Friday, April 16, 2021
With recent studies suggesting that insiders are availing themselves of SEC Rule 10b5-1(c) trading plains to beat the market by trading their own company’s shares based on material non-public information, Congress may be poised to act. In March of 2021, Representative Maxine Waters reintroduced a bill entitled the Promoting Transparent Standards for Corporate Insiders Act. The same bill passed the house in the 116th Congress, but died in the Senate. If passed, the bill would require the SEC to study a number of proposed amendments to 10b5-1(c), report to Congress, and then implement the results of that study through rulemaking. I identified some problems with the bill in my article, Undoing a Deal with the Devil: Some Challenges for Congress's Proposed Reform of Insider Trading Plans. But if significant reforms are in store for insider trading plans, then insiders may look to other creative “loopholes” that permit them to monetize access to their firms’ material nonpublic information.
Professors Sureyya Burcu Avci, Cindy Schipani, Nejat Seyhun, and Andrew Verstein, have identified “insider giving” as another strategy for hiding insider trading in plain sight. Here’s the abstract for their article, Insider Giving, which is forthcoming in the Duke Law Journal:
Corporate insiders can avoid losses if they dispose of their stock while in possession of material, non-public information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective and it faces lax reporting requirements and legal restrictions. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. “Insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that it is not limited to officers and directors. Large investors appear to regularly receive material non-public information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating – investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.
Wednesday, April 14, 2021
Dear BLPB Readers:
Wharton Professors David Zaring and Peter Conti-Brown share that:
On sabbatical, so this was a pretty good semester of reading (for me). 23 books and two online courses. A good bit about contemplation and religion with some philosophy and fiction. The Remains of the Day and A River Runs Through It were probably my two favorite, though the Merton and Willard books were meaningful too.
Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About it) - Elizabeth Anderson (2017) (Philosophy). Tanner Lectures on Human Values at Princeton University. Four commenting essays by different professors follow, then Professor Anderson responds. Her main claim is that Adam Smith and others envisioned a free market with large amounts of self-employment. But powerful modern employers have become “unaccountable communist dictators” who use the rhetoric of freedom, but provide very little of it within their firms. Many employees have no “dignity, standing, or autonomy” in their firms and Anderson calls for more of an employee role in governance, perhaps along the German codetermination model.
Invitation to Solitude and Silence- Ruth Haley Barton (2004) (Religion). “We are starved for quiet, to hear the sound of sheer silence that is the presence of God himself.”
The Stranger - Albert Camus (1942) (Novel). Death, relationships, crime, and the absurd. “I opened myself to the gentle indifference of the world.”
The Shallows: What the Internet Is Doing to Our Brains - Nicholas Carr (2011) (Culture). Extending Marshall McLuhan’s Understanding Media (1964) and Neil Postman’s Amusing Ourselves to Death (1985) to the Internet. Since reading Postman’s book, I’ve been curious about what he would say about the Internet, and Carr attempts to do some of that work, looking especially at our diminished attention spans.
My Name is Hope - John Mark Comer (2011) (Religion). Faith, anxiety, and depression. A bit memoir and a bit self-help. Admits that he is not a doctor or a therapist, but posits that there are root situational or historic causes under most cases of anxiety and depression. Makes calls for attention to the mind/body connections, prayer and meditation, and transparency and forgiveness.
Garden City - John Mark Comer (2015) (Religion). Faith, work, and rest. “The American Dream...has devolved over the years into a narcissistic desire to make as much money as possible, in as little time as possible, with as little effort as possible, so that we can get off work and go do something else.”
Happy Money - Elizabeth Dunn and Michael Norton (2013) (Behavioral Science). Buy experiences, not stuff. Make it a treat, not daily indulgence. Savor. Buy time; outsource dreaded time-consuming tasks. Time affluence tied to greater happiness. Stay present. The slow movement. Buy now, consume later (“delaying consumption allows spenders to reap the pleasures of anticipation without the buzzkill of reality, vacations provide the most happiness before they occur.”) Invest in others; people who donate to charity report feeling wealthier.
The Happiness Hypothesis - Jonathan Haidt (2006) (Psychology). Happiness and meaning and positive psychology through the lens of ancient wisdom. Elephant (desire) and the rider (reason). Happiness = Set Point (Meditation, Cognitive Therapy, Prosac) + Living Conditions ($70K, commute, relationships) + Voluntary Activities (gratitude, building community, being useful).
The Remains of the Day - Kazuo Ishiguro (1988) (Novel). British butler ponders duty, dignity, family, love, bantering, and tradition on a few days of countryside driving and reminiscing.
How to Be an Antiracist - Ibram X. Kendi (2019) (Race). The expectations and comments of his teachers struck me. I have known about the powerful positive potential of our words as professors, but Kendi’s work reminds me that we can do great harm as well. Kendi writes “ I internalized my academic struggles as indicative of something wrong not just with my behavior but with Black behavior as a whole, since I represented the race, both in their eyes - or what I thought I saw in their eyes-and in my own.” He noted that “Black students who have at least one Black teacher in elementary school are 29 percent less likely to drop out of school.” He did a nice job showing problems with standardized testing, but did not have much in terms of detailed proposals in changing college admissions.
The Practice of the Presence of God - Brother Lawrence (1895) (Religion). “His only thought was about doing little things for the love of God, since he was not capable of doing great things. Afterward, whatever happened to him would be according to God’s will, so he was not at all worried about it.” “Our sufferings will always be sweeter and more pleasant when we are Him, and without Him, our greatest pleasure will be but a cruel torture.” “I would like to be able to persuade you that God is often nearer to us in our times of sickness and infirmity than when we enjoy perfect health.”
Abolition of Man - C.S. Lewis (1943) (Education). Short book on education, truth, the doctrine of objective value, recognizing our flaws (Lewis did not like being around small children). justice, and valor.
Extraterrestrial: The First Signs of Intelligent Life Beyond Earth- Avi Loeb (2021) (Space). Harvard astronomy professor discusses Oumaumua, an odd interstellar object, sighted for 11 days in October of 2017 and the possibility that we are not alone in the universe. He bemoans the closed mindedness of some academic disciplines and argues for humility (even as he brags a bit about his accomplishments).
A River Runs Through It - Norman Maclean (1989) (Novel). Family and fishing. Younger brother, troubled and beautiful. Supposedly first novel published by University of Chicago Press.
Thomas Merton - No Man is an Island (1955) (Religion). OK to be ordinary. “All things are at once good and imperfect. The goodness bears witness to the goodness of God. But the imperfection of all things reminds us to leave them in order to live in hope. They are themselves insufficient. We must go beyond them to Him in Whom they have their true being.” “Everything in modern city life is calculated to keep man from entering into himself and thinking about spiritual things. Even with the best of intentions a spiritual man finds himself exhausted and deadened and debased by the constant noise of machines and loudspeakers, the dead air and the glaring lights of offices and shops, the everlasting suggestions of advertising and propaganda.” (108-09). “The cornerstone of all asceticism is humility.” (113). “A [person] who is not at peace with himself projects his interior fighting into the society of those he lives with, and spreads a contagion of conflict all around him….In order to settle down in the quiet of our own being we must learn to be detached from the results of our own activity. We must withdraw ourselves, to some extent, from effects that are beyond our control and be content with the good will and the work that are the quiet expression of our inner life...Our Christian identity is, in fact, a great one; but we cannot achieve greatness unless we lose all interest in being great.”
Thomas Merton - New Seeds of Contemplation (1964) (Religion). "There is no true peace possible for the man who still imagines that some accident of talent or grace or virtue segregates him from other men and places him above them" “Hate in any form is self-destructive, and even when it triumphs physically it triumphs in its own spiritual ruin.” “Hurry ruins saints as well as artists.” “If we were incapable of humility we would be incapable of joy, because humility alone can destroy the self-centeredness that makes joy impossible.” “A humble man can do great things with an uncommon perfection because he is no longer concerned about incidentals, like his own interests and his own reputation, and therefore he no longer needs to waste his efforts in defending them.”
In the Name of Jesus - Henri Nouwen (1989) (Religion). From Harvard to working with people with mental challenges at L’Arche. Brought Bill with him to talk to aspiring ministers in Washington D.C. - “we did it together.”
Can You Drink the Cup? - Henri Nouwen (1996) (Religion). “Joys are hidden in sorrow.” "We want to drink our cup together and thus celebrate the truth that the wounds of our individual lives, which seem intolerable when lived alone, become sources of healing when we live them as part of a fellowship of mutual care.”
The Tyranny of Merit - Michael Sandel (2020) (Philosophy). Even if we had a level playing field, the talented would win and talent is not deserved or earned. A bit short on solutions, but suggests a lower bar for elite college admissions and then lottery to select who goes. Thinks this would inject a bit of humility into the process and dispel that elite college admissions is earned by the individual.
The Ethics of Authenticity - Charles Taylor (1991) (Philosophy). Searches for a nuanced view of authenticity--exploring subjectivism, narcissism, apathy, horizons of significance, dialogue, and social traditions. (Lectures entitled “Malaise of Modernity”)
The Spirit of the Disciplines - Dallas Willard (1988) (Religion). Disciplines of Abstinence (solitude, silence, fasting, frugality, chastity, secrecy, sacrifice). Disciplines of Engagement (study, worship, celebration, service, prayer, fellowship, confession, submission).
The Great Omission - Dallas Willard (2014) (Religion). The great commission is not just about conversions, but about making *disciples* of all kinds of people.
Called to Business - Dallas Willard (2019) (Religion) Extremely short book. A few articles on faith and work; serving others while making a living.
The Promise Podcast (2020) - ~5 hours. Season 2. East Nashville public schools, diversity, wealth, and school choice.
Monday, April 12, 2021
A few weeks ago, I posted on COVID-19 and business interruption insurance, quoting from part of a forthcoming coauthored article presented at the Business Law Prof Blog symposium last fall. This week, I am posting a few more teaser paragraphs from that same article, which focuses overall on business law issues, practice changes, and professional responsibility challenges emanating from the pandemic. Today's excerpts focus on lawyers working from home. Second-year UT Law student Anne Crisp is the primary author of the part of the paper that includes these paragraphs (from which footnotes have been omitted).
. . . While the work-from-home movement was already taking off in many sectors prior to COVID-19, the legal sector had been slow to adopt this working model. Leaving aside multijurisdictional practice challenges, lawyer resistance to remote work has been attributed in large part to the perceived relationship-based nature of lawyering and the perception that at least some clients expect to meet with their legal counsel in well-appointed offices. But along came COVID-19, and lawyers could no longer avoid the pull of the work-from-home movement. If lawyers wanted to bill hours, they were going to have to work from home.
As lawyers began working from home, law offices were forced to enhance their technological resources and capabilities to meet the needs of the firm and to confront the technological challenges associated with such developments. Issues around laptop-versus-desktop use, home Wi-Fi capacity and security, and virtual private networks emerged as pressing problems to address. Lawyers, like everyone else in the world, began using videoconferencing and telecommunication platforms such as Zoom to meet with clients, colleagues, and the courts on a regular basis, rather than in specific circumstances. Lawyers adapted to the work-from-home model not by choice, but out of necessity.
Law firms also had to address security concerns that arise as a result of remote working. Malware infections, hacking, and other challenges are more difficult to prevent once workers are no longer regularly connected to a law office’s computer network. Firms with appropriate cybersecurity systems in place had to ramp up their availability to cover more workers; those without appropriate security technologies needed to acquire and implements them on an urgent basis.
Moreover, communication complications became manifest, and the need to address them holistically became important. “In a remote working world, everyone’s delegation/supervision/feedback skills must be even better—more frequent, more clear and more realistic—than usual.” For example, in a private firm, a practice group leader may need to intentionally ask how an individual is doing because the leader can no longer gauge this based on their interaction with the individual in the office. Junior lawyers in office settings must be more transparent and realistic about their own constraints as their home environments change. It has also become more important for junior lawyers to take clear ownership of the work they are doing so that senior lawyers, whose focus is on more directly helping clients navigate the issues arising, can more easily monitor who is working on what and keep track of the status of projects. Before the pandemic, communication challenges of the kinds mentioned here may have been barriers to lawyers working from home. Now, lawyers have no choice but to overcome them.
While the work-from-home movement has presented new challenges surrounding security and communication, it has also produced some positive effects. Working from home often creates a more relaxed work environment that has been shown to lead to more creativity. Additionally, lawyers are enjoying the benefits of having no commute. Many lawyers have liked working from home so much that they hope to continue to do so once the pandemic is over. It remains to be seen whether law firms will allow them to continue to do so in a post-pandemic world.
There is so much I could say about all this. But I will confine myself here to two points, both stemming from the text of that last quoted paragraph. The positive aspects of lawyers' adaptive work-from-home lives generate their own set of challenges.
First, law firms are making decisions about the extent to which they will allow work-from-home after the pandemic. (So are law schools.) The managing shareholder of a regional law firm's Knoxville office participated in my Advanced Business Associations class last week, and he indicated his concern that new and junior associates be physically present in the office in order to ensure that they are exposed and acclimate to the firm's culture.
Second, return-to-the-workplace mandates will result in some bumpy transitions back to full in-person operations. Child, elder, and general family care routines devised for use during the pandemic may be as (or more) difficult to unwind than they were to create. For many, it is not an option to merely go back to the way things were before COVID-19.
I suspect that, as we come out of the pandemic, different firms will handle 2021 work location transitions in different ways based on their size, market, reputation, culture, and more. The type of work being performed by the lawyers and client preference are likely to play specific guiding roles in the analysis. This certainly will be an area to watch.
Saturday, April 10, 2021
The Eastern District of Pennsylvania recently issued a lengthy opinion, largely refusing to dismiss a Section 10(b) complaint alleging that Energy Transfer LP made a series of misstatements about certain pipelines that were under construction. See Allegheny County Employees’ Ret. Sys. v. Energy Transfer LP, 2021 WL 1264027 (E.D. Pa. Apr. 6, 2021). There’s probably a lot worth examining here but I’m actually just going to use it as a jumping off point to talk about the PSLRA safe harbor.
The safe harbor insulates forward-looking statements from private securities fraud liability if:
(A) the forward-looking statement is—
(i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement; or…
(B) the plaintiff fails to prove that the forward-looking statement--
(i) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading; …
(2) Oral forward-looking statements
In the case of an oral forward-looking statement …the requirement set forth in paragraph (1)(A) shall be deemed to be satisfied--
(A) if the oral forward-looking statement is accompanied by a cautionary statement—
…(ii) that the actual results might differ materially from those projected in the forward-looking statement; and
(i) the oral forward-looking statement is accompanied by an oral statement that additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in a readily available written document, or portion thereof;
(ii) the accompanying oral statement referred to in clause (i) identifies the document, or portion thereof, that contains the additional information about those factors relating to the forward-looking statement; and
(iii) the information contained in that written document is a cautionary statement that satisfies the standard established in paragraph (1)(A).
15 U.S.C 78u-5.
There are certain preconditions, then, for safe harbor protection based on cautionary language: first, that the statements be identified as forward-looking explicitly, and second, that the cautionary language be included in a written document, or incorporated by reference if made orally.
In Energy Transfer, the court concluded that while some of defendants’ forward-looking statements qualified for safe harbor protection based on cautionary language, some did not meet the preconditions, see 2021 WL 1264027, at *5, *9, and went on to conclude that the plaintiffs had adequately alleged claims based on some of the unprotected ones.
The reason this intrigues me is that, as far as I know, courts have been rather free with allowing defendants to claim the protection of the safe harbor even if they fail to meet the preconditions (for example, if they fail to incorporate the warnings by reference in an oral statement, or try to incorporate by reference for a written one), so long as the cautionary language appears somewhere in a public document. The Seventh Circuit laid out the rationale in Asher v. Baxter Int’l, 377 F.3d 727 (7th Cir. 2004). (Disclosure: I was one of the attorneys representing the plaintiffs in Asher v. Baxter). In that case, the Seventh Circuit said:
When speaking with analysts Baxter’s executives did not provide them with …directions to look in the 10–K report for the full cautionary statement. It follows, plaintiffs maintain, that this suit must proceed with respect to the press releases and oral statements even if the cautionary language filed with the SEC in registration statements and other documents meets the statutory standard.
…[T]his is not a traditional securities claim. It is a fraud-on-the-market claim. None of the plaintiffs asserts that he read any of Baxter's press releases or listened to an executive's oral statement. Instead the theory is that other people (professional traders, mutual fund managers, securities analysts) did the reading, and that they made trades or recommendations that influenced the price. In an efficient capital market, all information known to the public affects the price and thus affects every investor. …
When markets are informationally efficient, it is impossible to segment information as plaintiffs propose. They ask us to say that they received (through the price) the false oral statements but not the cautionary disclosures. That can’t be; only if the market is inefficient is partial transmission likely, and if the market for Baxter's stock is inefficient then this suit collapses because a fraud-on-the-market claim won't fly.
The problem with that logic, though, is that PSLRA safe harbor protection is not predicated on the idea that cautionary statements will impact prices in the same way as the initial false statement and thereby nullify the effects of the lie. True, the common law bespeaks caution doctrine insulates all forward looking statements if cautionary language renders them immaterial, Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392 (7th Cir. 1995), but the PSLRA standards are more forgiving. Defendants need only identify “important factors that could cause actual results to differ materially from those in the forward-looking statement,” 15 U.S.C. § 78u-5(c)(1)(A)(i), and “[f]ailure to include the particular factor that ultimately causes the forward-looking statement not to come true will not mean that the statement is not protected by the safe harbor.” H.R. Conf. Rep. No. 104-369, at 44 (1995).
Under the PSLRA, then, courts rarely, if ever, test whether the cautionary language was sufficient to offset the misleading effects of the projection. This is precisely why some courts have described the safe harbor as a “license to defraud,” In re Stone & Webster, Inc., Sec. Litig., 414 F.3d 187 (1st Cir. 2005) – because even if the cautionary language is insufficient to nullify the effects of the false statement – so that, by hypothesis, markets were actually misled by the projection – defendants may still be protected.
Given that, the Seventh Circuit’s invocation of the fraud-on-the-market doctrine seems inapposite, because the cautionary language that suffices to trigger safe harbor protection isn’t really about ensuring that prices fully incorporate the risks associated with false projections, or at least, that’s not its primary function. Plus, Congress enacted the PSLRA in response to what it perceived as abusive class actions - if it wanted to distinguish between the preconditions for fraud-on-the-market actions and other actions, it certainly could have done so.
If all that’s right, then what does the safe harbor do?
Well, I’m not a fan of the safe harbor but if I am going to justify it, I’d say the formalities associated with the safe harbor could prompt mindfulness on the part of corporate actors. They have extra protection for projections – so they’ll be more inclined to make them – but they also know they can’t simply speak off-the-cuff; they must take care to include the warnings. That enforced thoughtfulness may itself serve as some kind of protection against statements that aren’t rooted in reality, and it’s why the Seventh Circuit, in my view, was wrong to ditch the formalities. Also, if defendants were truly held to the requirement that they identify which exact statements they believed to be forward-looking as a precondition of claiming protection via cautionary language, I think that would spare everyone a lot of litigation and force corporate speakers to be clearer about their claims.
Anyway, in related news, Acting Corp Fin Director John Coates recently delivered a speech on the safe harbor and SPACs. Going public via SPAC, rather than traditional IPO, is all the rage right now, apparently at least in part because while traditional IPOs are excluded from safe harbor protection entirely, the de-SPAC merger is not. Specifically, the safe harbor says:
this section shall not apply to a forward-looking statement… that is… made in connection with an initial public offering...
15 U.S.C. 78u-5(b)(2)(D).
That regulatory distinction has led to some companies to offer wildly optimistic projections about SPAC acquisitions, a lot of which do not, ahem, come true.
Coates’s speech was notable in that he not only objected to the differential regulatory treatment on policy grounds – as he explained, companies going public for the first time pose particular risks to investors no matter what method they use to do so – but he also suggested that, read broadly, the existing safe harbor exclusion for initial public offerings might also be read to exclude de-SPAC transactions. Full quote:
[T]he PSLRA’s exclusion for “initial public offering” does not refer to any definition of “initial public offering.” No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. I am unaware of any relevant case law on the application of the “IPO” exclusion. The legislative history includes statements that the safe harbor was meant for “seasoned issuers” with an “established track-record.”…
The economic essence of an initial public offering is the introduction of a new company to the public. It is the first time that public investors see the business and financial information about a company….
If these facts about economic and information substance drive our understanding of what an “IPO” is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. Such a conclusion should hold regardless of what structure or method it used to do so. The reason is simple: the public knows nothing about this private company. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf...
[A]ll involved in promoting, advising, processing, and investing in SPACs should understand the limits on any alleged liability difference between SPACs and conventional IPOs. Simply put, any such asserted difference seems uncertain at best.
It should be noted that Commissioner Hester Peirce tweeted her (tentative) disagreement with his reading of the statute, but if he’s right, it would mean that all these companies who thought their cautionary language insulated them from liability … were, you know, wrong.
Friday, April 9, 2021
As regular readers of the blog know, my passion is business and human rights, particularly related to supply chain due diligence and disclosure. The ABA has just released thirty-three model clauses based on the United Nations Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Business Conduct. The ABA committee's reasoning for the model clauses is here:
The human rights performance of global supply chains is quickly becoming a hot button issue for anyone concerned with corporate governance and corporate accountability. Mandatory human rights due diligence legislation is on the near-term horizon in the E.U. Consumers and investors worldwide are increasingly concerned about buying from and investing in companies whose supply chains are tainted by forced or child labor or other human rights abuses. Government bodies such as U.S. Customs and Border Protection are increasingly taking measures to stop tainted goods from entering the U.S. market. And supply chain litigation, whether led by human rights victims or Western consumers, is on the rise. There can therefore be little doubt that the face of global corporate accountability for human rights abuses within supply chains is changing. The issue is “coming home,” in other words. ... Some of the key MCCs 2.0 obligations include: (1) Human Rights Due Diligence: buyer and supplier must each conduct human rights due diligence before and during the term of the contract. This requires both parties to take appropriate steps to identify and mitigate human rights risks and to address adverse human rights impacts in their supply chains. (2) Buyer Responsibilities: buyer and supplier must each engage in responsible sourcing and purchasing practices (including practices with respect to order changes and responsible exits). A fuller description of responsible purchasing practices is contained in the Responsible Buyer Code of Conduct (Buyer Code), also developed and published by the Working Group. (3) Remediation: buyer and supplier must each prioritize stakeholder-centered remediation for human rights harms before or in conjunction with conventional contract remedies and damage assessments. Buyer must also participate in remediation if it caused or contributed to the adverse impact.
Even if you're not obsessed with business and human rights like I am, you may find the work product provides an interesting context in which to discuss contract clauses such as representations, warranties, and damages either in a first-year contract course or a transactional drafting course.
AALS Section on Business Associations | Two Sessions “Race and Teaching Business Associations” & "New Voices in Business Law"
The AALS Section on Business Associations has two calls for papers. Both are below.
Call for Papers for the
Section on Business Associations Program on
Race and Teaching Business Associations
January 5-9, 2022 AALS Annual Meeting
The AALS Section on Business Associations is pleased to announce a Call for Papers for its program at the 2022 AALS Annual Meeting, which will be held virtually. The topic is Race and Teaching Business Associations. Up to two presenters will be selected for the section’s program.
Business Associations classes taught in most law schools spend little if any time on issues relating to racial discrimination and inequity. But as important social institutions, businesses have long had a significant impact on racial equity. The increasing scrutiny of the lack of diversity on public company boards is one of several fronts where businesses are facing both legal and social pressure to address racial inequity. Students are increasingly interested in understanding how the law governing business organizations reflects or contributes to racial injustice. Many law professors want to do more to cover topics relating to race in their Business Associations course and are seeking guidance on how to do so. This panel will provide a forum where teachers of Business Associations can share ideas for incorporating the subject of racial discrimination and inequity into their classes.
Please submit an abstract or a draft of an unpublished paper to Jim Park, firstname.lastname@example.org, on or before Friday, August 20, 2021. Authors should include their name and contact information in their submission email but remove all identifying information from their submission. Papers will be selected after review by members of the Executive Committee of the Section. Presenters will be responsible for paying their registration fee, if applicable.
We recognize that the past year has been incredibly challenging and that these challenges have not fallen equally across the academy. We encourage scholars to err on the side of submission, including by submitting early stage or incomplete drafts. Scholars whose papers are selected will have until December to finalize their papers.
Please direct any questions to Jim Park, UCLA School of Law, at email@example.com.
This is the second:
Call for Papers
AALS Section on Business Association
New Voices in Business Law
January 5-9, 2022, AALS Annual Meeting
The AALS Section on Business Associations is pleased to announce a “New Voices in Business Law” program during the 2022 AALS Annual Meeting, which will be held virtually. This works-in-progress program will bring together junior and senior scholars in the field of business law for the purpose of providing junior scholars with feedback and guidance on their draft articles. To complement its other session at the Meeting, this Section is especially interested in papers relating to race and business law, but it welcomes submissions on all business-related topics.
FORMAT: Scholars whose papers are selected will provide a brief overview of their paper, and participants will then break into simultaneous roundtables dedicated to the individual papers. Two senior scholars will provide commentary and lead the discussion about each paper.
SUBMISSION PROCEDURE: Junior scholars who are interested in participating in the program should send a draft or summary of at least five pages to Professor Eric Chaffee at Eric.Chaffee@utoledo.edu on or before Friday, August 20, 2021. The cover email should state the junior scholar’s institution, tenure status, number of years in his or her current position, whether the paper has been accepted for publication, and, if not, when the scholar anticipates submitting the article to law reviews. The subject line of the email should read: “Submission—Business Associations WIP Program.”
Junior scholars whose papers are selected for the program will need to submit a draft to the senior scholar commentators by Friday, December 10, 2021.
ELIGIBILITY: Junior scholars at AALS member law schools are eligible to submit papers. “Junior scholars” includes untenured faculty who have been teaching full-time at a law school for ten or fewer years. The Committee will give priority to papers that have not yet been accepted for publication or submitted to law reviews.
Pursuant to AALS rules, faculty at fee-paid non-member law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all presenters at the program are responsible for paying their own annual meeting registration fees and travel expenses.
Wednesday, April 7, 2021
Today, the Federal Reserve is at a critical juncture in its evolution. Unlike any prior period in U.S. history, the Fed now faces increasing demands to expand its policy objectives to tackle a wide range of social and political problems—including climate change, income and racial inequality, and foreign and small business aid.
This Article develops a framework for recognizing, and identifying the problems with, “central bank activism.” It refers to central bank activism as situations in which immediate public policy problems push central banks to aggrandize their power beyond the text and purpose of their legal mandates, which Congress has established. To illustrate, the Article provides in-depth exploration of both contemporary and historic episodes of central bank activism, thus clarifying the indicia of central bank activism and drawing out the lessons that past episodes should teach us going forward.
The Article urges that, while activism may be expedient in the near term, there are long-term social costs. Activism undermines the legitimacy of central bank authority, erodes its political independence, and ultimately renders a weaker central bank. In the end, the Article issues an urgent call to resist the allure of activism. And it places front and center the need for vibrant public discourse on the role of a central bank in American political and economic life today.
Monday, April 5, 2021
Just a quick reminder that paper submissions for the National Business Law Scholars Conference for this year are due on or before April 9--this Friday. The conference is scheduled for June 17-18, 2021 and is being hosted by The University of Tennessee College of Law in a hybrid or virtual format. Submissions can be made through the conference website.
The full call for papers is posted here. Feel free to leave comments or questions below. Questions also can be directed to Eric Chaffee, the member of the planning committee in charge of program structuring logistics.
Saturday, April 3, 2021
When Goldman Sachs petitioned the Supreme Court to grant certiorari from the Second Circuit’s affirmance of a class certification grant, it described the case as having “enormous legal and practical importance,” and later reiterated that it would be “hard to overstate the legal and practical importance of this case.”
By the time we got to oral argument, though … not so much.
I blogged about Goldman Sachs v. Arkansas Teacher Retirement System when it was before the Second Circuit (see here and here), but I only minimally discussed the Supreme Court iteration, in part because I couldn’t figure out what the legal issue was, other than that Goldman thought Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (2013) was wrongly decided.
Well, that was my mistake, because it’s clear now that in fact, Goldman does not think that Amgen was wrongly decided, and the legal issue is that it doesn’t like the fact that it lost in the Second Circuit Court of Appeals.
That was evident in the briefing, in which it invited the Supreme Court to review the expert evidence submitted to the district court and reweigh it in its favor. (Seriously. Check out the Reply Brief at 8-9, 19-21)
Goldman does have a whole separate argument about Federal Rule of Evidence 301 and who has the burden of production/persuasion when it comes to the issue of reliance at class certification. This idea was first proposed, as far as I can tell, in an article by Wendy Couture, but was rejected by the Second Circuit in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017). I won’t weigh in on that piece except to say that most Justices – with Alito and Gorsuch as exceptions – did not seem interested, but then, it’s hard to say with remote arguments because there isn’t room for the kind of back and forth you get with in-person presentations. So it’s possible the Rule 301 argument here is a wild card, but I don’t know anything about it and will therefore skip it.
So, all that aside, what’s going on here?
The plaintiffs alleged that Goldman falsely claimed to adhere to high ethical standards when managing its conflicts of interest, and that these statements were revealed to be false when various governmental entities filed enforcement actions. Goldman argued that its statements were immaterial as a matter of law, and when it lost on that argument, it argued at class certification that these statements were too generic to have had any impact on the price of its securities. The district court found that Goldman had not rebutted the presumption of price impact and certified the class. Goldman appealed to the Second Circuit, where it argued that the “generic” nature of the statements defeated class certification as a matter of law in any case where the plaintiffs argued that the false statements maintained stock prices rather than initially inflating them. The Second Circuit, by a 2-1 vote, rejected that claim as inconsistent with Amgen.
Before the Supreme Court, Goldman’s argument underwent a makeover. As you can see from the transcript, it abandoned any claim that, at the class certification stage, courts should determine whether statements are too generic to impact price as a matter of law, whether in the price maintenance context or anywhere else. Instead, it argued that “genericness” is a relevant fact to be considered at class certification in service of the price impact inquiry, along with any other evidence on the subject. Goldman’s claim was not that courts should revisit the question of materiality at class cert – which tests what a hypothetical reasonable investor would have thought about the statements – but that in weighing whether the statements actually had an effect on prices, it is legitimate for courts to consider the generic nature of the statements at issue. And it further argued that the Second Circuit erred by rejecting the notion that genericness can ever be considered as relevant to the price impact inquiry.
In other words, Goldman drew a distinction between materiality, which concerns whether there is a “substantial likelihood” that a “reasonable investor” would have traded on the information, and price impact, which concerns whether there actually was an effect on stock prices. See Petitioners’ Brief at 32. All relevant facts, said Goldman, should be part of the impact inquiry, and genericness is a relevant fact even if it is also relevant to materiality.
At this point, the plaintiffs agreed with Goldman that genericness is a relevant fact to be considered by courts as part of the price impact inquiry, subject to appropriate expert evaluation. And, the plaintiffs pointed out, Goldman actually submitted evidence in this case to the district court that the genericness of the statements meant that there was no price impact – there was a whole expert report on the subject. But the district court certified the class despite that report. See Resp. Brief at 11-12.
Which meant, the disagreement between the parties boiled down to whether (1) the Second Circuit had erred by rejecting the notion that genericness is relevant if not dispositive and (2) whether the Supreme Court should itself reweigh the evidence and determine that Goldman’s carried the day.
Let’s assume (2) is off the table. Come on.
The question then is whether the Second Circuit, considering Goldman’s appeal from the district court’s class cert decision, improperly refused to allow the generic nature of the statements to play any role in the price impact inquiry.
And that depends on how you read the Second Circuit’s opinion.
On the one hand, the Second Circuit held: “Whether alleged misstatements are too general to demonstrate price impact has nothing to do with the issue of whether common questions predominate over individual ones.” Ark. Teachers Ret. Sys. v. Goldman Sachs, 955 F.3d 254 (2d Cir. 2020).
Sounds pretty definitive, right? The Second Circuit seems here to be clearly rejecting the notion that genericness should even be part of the evidence.
On the other hand, the Second Circuit made those statements in response to arguments by Goldman that genericness should be determinative of the price impact inquiry.
Which is why the Solicitor General admitted that the Second Circuit could be read either way – maybe it meant that genericness is categorically irrelevant, but maybe it meant only to reject Goldman’s argument at the time that genericness was dispositive. See Brief of U.S. at 26; see also Transcript at 45-46.
So the parties are functionally reduced to fighting over what the Second Circuit meant, and whether the Supreme Court should vacate the Second Circuit’s opinion for a do-over, or whether the Supreme Court should affirm but clarify that it understands the Second Circuit to not have categorically barred the introduction of evidence of genericness at the class certification stage.
Let’s just say that on this question, I’m with Justice Breyer: “this seems like an area that the more that I read about it, the less that we write, the better….”
Friday, April 2, 2021
We are looking to make up to two tenure-track hires at Mississippi College School of Law. I'm chairing the search committee, so please don’t hesitate to reach out to me directly if you are interested. Here’s the announcement:
Mississippi College School of Law invites applications from entry-level candidates for multiple tenure-track faculty positions expected to begin July 2021. Our search will focus primarily on candidates with an interest in teaching one or more of the following courses: Contracts, Professional Responsibility, Business Associations, Commercial Paper, Antitrust, Wills and Estates, Trusts, Domestic Relations, Criminal Procedure, Evidence, and Trial Advocacy. We seek candidates with a distinguished academic background (having earned a J.D. and/or Ph.D.), a commitment to excellence in teaching, and a demonstrated commitment to scholarly research and publication. We particularly encourage applications from candidates who will enrich the diversity of our faculty. We will consider candidates listed in the AALS-distributed FAR, as well as those who apply directly. Applications should include a cover letter, curriculum vitae, a scholarly research agenda, the names and contact information of three references, and teaching evaluations (if available). Applications should be sent in a single PDF to Professor John P. Anderson, Chair, Faculty Appointments Committee, via email at firstname.lastname@example.org.
Thursday, April 1, 2021
The GameStop saga and meme stock frenzy have shown the pathway to the most disruptive revolution in corporate governance of the millennium. New generations of retail investors use technologies, online forums, and gaming dynamics to coordinate their actions and obtain unprecedented results. Signals indicate that these investors, whom we can dub wireless investors, are currently expanding their actions to corporate governance. Wireless investors’ generational characteristics suggest that they will use corporate governance to pursue social and environmental causes. Their engagement with corporate governance has the potential to spark a social movement. The movement would be based on disintermediation of investments and aimed at bringing business corporations to serve their original partly-private-partly-public purpose. This article discusses premises, architecture, and characteristics of the movement that would cause business corporations to re-marry their partly-private-partly-public purpose. If such a movement proves successful, the paradigm shift that finally makes corporations serve the welfare of a broader range of stakeholders would happen at the hands of shareholders.
Sautter and Gramitto are the first I know of to tackle what the new dynamics the Gamestop affair ushered in mean for corporate governance. As I read through the paper, I thought about how the SEC now grapples with how to oversee securities markets with retail investors trading meme stocks. Sautter and Gramitto are likely right in predicting that younger retail investors may be more inclined to vote and may prioritize ESG matters in ways that institutional intermediaries have not. They even document evidence of massive retail investor coordination now occurring around shareholder votes for certain memestock companies.
Changes in the regulatory environment may accelerate retail investor impact on corporate governance. The Biden-era SEC seems poised to carefully consider how investor demands and preferences have changed. The SEC may soon facilitate ESG disclosures of intense interest to retail investors. Meaningful ESG disclosures would likely catalyze the dynamics Sautter and Gramitto recognize.
Sautter and Gramitto are also correct that social media has diminished coordination costs for retail investors, enabling them to organize, strategize, and vote on governance matters in ways that we have not seen before. If these shareholders vote for directors who prioritize ESG issues as Sautter and Gramitto predict, they will shift corporate behavior, possibly reducing short-term thinking and increasing corporate focus on ESG issues.
Ultimately, the return of retail investor voice to corporate governance may moot debates over corporate purpose. As Utah's Jeff Schwartz pointed out, securities market dynamics have largely forced corporate management to single mindedly pursue shareholder wealth maximization. If retail investors change these dynamics in the ways foreseen by Sautter and Gramitto, corporate management will behave differently.
Wednesday, March 31, 2021
"Peer assessment score" - the opinion of deans and certain faculty about the overall quality of a law school - accounts for 25% of a school's score in the U.S. News ranking. It is the most heavily weighted item. Bar passage, for comparison, is just a bit over 2%. When told this my pre-law students almost inevitably say --- "why would I care what deans and faculty at other schools think?"
Below are the 25 schools that have the lowest peer assessment relative to overall rank and the 25 schools with the highest peer assessment relative to overall rank. Tier 2 schools are not included because they do not have a specific overall rank. TaxProfBlog provided the data.
I am not unbiased here. I teach in the business school at Belmont University, and our law school has the biggest negative gap between peer assessment and overall rank. There are some reasonable reasons for this gap --- e.g., the school is young (the law school founded in 2011, though the university was founded in 1890) and a lot of deans/faculty may not know that the law school is doing well on incoming student credentials, bar passage, and employment. FIU, the #2 school is also relatively young (founded in 2000). But it seems to me that the fact Belmont University is a Christian school and (former attorney general under George W. Bush) Alberto Gonzales is our dean is doing at least some of this work.
10 out of the 25 biggest gaps are among religious law schools (in bold below). George Mason also likely gets hit for being openly conservative. Granted, this cannot be the only driver of the gaps . Also, there are 6 religious schools among the list of schools that have a high peer assessment relative to rank, so religion doesn't seem disqualifying. That said, there are exactly 0 Protestant schools among the high relative peer assessment score list (and I am not sure any of them are significantly conservative in reputation...so maybe it is the conservative reputation more than the religious reputation doing the work).
Anyway, I'm pretty interested in these gaps. Peer Assessment is supposed to measure overall quality of the school. What part of that "overall quality" is not already captured in the rest of the measures? Faculty research? Faculty Twitter followers? Faculty SEALS/AALS attendees? Moot Court National Championships? Something else? Feel free to leave comments below.
Updated to correct confusion between FIU and Florida Coastal (H/T Matt Bodie); Updated to show San Diego and Seattle are religious.
Low Peer Assessment v. Overall Rank
- Belmont (-43)
- Florida Int'l (-31)
- New Hampshire (-31)
- Wayne State (-30)
- Baylor (-25)
- Drake (-25)
- Texas Tech (-25)
- Cleveland-Marshall (-25)
- BYU (-23)
- George Mason (-23)
- Missouri (Columbia) (-23)
- Penn State-Dickinson (-23)
- St. John's (-23)
- Dayton (-22)
- Duquesne (-22)
- Villanova (-20)
- Samford (-20)
- Pepperdine Caruso (-18)
- Washburn (-18)
- Tulsa (-16)
- South Dakota (-16)
- St. Thomas (MN) (-15)
- Cincinnati (-14)
- Drexel (-14)
- Penn State-University Park (-13)
High Peer Assessment v. Overall Rank
- Santa Clara (+53)
- Howard (+43)
- Seattle (+43)
- Loyola-New Orleans (+37)
- American (+33)
- San Diego (+30)
- Indiana (McKinney) (+28)
- Rutgers (+27)
- Hawaii (+25)
- Denver (+22)
- Georgia State (+22)
- Baltimore (+22)
- Gonzaga (+22)
- Arkansas-Little Rock (+22)
- Tulane (+20)
- Miami (+20)
- Idaho (+20)
- New Mexico (+19)
- Chicago-Kent (+18)
- Brooklyn (+17)
- Maine (+17)
- Memphis (+17)
- UC-Irvine (+16)
- Loyola-L.A. (+16)
- Oregon (+16)
Tuesday, March 30, 2021
As a teaser to a forthcoming article I coauthored with two of my students (who co-presented with me) for the Business Law Prof Blog symposium back in the fall, I offer a short excerpt on business interruption insurance litigation resulting from governmental actions forcing business closures as a result of the pandemic, focusing on a recently decided Tennessee case.
In general, business lawyers got inventive in bringing legal claims of many kinds. A federal district court case recently decided in Tennessee, Nashville Underground, LLC v. AMCO Insurance Company, No. 3:20-cv-00426 (M.D. Tennessee, March 4, 2021), offers a notable example involving the interpretations of a business interruption insurance policy. The plaintiff in the action, a Nashville bar, restaurant, and entertainment venue, claimed coverage under the food contamination endorsement in its business interruption insurance policy for the damages suffered when it was forced to close its doors by governmental orders issued in March 2020 in response to the COVID-19 pandemic. The insurer denied coverage. The court held for the defendant insurer on its motion to dismiss for failure to state a claim, finding the contract language unambiguous. The court’s conclusion in its opinion noted sympathy, in spite of the outcome.
Like many Americans, the undersigned can sympathize with Plaintiff and so many of our other small to medium-sized businesses that seem to have borne much of the brunt of the effects of the COVID-19 pandemic. One could understand if Plaintiff (or anyone else) lamented that it simply is not right that this should be the case. But it also is not right, or lawful, for a business's insurer to be on the hook for coverage it simply did not contractually commit to provide. Presumably like a myriad of other enterprises throughout this nation, Plaintiff in retrospect perhaps would have bargained for broader coverage but simply did not foresee such need before the unprecedented pandemic conditions arose in 2020. Accordingly, Plaintiff was unfortunately left without the coverage it now asks this Court to find in an insurance policy that simply does not provide it.
Nashville Underground, supra. Sympathy notwithstanding, cases of this kind are decided on the basis of specific contract language. Although overall insurers tend to be winning in these contract interpretation battles, insureds are prevailing in some cases, at least in pretrial and summary judgment motion battles. See, e.g., Kenneth M. Gorenberg & Scott N. Godes, Update on Business Interruption Insurance Claims for COVID-19 Losses, NAT’L L. REV. (Oct. 29, 2020), https://www.natlawreview.com/article/update-business-interruption-insurance-claims-covid-19-losses; Richard D. Porotsky Jr., Recent Federal Cases in the N.D. Ohio Split on COVID-19 Business Interruption Insurance Coverage, NAT’L L. REV. (Jan. 26, 2021), https://www.natlawreview.com/article/recent-federal-cases-nd-ohio-split-covid-19-business-interruption-insurance-coverage; Jim Sams, Judge Rules in Favor of 3 Policyholders With COVID-19 Claims in Consolidated Case, CLAIMS J. (Feb. 21. 2021), https://www.claimsjournal.com/news/national/2021/02/24/302197.htm.
The opinions in these cases constitute an interesting emergent body of decisional law relevant to contract and insurance law and practice. Along with litigation relating to, e.g., force majeure and material adverse change/effect, the legal actions interpreting language in business interruption insurance contracts are bound to offer important lessons and tips for legal counsel and their clients--a legacy likely to affect practice and litigation for many years to come.
The article from which the above quoted text (reformatted for posting here) comes, Business Law and Lawyering in the Wake of COVID-19, is scheduled for publication later this spring in Transactions: Tennessee Journal of Business Law. I will promote the article here once the final version is available and has been posted to SSRN. In the meantime, you have a a short preview of one part of the article in this post!
Sunday, March 28, 2021
This past Friday and Saturday, The Tobias Leadership Center at Indiana University, the Center for Legal Studies and Business Ethics at the Spears School of Business at Oklahoma State University, and the American Business Law Journal hosted the online symposium “Ethical Leadership and Legal Strategies for Post-2020 Organizations.” I wanted to share with readers the program slides Download 2021-Symposium-Slides for "details of the interesting topics and diverse approaches that were taken to the symposium’s theme."
The American Business Law Journal anticipates publishing a special issue on the symposium's theme. I’ll be sure to keep readers posted!
Saturday, March 27, 2021
This week, I offer brief comments on a couple of different things:
1. I’ve previously blogged about courts that stretch the definition of “forward-looking statement” in order to preclude defendants from claiming the protections of the PSLRA safe harbor. But probably the more common scenario runs in the other direction. Behold Police and Fire Retirement System of Detroit v. Axogen, 2021 WL 1060182 (M.D. Fla. Mar. 19, 2021), where the plaintiffs alleged that Axogen claimed that the potential demand for its medical products was very large because of the sheer number of nerve repair surgeries performed every year in the U.S. As it turned out, far fewer surgeries were performed annually; in effect, the plaintiffs argued that Axogen overstated the size of its market. Here’s what the court said in its dismissal order:
Plaintiff … [focuses] in particular on statements made in Axogen’s offering materials and elsewhere that a certain number of people in the United States “each year...suffer” traumatic PNI [peripheral nerve injuries], which “result in over 700,000 extremity nerve repair procedures,” and that “[t]here are more than 900,000 nerve repair surgeries annually in the U.S.” Plaintiff argues these statements refer to “present existing conditions.” But the number of injuries occurring “each year” reflects an ongoing state of affairs extending from the present into the future, rather than an observable state of affairs in existence at the specific point in time when the statement is made. Such a statement cannot be determined to be true or false by reference to “present existing conditions,” and is therefore analogous to other present tense statements the Eleventh Circuit has held to be forward-looking.
Thus is a representation about ongoing conditions - the number of nerve repair surgeries performed annually - transformed into a projection about future nerve repair surgeries. The court did not even appear to consider whether a reader would interpret Axogen’s statements as implying recent past annual figures in this range (a range that, according to the plaintiffs, was wildly inflated).
The problem here is that, in the Seventh Circuit’s words, “Investors value securities because of beliefs about how firms will do tomorrow, not because of how they did yesterday.” Wielgos v. Commonwealth Edison Co., 892 F.2d 509 (7th Cir. 1989); see also Glassman v. Computervision Corp., 90 F.3d 617 (1st Cir. 1996). Any representation of current conditions is relevant to investors because they will extrapolate from that to predict future conditions, but if that were enough to make the statement “forward-looking,” well, everything would be protected by the safe harbor.
2. Tesla is being sued again, this time by a stockholder who claims that Elon Musk’s … colorful … behavior on Twitter violates his settlement with the SEC, is a threat to corporate value, and that the Board’s failure to rein him in represents a violation of its duty of good faith (and hey, as I was drafting this very post Musk did it again). While I’m sure there are many things one could say about the lawsuit, the part that struck me was where the plaintiff alleged that the Board is dependent on Musk, in part, because Musk is indemnifying its members for any legal liability. As the plaintiff puts it:
the Board is insured, and thus indemnified, by Musk personally for a majority of the harm caused by Musk alleged herein. The Board cannot be considered independent in any way from Musk in these circumstances. Musk could refuse to pay out the ‘insurance policy’ if the Board elected to proceed with an investigation of him, and the Board would have every incentive to abandon that investigation.
It is my understanding from Tesla’s SEC filings that the personal indemnification arrangement ended in 2020 and the Board now has an ordinary insurance policy, but the plaintiff is, as I read it, claiming that Musk still provides the coverage for certain acts that occurred in 2020. The insurance arrangement raised a lot of eyebrows when it was first disclosed, and at the time I wondered what its legal significance would be for Board dependence. I now look forward to finding out.
(I should note that when the indemnification agreement was first disclosed, Tesla claimed that Musk’s performance was nondiscretionary, but that still raises questions about what Musk can and can’t dispute - and how interested the Board is in ensuring his solvency).
3. WeWork! In addition to the news that the plans to go public are back on – this time via SPAC – it’s the subject of another lawsuit, this time by the former shareholders of a private company that WeWork acquired, using its own stock as currency. Unsurprisingly, the former shareholders argue that various WeWork officers, including Adam Neumann, overstated the value of WeWork shares when negotiating the deal. What is surprising, to me anyway, is that the claims are solely brought under Section 10(b) of the Exchange Act. Section 10(b) claims are very difficult to bring – apart from the higher pleading standards of the PSLRA, they are also relatively narrow in terms of the type of conduct that is deemed prohibited. Their only real advantage over state claims – whether common law or even blue sky – is their availability for secondary market purchases, and the fraud-on-the-market presumption of reliance. So I’m wondering why the plaintiffs elected to bring claims solely under Section 10(b), in a case where neither of these advantages are relevant.
4. Insider trading! A guy named Jason Peltz was recently indicted for insider trading and related offenses, arising out of trades in companies rumored to be the subject of takeover interest. What makes this indictment unusual, however, is that it claims that an unnamed Reporter for a “financial news organization” was one of Peltz’s sources, providing Peltz with information about upcoming news stories. (The indictment tactfully declines to name the Reporter or the news organization, but the stories are identified with sufficient particularity that deducing his identity is a relatively simple task). So here’s the thing: Though Peltz is charged under 10b-5 for “misappropriating” confidential information, the indictment makes no reference to fiduciary obligations or the duty of trust and confidence. Meaning, it’s unclear whether the claim is that Peltz misappropriated information from the Reporter, or whether the claim is that the Reporter misappropriated from his publication and intentionally tipped Peltz (echoing the dispute at the heart of United States v. Carpenter, 791 F.2d 1024 (2d Cir. 1986)). On this point, I note that nothing in the indictment suggests any kind of longstanding close friendship between the Reporter and Peltz, but the indictment does mention that the scheme began when Peltz obtained inside information about a takeover bid, purchased the target’s stock, and then tipped the Reporter, who was able to publish a scoop (causing the target’s stock price to rise, and allowing Peltz to cash out).
And ... that’s all!
Friday, March 26, 2021
Yesterday, I had the honor of leading a roundtable discussion on women and the practice of business law. The roundtable was part of a series convened by UT Law's Student Council on Diversity and Inclusion, and this specific roundtable was hosted by our Black Law Student Association. Here's the promotional flyer from the event.
In preparing for the session, I had occasion to review two ABA reports from the past few years: Roberta D. Liebenberg & Stephanie A. Scharf, Walking Out The Door : The Facts, Figures, and Future of Experienced Women Lawyers in Private Practice (ABA 2019), and Destiny Peery, Paulette Brown & Eileen Letts, Left Out or Left Behind: The Hurdles, Hassles, and Heartaches of Achieving Long-term Legal Careers for Women of Color (ABA 2020). I was reminded of the fall-off in female lawyers in BigLaw over the course of their careers. Quoting from the first report:
BigLaw is no stranger to the loss of experienced women attorneys. While entering associate classes have been comprised of approximately 45% women for several decades, in the typical large firm, women constitute only 30% of non-equity partners and 20% of equity partners. Women lawyers face many other challenging hurdles as they seek to advance into senior roles: the number of lawyers named as new equity partners at big firms has declined by nearly 30% over the past several years, and firms are increasingly relying on the hiring of lateral partners, over 70% of whom are men.
At the event, I noted this data and the principal reasons why women self-reported that they left practice. These include: care-taking obligations, workplace stress levels, responsibilities for marketing/originating business, billable hour requirements, loss of the desire to practice law, work/life balance dissatisfaction, and concerns about personal or family health.
I also noted specific difficulties faced by women of color. In that regard, I referenced the following quote from a Black female lawyer in her late 40s (included in the second ABA report mentioned above).
Some of the barriers you can’t do [anything] about—like the(mis)perceptions people have in their own minds about your race or your sex or your background. So you start by having to overcome those negative assumptions, stereotypes, and presumptions. And then there’s the ‘black tax’ of having to demonstrate outsized achievements just to get the same opportunities as everyone else. It’s not by accident that at the firms at which I worked, every single black associate had at least two Ivy League degrees. Majority associates? Not so much.
There were no real surprises for me in these two reports. Having said that, I must note that they capture important data and reflections. I recommend that everyone read them.
Of course, only some female law graduates (a relatively small number/percentage) start their careers in business finance or governance. The number/percentage of female lawyers in large business law practices typically does not increase over time; it decreases. Therefore, the number/percentage of women in those practice areas at the partner/shareholder/senior leadership level is relatively small. (By the way, please let me know if you know where I can find some recent reliable data on all this.)
I noted the relatively small percentage of women who enroll in my upper division advanced business law courses (a maximum in any course of 33-1/3%, and that's pretty rare). I asked the student participants for their ideas on why more women do not take these courses or, in general, express a desire to practice business law. Among the responses were the following: not having been exposed to business lawyers or business operations, being intimidated by the subject matter, and being concerned that too much math may be involved. I also asked them how we might work to correct the imbalance in business law and more generally. Students volunteered their observations and ideas. The were thoughtful, reflecting on their own experiences while also working hard to appreciate the circumstances of others. One of the female students pressed her male colleagues to contribute. It was a super discussion. Several students contacted me after the roundtable to follow up on some points.
We only had an hour together, which was barely enough time to begin to scope out these issues. There was certainly more that could have been said had there been more time. I invited students to continue the conversation among themselves and with me and other faculty. I have hope they will do that. I want to ensure that business law knowledge and practice is accessible to all, and I could use their help in accomplishing that goal.
Thursday, March 25, 2021
Earlier today, a number of law school securities clinics met online with the SEC thanks to its Office of the Investor Advocate to talk about what they have been seeing in their cases. By the most recent count, we're down to only about 12 securities clinics nationwide. Jill Gross has written about these disappearing clinics. In my role, I teach business organizations, securities regulation, professional responsibility, and also offer a clinic from time to time. At UNLV, clinics are not always offered every semester because our faculty also teach other courses. With the need to turn a clinic on and off, I can't run the kind of investor protection clinic I ran when I was at Michigan State because the cases just don't wrap up in a semester. Although we've done it in the past at UNLV with good results for clients and students, it's not something that works well without attorney support to carry the cases and provide broader assistance when we're not in session. With that in mind, we've offered a "Public Policy"clinic here this semester with a focus on helping non-profits in preparing comment letters and advocating for their own goals. This new offering focuses mostly on the advocacy work that other investor clinics do in their comment letters, only with a broader portfolio. We'll tackle a few things outside the securities realm as well. It's also been challenging because the federal rulemaking environment has been in flux with the Presidential transition.
Still, we've also been able to get students some real speaking experience. A few weeks ago, we had a student team represent a non-party customer in an expungement hearing within the FINRA forum. They were able to do openings, closings, and cross examinations--even cross examining the CEO of a brokerage firm. These matters are intense because they happen on an expedited basis. But they also don't require the kind of long-term commitment that an ordinary customer arbitration does. Today, that same student team was able to turn around and present to the SEC about the experience and interact with sitting SEC Commissioners. Although outside the securities realm, we also had another student team prepare a white paper and present at the Consumer Product Safety Commission, sharing views on how the CPSC might regulate consumer products with AI and machine learning technology embedded in the devices. This work gets us into some fascinating areas and gets the students writing, presenting, and having client experiences.
But there are still too few of these clinics and we need more of them. They play a vital role because the economics don't make sense for most ordinary securities attorneys to take cases with relatively smaller damages or take on matters where there isn't any money to recover. If you get swindled out of a million dollars, attorneys will fight for you. If you get taken for forty grand, many lawyers will pass because they have to put food on their own tables. Of course, this leaves bad actors free to continue to take people for significant amounts without much fear that they'll be held accountable for swindling investors.
A short time ago, the SEC's Investor Advisory Committee recommended financial support for law school clinics. I know that if we had funding, I could hire counsel, help more people, help a broader class of people, and provide more opportunities for our students. We might eventually get something similar for securities law to what already exists for tax clinics, but it's still uncertain whether we'll get there. Absent that, it seems likely that these kinds of clinics are going to continue to vanish.
Wednesday, March 24, 2021
I always learn a ton in reading Professor Julie Andersen Hill's banking articles. A TON! Hence, I'm excited to see that she recently posted her new piece, Cannabis Banking: What Marijuana Can Learn from Hemp (forthcoming 2021, Boston University Law Review). This is her second article on cannabis banking, the first being an excellent symposium piece, Banks, Marijuana, and Federalism. As both houses of Congress have recently reintroduced the SAFE Banking Act, these articles couldn't be more timely. Here's the abstract for Cannabis Banking:
Marijuana-related businesses have banking problems. Many banks explain that because marijuana is illegal under federal law, they will not serve the industry. Even when marijuana-related businesses can open bank accounts, they still have trouble accepting credit cards and getting loans. Some hope to fix marijuana’s banking problems with changes to federal law. Proposals range from broad reforms removing marijuana from the list of controlled substances to narrower legislation prohibiting banking regulators from punishing banks that serve the marijuana industry. But would these proposals solve marijuana’s banking problems?
In 2018, Congress legalized another variant of the Cannabis plant species—hemp. Prior to legalization, hemp-related businesses, like marijuana-related businesses, struggled with banking. Some hoped legalization would solve hemp’s banking problems. It did not. By analyzing the hemp banking experience, this Article provides three insights. First, legalization does not necessarily lead to inexpensive, widespread banking services. Second, regulatory uncertainty hampers access to banking services. When banks were unsure what state and federal law required of hemp businesses and were unclear about bank regulators’ compliance expectations for hemp-related accounts, they were less likely to serve the hemp industry. Regulatory structures that allow banks to easily identify who can operate cannabis businesses and verify whether the business is compliant with the law are more conducive to banking. Finally, even with clear law and favorable regulatory structures, the emerging cannabis industry still presents credit, market, and other risks that make some banks hesitant to lend.
Monday, March 22, 2021
Registration is Open!
It is our great pleasure to announce that registration is now open for the seventh biennial transactional law and skills education conference to be held virtually on June 4, 2021. Please join us to celebrate and explore our theme – Emerging from the Crisis: The Future of Transactional Law and Skills Education with you. This year, we have reduced the registration fee to $50 per person. Secure your space today!
Call for Proposals
Please take a moment to review the Call for Proposals and submit your proposal here. Also, please share the CFP with your colleagues who may not have attended the Conference before. Consider forwarding it to adjuncts and professors teaching relevant subjects. Can you also think of any teachers who might be interested in attending or presenting?
The Call for Proposals deadline is 5 p.m. April 15, 2021. We look forward to receiving your proposals.
Last, but certainly not least, at this year’s Conference, we will announce the winner of the second Tina L. Stark Award for Teaching Excellence. Would you like to nominate yourself or a colleague for this award? More information will be forthcoming regarding award eligibility and the nomination process.
If you have questions regarding any of this information, please contact Kelli Pittman, Program Coordinator, at email@example.com or 404.727.3382.
We look forward to “seeing” you in June!
Sue Payne | Executive Director
Katherine Koops | Assistant Director
Kelli Pittman | Program Coordinator