Uncovering Hidden Conflicts in Stockholder Class Action Litigation

Stockholder representatives in class and derivative actions are supposed to share in any recovery on the same terms as other stockholders.[1]  Absent court approval, class counsel typically cannot share fee awards with their clients.[2]  Indeed, class-action litigator William Lerach famously served time in federal prison after pleading guilty to a conspiracy charge related to the payment of kickbacks to class plaintiffs.[3]

Direct payments between class counsel and their clients are the most obvious means of encouraging plaintiffs to bring cases, but there are others.  For instance, in a recent federal securities class action involving State Street Bank … Read more

How to Craft Policies on Innovative Corporate Law Provisions

Although states stand to earn significant revenue from developing a system of corporate law and encouraging companies to incorporate under it, most tend not to make the necessary investments.  That may be perfectly rational.  After all, a state may not capture much value from creating superior corporate laws because other states can simply amend their statutes to include the same sorts of provisions.

Many of the debates over controversial corporate law provisions proceed with both sides arguing that particular provisions will increase or diminish shareholder welfare.  Take Delaware’s debate over fee-shifting bylaws and charter provisions as an example. Opponents argued … Read more

Conflicts and Capital Allocation

In the aggregate, retail investors allocate tremendous amounts of capital and often turn to financial advisers to help them pick the best investment opportunities. In a recently published article, I describe how financial adviser conflicts of interest now distort overall capital allocation by driving capital to investment opportunities that reward financial advisers—altering the flow of capital.

Our capital markets work best when they efficiently move capital from savers to opportunities in need of capital. Financial intermediaries make our capital markets work by connecting savers to these opportunities. Of course, these intermediaries do not work for free. Stockbrokers receive commissions … Read more