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Ann Lipton

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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.

A while back, I wondered whether we could expect to see a federal securities fraud lawsuit filed over the Dole Food merger. If so, it would be that rarest of animals – a Section 10(b) claim predicated on the allegation that the defendants intentionally manipulated prices downward rather than upward.

Well, wish granted. A couple of days ago, my old law firm (I swear I had nothing to do with it!) filed a complaint in the District of Delaware alleging that Dole Food, Murdock, and Carter intentionally drove down Dole’s stock price to facilitate Murdock’s buyout. The complaint doesn’t explain the legal theories, but it seems to be setting up a claim that – because Carter was the only one who directly made false statements – he was acting as Murdock’s agent when doing so . See, e.g., ¶38 (“With Carter able to serve as Murdock’s mouthpiece, Defendants effectuated Murdock’s buyout of Dole on the cheap.”).  Apparently, the federal plaintiffs were waiting for a resolution to the state claims before filing their own action.

I’ve flogged this horse before (is that even a metaphor?) but these kinds of parallel lawsuits (especially when considered in conjunction with…

Do we have to go back to the creation of LLPs to remember a time when an organizational form was so much in the news?

First, as my co-blogger Joshua Fershee pointed out, news of Mark Zuckerberg’s investment/charitable/political vehicle, the Chan Zuckerberg Initiative LLC, has been making headlines over its structure. 

Beyond that, however, the New York Times has run a couple of stories now on the growing use of LLCs in the real estate market – both to hide the identities of wealthy foreign investors in Manhattan property and perhaps skirt bank secrecy laws, and to shield the identity of fraudsters who scam people out of the deeds to their houses. As a result, New York is imposing new requirements for disclosure of LLC members involved in real estate transfers.  And this report from the Sunlight Foundation highlights how the minimal disclosure requirements for LLCs has made them a popular tool for obscuring the origin of political donations.  It seems there might still be a few kinks to work out in the form, although if jurisdictions go the way of NYC, we’ll see patchwork disclosure requirements that apply only within specific areas.

In any…

Hillary Sale and Robert Thompson have published a new article to SSRN discussing the role of 10b-5 class actions, and, in particular, how private class actions function to protect the goals of securities regulation more broadly, including investor protection and general confidence in U.S. securities markets.  One of their key insights is that the concept of market efficiency is critical both to the current system of regulation, and to the 10b-5 class action – and that there is a basic hypocrisy when large, publicly-traded issuers take advantage of the concept of market efficiency to reduce their regulatory disclosure burdens while simultaneously arguing against market efficiency to defeat securities claims.  They contend the presumption of reliance – and what should be a very narrow space for defendants’ rebuttal of price impact, thus allowing classes to be certified – fits well with the class action’s role in protecting markets.

I agree with their thesis generally, namely, the role that securities class actions play in policing markets, rather than as a direct system for compensating defrauded investors.  In fact, I argued in a recent paper that courts have altered their definitions of organizational scienter to account for the changing role of the securities…

… but going back to corporations for a moment – a while ago, I speculated that corporate forum-selection bylaws could unfairly work to favor management, because management can choose to invoke them at will – they can deploy them to dismiss cases when it will benefit them, but also can refuse to invoke them when it would work to their advantage to have plaintiffs’ firms compete with each other in different jurisdictions.

Alison Frankel now reports that the FX company is doing just that.  According to her report, FX enacted a forum-selection bylaw choosing Utah as the forum; but now, faced with shareholder lawsuits in Nevada and Utah, it is choosing not to enforce the bylaw – precisely because, according to the Utah plaintiffs, it benefits management to have the plaintiffs compete for the opportunity to settle the case on sweetheart terms.

The basic problem is that these bylaws do not resemble contractual forum selection clauses, in that they can only be invoked by management – not plaintiffs.  And at least according to Delaware, they are only valid because they allow management the freedom to choose whether to invoke them (i.e., they contain a fiduciary out).  As a…

Well, it turns out Halliburton is going – you guessed it – back to the Fifth Circuit on 23(f) review.

If you recall, the Fifth Circuit overturned the district court’s class certification order in the first go-round – a decision that was vacated by the Supreme Court in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011).  The district court recertified the class; the Fifth Circuit granted 23(f) review, and the Supreme Court vacated – again!  And then the district court certified the class for a third time, and the defendants petitioned for 23(f) review, and the Fifth Circuit has – again! – granted the petition. 

The thing that’s so amazing, of course, is that this case has hit the Supreme Court twice, the district court three times, and now the Fifth Circuit three times, and it’s the exact same argument, over and over and over, on the same evidence – just using slightly different words.  Namely, the defendants’ position that if there is no price increase at the time of an initial false statement, and no price drop in reaction specifically to news that later reveals the earlier statements to have been false…

One of the best news stories to come in the wake of the financial crisis was L’Affaire du Chaton, in which the accusation was lobbed that Goldman Sachs literally abandoned a group of stray kittens. Goldman, apparently recognizing that there are limits to the amount of profit-seeking the public is willing to tolerate, set not one, but two spokespeople to quell the looming media disaster.

Which is what I’m reminded of when I read this story about Goldman Sachs’s investment in social impact bonds sold by Utah to fund its preschool program.

As I understand it, Utah’s Granite School District needed money to finance its preschool program – which, it believed, prevented at-risk students from needing expensive special education later.

So Utah’s United Way of Salt Lake sold Goldman bonds.  The money was used to finance the preschool program, and Goldman was to be paid by the United Way and Salt Lake County to the extent that the program did result in cost-savings by reducing the need for special education.

The problem was that Utah itself set a rather specious standard for determining whether the pre-school program avoided the need for special education, by inflating the numbers…

Corporate social responsibility is a perennial topic of interest here at BLPB, and, in particular, the question whether corporations – especially publicly-traded ones – can in fact credibly commit to a non-profit-seeking goal.

Which is why I found this Financial Times column so hilarious.  Lucy Kellaway gathered the “values” statements from 24 different British companies – you know, statements like “We stand for innovation and integrity!” – read them aloud at a conference of the companies’ managers, and asked the managers to identify the statements from their own companies.  Only 5 were able to identify their own company, and in 3 cases, it was because they’d been the ones to draft them in the first place.  The remaining nineteen managers picked the wrong one.

From this, Kellaway concludes that values statements are useless – and she notes that among FTSE100 companies, not having a values-statement is correlated with higher share prices. 

I’d reframe it, though, and say that a values statement – or any corporate declaration of commitment to values – is useless unless it’s backed by real content.  It has to be operationalized in specific terms that are credibly communicated to employees.  The problem with the values…

Posted in CSR

On the one hand:

Tech Startups Feel an IPO Chill

Dropbox Inc. had no trouble boosting its valuation to $10 billion from $4 billion early last year, turning the online storage provider’s chief executive into one of Silicon Valley’s newest paper billionaires.

But the euphoria has begun to fade. Investment bankers caution that the San Francisco company might be unable to go public at $10 billion, much less deliver a big pop to recent investors and employees who hoped to strike it rich, according to people familiar with the matter.

BlackRock Inc., which led the $350 million deal that more than doubled Dropbox’s valuation, has cut its estimate of the company’s per-share value by 24%, securities filings show.

Dropbox responds that it is continuing to increase its business, added 500 employees in the past year, including senior executives, and has no need for additional capital from private or public investors.

Still, the company is a portent of wider trouble for startups that found it easy to attract money at sky’s-the-limit valuations in the continuing technology boom.  The market for initial public offerings has turned chilly and inhospitable, largely because technology companies have sought valuations above what public investors are willing to pay….

Many

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Just as I was in the middle of preparing for my class on shareholder proposals – for which I have assigned the opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. – I got an email notification that the Division of Corporate Finance Staff had issued a new legal bulletin announcing that it disagrees with the majority opinion in Trinity, and instead agrees with the concurring opinion.

I discussed the Trinity opinion here, but basically, the issue was whether Walmart could exclude a shareholder proposal, submitted by Trinity Wall Street, requesting that Walmart develop a policy for oversight of sales of guns with high capacity magazines (the proposal was framed to encompass harmful products broadly, but the narrative made clear it was aimed toward gun sales).  In the Third Circuit opinion, the majority and the concurrence disagreed regarding the proper interpretation ordinary business exclusion for social-responsibility proposals.  The majority held that to determine whether a proposal is excludable, the court must first analyze whether it concerns ordinary business, next determine whether it involves a significant issue of social policy, and finally determine whether – despite involving ordinary business – the social policy issue is so important as to “transcend”…

Jessica Erickson has just published a fascinating article on the structure of lead plaintiffs’ counsel arrangements in corporate cases. 

Erickson documents how Delaware courts have formally identified “factors” that will be used to select lead counsel, but have informally sent the message that the parties must work out the leadership structure amongst themselves.  This means that multiple law firms have an incentive to file claims with no intention of performing serious legal work, solely to negotiate a position in the leadership structure so that they can collect a portion of the fees.

This practice not only results in duplicative lawsuits, but allows lawyers to engage in rent-seeking – extracting fees without performing serious legal work – that can damage incentives for the “real” lawyers, and harm the class.

At this point, I just have to interject with an account of my experiences.  I was at Milberg Weiss for a few years (though I was more involved in securities cases under the PSLRA than corporate cases).   Milberg frequently worked with co-counsel, and most of the time – no matter which firm was formally appointed lead – Milberg was functionally in charge of the litigation.  Co-counsel generally was added to the case…