Photo of Colleen Baker

Colleen Baker

Subscribe to Colleen Baker's Posts

PhD (Wharton) Professor Baker is an expert in banking and financial institutions law and regulation, with extensive knowledge of over-the-counter derivatives, clearing, the Dodd-Frank Act, and bankruptcy, in addition to being a mediator and arbitrator.

Previously, she spent time at the U. of Illinois Urbana-Champaign College of Business, the U. of Notre Dame Law School, and Villanova University Law School. She has consulted for the Federal Reserve Bank of Chicago, and for The Volcker Alliance.  Prior to academia, Professor Baker worked as a legal professional and as an information technology associate. She is a member of the State Bars of NY and TX. Read More

Reason.com has an interesting piece on the use of fallacious or unsupportable economic arguments by politicians.

My favorite economic fallacy, which the Reason article doesn’t discuss, is the use of multipliers to falsely exaggerate the effect of government spending. Universities tend to do this a lot: “Every taxpayer dollar spent at Enormous State University results in a $50 gain to the state economy.” To justify claims like this, you simply trace the dollars spent through multiple levels. If the university spends $100 to repair a window, that’s $100 of additional business for a local company. That company, in turn, uses the $100 to pay an employee. The employee uses the $100 to buy groceries at a local grocery store. The store then pays the $100 to a local farmer for her produce. The farmer then spends the $100 to buy supplies, etc. We’re already up to a $500 effect, and there’s no need to stop there. If you trace it through a sufficient number of transactions, the effect is enormous, even though it’s still only $100.

Using that same reasoning, it’s obvious that the key to economic recovery is to significantly increase my salary. Each dollar I receive…

I just posted my latest crowdfunding article, Shooting the Messenger: The Liability of Crowdfunding Intermediaries for the Fraud of Others, on SSRN. Here’s the abstract:

The new federal crowdfunding exemption in section 4(a)(6) of the Securities Act requires that securities be sold only through regulated intermediaries—brokers and funding portals. Much of the information appearing on those crowdfunding intermediaries’ platforms will be provided by someone other than the intermediary. Crowdfunding intermediaries must post extensive disclosure provided by issuers of the securities being sold. Under the SEC’s proposed rules, they must also provide communication channels where prospective investors and others may post comments.

Neither the statute nor the proposed rules say much about the intermediary’s obligation to verify the information posted by others or its liability if that information is false or misleading. The result under the securities antifraud rules is unclear. Unless the law is clarified, crowdfunding intermediaries face a significant risk of liability that could make crowdfunded securities offerings unfeasible.

I argue that crowdfunding intermediaries should be liable for information provided by others in only three circumstances: (1) if they knew the posted information was false; (2) if they were aware of red flags that should have alerted them…

I have been catching up on my long backlist of reading and recently read an excellent article on litigation challenging the fees of mutual fund advisers: Quinn Curtis and John Morley, The Flawed Mechanics of Mutual Fund Fee Litigation.

As you may know, section 36(b) of the Investment Company Act of 1940 gives mutual fund investors and the SEC a cause of action to challenge excessive investment adviser fees.
Section 36(b) has generated quite a bit of academic commentary; Curtis and Morley’s footnote listing those articles (fn. 4, if you’re interested) takes up more than a page of single-spaced text. The Supreme Court has also recently chimed in on section 36(b). Jones v. Harris Assocs. L.P., 559 U.S. 335 (2010) discussed the standard for reviewing advisors’ fees under section 36(b).

Don’t worry; Curtis and Morley don’t rehash all of the earlier commentary. Instead, they take the existence of a section 36(b) cause of action as a given and ask how it can be improved to better achieve its purposes. Here’s the abstract:

We identify a number of serious mechanical flaws in the statutes and judicial doctrines that organize fee liability for mutual fund managers. Originating in section…

I hope you will excuse some self-promotion, but the third edition of my book Basic Accounting Principles for Lawyers is now available.

For those of you who aren’t familiar with the book, it’s a short, introduction to accounting principles and the accounting environment. It’s aimed at students (and lawyers) who know nothing about accounting; I try to keep the discussion as light and non-technical as possible, with a little humor sprinkled here and there. It’s intended to be used as a supplement in courses that draw on accounting, but you can also use it to pick up some accounting on your own without falling asleep. (No guarantees.)

Support a starving artist and buy a copy.

The Internet is the Wild West of securities law. I often see things and wonder, “How can they get away with that?”

Sometimes, the answer is that they can’t. A couple of years ago, I stumbled across ProFounder, a crowdfunding platform offering equity interests in startups. I couldn’t understand how ProFounder could do what they were doing without running afoul of securities laws. Sure enough, a few months later, the California Department of Corporations issued a consent order barring ProFounder from selling securities on its web site unless it registered as a broker-dealer.

My latest securities law puzzle comes via the Wall Street Journal. A recent article reports that a new crowdfunding platform, CrowdFranchise, will allow investors to buy equity stakes in business franchises.

If those franchise interests were being sold only to accredited investors, the new Rule 506(c) exemption might apply. It allows public solicitations through a web site like this. But according to the Journal, “CrowdFranchise investors don’t need to be accredited, because the franchises themselves are offering the deals, and franchises are allowed to award multiple pieces of an outlet.” This doesn’t make a lot of sense to anyone familiar with securities law. Depending on…

Many of you have undoubtedly followed the ongoing saga of Donald Sterling and the Los Angeles Clippers. (If you live in the U.S. and you’re unaware of the story, you have undoubtedly been backpacking in some remote mountain region for the last few weeks.) The NBA ordered the Clippers sold. Donald said no. Rochelle Sterling, Donald’s wife, acting on behalf of the trust that actually controls the Clippers, has agreed to sell the team to Steve Ballmer, the former CEO of Microsoft for $2 billion. Depending on the hour, Donald either approves or is contesting that sale.

A New York Times story today adds an interesting angle. The Times reports that the deal with Ballmer grants Ms. Sterling “owner emeritus” status, entitling her to two floor seats for each home game, five stadium parking spaces, and three championship rings if the Clippers ever win an NBA title.

I know nothing about the Sterling trust other than what’s been reported in the media, but that seems to raise an obvious fiduciary duty issue. In negotiating the sale, Ms. Sterling is acting as trustee of the trust and owes a duty of loyalty to the trust. Her duty is to…

Today, rather than my usual profound insights, I’m going to pose a question to our readers. (What do you mean, what “usual profound insights”?)

I have been thinking about applying for a Fulbright to teach overseas. The problem is that Fulbright applications are country-specific and I’m having trouble deciding where I would like to teach.

There are several ways to approach this problem. The first approach would be to look for the greatest possible geographical distance from Lincoln, Nebraska. I think this would be my Dean’s preference. But, as my Dean will tell you, pleasing her is almost never one of my criteria.

The second approach would be to choose the place with the greatest beach. This seems like a sound approach to me, but there seems to be a serious shortage of teaching opportunities in places like Tahiti.

That leaves but one possibility—choosing a location that best fits my particular teaching and research interests. My primary focus is securities regulation, particularly the application of securities law to small businesses. Given that focus what would be the best country to visit? Where would I find both (1) interesting things going on in securities regulation of small businesses and (2) people…

About a month ago, I noted several books that looked interesting. One of them was More than You Wanted to Know: The Failure of Mandated Disclosure, by Omri Ben-Shahar and Carl E. Schneider. I have now had an opportunity to read it, and it is a must-read for anyone interested in disclosure requirements of any kind—consumer disclosure, securities disclosure, or whatever.

Ben-Shahar and Schneider focus primarily on consumer disclosure—the dozens of pages we must sign when we buy a house; all the warning labels on products (Do not dry your hair while sitting in water); the click-through licenses we all ignore on the Internet. For many reasons, they argue, that mandatory disclosure is unlikely to provide much protection to consumers. It is “a failed regulatory method,” typically used, not because it works, but because it allows legislatures to respond to calls for action at little cost to government.

They don’t discuss securities regulation in any detail, although they do refer to it from time to time. But the book is obviously relevant to securities law. Ben-Shahar’s and Schneider’s discussion goes far beyond the well-known Easterbrook and Fischel argument against mandatory disclosure. [Frank H. Easterbrook and Daniel R. Fischel, Mandatory…

I love books. I have been buying and collecting books since I was a kid. But I have decided it’s finally time to change. E-readers have finally arrived. I know that electronic books and readers have been around for a long time now, but they’re finally good enough to satisfy even bibliophiles like me.

I have been reading everything from law review articles to law school memos on my laptop for some time now. But, until recently, that hasn’t extended to books, either the books I read for work or the books I read for pleasure.

It wasn’t for lack of interest. I looked at the earliest e-readers when they came out, but decided they wouldn’t allow me to do everything I could do with a physical book in hand. A few years ago, I bought a Nook from Barnes and Noble, but it’s been in a drawer for quite a while. The image was excellent; reading on it was a pleasant experience. But it just didn’t allow me to move around in the book, highlight, and take notes as well as I wanted to.

Six months ago, I bought a Kindle from Amazon. Not the Kindle Fire, with the…