April 2020

A few securities industry groups hired Gibson Dunn to petition the SEC to abandon its share-class disclosure initiative.  The petition argues that the initiative should have been rolled out as a rule proposal through the notice and comment process instead of simply being announced by the Commission.

The share-class disclosure initiative explained that the SEC had “filed numerous actions in which an investment adviser failed to [disclose] its selection of mutual fund share classes that paid the adviser . . . [12b-1 fee] when a lower-cost share class for the same fund was available to clients.”   The SEC asked advisers to plainly disclose when they put client assets in higher-fee share classes when lower-fee share classes were available.

Let’s pause for a second here.  All the SEC has asked for is disclosure.  It has not asked firms to stop this practice.  It just wants fiduciaries to disclose when they do it.  

Many dually-registered investment advisers have operated this way for years, collecting enormous fees from investors who likely do not understand the conflict.  Nicole Boyson has a fascinating paper on how large, dual-registered investment advisers routinely operate with staggering conflicts.  We talked about an earlier draft of the paper…

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It’s been seven weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 3,116,398; Deaths = 217,153.

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I would have thought that eliminating my commute during the pandemic would have meant more time to read, but those of us with young children seem to have significantly less free time during all of this. Nevertheless, my neighborhood book club prompted some reading, and I squeezed in a few others. Always open to suggestions. 

Atomic Habits – James Clear (2018) (Self-Help). Didn’t think there was much novel here, but I did like his suggestion to start small with habits (create some 2-minute habits and build from there). This podcast with Donald Miller on writing and exercise habits prompted me to read the book. 

The Ruthless Elimination of Hurry – John Mark Comer (2019) (Religion). “The modern world is a virtual conspiracy against the interior life.”

A Lesson Before Dying – Ernest Gaines (1993) (Novel/Historical Fiction). Story of family, humanity, race, teaching, and belief. 

Talking to Strangers – Malcom Gladwell (2019) (Pop Psychology).  Book club (and he spoke at Belmont on this book). Basically, Blink Part II. Challenges our judgment of others, especially those we do not know well.  Liked this note of humility and willingness to be corrected at the end of the book. “Instances where I am plainly …

This has been quite a first year as a dean. Heck, it’s been quite a year for all of us.  

I woke up (very) early this morning, and it struck me that I hadn’t been in contact with our students since Friday, which was our last day of classes. I don’t want to be a distraction to their studies, but I also realized the midway through the first week, they might need a reminder of what they have accomplished in the face of unique and unprecedented challenges. Following is the note I sent our students, which I share for all of us who might need a reminder of what we’re accomplishing. It is addressed to our Creighton Law students, but it’s for all law students. Hang in there.  

Dear Students,

It’s the middle of the first week of what has to be the strangest finals we have ever experienced. This is always a time of hard work, long days, and high stress, but never before have we had to be so separate while going through it. We can’t experience study group or lunch breaks with friends, or play basketball or soccer in a group to blow off steam.

In his Wednesday post (here), co-blogger Stefan J. Padfield highlighted a recent development in the arbitration area that I also want to bring to readers’ attention.  I’m sure that all BLPB readers are a party to an arbitration agreement as these provisions have become so widespread in consumer adhesion contracts.  The New York Times recently ran a fascinating article by Michael Corkery and Jessica Silver-Greenberg, ‘Scared to Death’ by Arbitration: Companies Drowning in their Own System.  It details an innovative development in which entrepreneurial lawyers “are leaders in testing a new weapon in arbitration: sheer volume,” which is something the current arbitration system can’t handle. 

Arbitration provisions in consumer adhesion contracts generally bar class-action lawsuits and might also bar class-wide arbitration.  And it often makes little economic sense for an individual to take a large corporation to arbitration.  Not surprisingly, many don’t.  Corkery and Silver-Greenberg note that “Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers.  Yet annually an average of just 30 people took the companies to arbitration…”  Now entrepreneurial lawyers such as Teel Lidow, who runs FairShake, and Travis Lenkner at…

All right, it’s probably a little premature to call it an “age of direct listings”; we’ve had Spotify and Slack and I guess some company called Watford Holdings and Airbnb was reportedly considering one, and in the Before Times a lot of VCs were making noises about preferring direct listings to traditional IPOs, but in the immediate future I don’t expect to see a lot of new firms going public either way (notwithstanding the occasional ambitious SPAC), so these issues may turn out to be nothing more than a curiosity. 

BUT!  In the meantime!  We have Pirani v. Slack Technologies, 2020 WL 1929241 (N.D. Cal. Apr. 21, 2020), in which a district court refused to dismiss Section 11 claims brought by investors who purchased Slack shares after the company listed directly on the NYSE. And, it turns out, direct listings raise a lot of unsettled questions under Section 11.

 Slack, like a lot of companies these days, never formally sold its stock to the public; instead, it distributed stock in exempt transactions, subject to various securities law rules that permit these kinds of distributions but generally require the investors to hold their stock for some period…

In recent years, investment funds have shifted more assets to private market securities.  This can make it much more difficult to figure out how much a particular investment is worth.  The SEC has proposed a new rule for valuing these sorts of investments.  Comments on it will be due on July 21, 2020.

Investment Companies have to tell investors how much their stake in the fund is worth.  Investments in public companies are  often easy to value.  The investment fund simply takes the market price of the security and uses that figure for valuation.  It can become more complicated if you take into account fundamental value, the size of the position, or the ability to sell it all at a particular price. For securities without readily available market prices, the Investment Company Act  calls for “using the fair value of that security, as determined in good faith by the fund’s board.”  

Yet how should an investment company board go about valuing its assets?  The new rule would put a framework in place for that process to create more consistency.

The proposal made me think of an article by Utah’s Jeff Schwartz.  He looked at how one mutual fund valued…

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It’s been six weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 2,561,044; Deaths = 176,984.

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Friend-of-the-BLPB Miriam Baer recently posted a draft of her forthcoming book chapter on corporate leniency programs to SSRN.  The abstract follows.

Corporate leniency programs promise putative offenders reduced punishment and fewer regulatory interventions in exchange for the corporation’s credible and authentic commitment to remedy wrongdoing and promptly self-report future violations of law to the requisite authorities.

Because these programs have been devised with multiple goals in mind—i.e., deterring wrongdoing and punishing corporate executives, improving corporate cultural norms, and extending the government’s regulatory reach—it is all but impossible to gauge their “success” objectively. We know that corporations invest significant resources in compliance-related activity and that they do so in order to take advantage of the various benefits promised by leniency regimes. We cannot definitively say, however, how valuable this activity has been in reducing either the incidence or severity of harms associated with corporate misconduct.

Notwithstanding these blind spots, recent developments in the Department of Justice’s stance towards corporate offenders provides valuable insight on the structural design of a leniency program. Message framing, precision of benefit, and the scope and centralization of the entity that administers a leniency program play important roles in how well the program is received by its…

In a reflection on the meaning of career success, a majority of my business ethics students mentioned happiness as a barometer. 

“Happiness,” however, is an incredibly imprecise term. For example, here is over seventy-five minutes of Jennifer Frey (University of South Carolina, Philosophy) and Jonathan Masur (University of Chicago, Law) discussing happiness under two different definitions. 

Frey, in the tradition of Aristotle and Aquinas, considers happiness not as a private good, but rather as the highest common good. Happiness is enjoyed in community. True happiness according to Frey, is bound up in the cultivation of virtue and human excellence. Under Frey’s definition, happiness makes room for sacrifice and suffering as beautiful and awe-inspiring. 

Masur, a self-described hedonist, seems to have a more psychological, subjective view of happiness. Masur defines happiness as positive feelings, and unhappiness as negative feelings. Masur acknowledges that happiness–maybe even the deepest happiness–can arise from relationships and altruistic behavior. Unlike Frey, however, Masur includes positive feelings that are artificially produced or arising from unvirtuous behavior as part of “happiness.” Masur sees happiness and living a good, moral life as often overlapping, but as not necessarily intertwined. 

These are two different conceptions of happiness. I think we need …