“No Pay” Bylaws May Threaten Shareholder Lawsuits

After Delaware prohibited fee-shifting provisions in corporate bylaws,[1] scholars considered alternate means by which corporations might use private ordering to limit the ability of stockholder plaintiffs to bring lawsuits challenging corporate actions.  For instance, Professor Sean Griffith suggested that corporations should adopt “no pay” provisions that, unlike fee-shifting provisions, would prohibit a corporation from paying the legal fees of stockholder plaintiffs.[2]  Griffith’s proposal is similar to one put forward by another Delaware practitioner shortly before the fee-shifting ban.[3]  Other commentators have suggested that such “no pay” bylaws may be the wave of the future.[4]

“No pay” … Read more

Companies Face Risk and Opportunity with Distributed Governance Structures

In 2016, enterprising software developers sought to create a business entity with a unique governance structure: a leaderless, decentralized venture capital firm that would allow investors to vote on and collectively fund proposals. The Distributed Autonomous Organization (DAO) attracted more capital than its backers had anticipated, becoming the largest crowdfunded project ever with $168 million raised. To participate, investors poured funds into ether, a digital currency designed to facilitate decentralized applications on Ethereum, which is an open source, blockchain-based computing platform. After acquiring ether, investors exchanged it for the DAO’s tokens, entitling them to participate in its governance, profits, and … Read more

Should Corporate Whistleblowers Go to Arbitration?

Following the 2008 financial crisis, more and more countries have begun to embrace whistleblower protections as a tool to change corporate cultures.  Such provisions may give whistleblowers the protections they need to raise their voices, and draw attention to undesired and sometimes even illegal activities, in situations when they would otherwise remain silent.  After all, many people will hesitate to point out questionable conduct if they know they might face retaliation.

In the United States, Congress authorized the SEC to go further than other whistleblower provisions by authorizing a bounty program—allowing the SEC to reward whistleblowers for particularly valuable tips. … Read more

The Fragmented Regulation of Investment Advice: A Call for Harmonization

Discussions about regulating investment advice have largely focused on whether to harmonize the laws governing two categories of individuals within the securities world—registered investment advisers and stockbrokers.  The discussion has overlooked insurance brokers who often times also provide investment advice.  Our article broadens the focus by arguing that harmonizing the regulation of investment advice necessarily requires reforms reaching beyond securities regulation and into insurance regulation as well.  We argue that consistent standards should govern the investment advice provided to retail investors.  Given the current regulatory fragmentation, this may only be accomplished by adopting a federal Investment Advice Act.

Today’s fragmented … Read more

Disaggregated Classes: A Different Claim Aggregation Method to Avoid SLUSA

The following post comes to us from Benjamin P. Edwards, Director of the Investor Advocacy Clinic at Michigan State University College of Law.  It is based on his working paper, “Securities Fraud, Federalism, and the Rise of the Disaggregated Class:  The Case for Pruning the State Law Exit Option,” which is available here.

As Professor Coffee and others have recognized, many plaintiffs have secured significant recoveries by opting out of federal securities fraud class actions to pursue their own individual actions.[1]  These opt-out actions have returned substantial sums to investors and usually proceed under state law in state courts.… Read more