October 2014

928 days.

That’s how long we’ve been waiting for the SEC’s exemption for crowdfunded securities offerings.

The JOBS Act, which authorized the crowdfunding exemption, was signed by President Obama on April 5, 2012. The act required the SEC to enact the necessary rules within 270 days. The SEC has now missed that deadline, December 31, 2012, by 658 days.

To put it in context, when the JOBS Act passed, I had three grandchildren. I now have six. I may have great grandchildren by the time the SEC acts.

The 270-day deadline was unrealistic, given the time required to draft rules from scratch and the delay imposed by the notice-and-comment requirements of the Administrative Procedure Act. But the SEC finally proposed the rules on October 23, 2013, almost a year ago. The deadline for commenting on the proposal expired last February and the SEC still hasn’t done anything. It’s getting a little ridiculous.

I’m on record that the crowdfunding exemption passed by Congress is unlikely to be very useful. (See my article analyzing the JOBS Act’s crowdfunding provisions.) But we won’t know until we actually have a crowdfunding exemption. At the SEC’s current rate of progress, some new technology…

The Columbia Journalism Review blog reports:

Since 2008, one particular federal government agency has aggressively investigated leaks to the media, examining some one million emails sent by nearly 300 members of its staff, interviewing some 100 of its own employees and trolling the phone records of scores more.  It’s not the CIA, the Department of Justice or the National Security Agency.

It’s the Securities and Exchange Commission. …

All that effort was for naught. Despite the time and resources that have been poured into them, none of the SEC’s eight investigations in the past six years have uncovered the leakers.…

The article further points out that the SEC’s pursuit of leakers has ramped up in the wake of the financial crisis, and it has no problem with leaks (if you call them “leaks”) when the leaks make the agency look good.

The SEC’s argument is that it needs to protect against the release of market moving information, and I’m quite sympathetic to that point, but the leaks involved here seem to be at least in part about concealing internal problems or dissension within the agency.  

Considering how at least two Commissioners have recently spoken out about their…

256px-Alison_Lundergan_Grimes

(Photo courtesy of Wikimedia Commons, by Patrick Delahanty from Louisville, United States)

Alison Lundergan Grimes and I both graduated from Rhodes College, a small liberal arts college in Memphis, TN. I have not spoken to Alison since college, so I was surprised to see her mentioned on CNN a number of weeks ago as the democratic nominee for U.S. Senator from Kentucky. Since then, she has been in the news quite a bit. She will face Minority Leader Mitch McConnell, in what has turned into one of the hotter Senate races this year.    

Even in college I did not know Alison well, but we did take a public speaking class together. Alison was the type of student who was often in a suit and pearls in class, while I wore flip flops year-round and whatever wrinkled, Goodwill-purchased clothes were the most clean. She was a Chi Omega (easily the most refined group on campus), and I was a part of the football team for all four years (if there was a rowdier group on campus than the football team, it was the rugby club, which I joined because my playing time on the football team was…

I plan to write a more traditional blog post later if I have time, but I am in the midst of midterm grading hell. I was amused today in class when a student compared the drama of the Francis v. United Jersey Bank case with the bankruptcy, bank, and mortgage fraud convictions of husband and wife Joe and Teresa Guidice from the reality TV hit the Real Housewives of New Jersey.

I had provided some color commentary courtesy of Reinier Kraakman and Jay Kesten’s The Story of Francis v. United Jersey Bank: When a Good Story Makes Bad Law, and apparently Mrs. Pritchard’s defenses reminded the student of Teresa Guidice’s pleas of ignorance. Other than being stories about New Jersey fraudsters, there aren’t a lot of similarities between the cases. Based on my quick skim of the indictment I don’t think that Teresa served on the board of any of the companies at issue–Joe apparently had an LLC and was the sole member, and the vast majority of the counts against the couple relate to their individual criminal conduct. In addition, Teresa is also going to jail, and no one suffered that fate in United Jersey.

Whether you are teaching insider trading as part of a corporations or a securities regulation course, you practice in the area, or you like these cases because they contain some of the most interesting fact patterns….. I have a couple of gems for you.

First, the on line edition of the New Yorker features two great stories on insider trading.  The first story, The Empire of Edge written by Patrick Radden Keefe, focuses on the conviction of a trader at S.A.C. capital for trades made 10 days before the release of results from clinical trials on an alzheimer’s medication. The hedge fund reversed its $.785B position in two companies testing the drug and took a short position against the companies earning the fund $275M. In classic long-form journalism at its best, the story is riveting as it unfolds.  The second story, A Dirty Business by George Packer, tells the story of Raj Rajaratnam, head of the Galleon hedge fund at the heart of the 2009 informant ring scandal, the prosecution and the SEC’s stance on enforcement.  

For those of you who are interested, the SEC posted a running list of insider trading enforcement actions here.

-Anne Tucker

To be clear, I’m not an economist. I do, however, have an interest in economics, economic theory, and especially behavioral economics.  I incorporate basic concepts of economics into my courses, especially Business Organizations and Energy Law.   This week’s announcement of  Jean Tirole as the 2014 Nobel Laureate in economics thus caught my eye.  

I admit I did not much about Tirole before the announcement, and after just a little reading, it’s clear to me that I need to know more.  A nice summary of Tirole’s work (written by Tyler Cowen) can be found here. Cowen introduces the announcement and Tirole this way:

A theory prize!  A rigor prize!  I would say it is about principal-agent theory and the increasing mathematization of formal propositions as a way of understanding economics.  He has been a leading figure in formalizing propositions in many distinct areas of microeconomics, most of all industrial organization but also finance and financial regulation and behavioral economics and even some public choice too.  He is a broader economist than many of his fans realize.

Tirole is a Frenchman, he teaches at Toulouse, and his key papers start in the 1980s.  In industrial organization, you can think of him

…

OK.  I cannot compete with the brevity or humor of the student comment Steve Bradford posted earlier today.  [sigh]  But my post today does relate to a student comment/question–one from my Business Associations course earlier this semester.  Specifically, a student posted the following on our class discussion board under the title “Swiss Vereins and piercing the veil”:

I was curious about Swiss Vereins and how that works when trying to pierce the veil since a Swiss Verein consists of independent offices that have limited liability amongst them. Would it have been beneficial for Westin [referring to the Gardemal v. Westin Hotel Co. case] to have used such a structure instead of having Westin Mexico be a subsidiary? It seems that most Swiss Vereins are large law firms, such as DLA Piper and Baker & McKenzie or accounting firms, such as Deloitte. 

This is the first time a student has asked me about the Swiss verein structure in my almost fifteen years of teaching.  My familiarity with Swiss vereins comes solely from what I have read and heard over the years.  I never advised a firm in setting one up (or deciding not to).  Here is the core substance of my…

Several years ago, I was at the front of the classroom preparing for my Business Associations class when a student approached and asked if her friend could sit in on the class. “My friend’s interested in law school,” she said, “and I’m trying to talk her out of it.”

No comment needed. Res ipsa loquitur.