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Institutional Investors’ Appetite for Alternatives

The emergence of alternative business entities[1] like benefit corporations, which facilitate pursuit of profit and purpose in the same endeavor, challenges the strict dichotomy between for-profit and non-profit corporations. Most alternative entities, including well-known brands like Warby Parker and Etsy—both certified B corps—have been privately-owned and thus untested in financial markets,[2] until now. Last month, the online consortium of unique and hand-made goods known as Etsy, made headlines announcing its SEC filing initiating an IPO to raise up to $300 million.

If Etsy retains its B corp certification or elects to reincorporate as a Delaware benefit Read more

baker-perino-silver

Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions

By motivating lawyers to handle class actions, fee awards enable millions of people to obtain access to justice every year and strengthen the effect of regulatory laws. But the process by which judges decide how much to pay lawyers has long been a black box. Settlements go in one side; fee awards come out the other. Researchers have studied the inputs and the outputs, but not the process that connects the two. Consequently, it is difficult to know why judges award the amounts they do.

Our new study, to be published this fall in the Columbia Law Review, seeks … Read more

Wilson Sonsini discusses Newly Enacted Delaware Rapid Arbitration Act

The Delaware Rapid Arbitration Act (DRAA)—which provides a streamlined arbitration process that will allow for prompt, cost-effective resolution of business disputes—was passed by the Delaware House of Representatives on March 19, 2015, and the Delaware Senate on March 31, 2015, and was signed by Governor Jack Markell on April 3, 2015. The DRAA will become effective on May 4, 2015, and will be codified as new Chapter 58 of Title 10 of the Delaware Code. As summarized in more detail below, the DRAA offers a real alternative to the litigation process, providing companies with the chance to engage in a … Read more

James Coleman (2)

Two Audiences, Two Stories: Comparing What Companies Tell Regulators With What They Tell Investors

In 2010, the Securities and Exchange Commission (SEC) issued guidance that requires companies to tell shareholders how they may be harmed by proposed energy regulations, unless the company determines that the regulation will be unlikely to affect the company.[1] Since then, shareholder groups, environmental organizations, and proxy advisory firms have complained that companies are ignoring or skirting this requirement.[2] And this criticism has only grown louder as the Obama administration has adopted new greenhouse gas emission standards that apply to a wide range of old and new power plants, refineries, and factories.

But in another forum, companies have … Read more

John Coffee, Headshot

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

Shearman & Sterling discusses Capital Markets Unions: the EU’s Next Focus for Reforms

On 18 February 2015, the European Commission published a green paper on building a Capital Markets Union, alongside two complementary consultation papers on a revised EU framework for securitisation and a review of the Prospectus Directive. The proposals are part of an initiative to develop a more integrated single market for raising capital across the EU. The proposals in the green paper are in outline form because the ideas for creating the Capital Markets Union remain at an early stage of development. However, with an action plan due to be published later in 2015, they provide insight into the early … Read more

Sullivan & Cromwell discusses President Obama’s Executive Order Authorizing Sanctions for Malicious Cyber Activities

On April 1st, President Obama issued an Executive Order authorizing sanctions against persons found to have engaged in or supported significant malicious cyber activities. Under the order, the Secretary of the Treasury is authorized to designate and impose sanctions on individuals and entities that are responsible for or complicit in certain cyber-related activities that pose a significant threat to the national security, foreign policy, economic health, or financial stability of the United States. The Executive Order focuses in particular on cyber activities that harm or compromise critical infrastructure, disrupt computers or computer networks, or misappropriate funds, information, or trade secrets. … Read more

ying-kang-zhu

Red vs. Blue: Does Female Board Membership Depend on Whether the Company is Located in Conservative or Liberal States?

Our study examines whether gender disparity exists disproportionately along the conservative and liberal geographical division. We investigate whether female board representation depends on the location of company headquarters in “red” states (which tend to vote for Republican candidates) or in “blue” states (which tend to vote for Democratic candidates). The investigation focuses on director composition between 2002 and 2012, based on board of director data for the S&P 1500 companies. We delineate red or blue companies based on how their home state voted in the past four presidential elections between 2000 and 2012, which coincides with our sample period, or … Read more

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SEC Commissioner Aguilar discusses Regulators Working Together to Serve Investors

Good morning. Thank you for that kind introduction. It is my honor to deliver the opening remarks for today’s North American Securities Administrators Association (“NASAA”) and Securities and Exchange Commission (“SEC”) 19(d) Conference. For those who are keeping count, this is my seventh year as the SEC’s liaison to NASAA. It has been a privilege to serve you in this role, which I have done since my early days as a Commissioner. Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views … Read more

Latham & Watkins explains how SEC Sent Message Via Enforcement Action: Don’t Stifle Employee Whistleblowing

On April 1, 2015, the US Securities and Exchange Commission filed its first whistleblower protection case involving confidentiality obligations imposed on employees.[1] The SEC charged Houston-based technology and engineering firm KBR Inc. with violating Rule 21F-17, which prohibits all persons, including companies, from taking any action to impede an individual from communicating with the SEC staff about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. In a press release, the SEC Enforcement staff warned, as they have numerous times in the past, that they will vigorously enforce this provision.

What KBR Allegedly Read more

Christine Hurt

The Limited Liability Partnership in Bankruptcy

The last twenty-five years have brought about widespread changes in the organizational forms through which individuals organize economic activity. Once momentum built, the creation of hybrid entities such as limited liability partnerships, limited liability companies and even limited liability limited partnerships seemed inevitable, as did the surrendering of flow-through taxation to all of them by the U.S. Treasury. However, how these strange mash-ups of management power, limited liability, and fiduciary duty would operate was left to work itself out over time. The limited liability partnership in particular has evolved with very little judicial or legislative scrutiny as LLPs are usually … Read more

Alon Brav and J.B. Heaton

Is the Event Study Methodology Reliable In Securities Litigation?

In Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), known as Halliburton II, the U.S. Supreme Court held that defendants may defeat the fraud-on-the-market presumption of reliance at the class-certification stage with evidence that the misrepresentation did not in fact affect the stock price. Securities litigants typically use event study methodology to detect and measure price impacts. Halliburton II will increase the ever-present role of event study methodology in securities litigation. Our new paper, Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias, explores the reliability of event studies in … Read more

K&L Gates discusses Ninth Circuit Opinion That May Open Litigation Doors Most Thought Closed

A recent Ninth Circuit Court of Appeals opinion charts potential new pathways for claims for damages resulting from portfolio losses by mutual fund shareholders against both a fund’s trustees and its investment adviser. However, much of the sweeping language and analysis in the court’s opinion is not merely novel but is inconsistent with established principles of investment company governance and litigation, which could limit the precedential impact of the opinion.

The case, Northstar Financial Advisors Inc. v. Schwab Investments et al., No. 11-17187 (9th Cir. Mar. 9, 2015), involved a mutual fund’s alleged failure to comply with its fundamental … Read more

WINIR Conference on the Nature and Governance of the Corporation

Questions of corporate governance and responsibility have been heightened by a number of corporate scandals and other events leading up to the financial crisis of 2008. In the meantime, philosophers and lawyers have been questioning the very meaning of corporate agency and responsibility, while progress by economists in the theory of the firm is widely perceived to have slowed. The aim of the first WINIR Symposium “The nature and governance of the corporation”, which will be hosted in Lugano at Università della Svizzera italiana (USI, Lugano) from 22th to 24th April 2015, is to contribute to our understanding of the … Read more

GMiller

The Role of Risk Management in European Banking Integration

Europe is now engaged in an experiment unprecedented in world history: can independent nations – even if linked by significant legal, economic, and social ties – merge their financial systems into a true banking union?  Policymakers are working diligently to achieve that goal. Spurred by the financial turmoil of 2007-2009 and its aftermath, Europe has created a network of powerful regulatory institutions including the Single Supervisory Mechanism, the European Systemic Risk Board, the European Banking Authority, the Single Resolution Mechanism, and the European Stability Mechanism.  Acting individually and in concert, these bodies are working to enhance the integration of financial … Read more

Goldstein and Associates explain the “Knockout” Option: A New Form of Stock Option

The popularity of stock options as a compensatory tool has been waning at public companies for years. While there have been a number of factors that have contributed to their decline over the past decade or so, three chief concerns about compensatory options have been: (1) the accounting expense associated with stock options often exceeds their perceived value from the perspective of employees, (2) if a company’s stock price falls dramatically and the options have little chance of being in-the-money, the company must still recognize an expense and still incur the overhang of options with no way of getting rid … Read more

Seth Oranburg Headshot

The Law & Economics of the Series A Gap

Scholars agree that crowdfunding regulations in Title III of the Jumpstart Our Business Startups (JOBS) Act are broken. My latest article addresses their concerns and proposes a solution for crowdfunding based on a deeper understanding of the startup fundraising market—a solution called “bridgefunding” for its ability to provide capital to startups at a particular time when they need it most. The broader theme is that a new exemption from securities regulation should consider how a new entrant will fit into an existing market. A narrower point is that startup funding may have a persistent market failure that regulations could solve. … Read more

Wachtell Lipton discusses SEC Charging Schedule 13D Filers for Failing to Timely Disclose Steps Taken to Pursue Going-Private Transactions

The Securities and Exchange Commission announced [several weeks ago] that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D.  The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions.  The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not … Read more

Recap of Lynn Tilton’s Scuffle with the SEC

Earlier this week, the SEC filed an administrative action against Lynn Tilton and her Patriarch Partners funds.  See In re Lynn Tilton et al.  CNBC has reported that the SEC is  “accusing Patriarch of hiding the poor performance of loans underlying three collateralized loan obligations, adding that it was able to collect almost $200 million in fees by failing to properly value the assets in the funds through the methodology described to investors.”  Today, Ms. Tilton fired back with a complaint drafted by Skadden and filed in the S.D.N.Y., claiming that the use of ALJs is unconstitutional.  See Lynn Read more

Vince Buccola, headshot

Neutral Principles in the Attribution of Corporate Rights

The question of corporate rights has garnered much attention in academic as well as lay circles since the Supreme Court’s decisions in Citizens United v. FEC and Burwell v. Hobby Lobby Stores, Inc.[1] Yet the status of incorporated firms under the Constitution (and other sources of federal law) is by no means a new concern. American jurists and scholars have grappled with the problem of government power over corporations since at least the first decade of the nineteenth century. Perhaps surprisingly, however, the Court has never articulated a consistent approach to corporate rights—an explanation of which kinds of … Read more