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.
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 email@example.com.
Friday, March 19, 2021
The University of Connecticut School of Business hosts The Business and Human Rights Initiative, which “seeks to develop and support multidisciplinary and engaged research, education, and public outreach at the intersection of business and human rights.” Professor Stephen Park, Director of the Business and Human Rights Initiative, invited me to be a discussant at the most recent meeting of the Initiative’s workshop series. The workshop focused on Rachel Chambers' and Jena Martin's excellent paper, A Foreign Corrupt Practices Act for Human Rights. Here’s an abstract:
The global movement towards the adoption of human rights due diligence laws is gaining momentum. Starting in France, moving to the Netherlands, and now at the European Union level, lawmakers across Europe are accepting the need to legislate to require that companies conduct human rights due diligence throughout their global operations. The situation in the United States is very different: on the federal level there is currently no law that mandates corporate human rights due diligence. Civil society organization International Corporate Accountability Roundtable is stepping into the breach with a legislative proposal building on the model of the Foreign Corrupt Practices Act to prohibit corporations from engaging in grave human rights violations and to give the Securities and Exchange Commission and the Department of Justice the power to investigate any alleged violations.
The draft law, called the Foreign Corrupt Practices Act – Human Rights (FCPA-HR) follows the general framework of the FCPA, but with certain enumerated human rights violations as the prohibited conduct rather than bribery and corruption. The FCPA-HR continues where the FCPA left off by requiring companies to engage in substantive conduct to prevent any human rights violations from occurring in their course of business and to make regular reports regarding their compliance and success. This paper situates the draft law within the current picture for business and human rights legislation both in the United States and in Europe, identifies the strengths of using the FCPA model, and analyzes the FCPA-HR proposal, addressing the likely critiques of the proposal.
Though I have been following developments in the area of business and human rights for years, I must admit that I have not paid sufficient attention to the movement in my classroom and scholarship. Chambers’ and Martin’s paper reminds us all of the need for reform, and of the reality that legislation in this area is imminent (at home and abroad). Imposing civil and criminal liability on corporations and individuals for their direct or indirect involvement in human rights violations would force dramatic changes in corporate compliance practices. If the SEC will have primary responsibility for enforcement (as it does for the FCPA), then we can expect dramatic organizational changes at the Commission as well. With so much at stake, there is a real need for collaboration among human rights experts, lawyers, scholars, regulators, and issuers to find the right model. There’s a lot of work to do, and Chambers’ and Martin’s paper offers an excellent start. The paper remains a work in progress, but it will be available soon—I look forward to its publication!