Securities Law Prof Blog

SEC Charges Another China-Based Company with Accounting Fraud

The SEC charged a China-based company and its CEO with fraudulently misleading investors about its financial condition by touting cash balances that were millions of dollars higher than actual amounts. The SEC alleges that China MediaExpress, which purports to operate a television advertising network on inter-city and airport express buses in the People's Republic of China, began falsely reporting significant increases in its business operations, financial condition, and profits almost immediately upon becoming a publicly-traded company through a reverse merger in 2009. In addition to grossly overstating its cash balances, China MediaExpress also falsely stated in public filings and press releases that two multi-national corporations were its advertising clients when, in fact, they were not. The company's chairman and CEO Zheng Cheng signed the public filings and attested to their accuracy. After suspicions of fraud were raised by the company's external auditor and an internal investigation ensued, Zheng attempted to pay off a senior accountant assigned to the case.

According to the SEC's complaint, after China Media materially misrepresented its financial condition, its stock price tripled to more than $20 per share.

SEC Chair Says Agency Will Require Admissions in Some Settlements

It has been widely reported that SEC Chair White stated that the agency will seek admissions in settlements in certain cases, because "public accountability in particular kinds of cases can be quite important."  Reuters, UPDATE 2-U.S. SEC to seek admissions in some settlements -White

Although described as a big change in enforcement policy, a majority of cases still will be settled without requiring any admissions from the defendants.  Since becoming SEC Chair, there has been speculation about whether White, a former prosecutor, would change the "neither admit nor deny" policy.  Senator Elizabeth Warren has pressed the SEC for details on its settlement policy.  Meanwhile, the Second Circuit has not yet issued an opinion in its review of the SEC and Citigroup settlement, which Judge Rakoff refused to approve because he had no basis for determining the fairness of the settlement.

Deloitte Agrees to One-Year Suspension from Consulting Work at New York Financial Institutions

Deloitte Financial Advisory Services agreed to a one-year suspension from consulting work at financial institutions regulated by the New York State Dept. of Financial Services because of alleged misconduct during its consulting work at Standard Chartered on anti-money laundering issues.  It also agreed to make a $10 million paymment and to implement a set of reforms designed to address conflicts of interest in the consulting industry.  CUOMO ADMINISTRATION REACHES REFORM AGREEMENT WITH DELOITTE OVER STANDARD CHARTERED CONSULTING FLAWS

According to the press release, in 004, Standard Chartered executed an agreement with the New York State Banking Department and Federal Reserve Bank of New York, which identified several compliance and risk management deficiencies in the anti-money laundering and Bank Secrecy Act controls at Standard Chartered's New York branch. The agreement required Standard Chartered to retain a qualified independent consulting firm to review anti-money laundering issues at the bank. Standard Chartered engaged Deloitte to conduct that review.

DFS’s investigation into Deloitte’s conduct during its consultant work at Standard Chartered found that the company:

■Did not demonstrate the necessary autonomy required of consultants performing regulatory work. Based primarily on Standard Chartered's objection, Deloitte removed a recommendation aimed at rooting out money laundering from its written final report on the matter to the Department. The recommendation discussed how wire messages or “cover payments” on transactions could be manipulated by banks to evade money laundering controls on U.S. dollar clearing activities.

■Violated New York Banking Law § 36.10 by disclosing confidential information of other Deloitte clients to Standard Chartered. A senior Deloitte employee sent emails to Standard Chartered employees containing two reports on anti-money laundering issues at other Deloitte client banks. Both reports contained confidential supervisory information, which Deloitte FAS was legally barred by New York Banking Law § 36.10 from disclosing to third parties.

Schwartz on Crowdfunding

Crowdfunding Securities, by Andrew A. Schwartz, University of Colorado Law School, was recently posted on SSRN.  Here is the abstract:

A new federal statute authorizes the online "crowdfunding" of securities, a new idea based on the concept of "reward" crowdfunding practiced on Kickstarter and other websites. This method of selling securities had previously been banned by federal securities law but the new CROWDFUND Act overturns that prohibition.

This Article introduces the CROWDFUND Act and explains that it can be expected to have two primary effects on securities law and capital markets. First, it will liberate startup companies to use peer networks and the Internet to obtain modest amounts of capital at low cost. Second, it will help democratize the market for financing speculative startup companies and allow investors of modest means to make investments that had previously been offered solely to wealthy, so-called “accredited” investors.

This Article also offers two predictions as to how securities crowdfunding will play out in practice. First, it predicts that companies that sell equity via crowdfunding may find themselves the subject of hostile takeovers (though the founders of such companies can easily avoid that outcome if they act with a little foresight). Second, it predicts that issuers may prefer to crowdfund debt securities, such as bonds, rather than equity. The Article concludes with a few thoughts on the SEC’s implementation of the Act in light of the potential for fraud.

Rock on the New Shareholder-Centric Reality

Adapting to the New Shareholder-Centric Reality, by Edward B. Rock, University of Pennsylvania Law School, was recently posted on SSRN.  Here is the abstract:

After more than eighty years of sustained attention, the master problem of U.S. corporate law — the separation of ownership and control — has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available legal doctrines that can respond to opportunistic behavior that slips through the cracks: fraudulent conveyance law, restrictions on distributions to shareholders, and fiduciary duties. To sharpen the analysis, I analyze two controversies that pit shareholders against creditors: a hypothetical failed LBO, and the attempts by shareholders of Dynegy Inc. to divert value from creditors through the manipulation of a complex group structure. I then consider some legal implications of a shareholder-centric system, including the importance of comparative corporate law, the challenges to the development of fiduciary duties posed by the awkward divided architecture of U.S. corporate law, the challenges for Delaware in adjudicating shareholder-creditor disputes, and the potential value of reinvigorating the traditional "entity" conception of the corporation in orienting managers and directors.

Brown on Insurance Regulation Post-Dodd Frank

Will the Federal Insurance Office Improve Insurance Regulation?, by Elizabeth F. Brown, Georgia State University - Department of Risk Management and Insurance, was recently posted on SSRN.  Here is the abstract:

Prior to the financial crisis, insurance was the only financial service that did not have a federal regulator but relied almost exclusively on state insurance regulators. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) began a process to address this lack of federal oversight by creating the Federal Insurance Office (FIO) within the U.S. Treasury Department. Before the crisis, state regulation of insurance was sharply criticized for its lack of uniformity, its inefficiency, and the impediments that it posed for developing international insurance norms. In the wake of the financial crisis, questions have also been raised about whether state insurance regulation was equipped to deal with the potential systemic risks posed by the insurance firms, like American Insurance Group, Inc.

The Dodd-Frank Act contains provisions that begin to tackle each of these issues, primarily through the creation of FIO. This Article will look at the creation of FIO and the role that FIO is playing to address the systemic risks posed by insurance and insurance-like products and firms and the development of insurance norms. This Article will also examine the arguments raised by many within the insurance industry that greater federal oversight of insurance is unnecessary because the state regulation already provided adequate solvency protections, insurance companies do not pose the types of systemic risks posed by banks and investment firms, and market discipline is stronger in the insurance industry than in the banking industry.

FINRA Files Proposed Rule Change to Amend Discovery Guide on E-Discovery Issues

FINRA filed with the SEC a proposed rule change to amend the Discovery Guide (“Guide”) used in customer arbitration proceedings to provide general guidance on electronic discovery (“e-discovery”)issues and product cases and to clarify the existing provision relating to affirmations made when a party does not produce documents specified in the Guide. The proposed rule change fulfills FINRA’s commitment to review the topics of e-discovery and product cases with the Discovery Task Force (“Task Force”) that FINRA established in 2011. FINRA believes that the proposedrevisions to the Guide will reduce the number and limit the scope of disputes involving document production in customer cases, thereby improving the arbitration process for the benefit of public investors, broker-dealer firms, and associated persons.

Public comments are due 45 days after publication in the Federal Register.

FINRA Files Proposed Rule Change to Simplify Selection of All-Public Arbitrator Panel in Customer Disputes

FINRA has filed with the SEC a proposed rule change to amend FINRA Rule 12403 of the Code of Arbitration Procedure for Customer Disputes (“Customer Code”) to make it easier for parties to select an all-public arbitrator panel in cases with three arbitrators. Comments are due 45 days after publication in the Federal Register.

Under the proposed rule change, FINRA would no longer require a customer to elect a panel selection method.  Instead, parties in all customer cases with three arbitrators would get the same selection method. FINRA would provide all parties with lists of ten chair-qualified public arbitrators, ten public arbitrators, and ten non-public arbitrators. FINRA would permit the parties to strike four arbitrators on the chair-qualified public list and four arbitrators on the public list. However, any party could select an all-public arbitration panel by striking all of the arbitrators on the nonpublic list. (Rel. 34-69762)

In its accompanying Release, FINRA gives statistics since implementation of the All Public Panel Option:

[C]ustomers in approximately three-quarters of eligible cases have chosen the All Public Panel Option. Customers using the Majority Public Panel Option have done so by default 77 percent of the time,
rather than by making an affirmative choice (i.e., these customers did not make an
election in their statement of claim or accompanying documentation, and did not respond
to the follow-up letter FINRA sent).

As of March 31, 2013, customers selecting the All Public Panel Option have chosen to strike all of the non-public arbitrators in 66 percent of the cases during the ranking process. Customers have ranked one or more non-public arbitrators in 34 percent of cases and four or more in 13 percent of cases proceeding under the All Public Panel Option. Industry parties have ranked one or more non-public arbitrators in 97 percent of cases and have ranked four or more non-public arbitrators in 90 percent of cases.

FINRA has been tracking the results of arbitration awards decided by all public panels and majority public panels since implementation of the rule change. For the period February 1, 2011 through March 31, 2013, investors prevailed 49 percent of the time in cases decided by all public panels and 34 percent of the time in cases decided by majority public panels.

FINRA Targets Firms' Use of Social Media Communications

FINRA has posted on its website a generic "Targeted Examination Letter" relating to Spot-Check of Social Media Communications, requesting that the firm provide information about its use of social media, including: 

 
An explanation of how the firm is currently using social media (e.g., Facebook, Twitter, LinkedIn, blogs) at the corporate level in the conduct of its business.  
 
An explanation of how the firm's registered representatives and associated persons generally use social media in the conduct of the firm's business.
 
An explanation of the measures that your firm has adopted to monitor compliance with the firm's social media policies (e.g., training meetings, annual certification, technology).
 
A tabular list of your firm's top 20 producing registered representatives (based on commissioned sales) who used social media for business purposes to interact with retail investors and the type of social media used by each individual for business purposes during this time period. 

Former Regions Morgan Keegan Funds Directors Settle Charges They Failed Pricing Responsibilities

The SEC announced a settlement in an enforcement proceeding against eight former directors of five Regions Morgan Keegan open- and closed-end funds that were heavily invested in securities backed by subprime mortgages. The SEC alleged that the directors failed to satisfy their pricing responsibilities under the federal securities laws.

Specifically, the directors delegated their fair valuation responsibility to a valuation committee without providing adequate substantive guidance on how fair valuation determinations should be made. The directors then made no meaningful effort to learn how fair values were being determined. They received only limited information about the factors involved with the funds' fair value determinations, and obtained almost no information explaining why particular fair values were assigned to portfolio securities. The limited information provided to the directors was particularly problematic because fair valued securities comprised a significant percentage of the funds' net asset values (NAVs) - in most cases above 60 percent.

The settled order finds that the valuation committee to whom the directors delegated the fair valuation responsibilities did not utilize reasonable procedures and often allowed the portfolio manager to arbitrarily set values. As a result, the settled order finds that the funds overstated the value of their securities as the housing market was on the brink of financial crisis in 2007. The SEC and other regulators previously charged Morgan Keegan and others, and the firms later agreed to pay $200 million to settle charges related to that conduct.

The open and closed end funds involved were the RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Strategic Income Fund, RMK Advantage Income Fund, and Morgan Keegan Select Fund.

The settled order finds that the directors caused the funds' violations of Rule 38a-1 under the Investment Company Act of 1940, which requires funds to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws. The directors are also ordered to cease and desist from committing or causing any violations and any future violations of that rule. The directors consented to the entry of the settled order without admitting or denying any of the findings, except as to jurisdiction.

Revlon Settles SEC Charges It Misled Shareholders in Going Private Transaction

The SEC charged Revlon with misleading shareholders during a "going private transaction."  An SEC investigation found that during a voluntary exchange offer to satisfy a significant debt to its controlling shareholder, Revlon engaged in "ring fencing" that deprived its independent board members from knowing critical information: the transaction's consideration had been deemed inadequate by a third party who evaluated whether current and former employees invested in Revlon common stock through the company's 401(k) plan could exchange their shares.  Revlon agreed to settle the SEC's charges and pay an $850,000 penalty.

According to the SEC's order instituting settled administrative proceedings, controlling shareholder MacAndrews and Forbes (M&F) asked Revlon in 2009 to offer minority shareholders the option to exchange their common stock shares on a one-for-one basis for preferred shares with certain financial characteristics. The exchanged shares would then be provided to M&F to pay down Revlon's debt. The trustee administering Revlon's 401(k) plan decided that 401(k) members could tender their shares only if a third-party financial adviser made an "adequate consideration determination," which involved assessing whether the value of the preferred stock 401(k) members would receive was at least equal to the fair market value of the exchanged common stock shares. The third-party financial adviser ultimately found that the consideration offered in the transaction was inadequate for tendering 401(k) shareholders.

The SEC's order finds that Revlon, In an attempt to avoid a potential disclosure obligation, engaged in what one employee termed as "ring fencing" to avoid receiving the adequate consideration determination from the third-party adviser:

•Revlon amended the trust agreement it had with the trustee to ensure that the trustee would not share the adequate consideration determination with Revlon.
•Revlon ensured that it was not a party to any engagement letter concerning the adequate consideration determination.
•Revlon directed the trustee to inform Revlon of its decision whether to allow 401(k) members to tender their shares without any reference to the adequate consideration determination.
•In a notice sent to the 401(k) members and publicly filed as an exhibit to the exchange offer documents, Revlon removed the explicit term "adequate consideration" and replaced it with citations to ERISA statutes.

The SEC's order finds that Revlon violated Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3(b)(1)(iii), which prohibits issuers and their affiliates in going private transactions from directly or indirectly engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit.

Cunningham Tells the AIG Story at NBLSC

The Fourth Annual National Business Law Scholars Conference was held June 12-13 at The Ohio State University Moritz College of Law.  Organized by Steven Davidoff (OSU), Eric Chaffee (Toledo) and Barbara Black (Cincinnati), the NBLSC is a forum that provides a forum for scholars to present papers on corporate, securities, bankruptcy and related topics.  OVer 40 professors participated in this year's program.

Lawrence  Cunningham (George Washington) was the keynote speaker, speakinng about The AIG Story, a book co-authored with Maurice (Hank) Greenberg, the longtime AIG CEO whose employment was terminated because of pressure from Eliot Spitzer and Arthur Levitt to impose corporate governance reforms.  Cunningham argues that "flavor of the day" corporate governance practices led to deterioration of internal controls, employee alienation, and chaos at AIG.  Cunningham is careful to acknowledge correlation does not establish causation, but he notes that the government report on the AIG collapse attributed the collapse of AIG at least in part to weak internal controls after Greenberg's departure.

Cunningham's book is well worth reading.  Chapter 18 of the book, on the government bailout of AIG, is available on SSRN.

Next year's Conference will be moving to one of the Coasts, east or west not yet decided.  Stay tuned for details!

CFPB Seeks Comments on Survey on Arbitration Clauses in Consumer Financial Contracts

The Consumer Financial Products Bureau is proposing to conduct a nationwide telephone survey of 1,000 credit card holders as part of its Dodd-Frank-mandated study about predispute arbitration clauses in consumer financial contracts.  The proposed survey will explore consumer awareness of dispute resolution terms in credit card agreements.  It is asking for comments (by August 6, 2013) on its proposed survey questionnaire and the initial plan for gathering data.

FINRA Surveys to Update Series 4, 9 and 10 Exams

FINRA is conducting job analysis surveys to inform updates to the Series 4, 9 and 10 qualification examinations. Through these surveys, FINRA intends to gather information from currently registered individuals regarding their roles, responsibilities and job functions, and to use the information to update the related qualification examinations. FINRA encourages survey recipients to participate to help ensure that qualification examination content accurately measures competence in a particular area.

FINRA's Revised Definition of Public Arbitrator Effective July 1

FINRA announced that the SEC approved amendments to the definition of public arbitrator in the Customer and Industry Codes of Arbitration Procedure.  The amended definition excludes persons associated with a mutual fund or hedge fund from serving as public arbitrators and requires individuals to wait for two years after ending certain affiliations before FINRA may permit them to serve as public arbitrators.

The effective date of the amended rule is July 1, 2013.

SEC's Office of Inspector General Makes Recommendations to Strengthen Economic Analysis of Rulemaking

The SEC's Office of Inspector General recently issued a report, Use of the Current Guidance on Economic Analysis in SEC Rulemakings, Report No. 518, detailing the results of its evaluation of the SEC's use of the current guidance on economic analysis in its rulemakings.  The final report contains six recommendations that, if fully implemented, should strengthen the SEC's economic analysis process and requests, within 45 days, a written corrective action plan that addresses the recommendations.  The report is available at the SEC Office of Inspector General's website.

The Report finds that the SEC rules in its sample followed "the spirit and intent" of the Current Guidance; all of the rules specified the justification for the rule, considered alternatives, and integrated the economic analysis into the rulemaking process.  However, some rules could have better clarified and specified the baselines in the economic analysis section.  In addition, only one of the twelve rules included a quantification of benefits of the regulatory action.  The report also finds that FINRA, other SROs, and PCAOB are not required to follow the SEC's Current Guidance in their rulemakings.

The report contains six recommendations to improve the SEC’s application of the requirements in the Current Guidance. One is that, in consultation with the rulemaking divisions and offices, RSFI develop a general outline for economic analysis sections in rule releases. The report also recommends that RSFI consider whether to create a management control, such as a guide, to achieve greater consistency in presentation of economic analyses.

CBOE Pays $6 Million to Settle SEC Charges of Regulatory Failures

The SEC charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.  CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges.

The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.

According to the SEC's order instituting settled administrative proceedings, CBOE demonstrated an overall inability to enforce Reg. SHO with an ineffective surveillance program that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling. CBOE also fell short in its regulatory and compliance responsibilities in several other areas during a four-year period.  According to the SEC's order, CBOE moved its surveillance and monitoring of Reg. SHO compliance from one department to another in 2008, and the transfer of responsibilities adversely affected its Reg. SHO enforcement program. After that transfer, CBOE did not take action against any firm for violations of Reg. SHO as a result of its surveillance or complaints from third parties.

According to the SEC, CBOE failed to adequately enforce Reg. SHO because its staff lacked a fundamental understanding of the rule. CBOE investigators responsible for Reg. SHO surveillance never received any formal training and did not have a basic understanding of a failure to deliver.

The SEC's order also found that not only did CBOE fail to adequately detect violations and investigate and discipline one of its members, but it also took misguided and unprecedented steps to assist that same member firm when it became the subject of an SEC investigation in December 2009. CBOE failed to provide information to SEC staff when requested, and went so far as to assist the member firm by providing information for its Wells submission to the SEC. The CBOE actually edited the firm's draft submission, and some of the information and edits provided by CBOE were inaccurate and misleading. The SEC brought its enforcement action against the firm in April 2012, and an administrative law judge recently rendered an initial decision in that case.

According to the SEC's order, CBOE had a number of other regulatory and compliance failures at various times between 2008 and 2012. CBOE failed to adequately enforce its firm quote and priority rules for certain orders and trades on its exchange as well as rules requiring the registration of persons associated with its proprietary trading members. CBOE also provided unauthorized "customer accommodation" payments to some members and not others without applicable rules in place, resulting in unfair discrimination. And CBOE and affiliate C2 Options Exchange failed to file proposed rule changes with the SEC when certain trading functions on their exchanges were implemented.

CBOE and C2 agreed to settle the charges without admitting or denying the SEC's findings. CBOE agreed to pay $6 million, accept a censure and cease-and-desist order, and implement significant undertakings. C2 also agreed to a censure and cease-and-desist order and significant undertakings.

U.S. Supreme Court: Arbitrator's Decision Allowing Class Arbitration Survives Limited Judicial Review under FAA

The Supreme Court today unanimously held that a court has no power to vacate an arbitrator's interpretation of an arbitration agreement permitting class arbitration under section 10(a)(4) of the Federal Arbitration Act, so long as (1) the parties agreed that the arbitrator should decide whether their contract authorized class arbitration and (2) the arbitrator based on his decision on an interpretation of the arbitration agreement.  Oxford Health Plans LLC v. Sutter (U.S. June 10, 2013).

The Court thus reaffirmed the narrow grounds for vacating an arbitrator's decision under section 10(a)(4) for exceeding his powers.  The Court, in essence, found that Oxford got what it bargained for -- it "chose arbitration and it must now live with that choice."  The Court distinguished its earlier decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, because there the parties had stipulated that they had not agreed to class arbitration and thus the arbitrator could not order class arbitration based on the parties' consent.  The court also noted that the Court would have faced a different issue if Oxford had argued that the availability of class arbitration was a question of arbitrability, an issue that Stolt-Nielsen had left open.  The Court emphasized that nothing in the opinion should be taken to reflect any agreement with the arbitrator's interpretation of the contract.

Justices Alito, with Justice Thomas concurring, wrote a brief concurrence to note that it was unclear whether absent class members would be bound by the arbitrator's ultimate resolution, since they had not consented to the arbitrator's interpretation of the contract. Justice Alito thus makes clear that his view that the availability of class arbitration should not be decided by the arbitrator, absent the stipulation of the parties in the case before the Court.

Oxford Health Plans is an affirmation of the very narrow grounds for judicial review of an arbitrator's decision.  While the class arbitration in this case can go forward, it is unlikely to lead to very many class arbitrations, as corporate defendants increasingly are including explicit class action waivers in their arbitration agreements. 

SEC Alleges that Detroit Adviser Stole Money from Police & Firefighters' Pension Fund

The SEC and Chauncey C. Mayfield, the founder, president, and CEO of MayfieldGentry Realty Advisors, a Detroit-based investment adviser, agreed to settle charges that Mayfield stole nearly $3.1 million from the pension fund that the firm manages for the city's police officers and firefighters so he could buy two strip malls in California. The SEC charged four other top officials at the firm for helping him try to cover up the theft.  Mayfield and his firm agreed to settle the charges by paying back the stolen amount.  They neither admit nor deny the allegations in the settlement, which is subject to court approval. In a parallel criminal matter, Mayfield is awaiting sentencing in connection with his guilty plea for participation in the pay-to-play scheme.

Stipanowich on the Delaware Arbitration Program

In Quest of the Arbitration Trifecta, or Closed Door Litigation?: The Delaware Arbitration Program, by Thomas Stipanowich, Pepperdine University School of Law, was recently posted on SSRN.  Here is the abstract:

 The Delaware Arbitration Program established a procedure by which businesses can agree to have their disputes heard in an arbitration proceeding before a sitting judge of the state’s highly regarded Chancery Court. The Program arguably offers a veritable trifecta of procedural advantages for commercial parties, including expert adjudication, efficient case management and short cycle time and, above all, a proceeding cloaked in secrecy. It also may enhance the reputation of Delaware as the forum of choice for businesses. But the Program’s ambitious intermingling of public and private forums brings into play the longstanding tug-of-war between the traditional view of court litigation as a public venue for private dispute resolution and the and perception of courts as institutions that represent and are accountable to the public. A constitutional challenge based on third parties’ right of access to court proceedings resulted in a district court ruling that arbitration proceedings heard before sitting judges of the Delaware Chancery Court were “essentially” non-jury civil trials and thus were subject to public access. The case raises legitimate questions about the appropriateness of structuring a program in which sitting judges serve as arbitrators and preside over a procedure that is effectively shielded from public view. It also implicates issues regarding the use of public resources in ostensibly private disputes, and even the way our justice system is funded. This article explores the factors that provided the impetus for the Delaware Arbitration Program and analyzes the arguments and policy considerations for and against the district court’s decision