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The Globalization of Securities Litigation

Europe (and much of the rest of the world) have long been skeptical of American-style opt-out class actions in which the plaintiff’s attorney defines the scope of the class.  Similarly, they have prohibited the contingent fee, discouraged punitive damages, insisted on “loser pays” fee shifting, and required opt-in classes to be led by a public agency or an approved not-for-profit body.  All this should seemingly preclude the spread of “entrepreneurial litigation” to Europe or elsewhere.[1]  But it hasn’t!

Major securities class actions for record or near record amounts have recently settled in the Netherlands and Japan, and an even … Read more

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Adventures in Corporate Governance: Guarding the Internet

Academics who profess expertise in corporate governance sometimes find themselves on very strange turf.  That has been my status for the last two years, serving as an adviser to the U.S. Commerce Department in connection with the Obama Administration’s efforts to “privatize” the Internet Corporation for Assigned Names and Numbers (“ICANN”).  ICANN is the non-profit entity that essentially manages the Internet’s domain name functions and oversees much of its internal plumbing.[1]  This privatization effort has now been challenged in Congress by Senator Ted Cruz and others, and political fireworks are likely.  But let’s start at the beginning.  In March … Read more

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Volkswagen and the Culture of Silence

Since the Volkswagen story first broke in September 2015, most observers have just scratched their heads and muttered to themselves in amazement: “What were they thinking?  How could you place ‘defeat devices’ in 11 million cars worldwide and expect that you were going to escape detection for long?”  There is, however, an answer to this question—one that says much about what is wrong with current priorities and practices for the enforcement of white collar crime.  This column begins with an assessment of the Volkswagen case and then turns to an analysis of white collar crime strategies.  Finally, it proposes remedies … Read more

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The Supreme Court “Saves” the Class Action:  Complex Litigation After Scalia

Just six months ago, when the Supreme Court’s current term opened in October, things looked bleak for the class action.  Three major cases were on the Court’s docket, and each seemed handpicked as a vehicle for the Court’s conservatives to curb the availability of the class action.  Nonetheless, it has now become clear that this assault has fallen short.  The high water mark in this hostile tide was probably reached in 2011 when the Court decided both Wal-Mart Stores, Inc. v. Dukes[1] and AT&T Mobility LLC v. Concepcion.[2]  In these cases, the Court both tightened the standards … Read more

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Hedge Fund Activism: A Guide for the Perplexed

The message of the Dow/DuPont merger and split up is simple: No firm is today “too big to target.” Activists can see the transaction as evidence that, even in the rare case where they lose a proxy fight (as they did at DuPont last year in a squeaker), the handwriting is still on the wall, and their game plan, if appealing, will ultimately prevail.  Even though Trian could not win a majority vote to seat its candidates on the DuPont board, it held onto its stake, and the DuPont board quickly ditched their CEO in the wake of that fight … Read more

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On Thin Ice: Climate Change, Exxon, the NYAG and the Martin Act

The New York Attorney General, Eric T. Schneiderman, created a stir this month by opening an investigation of Exxon Mobil Corp. pursuant to the Martin Act (New York’s “Blue Sky” Statute).[1] Various Congressmen, Senators and environmental groups also asked SEC Chairman Mary Jo White and Attorney General Loretta Lynch to start similar investigations, but to this point only the NYAG has responded. The exact scope of this investigation is unclear (which is entirely understandable at this stage), but it appears to relate to charges, widely announced in the press in recent weeks, that Exxon “lied” about climate change, allegedly … Read more

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Backstabbing in Washington: The Curious Case of the PCAOB

Washington is a strange town! The more you succeed, the more you attract enemies. If you outperform all prior occupants of your office, behave like a model gentleman, and achieve what no one thought possible, that will make you a political target, and, worse yet, attract the neurotic envy of all those you have outshone. If one individual among all U.S. financial regulators has earned world-wide respect in recent years—both for his brains and diplomacy—, it has been James R. Doty, Chair of the Public Company Accounting Oversight Board (“PCAOB”).[1] Guess what that means?

Yes, no good deed goes … Read more

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News From California: The 9th Circuit and the SEC Challenge New York

This column will focus on two new and unrelated developments linked only by the fact that they both emanate from California: (1) the Ninth Circuit has handed down a significant decision on insider trading—United States v. Salman[1]—that disagrees (at least marginally) with the Second Circuit’s important (but controversial) decision in United States v. Newman[2]; and (2) the SEC’s Regional Office in California has issued Wells Notices to attorneys, taking the position that an attorney representing clients in immigration matters may be acting as a broker under the federal securities laws. The upshot is to place the … Read more

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The AIG Case: Moral Hazard on Steroids!

The AIG decision (actually, Starr International Co. v. The United States[1]) has shocked many but for the wrong reason. Some commentators have focused on the ingratitude of Maurice Greenberg, AIG’s former CEO and the “architect” of its international insurance business. In their view, he should have been thankful for the $85 billion loan extended by the Federal Reserve Board (which still left AIG’s shareholders holding 20% of their stock). Ultimately, AIG’s shareholders did much better than their Lehman counterparts (who received nothing), but these issues of comparative fairness and Greenberg’s alleged chutzpah go mainly to the cosmetics and … Read more

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The Lessons of DuPont: Corporate Governance For Dummies

Among practitioners, it is a customary cliché to say that all proxy contests—just like all trials—are unique and idiosyncratic. There is some truth to that easy generalization, but it also misses the forest for the trees. Some obvious truths stand out in the recent battle between Trian Fund Management and DuPont that will apply to future contests:

1. What explains DuPont’s Victory? DuPont won only a narrow victory, despite enormous advantages. Press accounts have reported that DuPont won 52% of the vote. This close margin may seem surprising, given (1) DuPont’s very large market capitalization (over $68 billion), (2) DuPont’s … Read more

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Update on “Loser Pays” Fee Shifting

The Delaware State Senate passed legislation on May 12th that will preclude “loser pays” fee shifting by bylaw or charter provision—sometimes. The Delaware House is expected to act sometime in June. But the pending legislation only bars such fee-shifting “in connection with an internal corporate claim.” Internal corporate claims are narrowly defined in a new Section 115 of the DGCL to mean claims “(i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii), as to which this title confers jurisdiction upon the Court of … Read more

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The DuPont Proxy Battle: New Myths, Old Realities—and Even Newer Data About Hedge Fund Activism

A watershed moment is coming for shareholder activism and corporate governance generally, as the proxy contest brought by Trian Management Fund, seeking effectively to break up DuPont, enters its final stages (with the vote being less than a month away). Technically, the contest is to elect four Trian Fund nominees to the DuPont board, but, as a column in the New York Time’s Dealbook put it more bluntly, the real fight is over whether to break DuPont into three parts and “shut down DuPont’s central research labs.”[1] Much about this contest is unusual: unlike other targets of activism, DuPont … Read more

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Delaware Throws a Curveball

Since the Corporation Law Council of the Delaware State Bar Association announced earlier this month that it was recommending statutory amendments to prohibit “loser pays” fee shifting bylaws and charter provisions (and thus overrule the Delaware Supreme Court’s 2014 decision in ATP Tour v. Deutscher Tennis Bund[1]), a predictable reaction has followed. Plaintiff’s attorneys and most academics applauded the decision, fearing that the alternative would be the death knell of private enforcement. In contrast, conservatives have attacked the proposed legislation, seeing it as the end of Delaware’s position as the champion of “enabling” corporate legislation and predicting that … Read more

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IGNORANCE IS NOW BLISS: But What Can the Government Do?

United States. v. Newman[1] represents the most serious defeat for the DOJ and the SEC in their campaign against insider trading since Dirks v. SEC[2] in 1983. In both cases, mistakes were made, and the Government did not at the time appreciate the difficulty of its position. Indeed, in Dirks, the SEC sued the hero of the Equity Funding scandal (Ray Dirks), not the villain. In Newman, the U.S. Attorney was prosecuting far more remote tippees than those in any other Second Circuit case. If the Government were to seek certiorari and take this case to … Read more

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Federal Preemption and Fee-Shifting

All eyes are on Delaware, where soon the Delaware Bar Association will recommend to the state legislature whether or not to curb the Delaware Supreme Court’s decision last year to uphold the facial validity of a board-approved bylaw that shifted the attorneys’ fees of defendants to the unsuccessful (or less than completely successful) plaintiff. Much commentary has already focused on the merits of that decision, ATP Tours, Inc. v. Deutscher Tennis Bund,[1] and this column will not go there. That furrow has already been well plowed.[2]

Although this columnist agrees with the majority who believe the ATP Read more


“Loser Pays”: Who Will Be The Biggest Loser?

About two months ago, this columnist was asked to prepare a short report to the SEC’s Investor Advisory Committee on the then still largely unnoticed trend toward bylaw and charter provisions that imposed some form of a “loser pays” rule on plaintiffs in intracorporate litigation. After a quick and dirty investigation, I reported three interesting facts:

First, between May 29, 2014 and September 29, 2014, some 24 companies had adopted such a provision (always applicable only to plaintiffs and always without the matter being put to a shareholder vote). This was obviously a rapid response to the Delaware Supreme Court’s … Read more


Fee-Shifting and the SEC: Does It Still Believe in Private Enforcement?

Corporate law normally moves at a glacial pace, but sometimes there are periods of rapid change, much of it invisible to the ordinary observer.  2014 may be witnessing such a period of rapid, low-visibility change.  Between May 29 and September 29, 2014, some 24 public companies adopted either bylaws or charter provisions mandating that an “unsuccessful” plaintiff in shareholder litigation (whether in state or federal court or arbitration) must pay the fees and expenses of all defendants.  This list includes high profile examples, such as the recent Alibaba IPO.[1]  Generally, “reporting” companies accomplish this result through a board-adopted bylaw, while … Read more


Hedge Fund Activism: Impacts and Options

Hedge fund activism has increased almost hyperbolically.  Some view this optimistically as a means for bridging the separation of ownership and control; others are more pessimistic, seeing mainly wealth transfers from bondholders or speculative expectations of a takeover as fueling the spike.  Equivalent division exists over the impact of this increased activism, with optimists seeing real gains that do not erode over time and improvements in operating performance, and pessimists predicting shortened investment horizons, increased leverage, and reduced investment in research and development.

In a paper recently posted on SSRN,[1] we take an analytic perspective.  We begin by surveying the … Read more


Allergan and the Odd Couple

Not since Felix and Oscar teamed up in the Odd Couple has there been a more curious collaboration.[1]  Pershing Square Capital Management L.P. and Valeant Pharmaceuticals International, Inc. have entered into a short-term marriage of convenience to facilitate Valeant’s hostile acquisition of Allergan, Inc. in a $53 billion deal.  As with many relationships, onlookers have questions: “What does she see in him?” here yields to “Why does Valeant need Pershing Square?”  Beyond this initial question about whether this relationship makes sense, there is also a second and more traditional legal issue: Can a strategic bidder really tip a hedge fund … Read more


High Frequency Trading Reform: The Short Term and the Longer Term

High frequency trading has more enemies than friends, but the key question is what are the costs of reform.  Attorney General Schneiderman’s pending suit against Barclays PLC for allegedly misrepresenting that its dark pool (known as “LX”) was “safe” from high frequency traders, when in fact it appears to have been a hotbed of “predatory” trading, shows two things:  First, it underlines that the market, itself, does not really understand the microstructure of equity trading, because trading at LX fell by 37% the week after the suit revealed unsuspected practices.[1]  But LX may not stand alone, and other dark pools … Read more