Securities Law Prof Blog

Bullard on the 401(k) Plan Large Menu Defense

The Social Costs of Choice, Free Market Ideology and the Empirical Consequences of the 401(k) Plan Large Menu Defense, by Mercer Bullard, University of Mississippi - School of Law, was recently posted on SSRN.  Here is the abstract:

Regulatory reforms have recently improved 401(k) plan participation rates, but recent decisions by certain courts threaten to reverse that trend. These courts have substituted their free market ideology for fiduciary duties under ERISA in dismissing claims against plan sponsors on the ground that the menu offered was so large as to abrogate the sponsors’ ERISA duties. Under the “large menu defense,” courts have held that, even assuming a failure to exercise due care in selecting plan options, the employer can nonetheless claim the protection of the employee-control safe harbor under ERISA because, when the plan’s menu is sufficiently large, the plan participant is deemed to have exercised legal control over the relevant investment decision. The courts’ interpretation of the control safe harbor contradicts the plain meaning of the statute. Far worse, the courts’ free market assumption that large menus will increase participants’ wealth is empirically false. Research has shown that large 401(k) menus result in lower participation rates, overly conservative allocations, inferior investment options and other adverse effects that, collectively, cost workers billions of dollars every year.

Klausner et alia on D&O Insurance in Securities Class Actions

How Protective is D&O Insurance in Securities Class Actions? — An Update, by Michael Klausner, Stanford Law School; Jason Hegland, Stanford Law School; and Matthew Goforth, Stanford Law School, was recently posted on SSRN.  Here is the abstract:

Nearly all securities class actions that are not dismissed settle. Very few are tried to judgment. Who pays into settlements — the corporation, its directors and officers, or its D&O carrier? Companies buy D&O insurance in order to protect themselves and their directors and officers from liability. But D&O policies have exclusions, limits, retentions, and other terms that might result in the carrier paying less than the full amount of a settlement. So, as an empirical matter, who pays when a company settles? We provide some basic statistics on that question, which reveal that in fact D&O insurance is quite protective. Focusing on individual officers’ contributions to settlements, we find that these are quite rare, even in cases in which the SEC has imposed a serious penalty on the same individuals for the same misconduct.

Branson on Proposals for Corporate Governance Reform

Proposals for Corporate Governance Reform: Six Decades of Ineptitude and Counting, by Douglas M. Branson, University of Pittsburgh School of Law, was recently posted on SSRN.  Here is the abstract:

This article is a retrospective of corporate governance reforms various academics have authored over the last 60 years or so, by the author of the first U.S. legal treatise on the subject of corporate governance (Douglas M. Branson, Corporate Governance (1993)). The first finding is as to periodicity: even casual inspection reveals that the reformer group which controls the "reform" agenda has authored a new and different reform proposal every five years, with clock-like regularity. The second finding flows from the first, namely, that not one of these proposals has made so much as a dent in the problems that are perceived to exist. The third inquiry is to ask why this is so? Possible answers include the top down nature of scholarship and reform proposals in corporate governance; the closed nature of the group controlling the agenda, confined as it is to 8-10 academics at elite institutions; the lack of any attempt rethink or redefine the challenges which governance may or may not face; and the continued adhesion to the problem as the separation of ownership from control as Adolph Berle and Gardiner Means perceived it more than 80 years ago.

Langevoort on Contemporary Law of Insider Trading

'Fine Distinctions' in the Contemporary Law of Insider Trading, by Donald C. Langevoort, Georgetown University Law Center, was recently posted on SSRN.  Here is the abstract:

William Cary’s opinion for the SEC in In re Cady, Roberts & Co. built the foundation on which the modern law of insider trading rests. This paper — a contribution to Columbia Law School’s recent celebration of Cary’s Cady Roberts opinion, explores some of these — particularly the emergence of a doctrine of “reckless” insider trading. Historically, the crucial question is this: how or why did the insider trading prohibition survive the retrenchment that happened to so many other elements of Rule 10b-5? It argues that the Supreme Court embraced the continuing existence of the “abstain or disclose” rule, and tolerated constructive fraud notwithstanding its new-found commitment to federalism — which I call the (fictional) “Cary-Powell compromise” — because it accepted the central premise on which the expressive function of insider trading regulation is based: manifestations of greed and lack of self-restraint among the privileged, especially fiduciaries or those closely related to fiduciaries, threaten to undermine the official identity of the public markets as open and fair. But enough time may have passed that we may have lost sight of the compromise associated with this fiction and started acting as if insider trading really is the worst kind of deceit. The result is pressure on doctrine to expand, using anything plausible in the 10b-5 toolkit. The aim is to tie this concern more clearly to the uneasy deceptiveness of insider trading, first using somewhat familiar examples such as the debate over whether possession or use is required for liability and the supposed overreach of Rule 10b5-2. Each of these settings brings us back to the centrality of intent, reminding us that the Cary-Powell compromise has in mind a form of purposefulness that is closely tied to greed and opportunism, making insider trading a sui generis form of securities fraud. That takes us to the most jarring recent development in insider trading law, the emergence (particularly in SEC v. Obus) of recklessness as an alternative basis for liability.

Bebchuk, et alia on Pre-Disclosure Acquisitions by Activist Investors

Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy, by Lucian A. Bebchuk, Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Alon P. Brav, Duke University - Fuqua School of Business; Robert J. Jackson Jr., Columbia Law School;and Wei Jiang, Columbia Business School - Finance and Economics, was recently posted on SSRN.  Here is the abstract:

 

A rulemaking petition recently submitted to the Securities and Exchange Commission by the senior partners of a prominent law firm urges the SEC to accelerate the timing of the disclosure of accumulations of large blocks of stock in public companies. Relying upon a few recent anecdotes, the petition argues that existing rules have been rendered obsolete by changes in trading technology that enable activist investors to accumulate increasingly large blocks of stock before disclosing.

In this Article, we provide the first systematic evidence on all disclosures by activist investors and the first empirical analysis of this subject. We find that key factual premises underlying the petition, including the assumption that pre-disclosure accumulations have increased considerably over time, are not supported by the evidence. Moreover, we show that accelerating the timing of disclosure could have adverse effects on public-company investors and identify important but overlooked consequences of the considered reform of disclosure rules. Our analysis provides empirical evidence that should inform the SEC’s consideration of this issue — and a foundation on which subsequent empirical and policy analysis can build.

Padfield on Concession Theory

Rehabilitating Concession Theory, by Stefan J. Padfield, University of Akron School of Law, was recently posted on SSRN.  Here is the abstract:

In Citizens United v. FEC, a 5-4 majority of the Supreme Court ruled that, “the Government cannot restrict political speech based on the speaker's corporate identity.” The decision remains controversial, with many arguing that the Court effectively overturned over 100 years of precedent. I have previously argued that this decision turned on competing conceptions of the corporation, with the majority adopting a contractarian view while the dissent advanced a state concession view. However, the majority was silent on the issue of corporate theory, and the dissent went so far as to expressly disavow any role for corporate theory at all. At least as far as the dissent is concerned, this avoidance of corporate theory may have been motivated at least in part by the fact that concession theory has been marginalized to the point where anyone advancing it as a serious theory risks mockery at the hands of some of the most esteemed experts in corporate law. For example, one highly-regarded commentator criticized the dissent by saying: “It has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously.” In this Essay I consider whether this marginalization of concession theory is justified. I conclude that the reports of concession theory’s demise have been greatly exaggerated, and that there remains a serious role for the theory in discussions concerning the place of corporations in society. This is important because without a vibrant concession theory we are primarily left with aggregate theory and real entity theory, two theories of the corporation that both defer to private ordering over government regulation.

DU Online Law Review Devotes Issue to JOBS Act

J. Robert Brown Jr., University of Denver Sturm College of Law, announces that:

The DU Online Law Review has devoted an entire issue to the JOBS Act (available at http://www.denverlawreview.org/jobs-act-feature) . The content came from eight students under faculty supervision. The papers each analyzed a specific provision in the JOBS Act and relied upon a common format. The papers addressed the law as it existed on the eve of the JOBS Act and analyzed the changes implemented by Congress, including the relevant legislative history. Each paper offered practical insight into the operation of the selected statute.

The papers encompassed significant portions of the JOBS Act. Three addressed crowdfunding (Lindsay Anderson Smith, Crowdfunding and Using Net Worth to Determine Investment Limits, Lina Jasinskaite, The JOBS Act: Does the Income Cap Really Protect Investors? and Michael W. Shumate, Crowdfunding and State Level Securities Fraud Enforcement under the JOBS Act), two addressed the changes to the private placement process under Rule 506 (Erica Siepman, The JOBS Act and the Elimination of the Ban on General Solicitations and Samuel Hagreen, The JOBS Act: Exempting Internet Portals from the Definition of Broker-Dealer ), and one addressed the number of shareholders of record that trigger registration with the SEC (Susan Beblavi, The JOBS Act Title V: Raising the Threshold for Registration), emerging growth companies (Will McAllister, The JOBS Act Title I: The “On-Ramp” to IPOs for Emerging Growth Companies) and Regulation A (David Rodman, Regulation A , the JOBS Act, and Public Offering Lite).

Alexander on Cyberfinancing for Economic Justice

Cyberfinancing for Economic Justice, by Lisa T. Alexander, University of Wisconsin Law School, was recently posted on SSRN.  Here is the abstract:

This article argues for the socially optimal regulation of online peer-to-peer (P2P) lending and crowdfunding to advance economic justice in the United States. Peer-to-peer lending websites, such as Prosper.com or Kiva.org, facilitate lending transactions between individuals online without the involvement of a traditional bank or microfinance institution. Crowdfunding websites, such as Kickstarter.com, enable individuals to obtain financing from large numbers of contributors at once through an open online request for funds. These web-based transactions, and the intermediary organizations that facilitate them, constitute emerging cyberfinancing markets. These markets connect many individuals at once, across class, race, ethnicity, nationality, space, and time in an interactive and dynamic way. During a time of significant economic distress in the United States, these markets also represent an unprecedented economic development opportunity for historically marginalized economic actors. Yet, no legal scholar has addressed the implications of these developments for economic justice in the United States. Drawing from the fields of law and geography, social networking theory, and comparative institutional analysis, this Article conceptualizes these new markets as "cyberspaces," similar to geographic spaces, whose laws, norms, and rules will partially determine who will benefit from the economic opportunities that arise in these spaces. The recently enacted Jumpstart Our Business Startups (JOBS) Act does not facilitate substantial distributive justice in crowdfunding markets. The U.S. Government Accountability Office (GAO), which produced a report in response to the 2010 Dodd-Frank Wall Street Reform Act's mandate that it study the P2P lending industry, has also failed to recommend a regulatory structure that will facilitate economic justice. This Article recommends that a range of federal regulators such as the U.S. Securities and Exchange Commission(SEC), the new Consumer Financial Protection Bureau (CFPB), and the U.S. Treasury Department (Treasury), should collaborate to implement a revised Community Reinvestment Act (CRA) that would promote economic justice in these markets

Brams & Mitts on M&A Auctions

Mechanism Design in M&A Auctions, by Steven J. Brams, New York University (NYU) - Wilf Family Department of Politics, and Joshua Mitts, Yale Law School, was recently posted on SSRN.  Here is the abstract:

The recent controversy over “Don’t Ask, Don’t Waive” standstills in M&A practice highlights the need to apply mechanism design to change-of-control transactions. In this Essay, we propose a novel two-stage auction procedure that induces honest bidding among participants while potentially yielding a higher sale price than an open ascending, a sealed-bid first price, or a Vickrey second-price auction. Our procedure balances deal certainty with value maximization through the Nobel Prize-winning principle of incentive compatibility, making participation in the M&A auction and honest disclosure of reservation prices in the parties’ interests rather than relying solely on heavy-handed ex-post enforcement. Moreover, the social benefits of our two-stage auction mechanism - greater transparency regarding the distribution of bids, avoidance of the winner’s curse, certainty in the M&A auction environment, and fairness to buyers and sellers - justify reduced judicial scrutiny of transactions utilizing the procedure under Revlon and Chancellor Strine’s recent dicta in Ancestry.com.

Heminway on Funding For-Profit Social Enterprises

To Be or Not to Be (a Security): Funding For-Profit Social Enterprises, by Joan MacLeod Heminway, University of Tennessee College of Law, was recently posted on SSRN.  Here is the abstract:

This article explores the federal securities law status of financial interests in for-profit social enterprise entities. When analyzed through the lens of the Securities Act of 1933 and the Securities Exchange Act of 1934, financial interests in social enterprise businesses raise both concerns and opportunities. Ultimately, the federal securities regulation status of interests in for-profit social enterprise ventures is important for choice-of-entity reasons (since the regulatory framework may impose different costs on interests in different structural business forms), for capital-structuring reasons within individual forms of entity, and for risk-management reasons at the entity level. In addition, an inquiry into the applicability of federal securities regulation to the funding of social enterprise serves as a catalyst for further thought on the optimal applicability of federal securities regulation to interests in business entities and projects.

Cunningham on Deferred Prosecution and Corporate Governance

Deferred Prosecutions and Corporate Governance: An Integrated Approach to Investigation and Reform, by Lawrence A. Cunningham, George Washington University Law School, was recently posted on SSRN.  Here is the abstract:

When evaluating how to proceed against a corporate investigative target, law enforcement authorities often ignore the target’s governance arrangements, while subsequently negotiating or imposing governance requirements, especially in deferred prosecution agreements. Ignoring governance structures and processes amid investigation can be hazardous and implementing improvised reforms afterwards may have severe unintended consequences — particularly when prescribing standardized governance devices. Drawing, in part, on new lessons from three prominent cases — Arthur Andersen, AIG and Bristol-Myers Squibb — this Article criticizes prevailing discord and urges prosecutors to contemplate corporate governance at the outset and to articulate rationales for prescribed changes. Integrating the role of corporate governance into prosecutions would promote public confidence in prosecutorial decisions to broker firm-specific governance reforms currently lacking and increase their effectiveness. The Article, therefore, contributes a novel perspective on the controversial practice: though substantial commentary urges prosecutors to avoid intruding into corporate governance, this Article explains the importance of prosecutors investing in it.

Bebchuk on the Myth of Insulating Boards

The Myth that Insulating Boards Serves Long-Term Value, by Lucian A. Bebchuk, Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI), was recently posted on SSRN.  Here is the abstract:

According to a central and influential view in corporate law writings and debates, shareholder interventions, and the fear of such interventions, lead companies to take myopic actions that are costly in the long term; consequently, it is claimed, insulating boards from such pressure serves the long-term interests of companies as well as of their shareholders. This board insulation claim has been regularly invoked in a wide range of contexts to support limits on shareholder rights and involvement, and has had considerable success and influence. In this paper, I subject this view to a comprehensive examination, and I find it wanting.

In contrast to what insulation advocates commonly assume, short investment horizons and imperfect market pricing do not imply that board insulation will be value-increasing in the long term. I show that, even assuming such short horizons and imperfect pricing, shareholder activism, and the fear of shareholder intervention, will produce not only long-term costs but also some significant countervailing long-term benefits.

Furthermore, there is a good basis for concluding that, on balance, the negative long-term costs of board insulation exceeds its long-term benefits. To begin, the behavior of informed market participants reflects their beliefs that shareholder activism, and the arrangements facilitating it, are overall beneficial for the long-term interest of companies and their shareholders. Moreover, a review of the available empirical evidence provides no support for the claim that board insulation is overall beneficial in the long term; to the contrary, the body of evidence favors the view that shareholder engagement, and arrangements that facilitate it, serve the long-term interests of companies and their shareholders.

I conclude that the claims made by insulation advocates have a shaky conceptual foundation and are not supported by the data. Policy makers and institutional investors should reject arguments for board insulation in the name of long-term value.

Skeel & Jackson on Dynamic Resolution of Large Financial Institutions

Dynamic Resolution of Large Financial Institutions, by David A. Skeel Jr., University of Pennsylvania Law School; European Corporate Governance Institute (ECGI), and Thomas H. Jackson, University of Rochester, was recently posted on SSRN.  Here is the abstract:

One of the more important issues emerging out of the 2008 financial crisis concerns the proper resolution of a systemically important financial institution. In response to this, Title II of Dodd-Frank created the Orderly Liquidation Authority, or OLA, which is designed to create a resolution framework for systemically important financial institutions that is based on the resolution authority that the FDIC has held over commercial bank failures. In this article, we consider the various alternatives for resolving systemically important institutions. Among these alternatives, we discuss OLA, a European-style bail-in process, and coerced mergers, while also extensively focusing on the bankruptcy code. We argue that implementing several discrete modifications to Dodd-Frank, as well adopting an ambitious Chapter 14 proposal written by a working group at the Hoover Institution is the best way forward for establishing a strong resolution framework.

Cunningham Podcast on Warren Buffett & Corporate Governance

Lawrence Cunningham (George Washington Law) has a podcast, Inside Track with Broc: Larry Cunningham on Warren Buffett's View of Governance & Securities Law (4/8/13).  In this podcast, Larry discusses the Third Edition of "The Essays of Warren Buffett: Lessons for Corporate America" (the first version dates back to 1997 and actually began as a law review conference) as it applies to corporate governance and securities regulation, including:

•What are some of the venerable principles of corporate governance that reappear in this edition?
•What's new for Warren concerning corporate governance?
•Who does Warren think was responsible for the financial crisis and how has responsibility been apportioned?
•What about compliance and assuring integrity through the ranks?
•For Warren, what's the toughest battle to fight in terms of compliance?
•What's the appropriate response when improprieties are found?

Baer on Baker & Griffith's Ensuring Corporate Misconduct

Some Thoughts on the Porous Boundary between Ordinary and Extraordinary Corporate Fraud (Book Review of ENSURING CORPORATE MISCONDUCT by Tom Baker and Sean J. Griffith, 2010), by Miriam H. Baer, Brooklyn Law School, was recently posted on SSRN.  Here is the abstract:

This is a book review of Tom Baker and Sean Griffith’s 'Ensuring Corporate Misconduct'. Their book provides an exhaustive and illuminating analysis of how corporations contract for director and officer (D&O) liability insurance. Based on extensive interviews with insurance carriers and corporate risk officers, Baker and Griffith conclude that D&O liability insurance has created a moral hazard within the public corporation. Managers, who have incentives to take advantage of shareholders, are inadequately deterred by civil liability for securities fraud because D&O insurance effective shields them from any payout. Accordingly, Baker and Griffith argue for reforms that would reduce this moral hazard.

Baker and Griffith’s arguments are persuasive and should make any reader think twice about the value of D&O insurance. Their critique, however, seems to make light of the fact that corporate fraud can trigger criminal investigations, and ultimately criminal penalties for individuals who engage in or conspire to commit fraud. Although the authors agree that D&O insurance provides no protection against criminal penalties and investigations, they nevertheless presume that much of the conduct that gives rise to civil securities fraud litigation (so-called “ordinary fraud”) is unlikely to trigger criminal and public enforcement proceedings. This Review questions whether there in fact exists such a distinct boundary between “ordinary” and “extraordinary” corporate frauds. To the contrary, one would expect the rational corporate officer to be wary that any fraud case might trigger an investigation by public enforcers. If that is the case, then the porous boundary between criminal and civil fraud may lessen Baker and Griffith’s rightful concerns about moral hazard. With these thoughts in mind, the Review then addresses several of Baker and Griffith’s proposed reforms.

Krug on Entity-Centrism in Financial Services Regulation

Escaping Entity-Centrism in Financial Services Regulation, by Anita K. Krug, University of Washington School of Law, was recently posted on SSRN.  Here is the abstract:

In the ongoing discussions about financial services regulation and its proper goals, implementation, and enforcement — encompassing considerations on how best to protect clients and customers and under what circumstances markets function most effectively — one critically important topic has not been recognized, let alone addressed. That topic is what this Article calls the “entity-centrism” of financial services regulation. Laws and rules are entity-centric when they assume that financial services firms are stand-alone entities, operating separately from and independently of any other entity. They are entity-centric, therefore, when the specific requirements and obligations they comprise are addressed only to an abstract and solitary “firm,” with little or no contemplation of affiliates, parent companies, subsidiaries, or multi-entity enterprises. Moreover, regulatory entity-centrism is not an isolated phenomenon, as it permeates the laws and rules that govern a firm’s becoming regulated, the substantive requirements to which the firm must adhere, and the firm’s ultimate insolvency or liquidation. In addition, entity-centrism does not discriminate among financial services activities: it can be discerned in laws and rules covering investment advisers, broker-dealers, futures commission merchants, mutual funds and other registered investment companies, and beyond. In other words, entity-centrism in financial services regulation is pervasive. It is also deeply problematic.

This Article is the first scholarly work to call attention to entity-centrism as manifested in financial services regulation, to show why entity-centrism counters regulatory objectives, and to assess possible explanations for it. The Article does so primarily through evaluating two recent regulatory failures, namely, the bankruptcy of MF Global, a large futures brokerage firm that became insolvent in late 2011, and the Ponzi scheme orchestrated by the Stanford Financial Group, which came to light in 2009. These case studies reveal how entity-focused laws and rules privilege entity boundaries over the various ways in which multiple entities (or entities and individuals) work together as a common enterprise. In particular, they show how entity-centrism, by insisting that the subject and/or beneficiary of regulatory obligations is cohesive and complete in-and-of itself, ignores how the interests that regulation exists to further may be situated outside the entity, leaving those interests unprotected. The case studies also demonstrate that entity-centrism ignores how actors outside the entity may use the entity to manipulate or escape regulatory obligations, again leaving the relevant interests without the protections that regulation contemplates. Accordingly, this Article contends that financial services regulation should look past entity boundaries and that lawmakers and regulators should think more broadly, critically, and creatively to address the persistent and significant regulatory difficulties that entity-centrism has spawned.

Cunningham & Greenberg on AIG

The AIG Story (Chapter 18, Nationalization), by Lawrence A. Cunningham, George Washington University Law School, and Maurice R. Greenberg, Starr International Company, Inc, was recently posted on SSRN.  Here is the abstract:

This is the final chapter of The AIG Story, a book about the growth of a large international insurance company that pioneered the opening of new markets and helped forge milestone international trade agreements, followed by an account of its near-destruction, first at the hands of an overzealous state attorney general and underwhelming board of directors, and then, as detailed in this chapter, at the hands of federal government officials overwhelmed by a financial crisis they could not understand. This chapter begins in mid-2008, when AIG’s losing financial products bets presented the company with a huge liquidity problem, though it commanded nearly a trillion dollars in assets that made it entirely solvent. The world’s largest banks faced both liquidity and solvency problems that threatened a global financial meltdown. Swooping into the maelstrom, the U.S. Treasury and New York Fed engineered a solution that portrayed AIG as the greatest villain of the crisis and its treatment by the government as a rescue of the company. The truth is more complex and this chapter of the book explains, in what Kirkus has aptly described, reviewing the book, as “a useful contribution to the ongoing shaping of the story of the recent financial crisis.”

Badawi on Merger Class Actions and Multi-Jurisdictional Litigation

Merger Class Actions in Delaware and the Symptoms of Multi-Jurisdictional Litigation, by Adam B. Badawi, Washington University in Saint Louis - School of Law, was recently posted on SSRN.  Here is the abstract:

Recent research on corporate litigation has focused on three trends: the growth in percentage of mergers that result in litigation, the migration of cases away from Delaware, and the increasing prevalence of merger litigation occurring simultaneously in multiple jurisdictions. This Symposium Article uses a new and unique dataset of public company litigation to track how these trends have affected filings and litigation tactics in the Delaware Court of Chancery from 2004 to 2011. The data confirm that Delaware appears to have experienced a decline in filings during the early and middle periods of the sample, but the data also shows that there has been a sharp increase in the number of the number of acqusition-related cases filed in Delaware in 2010 and 2011.

The rise of concurrent, multi-jurisdictional litigation and the litigation tactics that it encourages are the likely reasons for the growth of acquisition-related cases in Delaware. While some plaintiffs’ attorneys may have left Delaware to escape the Chancery’s threats of lower attorneys’ fees and merit-based selection of lead counsel, in the current environment a Delaware filing may provide strategic advantages as foreign jurisdictions become saturated with filings. For example, lawyers may try to take control of a case by moving for expedited proceedings in Delaware or they may try to complicate negotiations over the selection of lead plaintiffs’ counsel. The threat of using these tactics may increase the possibility that a plaintiff will receive some share of a fee award either in Delaware or in a case being litigated elsewhere.

This article explores how the rules Delaware uses to manage deal cases may enable strategic behavior in the context of multi-jurisdictional litigation. This discussion provides reasons to believe that the use of tactics such as requesting expedited proceedings, contesting consolidation of cases, and involving out-of-state counsel earlier in proceedings should increase as multi-jurisdictional litigation increases. The empirical evidence provides substantial support for these theories. The article concludes with an assessment of how the observed increase in strategic tactics may affect debates over how and whether to respond to the rise of multi-jurisdictional litigation.

Schwarcz on Transactional Lawyers and Shadow Banking

Lawyers in the Shadows: The Transactional Lawyer in a World of Shadow Banking, by Steven L. Schwarcz, Duke University - School of Law, was recently posted on SSRN.  Here is the abstract:

This article, which is based on the author’s keynote address at an April 5, 2013 conference at American University Washington College of Law on “Transactional Lawyering: Theory, Practice, & Pedagogy,” examines the role of transactional lawyers in a world of shadow banking. By reducing the dominance of banks as financial intermediaries, shadow banking has transformed the financial system, causing transactional lawyers to face an array of novel issues. This article focuses on one of those issues: to what extent should transactional lawyers address the potential systemic consequences of their client’s actions? First, the article shows that the legal system itself inadvertently enables or requires firms operating as shadow banks to engage in uniquely risky behavior, without protecting against the resulting systemically risky externalities. That finding, in turn, broadens the legal ethics inquiry to two issues: what duty should transactional lawyers have to try to improve the legal system to protect against those externalities, and what duty should transactional lawyers have to try to prevent those externalities, assuming the legal system is not improved.

Jeng on the JOBS Act

The JOBS Act: Rule 506, Crowdfunding, and the Balance between Efficient Capital Formation and Investor Protection, by Daniel H. Jeng, Boston University School of Law, was recently posted on SSRN.  Here is the abstract:

With great fanfare, the Jumpstart Our Business Startups Act, popularly known as the "JOBS Act", passed through Congress and, on April 15, 2012, earned President Obama's approval. This paper offers a review of the Act, delving into its historical background, purpose, and important titles. Title II amends Rule 506 of Regulation D to lift the prohibition of general solicitation and general advertising. Title III enables "equity crowdfunding", a novel and controversial fundraising method. These two titles expand capital formation channels to both accredited investors and to the "ordinary American investor". The struggle to strike the optimal balance between efficient capital formation and strong investor protection animates both Title II and Title III provisions as well as rule-making by the Securities and Exchange Commission. This paper offers four qualities that characterize the "ideal JOBS Act startup": 1) a smaller capital requirement; 2) a shorter timeline for success and product development; 3) a simple fundamental idea and business model; and 4) the elusive human element.