Monday, January 26, 2015
For the last three years, I have been teaching my Accounting for Lawyers course as a distance education course. It’s only available to students at my law school, but everything except the final exam is online; there are no in-person classes. I think it’s worked well, better than the in-person accounting class I used to teach, but that’s a topic for another day. Today, I want to talk about four things I’ve learned teaching the course.
1. Law students are not used to “learning as they go.”
The typical law school class involves a single end-of-semester exam, and law students get used to pulling things together by cramming at the end of the semester. Almost all of my students read the daily assignments, but many of them, even some of the most conscientious students, really haven’t actively wrestled with the material.
I usually teach by the problem method, and I use books with a large number of problems. I strongly urge students to answer those problems before class. Almost all of my students read the problems before class; many of them think about the problems before class; but it’s clear that few of them have thoroughly worked their way through the problems .
In my online course, assignments are due every week. Students must learn the material as they go, or they won’t be able to do the assignments. Cramming at the end is not an option. They learn in the first couple of weeks that the shallower daily preparation that works in many law school classes won’t work in Accounting. As their study habits change, they learn more, but it requires a real adjustment on their parts.
2. Regular practice and feedback is important.
The educational literature stresses the value of regular practice and feedback (or even regular practice without feedback). I use the problem method in all of my classes because of that. It forces students to apply the materials on a daily basis, with in-class feedback from me. Seeing how much more students learn in my Accounting course, with its regular assignments and feedback, just reinforces that point.
3. If there’s an ambiguity in anything, at least one student will find it.
I didn’t really learn this lesson teaching the online course. It’s obvious every time I grade an exam. No matter how good the casebook, no matter how careful I am in class, some students will manage to misinterpret something. Law students are experts at finding ambiguity. This shouldn’t surprise us; it’s one of the things we teach them to do. The problem is often not due to a failure to read or listen, but a single-minded focus on some isolated statement taken out of context.
In a course like Accounting that has weekly assignments, I don’t have to wait until the final exam to see those misunderstandings, and I can correct them before they do too much damage. But seeing misunderstandings like this on a weekly basis has also made me much more careful in my other classes, more aware of possible ambiguities in the readings and what I say. I would rather over-explain than risk a semester-long misunderstanding.
4. Oral communication is better than written communication, especially for criticism.
In an online course, I’m forced to communicate with my students almost exclusively in writing. Writing, unlike direct, oral communication, is very bad at conveying nuance or sentiment. That difference is especially important when my communication is primarily critical, correcting and evaluating student work.
Students, like most of us (including me), are sensitive to criticism. And, unless one is very careful, they tend to see critical comments as more negative and personal than they are intended to be. As I’m not a particularly careful person when it comes to criticism or anything else (the word “blunderbuss” is relevant), this is problematic.
In person, my true intent comes through more easily. I recently heard, second-hand, a comment from a student who had taken Accounting and was now in one of my in-person classes. He reportedly said, “I thought Professor Bradford was really mean after Accounting, but I like him in this course.”
Monday, January 19, 2015
Every U.S. law school, or at least every law school I’m aware of, offers a securities regulation course. But those courses usually focus on the Securities Act of 1933 and the Securities Exchange Act of 1934. A typical securities regulation course covers the definition of security, materiality, the registration of securities offerings under the Securities Act, and liability issues under both the Securities Act and the Exchange Act. If the professor is ambitious, those courses may also cover the regulation of securities markets and broker-dealers.
Almost none of those basic securities regulation courses spends any significant time on the 1940 Acts—the Investment Company Act and the Investment Advisers Act. It’s not because those two statutes are unimportant. A good proportion of American investment is through mutual funds and other regulated investment companies, not to mention hedge funds which depend upon Investment Company Act exemptions. And the investment advisory business is booming. When I attend gatherings of securities lawyers, I’m always amazed at how many of the lawyers present are dealing with issues under the 1940 Acts.
The lack of coverage of the 1940 Acts in the basic securities law course would be acceptable if law schools offered separate, stand-alone courses dealing with those issues, but many of them do not. I began teaching a course on the 1940 Acts in 1997. (I subsequently expanded the course to include a segment on the regulation of brokers.) At that time, you could count the number of law schools offering 1940 Act courses on one hand. Since then, more law schools have begun to offer such courses, but many law schools still do not.
Why are law schools not offering such an important business law course? One problem may be staffing. Many schools, including my own, have only one securities law professor. That person often also has to teach Business Associations, Mergers and Acquisitions, and other such courses, leaving no time for a second securities course. I have been able to offer my course only by rotating it with Mergers and Acquisitions on a biennial basis.
The lack of 1940 Act courses may also be due to the backgrounds of people teaching securities law. Some (certainly not all) securities law professors come from the litigation side of practice. Securities litigation centers on the 1933 and 1934 Acts. Litigation is a less important part of practice under the 1940 Acts, so many securities litigators aren’t exposed to it much.
A third problem is a lack of teaching materials. There isn’t much available on the 1940 Acts. I was lucky when I began teaching the course to discover a set of materials put together by Larry Barnett at Widener University. Those materials, supplemented with my own handouts and problems, have worked well. Unfortunately, Larry just retired and will no longer be updating his materials, so I’m not sure what I’m going to do now. I suspect more people would teach the course if more books were available, but there’s a chicken-and-egg problem. The major publishers aren’t interested in offering materials for a course that few schools teach.
Whatever the reason, the lack of such courses is a serious deficiency at any school preparing students for a securities law practice.
I'm interested to hear from commenters: are there any other courses law schools aren't teaching that are crucial to business law practice?
Monday, January 12, 2015
The Resilience of American Small Business . . . And Other Lessons I Learned Living Without Electricity
I recently traveled to far western Texas to backpack in Big Bend National Park. An ice storm hit west Texas shortly before my trip. The ice cleared before I drove out from Dallas, but knocked out the power in the area I was visiting for several days. That power outage taught me several important lessons.
The Resilience of Small Businesses
The power outage demonstrated yet again the resilience of American small businesses. I was amazed at how well, and how quickly, businesses were able to adjust to the loss of power, computers, and the Internet. Those adjustments make life much easier for people like me, stuck in the area with no local support.
It’s obvious to me now, but I never thought about the fact that gas stations can’t pump gas without power. I will forever be grateful to the gentleman who owns the small Fina station in Marathon, Texas. He hooked up a portable generator to one of his gas pumps and hand-pumped gas for people like me who would have been stranded in the middle of nowhere without it. (Marathon, Texas truly is in the middle of nowhere; look it up if you don’t believe me.) He even resurrected an old mechanical credit card imprinter to allow customers to pay by credit card. His price was higher than normal, but, frankly, he didn’t charge as much as he should have.
I had similar experiences as I continued on to Terlingua, Texas, just outside the park, and into the park itself. The Starlight Theatre, a wonderful restaurant in Terlingua, connected their stove, refrigerator, and lights to a propane generator so they could continue to serve meals. The lights dimmed every time the refrigerator cooler powered on, but I had a wonderful dinner.
The concession restaurant in Big Bend National Park was also cooking using propane, with lanterns and candles providing lighting. Their food supplies were limited, but they managed to juggle what they had to create a limited menu for those who needed to eat. The concession hotel also had no power, but provided lodging (albeit cold lodging) to those who had nowhere else to go. The restaurant and hotel took down credit card information by hand, to be entered later when the computers came back online.
In short, the capitalist system works, even when little else is working.
Our Dependence on Computers and the Net
My experience without power also reminded me of how much we depend on computers and Internet access. Interconnectedness has made life much easier for all of us, including businesses, but, when we lose those connections, serious adjustments are required. I read a lot of apocalyptic science fiction, and this is a recurring theme of that genre, so it didn’t really surprise me—but it was interesting to experience it firsthand.
I also realized how much time I waste on the Internet and my phone. We were without Internet or phone access for five days, including the three days we were backpacking. (Power was restored right before we emerged from the wilderness.) I missed it, but I caught up in about a day, and the five-day delay had almost no effect on my life. Apparently, it’s really not that important that I keep up with events on a minute-by-minute basis.
Kudos to the National Park Service
Finally, I was reminded how much I like the National Park Service. I backpack a lot, and I have had many experiences with National Park Service employees, both rangers and temporary employees. I have never had a negative experience. If every government worker was as efficient and worked as hard as the National Park Service employees I have encountered over the years, our country would be in much better shape. The National Park Service does more with less than any other government agency, state or federal, than I have dealt with. They also deal courteously with some truly idiotic behavior by tourists. Kudos to them.
Monday, January 5, 2015
Last week, I gave you a list of the best fiction books I read in 2014. Here’s a list of the best non-law, non-fiction I read in 2014. I hope you find something that interests you. I read much more non-fiction than fiction, so this list is a little longer. As with my list of fiction, they’re in no particular order.
1. Rose George, Ninety Percent of Everything: Inside Shipping, the Invisible Industry that Puts Clothes on Your Back, Gas in Your Car, and Food on Your Plate. An extremely well-written look at the global shipping industry—not the FedEx and UPS type of shipping, but actual ships. The author traveled over 9,000 miles on a container ship. The book discusses that voyage, interlaced with a boatload of material (pun intended) about the history of shipping, the regulation of shipping, shipwrecks, piracy, and a number of other subjects.
2. Rich Cohen, Monsters: The 1985 Chicago Bears and the Wild Heart of Football. I’m neither a Chicago Bears fan nor a Mike Ditka fan, but this was an interesting book. For those who are young and familiar with the current Bears, yes, the Bears actually won back in 1985. Cohen covers more than just that 1985 team. The book looks at the history of the team back to the early days of the NFL and also the aftermath of the 1985 championship—what happened to the team and the players afterwards.
3. Adam Minter, Junkyard Planet: Travels in the Billion-Dollar Trash Trade. A look at trash and recycling. Recycling makes more sense economically than I thought; apparently, much of our recycled materials make their way to China for use in Chinese manufacturing. I never knew that trash could be so interesting.
4. William Easterly, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor. Easterly, an economist at N.Y.U., discusses anti-poverty programs and their effect on the third world. He argues that the technical solutions proposed by experts haven’t worked and that the real key to development is bottom-up: giving poor people economic freedom. I previously recommended this book here. My co-blogger Haskell Murray reviews it here.
5. Jang Jin-Sung, Dear Leader: Poet, Spy, Escapee—A Look Inside North Korea. The author worked in the propaganda arm of the North Korean government and was honored by Kim Jong-Il for his epic poetry. This book is the story of his escape from North Korea, but also an account of life among the privileged in Pyongyang.
6. Louisa Lim, The People’s Republic of Amnesia: Tiananmen Revisited. An amazing account of how China has been able to recast, and even erase, from its history the events in Tiananmen Square in 1989. The scary part is how they have used nationalism to supplant the yearnings for freedom that prompted Tiananmen.
7. Mark Miodownik, Stuff Matters: Exploring the Marvelous Materials that Shape Our Man-Made World. An introduction to how materials are made and how they’re put together, down to the atomic level. He discusses for instance, why diamonds and graphite are so incredibly different, even though they’re both carbon-based. For those who have a heavy scientific background, there won’t be much new here, but he explains the science in ways that a non-scientist like me can understand.
8. Jenny Lawson, Let’s Pretend This Never Happened: A Mostly True Memoir. A hilarious autobiography of a Texas woman who now writes a blog at TheBloggess.com. Parts of it made my literally laugh at loud. I was constantly reading parts of the book to my wife.
9. Ben Macintyre, A Spy among Friends: Kim Philby and the Great Betrayal. The story of Kim Philby, perhaps the best-known Russian spy ever. An interesting look at the good-old-boys’ network that was British intelligence at the time and their unwillingness to believe that one of their own would actually betray them.
10. Steven Pinker, The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century. I tend to be a grammar prescriptivist; Pinker is not. I’m a big fan of Strunk & White; Pinker is not. But I nevertheless enjoyed this guide to grammar, punctuation, and sentence and paragraph structure. Pinker’s suggestions are sensible. He also explains why things should be written as he suggests and why grammar and structure matter.
11. Hampton Sides, In the Kingdom of Ice: The Grand and Terrible Polar Voyage of the U.S.S. Jeannette. An account of an attempt to sail to the North Pole from the Pacific Ocean and on to the Atlantic. At the time, many people thought that there was a great polar sea beyond the ice. The Jeannette was stuck in the ice for two years before it sank and the crew had to try to make their way through the ice and eventually overland through Russia.
12. Ian Leslie, Curious: The Desire to Know and Why Your Future Depends on It. I have already blogged about this one. See here.
13. Kim Zetter, Countdown to Zero Day: Stuxnet and the Launch of the World’s First Digital Weapon. The story of the Stuxnet computer worm which someone, apparently the U.S. government, used to disrupt Iran’s uranium enrichment program. Zetter tells the story primarily from the viewpoint of the computer experts who discovered and then unraveled the virus. He also discusses the ethical and practical implications. Among other things, what’s the risk to “us” now that we’ve unleashed this weapon on someone else?
Monday, December 29, 2014
Believe it or not, I and the other editors of the Business Law Prof Blog don't spend all of our time reading and thinking about business law. I assume none of you do, either, so I thought you might be interested in a list of the best non-law books I have run across this year.
I originally planned to put them all in a single post, but I read a number of very good books in 2014, so I decided to divide the list into two posts. Today, fiction. Next week, non-fiction.
I’m limiting both lists to books published relatively recently, so you don’t have to wade through a list of old science fiction or Thomas Hardy novels, no matter how excellent I thought they were when I reread them this year.
Except for the first book, they’re in no real order.
1. Anthony Doerr, All the Light We Cannot See. If you read only one book on this list, this should be it. This is the best new novel I have read in some time. It centers on a bright young German boy and a blind French girl in the period prior to and during World War II. It’s hard to explain the story in a few words, but I think it’s an absolutely brilliant book.
2. Chang-Rae Lee, On Such a Full Sea. The main character searches for the father of her unborn child in a dystopian future. The book has no real conclusion, and I usually don’t like that, but I’m willing to excuse that, given the excellent writing.
3. Rachel Joyce, Perfect. This brilliant novel has two alternating stories: one about a young boy who becomes obsessed when a friend tells him that two extra seconds will be added to clocks; the other about a disturbed 50-year-old supermarket worker. Keep reading: she eventually ties the two story lines together.
4. Andy Weir, The Martian. An astronaut is stranded on Mars without adequate supplies after his colleagues leave, thinking he’s dead. A solid piece of science fiction.
5. Karen Russell, Sleep Donation. A novella about a sickness that keeps people from sleeping. They use a machine to borrow sleep from sleep donors.
6. Joshua Ferris, To Rise Again at a Decent Hour. I’m not a huge Joshua Ferris fan, but I liked this one. A dentist discovers that someone is posting online in his name about a lost Middle Eastern group and a religion whose primary belief is a doubt that God exists.
7. Jo Walton, My Real Children. I really enjoy Jo Walton’s science fiction, and this book was not an exception. It’s about a woman with Alzheimer’s who remembers two very distinct lives—diverging when she said either “yes” or “no” to a marriage proposal.
8. Matthew Thomas, We are Not Ourselves. A bittersweet first novel about a woman and her families—the family she grew up with and, later, her husband and son. A story of regret and uncertainty, it's sad and depressing, but extremely good.
9. Bill Roorbach, The Remedy for Love. A fascinating love(?) story involving a small-town lawyer stuck in a tiny, isolated cabin with a disturbed woman during a once-a-century blizzard. A charming story, expertly told.
Monday, December 22, 2014
My co-blogger Haskell Murray had an interesting post last month on curiosity and obedience. He wrote about the natural curiosity of children: “As a professor, I wish I could bottle my son’s curiosity and feed it to my students.” But what exactly is curiosity and how exactly do we encourage it in law students?
I recently read an excellent book on curiosity: Curious: The Desire to Know and Why Your Future Depends on It, by Ian Leslie. The book has a lot of interesting things to say about education, parenting, life-long learning, creativity, and innovation. I couldn’t possibly do it justice here. But, if you’re interested in learning and education, legal or otherwise, I strongly recommend it.
Leslie makes a distinction between diversive curiosity and epistemic curiosity. Diversive curiosity is shallow—wanting to know a particular piece of information. When I check on IMDb for the name of the actress in the movie I’m watching, that’s diversive curiosity. Epistemic curiosity, what we really want to encourage in our kids and our students, is the quest for knowledge and understanding, the desire to address the mysteries that don’t have readily ascertainable answers.
Google is mostly about diversive curiosity, finding answers. Google is great at that, but not so good at promoting epistemic curiosity. In fact, Leslie believes that Google inhibits our epistemic curiosity, and thus stifles deep learning.
Why remember information, or teach students information, that we can easily look up on Google? The answer, according to Leslie, is that having those “mere facts” in our long-term memories promotes innovation and creativity. Creativity results from those various facts serendipitously bouncing into each other inside our heads. Instead of deadening curiosity, as many people argue, learning those facts actually promotes epistemic curiosity. The more we know, the more easily we can understand how it all fits together and (the essence of innovation) try to fit it together in different ways. Leslie argues that deep thinking is becoming a lost art as more and more people rely on their machines for information.
I'm still working through what all this means for my teaching, but the book is definitely worth reading.
Monday, December 15, 2014
Many people have been talking about the four teams chosen for the inaugural college football playoff. I, good business law blogger that I am, have been thinking about conflicts of interest on the selection committee.
If you’re a football fan, you know that this year, for the first time, the national champion in NCAA major college football will be chosen through a four-team playoff. The four teams selected—Alabama, Oregon, Florida State, and Ohio State—will participate in two semifinal games, with the two winners to play for the championship. (Yes, Art Briles, Baylor should be one of the four, but, no, Ohio State is not the team that shouldn’t be there.)
The four participating schools are chosen by a thirteen-person selection committee, although one of the members, Archie Manning, has taken a leave of absence this year for health reasons. The committee includes several people with current relationships to schools that play major college football, including the following athletic directors: Jeff Long, Arkansas; Barry Alvarez, Wisconsin; Pat Haden, USC; Oliver Luck, West Virginia; and Dan Radakovich, Clemson.
The selection committee adopted a recusal policy that requires committee members to recuse themselves if the committee member or an immediate family member “(a) is compensated by a school, (b) provides professional services for a school, or (c) is on the coaching staff or administrative staff at a school or is a football student-athlete at a school.” A recused committee member may not participate in any votes involving that team or be present during any deliberations involving that team’s selection or seeding.
Under this policy, all of the athletic directors recused themselves from voting involving their schools. Others connected to particular schools also recused themselves: Condoleeza Rice, because she’s a professor at Stanford; Tom Osborne, because he’s still receiving payments as a former coach and athletic director at Nebraska; Mike Gould because he’s the Superintendent at Air Force.
As it turned out, none of the committee members were recused as to the six schools seriously considered for the final four—the four chosen, plus Baylor and TCU. But should they have been?
Consider Barry Alvarez, the athletic director at Wisconsin, a member of the Big Ten. The Big Ten schools share bowl revenues with other members of the conference. Thus, when Ohio State was chosen for the fourth spot over Baylor and TCU, Wisconsin became entitled to part of the $6 million paid to participants in the semifinal game (and additional money if Ohio State wins the semifinal and plays in the championship game). A vote for Ohio State directly benefitted the Wisconsin athletic department Alvarez heads.
The problem is not unique to Coach Alvarez. Other conferences also share bowl revenue, so Pat Haden (PAC-12), Jeff Long (SEC), and Dan Radakovich (ACC) also benefited when the representatives from their respective conferences were chosen. But those choices, unlike the choice of Ohio State over Baylor or TCU, were relatively uncontroversial. (The choice of Florida State over any of those schools should have been controversial, in my opinion, but it wasn’t.) Oliver Luck (Big 12) also had a financial incentive to vote for either Baylor or TCU, but, unfortunately for him and for his athletic department, neither of them was selected.
This conflict of interest may have been intentional. The committee appointments were carefully apportioned among the Power 5 conferences, and the expectation may have been that each of these athletic directors would vote for representatives of their respective conferences. (We don’t know if they actually did.) But no one is even talking about this clear conflict of interest, not even Art Briles, and that’s a little surprising.
Monday, December 1, 2014
I recently read a very interesting article on legal education, The MIT School of Law? A Perspective on Legal Education in the 21st Century, by Daniel Martin Katz, scheduled to appear in the 2014 U. Ill. L. Rev.
Katz, an associate professor at Michigan State, considers the impact of the information revolution and changes in the market for legal services on legal education. He considers how a hypothetical law school might market itself and its students. The key, according to Katz, “is to stop trying to be the ‘50th or 100th best Harvard and Yale’ and instead to concentrate on outflanking these and other institutions by becoming leaders in law’s major emerging employment sectors.” Rather than consider how to incrementally change existing law schools, Katz tries to work backward from what he thinks the future market for lawyers will be like to how a law school should be structured to serve that market. Not surprisingly, Katz concludes that knowledge of technology, math, engineering and science will be important for future lawyers—thus, the MIT School of Law in the article’s title.
I’m a little late getting to this, but it’s a very interesting, provocative article—well worth reading. Katz’s article is part of the Illinois Law Review's tribute to Larry Ribstein. That entire issue is worth a close look when it is available.
Monday, November 24, 2014
The federal government has a limited amount of money available for student financial aid. Many people believe the size of that financial aid pot should be increased. That may be true but, until that happens, the government should try to allocate the limited funds it has as efficiently as possible. So I ask, should the government be giving that money to law students?
I have great respect for my profession. I think lawyers serve an extremely important function. I’m a strong believer in individual liberty and many of our personal liberties have been preserved through the law and the efforts of lawyers. But it’s hard to argue that the most important issue in the United States today is a shortage of lawyers.
We need more scientists, engineers, mathematicians, and primary care physicians. So why is the government paying for students to major in fields like political science, sociology, and law, just to name a few? Wouldn’t we be better off allocating more money to math and the hard sciences, to give students an incentive to move into those areas? (Or, since many students aren’t prepared to move into those areas, perhaps some of that money needs to be used to improve primary and secondary education in science and math.)
I admit that I financed both my undergraduate political science degree and my law degree in part with federal funds. (When I went to college, I discovered that what I had always considered a liability—my family’s lack of money—was suddenly a benefit.) I was able to pursue my dream with the federal government’s help. But perhaps the government should have encouraged me to be a scientist or engineer. Or, if I really wanted to be a lawyer, to finance that dream myself.
There’s even less money available now than there was when I was a student, back in the days of Aristotle. (Not less in nominal dollars, but less as a percentage of the cost of a higher education.) Because of that, the need to allocate that financial aid money well is even stronger.
I’m a law professor, so even suggesting this is going against my own self-interest. But sometimes self-interest has to yield to national interest.
Tuesday, November 18, 2014
Steve Bainbridge at ProfessorBainbridge.com has posted a couple of discussions of fee-shifting bylaws.
As many of you know, last spring, in the ATP Tour case, the Delaware Supreme Court upheld a bylaw requiring the losing party in shareholder litigation to pay the other side's attorneys' fees. The case involved a non-stock membership corporation, but there's no relevant distinction between non-stock corporations and ordinary corporations in either the opinion or the statute. A bill was introduced in the Delaware legislature to amend the statute to overturn the ATP Tour decision, but the legislature deferred any action pending further study.
Monday, November 17, 2014
Regular readers of this column know that I’m a strong supporter of a federal crowdfunding exemption, which would allow companies to sell securities online to ordinary investors without registration.
The SEC’s Foot-Dragging
The JOBS Act, passed in April 2012, included a crowdfunding exemption, but, 956 days later, the SEC still has not adopted rules to implement it. Last month, I complained about the SEC’s failure to adopt those rules. Now, I’m not so sure I want that to happen.
A Little Legislative History
Why have I changed my mind? First, a little legislative history. The House originally passed a crowdfunding bill, sponsored by Representative Patrick McHenry, that was much less regulatory than the final law. Unfortunately, the Senate amended the JOBS Act to substitute the version that was eventually enacted into law. That final version is much more regulatory than Congressman McHenry’s version, and is riddled with errors and ambiguities. The House accepted that Senate substitution, probably because fighting would have risked everything else in the JOBS Act.
As I wrote shortly after the JOBS Act passed, the exemption that came out of the Senate is flawed and unlikely to be effective. If so, it’s not the SEC’s fault. The SEC has limited discretion to fix the problems in the statute.
A Better Way
Things have changed since my last post on crowdfunding. No, the SEC still has not acted. Things have changed in other ways.
The Republicans now control both houses of Congress, and the Republican-controlled Congress will undoubtedly be friendlier to small business and more concerned about the regulatory costs involved in raising capital. The new Congress is dominated by people like Congressman McHenry.
It might be better at this point to start over, instead of waiting for the SEC to finish its exercise in regulatory futility. And, this time, Congress shouldn’t wait for SEC action. It should put the final exemption in the statute itself, with SEC input. The SEC certainly can’t argue that they need more time to study the issue.
President Obama might threaten a veto and argue that we should wait to see if the existing provisions work. But keep in mind that the Obama administration endorsed the original House bill. Was that original endorsement mere political grandstanding, or does President Obama really want to provide an effective exemption?
Congress is unlikely to override a presidential veto, so if that happens, we’ll probably have to wait for a new President to get a workable crowdfunding exemption.
Friday, November 14, 2014
In a 2012 article on securities crowdfunding, I warned about the U.S. securities law issues raised by foreign crowdfunding sites selling securities to U.S. investors. I pointed out that “some of those foreign sites also sell to U.S. investors, and some of the investments they sell would almost certainly qualify as securities under U.S. law.”
A recent SEC consent order involving Eureeca Capital shows that the SEC is well aware of the issue and willing to go after foreign sites that sell to U.S. investors.
According to the consent order, Eureeca, based in the Cayman Islands, operates a global crowdfunding platform that connects non-U.S. issuers with investors interested in buying equity securities. Eureeca had a disclaimer on its website that the securities were not being offered to U.S. residents, but it nevertheless allowed U.S. residents to invest in some of the offerings. Eureeca apparently knew these investors were Americans; they provided copies of their passports and proof of U.S. addresses before investing.
The consent order finds that these unregistered sales of securities violated section 5 of the Securities Act and also that Eureeca was acting as an unregistered broker, in violation of section 15 of the Exchange Act. Eureeca is required to pay a $25,000 fine (a fairly significant fine considering that the total amount sold to the U.S. investors, according to the order, was only $20,000).
Given the plethora of international crowdfunding platforms, I wouldn’t be surprised to see more actions like this in the future.
Thursday, November 13, 2014
1) Difference between LLCs, corporations and partnerships
2) Del. and ULLCA coverage of fiduciary duties, and especially the issue of contractual waiver and default
19) No right to distributions, and no right to vote for distributions if manager-managed
20) No right to salary or employment
21) Taxable liability for LLC membership
22) Exit rights—voluntary withdrawals vs. restricted withdrawals, and whether or not that comes with the ability to force the return of an investment or a new status as a creditor of the LLC
23) Liability for improper distributions
24) Veil piercing, particularly given the lack of corporate formalities
I would love some feedback from practitioners as well. What do law students and practicing lawyers need to know about LLCs? What's missing from this list? What should I get rid of? Please feel free to comment below or to email your thoughts to firstname.lastname@example.org.
November 13, 2014 in Business Associations, C. Steven Bradford, Corporate Personality, Corporations, Delaware, Law School, LLCs, Marcia Narine, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (1)
Monday, November 10, 2014
As some of you know, I have been a defender (although perhaps not a staunch one) of student-edited law reviews as a good learning experience for students. I have worked with students in ways that I really have enjoyed over the years. I also have had some lousy experiences. But even I admit that between the overwhelmingly negative blog commentary (to which I now add), including posts here and here by Steve Bradford here on the BLPB, and the experiences I relate here, I am having trouble sustaining my support for student-edited journals . . . .
Monday, November 3, 2014
Note to all legislators and regulators: don’t do anything until you’ve thought through all the consequences.
One of the most important things I learned as a student of public policy was the difference between static and dynamic analysis. Static analysis looks only at the immediate consequences of a change. Dynamic analysis looks at the long-term consequences of a change, taking into account how people will adjust to that change.
If I tell my students they must write a 50-page paper by Friday or fail, most of them will at least try to write the 50-page paper. That’s the static effect. But no one will ever take my Business Associations class again. That’s the dynamic effect.
For some people today, including an increasing number of politicians on both sides of the aisle, neither static nor dynamic effects matter. It’s enough just to have good intentions. “Don’t you care?”, those people ask. “We need to do something.”
Even when policy makers do consider the effects of their policy choices, many of them consider only the immediate effects—static analysis—and don’t think about the long-term consequences. That’s unfortunate, because legislation and regulation often have unintended consequences.
That’s the point of Thomas E. Hall’s new book, Aftermath: The Unintended Consequences of Public Policies. Hall, a professor of economics at Miami (Ohio), looks at the unintended consequences of four policies: (1) the federal income tax; (2) cigarette taxes; (3) minimum wage laws; and (4) Prohibition.
None of the evidence Hall lays out will surprise anyone familiar with these four policies, and the results are predictable to anyone familiar with economics. But the book is a great introduction to the idea of unintended consequences, and an illustration of the need for dynamic analysis (although Hall doesn’t use that term).
The book is short; it won’t take you long to read it. And Hall writes well, using non-technical language, so the book won’t put you to sleep. I recommend it to anyone interested in public policy—which should cover most of the readers of this blog.
Friday, October 31, 2014
Daniel Fisher at Forbes has posted an interesting story about Columbia Law Professor Robert Jackson's attempt to obtain information about investment advisors from the SEC. The SEC first denied they had the information, then said it would be too burdensome to produce the information. The kicker: an SEC economist has published a study using that very data. Fisher provides copies of Professor Jackson's persistent FOIA requests and the SEC's responses.
It's a fascinating study in bureaucratic favoritism and stubbornness. Not particularly surprising, but fascinating.
Monday, October 27, 2014
A few weeks ago, I suggested the book Is Administrative Law Unlawful, by Philip Hamburger. I have now finished reading the book. It’s a tough read but, if you’re interested in constitutional history as it relates to administrative law, I strongly recommend it.
I was especially struck by the following argument about the connection between popular sovereignty and the growth of administrative rule:
The growth of administrative power in America has followed the expansion of suffrage—an expansion that increasingly has opened up voting to all the people. It therefore is necessary to consider whether there is a connection.
It would appear that the new, cosmopolitan, or knowledge class embraced popular suffrage with a profound caveat. They tended to favor popular participation in voting, but they also tended to support the removal of much legislative power from legislatures. The almost paradoxical result has been to agonize over voting rights while blithely shifting legislative power to unelected administrators.
. . . Throughout the nineteenth and twentieth centuries, reformers struggled for the people to have equal representation and thus to enjoy the power to govern themselves. The reformers told themselves that, if only the people had power, reasonable and righteous government would prevail. When the people gradually acquired this power, however, the results were disappointing for the knowledge class. The members of this class had established their status, influence, and sense of self-worth through their assiduous pursuit of rationality and specialized knowledge, and they were troubled that popularly elected legislatures did not operate in line with the qualities they so admired in themselves. . . . Administrative power . . . was one of the avenues for power by and on behalf of a class that understood authority not merely in terms of the equal rights of all the people, but more deeply in terms of their own rationality and specialized knowledge.
Democracies often make stupid choices. But I will take democracy over technocracy any day. Bureaucrats also make stupid choices, and bureaucrats are much less likely than democratic majorities to admit their mistakes and move on.
Wednesday, October 8, 2014
A while ago, I wrote a post decrying multitasking. Travis Bradberry at Forbes has an excellent post discussing some research of multitasking conducted at Stanford University. My favorite takeway: "They found that heavy multitaskers—those who multitask a lot and feel that it boosts their performance—were actually worse at multitasking than those who like to do a single thing at a time."
Monday, September 29, 2014
The Delaware Supreme Court has held that fairness review in duty of loyalty cases has two elements: fair dealing and fair price. Weinberger v. UOP, Inc., 457 A.2d 701 (1983). Fair dealing focuses on process: questions such as “when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained.” 457 A.2d at 711. Fair price focuses on the consideration paid or received in the transaction.
Weinberger says that the two elements of fairness must be considered together, that “the test for fairness is not a bifurcated one between fair dealing and fair price.” Id. But, of course, damages will be measured against a fair price. If that’s the case, I ask my students, does fair dealing really make any difference as long as the price is fair?
A Delaware Court of Chancery opinion, In Re Nine Systems Corporation Shareholders Litigation, (Del. Ch. Sept. 4, 2014), recently dealt with that issue. Vice Chancellor Noble concluded that the procedure followed by the company was unfair, so the element of fair dealing was not met. He decided that the price was fair but, considering the two elements together, decided that the burden of proving fairness had not been met.
Because of his finding that the price was fair, the Vice Chancellor rejected the plaintiffs’ claim for damages. However, he concluded that the court could require the defendants to pay certain of the plaintiffs' attorneys' fees and costs.
I now have an answer for my students. Even if the price is fair, fair dealing can still make a difference. Of course, I’m not sure anyone other than the plaintiffs’ attorneys will be terribly happy with the result.
Monday, September 22, 2014
In July, I blogged about the irrelevance of law reviews. Here’s more evidence.
I spoke at a symposium on crowdfunding in late March and submitted my article, Shooting the Messenger: The Liability of Crowdfunding Intermediaries for the Fraud of Others, to the law review in late June. The editor-in-chief recently informed me that the edited article would be available for my review sometime in November, and that it should be published in March of 2015.
In the meantime, the article is accumulating downloads on SSRN, the Social Science Research Network. By the time it’s published, most of the people who are most interested in the topic will have already read it. The law review will provide a published archive that people can cite to, but that’s about it.