funds - in other words, their beneficiaries are exactly the third parties to whom corporate misbehavior is externalized.  It's not obvious that they, or the funds who represent them, would prefer less substantive regulation, even if it resulted in lower corporate profits; however, the fund fiduciaries - in their capacity as fund fiduciaries - only have limited tools available to protect their beneficiaries.   They can advocate for better corporate governance, but it's not obvious that they can, consistent with their fiduciary obligations, advocate for greater corporate regulation.  (David Webber discusses some of the limits of fiduciary pension plan discretion in The Use and Abuse of Labor's Capital).  Anyway, given these constraints, I am not certain that it is fair to say that institutional investors as a group prefer to advocate for corporate governance reforms over more meaningful regulation - for at least some of them, their options may be somewhat limited.

June 21, 2014 in Ann Lipton | Permalink | Comments (4)

Saturday, June 14, 2014

Liability Begins at the Top

Via the 10-5 Daily, I learned of the case In re Maxwell Technologies, Inc. Sec. Litig., 2014 WL 1796694 (S.D. Cal. May 5, 2014), which dismissed the plaintiffs’ securities fraud claims for failure to plead scienter.  The case interests me, because I have actually just written a paper on this very subject, forthcoming in the Washington University Law Review (in April 2015 – it’ll be a while!)

[More under the cut]

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June 14, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, June 7, 2014

Amended Pleadings in Securities Cases

On Thursday, the First Circuit handed down its opinion in In re Genzyme Corp. Securities Litigation(.pdf), affirming the dismissal of the complaint.  The decision highlights an issue that’s particularly important in securities cases – although, full disclosure, I was very involved with the Genzyme case on the plaintiffs' side before I left practice to teach, so I’m not an unbiased observer.  Take that as you will.

[More after the jump]

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June 7, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, May 31, 2014

Delaware legislature to consider attorney fee shifting bylaws

A couple of weeks ago, I posted about the Delaware Supreme Court's recent decision in ATP Tour, Inc., et al. v. Deutscher Tennis Bund, et al., which held that nonstock corporations may adopt bylaws that require unsuccessful plaintiffs engaged in intracorporate litigation to pay the defense's attorneys fees.  Though the decision did not technically apply to stock corporations, nothing in the decision suggested the analysis for stock corporations would be any different.

The decision prompted an immediate, somewhat panicked response from the Delaware plaintiffs' bar, while some defense attorneys counseled their clients to adopt such bylaws to discourage merger litigation.

Though, as the previous link shows, Steven Davidoff, at least, is skeptical that these provisions would become popular with publicly traded corporations, there has been a quick push to have the Delaware legislature amend the DGCL to overrule ATP.  The Delaware Corporation Law Council has proposed new legislation that will be considered by the Delaware legislature by June 30.

May 31, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, May 24, 2014

Two Tiers

Following up on Steven Bradford’s post regarding the Fourth Circuit’s interpretation of Janus Capital Group v. First Derivative Traders (2011):

The SEC recently announced  that it intends to pursue more cases under Section 20(b) of the Exchange Act, which prohibits people from violating the Exchange Act “through or by means of any other person.”  I suspect this move will have serious implications for private cases under Section 10(b).

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May 24, 2014 in Ann Lipton | Permalink | Comments (0)

Saturday, May 17, 2014

Should corporations avoid taxes?

Reuven S. Avi-Yonah recently posted Just Say No: Corporate Taxation and Corporate Social Responsibility.

He poses the question whether corporations are obligated to engage in strategic transactions solely for the purpose of avoiding taxes.  His conclusion is basically that under any theory of the firm – aggregate, real entity, or artificial entity – corporations have an affirmative obligation not to engage in overly-aggressive tax planning.

His thesis is attractive, though I'm not sure it's entirely convincing.  He basically posits that taxes are the means by which we ensure a peaceful and civilized society, and no matter what theory of the firm one endorses, it is therefore proper for corporations to shoulder that burden.  The argument, however, would seem to encompass any form of strategic behavior - i.e., the argument would apply to all behaviors in which corporations can engage that evade the spirit of various regulations intended for the greater good of society.  If so, then it's not clear that the argument gets us very far in terms of determining the legitimate boundaries of corporate behavior.

May 17, 2014 in Ann Lipton | Permalink | Comments (3)