January 2015

The Second Circuit just split from the Ninth in Stratte-Mcclure v. Stanley, 2015 U.S. App. LEXIS 428 (2d Cir. N.Y. Jan. 12, 2015) regarding whether a company violates Section 10(b) – and is subject to private lawsuits – for failure to disclose required information.  The holding would be well-positioned for a Supreme Court grant except that it was not outcome determinative, functionally insulating the decision from Supreme Court review.  But this is definitely a split to watch in the future.

[More under the jump]

I recently updated my research chart entitled Corporate Forms of Social Enterprise: Comparing the State Statutes. Always open to suggestions on how to improve the chart.

As the number of corporation-based social enterprise state statutes has grown, the chart has become a bit unwieldy. Previous versions of the chart went state by state, detailing the differences from the Model statute. I think the new format (a short summary chart with details in the footnotes) is better for comparing/contrasting the state statutes, but is still far from perfect. For example, some of the abbreviations used in the summary chart require going to the footnotes for explanation, but it is difficult to remedy that and keep the summary chart short.  

Also, here is a link to the latest report of Delaware Public Benefit Corporations (“PBCs”). [This is my first time linking to an outside Excel sheet, but it worked for me by saving to my Desktop and then opening.]  The number of Delaware PBCs has grown to 234 entities. This is still tiny in comparison to the more than 1 million total entities in Delaware, but it is still early.

I have just returned from Dublin, which may be one of my new favorite cities. For the fifth year in a row, I have had the pleasure of participating as a mentor in the LawWithoutWalls (“LWOW”) program run by University of Miami with sponsorship from the Eversheds law firm. LWOW describes itself as follows:

LawWithoutWalls, devised and led by Michele DeStefano, is a part-virtual, global, multi-disciplinary collaboratory that focuses on tackling the cutting edge issues at the intersection of law, business, technology, and innovation.  LawWithoutWalls mission is to accelerate innovation in legal education and practice at the same time.  We collaborate with 30 law and business schools and over 450 academics, students, technologists, venture capitalists, entrepreneurs, business professionals, and lawyers from around the world. We seek to change how today’s lawyers approach their practice and how tomorrow’s lawyers are educated and, in so doing, sharpen the skills needed to meet the challenges posed by the economic pressures, technologization, and globalization of the international legal market. We seek to create the future of law, today. Utilizing a blend of virtual and in-person techniques, LawWithoutWalls offers six initiatives: LWOW Student Offerings,LWOW Live, LWOW INC., and LWOW Xed…

One week after the SEC levied the largest dark pool trading violation fine against USB, a group of nine banks (including Fidelity, JP Morgan, BlackRock, etc.) introduced a new dark pool platform, an independent venture called Luminex Trading & Analytics.  Dark trading pools are linked to the role of high frequency trading and the notion that certain buyers and sellers should not jump the queue and shouldn’t be the first to buy or sell in the face of a large order. The financial backers of Luminex were quoted in a Bloomberg article describing it as a platform “where the original purpose of dark pools, letting investors buy and sell shares without showing their hand to others, will go on without interference.”

The announcement raises public scrutiny about dark pools, but among financial circles (like those at ZeroHedge, it is being touted as a smart self-regulatory move by the major mutual funds to prevent the money leach to HFT’s, which some seeing as the beginning of the end for HFTs. 

If you are looking for more resources on dark pools and HFTs– there are two brand new SSRN postings on the subject:

I was watching the Michigan State-Iowa basketball game a couple weeks ago, and commentator Jay Bilas noted his view (which he has stated previously) that the lane violation rule is wrong. I am teaching Sports Law and an Energy Law Seminar this semester, so (naturally) I linked his comments to a broader framework. 

So start, here’s the current rule.  Basketball for dummies explains: 

Lane violation: This rule applies to both offense and defense. When a player attempts a free throw, none of the players lined up along the free throw lane may enter the lane until the ball leaves the shooter’s hands. If a defensive player jumps into the lane early, the shooter receives another shot if his shot misses. An offensive player entering the lane too early nullifies the shot if it is made.

Bilas argues that a defensive lane violation should result in the ball being awarded to shooter’s team instead of another attempt at the free throw for the shooter.  His rationale is, “The advantage to be gained going in early is on the rebound, not the shot. Give the ball to the non-violating team.” This is probably right, though a player might enter the lane early…

Today, unlike most Mondays during the school year, I will not be in the classroom.  The University of Tennessee is closed in celebration of the life of Martin Luther King, Jr., our nation’s iconic non-violent civil rights leader.  Today also is the day that my daughter is in transit back to her college in New York for her last semester as an undergraduate.  It seemed only fitting, honoring both occasions, to go out on Friday night with my daughter and my husband to see the movie Selma.

Despite its historical inaccuracies (which have been played out in the public media, e.g., here), the movie is a successful one.  Among other things, it spoke to me of the amazing amount that one man can accomplish in a mere 39 years with focus, action, and perseverance.  I admittedly felt a bit lazy and ineffectual by comparison.

Selma also reminded me, however, of the near daily opportunities that King had to speak out on matters of public importance.  I wondered if there was anything in his teachings that would speak directly to me today.  Specifically, I wondered if I could find something he’d said that helped to guide me as a business law professor in the current business law or legal education environment.

Of course, King spoke out against  Jim Crow laws, which provided for legal segregation of the races in both businesses and education.  But I was looking for something a bit more personal.  Then, I found this quotation:  “The function of education . . . is to teach one to think intensively and to think critically. . . .  Intelligence plus character–that is the goal of true education.”  

Every U.S. law school, or at least every law school I’m aware of, offers a securities regulation course. But those courses usually focus on the Securities Act of 1933 and the Securities Exchange Act of 1934. A typical securities regulation course covers the definition of security, materiality, the registration of securities offerings under the Securities Act, and liability issues under both the Securities Act and the Exchange Act. If the professor is ambitious, those courses may also cover the regulation of securities markets and broker-dealers.

Almost none of those basic securities regulation courses spends any significant time on the 1940 Acts—the Investment Company Act and the Investment Advisers Act. It’s not because those two statutes are unimportant. A good proportion of American investment is through mutual funds and other regulated investment companies, not to mention hedge funds which depend upon Investment Company Act exemptions. And the investment advisory business is booming. When I attend gatherings of securities lawyers, I’m always amazed at how many of the lawyers present are dealing with issues under the 1940 Acts.

The lack of coverage of the 1940 Acts in the basic securities law course would be acceptable if law schools offered separate, stand-alone courses…

In their new article, Litigation Discovery and Corporate Governance: The Missing Story About the ‘Genius of American Corporate Law,’ Érica Gorga and Michael Halberstam argue that the U.S.’s unique, liberal discovery standards in private civil litigation have had an important role in shaping the content of corporate law.

They make a number of interesting claims in the paper, including that civil discovery provides detailed data for courts and regulators to use when creating legal standards, and that the omnipresent threat of civil discovery forces corporate managers to run their companies with more care: they must engage in extensive internal monitoring and recordkeeping in order to protect themselves should a dispute arise.  Additionally, the internal process of having attorneys and other experts review documents in anticipation of litigation – even if the documents are never turned over to the plaintiffs – generates information that assists managers, in their monitoring roles, and assists gatekeepers – attorneys, experts, etc – in understanding both the specific firm targeted and the industry in general.  Gorga and Halberstam also argue that the standards for adequacy of corporate internal investigations – which themselves play a growing role in corporate governance – are informed by the standards set…

Every semester, in an attempt to learn my students’ names and a bit about them, I ask my students to fill out a student information form with a few questions. This semester I added the question: “What do you think makes a professor effective?”

The vast majority of the responses fell into one of the four categories below (listed in order, from most to least responses):

  1. Real world experience/real world examples
  2. Fairness in grading 
  3. Clarity in teaching 
  4. Approachability and accessibility 

I am teaching over 100 total students (undergraduate and MBA) this semester, and nearly every student mentioned something that would fall into at least one of those four categories.

Perhaps these responses do not surprise readers, and they were not incredibly surprising to me. The ordering, however, was a bit surprising, and I am not sure I would have expected to see “approachability” in the responses as much as I did. In any event, the responses were helpful in confirming that my time “staying current,” meeting with local attorneys/business people, and consulting is well spent – at least in the eyes of my students. 

Is there anything in the students’ responses that is surprising to readers? Is there anything missing…