Tuesday, May 22, 2007
Behold the power of the contract! Indeed, even federal securities laws genuflect before what Debevoise and Plimpton calls "the product of arms-length negotiations between sophisticated, well-represented parties" (see page 5 of the link, "Do Big-Boy Letters Really Work?"). And what is the product of this negotiation? In a big-boy letter, a purchaser of securities in a private transaction promises not to sue the seller who may well be in possession of inside information not disclosed to the buyer.
Well, okay, I can understand why a party that waives its right to sue should not be permitted to sue, but why would a sophisticated institutional investor be so eager to buy something that the insider is eager to dump? As today's New York Times reports, the buyer may want to flip the securities to a third party, without disclosing the existence of the big-boy letter to that third party. I'm no securities law expert, but I can't see how this use of big-boy letters is distinguishable from insider trading through a broker.
One case involving big-boy letters is now working its way through the courts, as the New York Times reports. The R2 hedge fund is suing the Jeffries Group over $20 million worth of bonds that plummeted 30% in value two days after R2 bought them from Jeffries. Jeffries got the bonds from Smith Barney, which protected itself with a big-boy letter. The SEC is also reportedly investigating Barclays in connection with its use of big-boy letters.
Monday, May 21, 2007
As I said before, my casebook does not include the classic coronation cases, arising out of the postponed coronation King Edward VII, pictured at left. I therefore expect my students to learn the history of the frustration of purpose doctrine solely by studying Limericks. It's a very rigorous curriculum, and I still get complaints that some contracts doctrine is easily reduced to Haiku.