Photo of Ann Lipton

Ann Lipton

Subscribe to Ann Lipton's Posts

Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

For this week’s post, I offer a plug.  I just posted to SSRN a draft chapter, Limiting Litigation Through Corporate Governance Documents, for the forthcoming Research Handbook on Representative Stockholder Litigation (Sean Griffith et al., eds. 2017), published by Edward Elgar Publishing.  For those who are interested, here is the abstract:

There has recently been a surge of interest in “privately ordered” solutions to the problem of frivolous stockholder litigation, in the form of corporate bylaw and charter provisions that place new limitations on plaintiffs’ ability to bring claims.  The most popular type of provision has been the forum selection clause; other provisions that have been imposed include arbitration requirements, fee-shifting to require that losing plaintiffs pay defendants’ attorneys’ fees, and minimum stake requirements.  Proponents argue that these provisions favor shareholders by sparing the corporation the expense of defending against meritless litigation.  Drawing on the metaphor of corporation as contract, they argue that litigation limits are often enforced in ordinary commercial contracts, and that bylaws and charter provisions should be interpreted similarly. 

In this chapter, I recount the history of these provisions and the state of the law regarding their enforceability.  I then discuss some of the doctrinal and

…

The results of Tuesday’s election stunned most people – including internal analysts within the Trump camp –  because the polling seemed to give Clinton an insurmountable lead.  She was ahead of Trump in many states, and though there was great room for uncertainty in each poll, everyone assumed that even if there were some polling errors, there were not enough to make a difference in outcome.  I.e., she could lose Ohio and Florida and still win so long as she held Pennsylvania and so forth, so it seemed as though even accounting for polling error, there was little chance she could lose.

That assumption, however, ignored the possibility that all of the errors were correlated – so that an error in one state’s polls meant that the same error would be replicated across multiple states.  That’s something that Nate Silver accounted for in his model, however, and others rejected, and it contributed to Silver’s more bearish Clinton predictions.

And of course, that’s what happened with respect to mortgage backed securities as well.  Everyone knew that some mortgages would fail – and that some RMBS tranches would fail – but the assumption was that there were enough of them…

I’m traveling today so this will be quick (actually, I drafted this in advance to go up automatically and I’m very much hoping that whatever happens, the appeal won’t have been decided before this post appears).

Earlier this year, Chancellor Bouchard decided Sandys v. Pincus, regarding whether demand was excused in a derivative action against the board of Zynga.  And I love this case because it is a shockingly good teaching tool for the concept of demand excusal.  The plaintiffs filed three claims – I edit out the last one and just stick with counts I and II.

The opinion beautifully describes the nature of the inquiry, and it even has a nice chart showing the differences in composition between the board accused of wrongdoing, and the demand board.

In the first two counts, there is a sharp distinction drawn between board members who are potentially interested because of liability due to personal benefits/self-dealing, and board members who are potentially interested because they face personal liability for other reasons.

The court also clearly marches through the question of whether any disinterested board members are nonetheless dependent on interested directors, demonstrating how – despite rather extensive social and business ties…

A couple of interesting studies about gender in the business context have recently been released.

First, a study by A. Can Inci, M.P. Narayanan, and H. Nejat Seyhun concludes – based on profits earned from insider trading – that women executives have less access to inside information than do men with similar positions.  They attempt to control for the fact that women may simply be more risk averse by controlling for trade size; they find, however, that even when doing so, men make more than women.  Of particular interest is the fact that even though their study goes back to 1975 (when there were fewer women executives), they find that the gender differences are stronger in more recent years, from 1997-2012.  They believe that the differences are attributable to informal networking that grants men access to better information than women; these differences fall away for firms that have a greater proportion of women executives.

Second, the Rockefeller Foundation finds that when a company experiences a crisis and the CEO is a woman, eighty percent of news stories cite her as a problem; when the CEO is a man, only thirty-one percent of news stories cite him as a problem.

Of…

The Economist recently published an opinion piece arguing that bigotry has become a lucrative business.  As the magazine puts it:

The country is in an unusually flammable mood. This being America, there are plenty of businesspeople around to monetise the fury—to foment it, manipulate it and spin it into profits. These are the entrepreneurs of outrage and barons of bigotry who have paved the way for Donald Trump’s rise….

Breitbart News, in particular, has excelled in pushing boundaries. … It has provided platforms in its comment section for members of far-right hate groups who rail against immigration and Jews.

The outrage industry has clearly reached a milestone with Donald Trump’s presidential campaign. …He won the hearts of 13m Republican primary voters by recycling conservative media hits such as “build a wall” and “ban all Muslims”. …

There are big bucks in bigotry

Twitter has been a particularly virulent source of online bigotry and abuse.  Buzzfeed recently published an article on Twitter’s 10-year failure to halt hate speech – often targeted at particular users – that stems from a combination of corporate dysfunction, failure of (white, male) corporate leadership to recognize the problem, and business exigencies that emphasized user growth.  In…

That Pascal quote encapsulates why I strongly disagree with Noah Feldman’s Bloomberg column on the new word limits for federal appellate briefs. 

The new rules reduce the number of words in opening briefs by 1,000, and in reply briefs by 500.  Feldman argues that the reduction will cut down billable hours.  He’s wrong; it will do the opposite.

When I was in practice, I spent nearly as much time cutting words from briefs as I did doing the initial draft.  Every first draft clocked in at more than the then-limit of 14,000 words; in some cases, I was closer to 21,000 words my first time through.  Only after substantial editing – going over each sentence again and again, and (naturally) taking serious liberties with Bluebook format – was I able to bring briefs within the limit.  (I never went this far, though.)

(Note to Lexis:  You are at a disadvantage relative to Westlaw because your citation format for unpublished cases has more words. I did initial research on Lexis but then translated all citations to Westlaw to bring my word count down.  Rookie mistake, guys.)

For what it’s worth, I think the new limits are a travesty.  Judges often…

I am intrigued by this new genre of financial writing that warns (in increasingly apocalyptic terms) that passive investing will lead to increasingly distorted and inefficient markets.

Nevsky Capital, a large hedge fund, noisily shut its doors last year with an investor letter that blamed, among other things, index investing that distorted correlations among stocks.

Sanford C. Bernstein & Co., LLC. recently published a note declaring that passive investing is “worse than Marxism” because at least Marxism allocates capital according to some kind of principle, whereas passive investing allocates capital by the happenstance of inclusion in an index.

And a research analyst recently posted “The Last Active Investor,” a short story that posits a dystopian future in which all market prices are set by a single person performing the world’s only fundamental research.

It’s true that index investing distorts stock prices to some degree, though there has been plenty of pushback to the claim that there’s any real danger of passive investing overtaking the market, especially since the definition of passive investing itself might be somewhat malleable in an age of increasingly sophisticated computerized trading.

But what I’m mostly curious about is what sorts of policy…

I have to say, it pains me that this is even news – that price maintenance as a form of fraud on the market should, I believe, be unexceptionable, indeed, necessary for the theory to function properly.

But the idea has been at least somewhat rejected by the Fifth Circuit – see Greenberg v. Crossroads Sys., 364 F.3d 657 (5th Cir. 2004) – and defendants are vigorously disputing the legitimacy of price maintenance elsewhere.

So it comes as something of a relief that in In re Vivendi, S.A. Sec. Litigation, 2016 U.S. App. LEXIS 17566 (2d Cir. Sept. 27, 2016), the Second Circuit has now joined the Eleventh Circuit, see FindWhat Inv’r Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011), and the Seventh Circuit, see Glickenhaus & Co. v. Household Int’l, Inc., 787 F.3d 408 (7th Cir. 2015), with a full-throated endorsement of the idea that even if a fraudulent statement does not introduce “new” inflation into a stock’s price – even if it simply maintains existing inflation by confirming an earlier false impression – that too violates Section 10(b) and is actionable using the fraud on the market doctrine. 

Beyond this simple holding…

I’m sure I’m not alone in having followed the spectacular fall of Theranos over the past year.  Elizabeth Holmes was a fairytale come to life – and now, the main question seems to be whether she intentionally defrauded her investors and the public, or whether she was simply in denial about the limitations of her technology.

(I personally don’t see the two as mutually exclusive – many fraudsters lie in the expectation that they can soon turn things around and no one will be any the wiser.  In this case, there’s just too much evidence that Holmes was consciously evasive when questioned about her technology for me to believe that she wasn’t intentionally misleading people)

It’s probably too tempting to try to draw lessons from the Theranos debacle, but there are some interesting issues it raises.

First, I wonder whether Theranos is an argument for or against initiatives like the JOBS Act that make it easier for companies to raise large amounts of capital without holding an IPO.

On the one hand, because Theranos never went public, the fallout was contained; we haven’t seen the spectre of thousands of retail investors directly or indirectly losing their pensions.

On the…

I’m finding the controversy over the Epipen price increases fascinating, because of its hoist-by-their-own-petard quality.

When Mylan acquired Epipen in 2007, it wasn’t a particularly popular product.  Then Mylan started a heavy marketing push, which included increasing awareness of the dangers of allergies, publicizing how Epipen could save lives in emergencies, and lobbying for legislation requiring that Epipens be stocked in public places as an emergency health device, like defibrillators.  Because Mylan did a tremendous job of persuading the public that the Epipen was a critical medical device, it was able to raise prices dramatically – and now, having convinced everyone and his mother that Epipens are indispensable, the company is getting backlash for price gouging on this life-saving technology (not to mention becoming the target of investigations and lawsuits over, among other things, Medicaid fraud and state law antitrust violations).

Haskell previously posted about the Epipen situation, and connected the issue to the shareholder wealth maximization norm in corporate law.  Going further, he asked whether, from a policy perspective, we particularly want to encourage some other sort of stakeholder model for the healthcare industry.

I guess my point is, the issue is not just price increases; it…