M & A Law Prof Blog

Sigh ... more idiot inside traders

OK ... I know I've said that if you are going to trade on inside information that you should trade in call options, cause you're just going to swamp the market and put a target on your back.  But, here's a tip I thought I wouldn't have to give you.  If you are going to trade on inside information, please don't use your work computer to do the following searches: 

"can option be traced to purchaser?" 
"can stock option be traced to purchase inside trading" 
"how to detect can stock option be traced to purchase inside trading"
"insider trading options" 
"insider trading options trace"
"illegal insider trading options trace"
"insider trading options trace illegal"

Can you say "scienter"?  

You'd think it would go without saying, but apparently not everyone is smart enough to simply not trade on inside information.  In fact, some people are stupid enough to do internet research from the office computers before doing the deed.  You think I'm kidding?  Well, the SEC has just charged a Bristol-Meyers-Squib executive with trading on inside information in advance of a series of acquisitions.

Just don't do it.

-bjmq

 

Shall, must, and may

Bryan Garner makes the argument (again) to stop using "shall" in drafting contracts.  I'll stop using "shall" in drafting when I stop using it in conversation!  Oh wait, I don't use shall in normal conversation (h/t Ken Adams).

-bjmq

Still more lessons for young lawyers

Imagine that...no honor among thieves...

 

 

 

Bloomberg has a lengthy piece on the 17 year long insider trading ring in which an M&A lawyer handed inside information to his friends.  This time from the lawyer's perspective.

-bjmq

Geography of Revlon-land

Professor Bainbridge has posted a very helpful draft of his paper, The Geography of Revlon-land.  Here's the abstract:

In Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), the Delaware Supreme Court explained that when a target board of directors enters Revlon-land, the board’s role changes from that of “defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.”

Unfortunately, the Court’s colorful metaphor obfuscated some serious doctrinal problems. What standards of judicial review applied to director conduct outside the borders of Revlon-land? What standard applied to director conduct falling inside Revlon-land’s borders? And when did one enter that mysterious country?  By the mid-1990s, the Delaware Supreme Court had worked out a credible set of answers to those questions. The seemingly settled rules made doctrinal sense and were sound from a policy perspective. 

Indeed, my thesis herein is that Revlon and its progeny should be praised for having grappled — mostly successfully — with the core problem of corporation law: the tension between authority and accountability. A fully specified account of corporate law must incorporate both values. On the one hand, corporate law must implement the value of authority in developing a set of rules and procedures providing efficient decision making. U.S. corporate law does so by adopting a system of director primacy.

In the director primacy (a.k.a. board-centric) form of corporate governance, control is vested not in the hands of the firm’s so-called owners, the shareholders, who exercise virtually no control over either day-to-day operations or long-term policy, but in the hands of the board of directors and their subordinate professional managers. On the other hand, the separation of ownership and control in modern public corporations obviously implicates important accountability concerns, which corporate law must also address.

Academic critics of Delaware’s jurisprudence typically err because they are preoccupied with accountability at the expense of authority.  In contrast, or so I will argue, Delaware’s takeover jurisprudence correctly recognizes that both authority and accountability have value.  Achieving the proper mix between these competing values is a daunting — but necessary — task. Ultimately, authority and accountability cannot be reconciled.  At some point, greater accountability necessarily makes the decision-making process less efficient. Making corporate law therefore requires a careful balancing of these competing values. Striking such a balance is the peculiar genius of Unocal and its progeny.

In recent years, however, the Delaware Chancery Court has gotten lost in Revlon-land. A number of Chancery decisions have drifted away from the doctrinal parameters laid down by the Supreme Court. In this article, I argue that they have done so because the Chancellors have misidentified the policy basis on which Revlon rests. Accordingly, I argue that Chancery should adopt a conflict of interest-based approach to invoking Revlon, which focuses on where control of the resulting corporate entity rests when the transaction is complete.

-bjmq

"Translations" of company disclosures

A summer guest post from Claire Hill (Minnesota Law) with a question for readers.  Let the wisdom of the crowd rule...

I recall seeing "translations" of company statements and disclosures by parties seeking to make fun of the company, sometimes in the context of battles for control.  Can anyone direct me to any examples?  One thing I recall seeing is a two-column 'ad' where one column, on the left of the page, has some long very legalese-sounding description of results and prospects, and the other, on the right, has the translation -- 'we did badly this year;'  then another long passage on the left with the one on the right reading 'and we'll probably do even worse this year.' 

Thanks to Brian and Afra.

 

Claire Hill 

If anyone has any insight on this issue, please feel free to drop Claire a line at hillx445 (at) umn.edu.