C. Steven Bradford

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As many of you know, both I and my co-blogger Joan Heminway have written several articles on crowdfunding. My articles are available here and Joan’s are available here. I think that a properly structured crowdfunding exemption (unfortunately, not the exemption Congress authorized in Title III of the JOBS Act) could revolutionize the finance of very small businesses. 

Professor Darian M. Ibrahim, of William & Mary Law School, has posted an interesting and important new paper on crowdfunding, Equity Crowdfunding: A Market for Lemons? It’s available here.

Professor Ibrahim discusses two types of “crowdfunding” approved by the JOBS Act: (1) sales to accredited investors pursuant to SEC Rule 506(c), adopted pursuant to Title II of the JOBS Act; and (2) sales to any investors pursuant to the crowdfunding exemption authorized by Title III of the JOBS Act, but not yet implemented by the SEC. I don’t think the former should be called crowdfunding, but many people call it that, so I’ll excuse Professor Ibrahim.

Title II “Crowdfunding”

Professor Ibrahim points out that traditional investing by venture capitalists and angel investors is characterized by contractual controls and direct personal attention to the business by the investors. This allows the investors…

The New York Times has an interesting article today about SEC Chair Mary Jo White. Her husband is a partner at Cravath, Swaine, & Moore, so she has to recuse herself from any cases, enforcement actions, or investigations involving the firm's clients. The Times claims that the resulting 2-2 split has given the Republican commissioners a little more control over some settlements than they otherwise would have had.

I’m a big fan of Ernest Hemingway. I love his writing style. I’m currently rereading all of his novels, and I ran across a quote that I think every lawyer and law professor should read and take to heart.

I don’t think Hemingway was a fan of lawyers. The only lengthy portrayal of a lawyer in his fiction is in To Have and Have Not, and that lawyer is a crooked, double-crossing sleaze. I’m reasonably sure he never wrote or said anything specifically about legal writing. But the following passage from The Garden of Eden captures the essence of good legal writing:

Be careful, he said to himself, it is all very well for you to write simply and the simpler the better. But do not start to think so damned simply. Know how complicated it is and then state it simply.

No legal writing instructor could have said it better than Papa.

Happy Presidents’ Day.

Sometimes, this holiday gets overlooked. In fact, it’s not even treated as a holiday by my university. Originally the Washington’s Birthday holiday, it was renamed and broadened to include other Presidents, primarily Lincoln, who also has a February birthday. This isn’t business law, but I think it’s important to remember the greatness of those two men. Compared to many of today’s politicians, their intelligence and integrity is astounding. Their voices remain relevant today.

Here, for your enjoyment, quotes from Washington and Lincoln:

George Washington:

If benefits have resulted to our country from these services, let it always be remembered to your praise, and as an instructive example in our annals, that under circumstances in which the passions, agitated in every direction, were liable to mislead, amidst appearances sometimes dubious, vicissitudes of fortune often discouraging, in situations in which not unfrequently want of success has countenanced the spirit of criticism, the constancy of your support was the essential prop of the efforts, and a guarantee of the plans by which they were effected. Profoundly penetrated with this idea, I shall carry it with me to my grave, as a strong incitement to unceasing vows that heaven may continue…

At last month’s meeting of the Association of American Law Schools, the Section on Agency, Partnership, LLCs, and Unincorporated Associations sponsored a program on “Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax.”

I, like many business law professors, believe that at least some basic knowledge of accounting and finance is necessary to really understand business associations, securities regulation, and other business law courses. Unfortunately, many of my students have not had any accounting or finance, and many law students’ eyes glaze over whenever they see numbers.

The AALS panelists’ discussion of how to teach quantitative concepts to law students is excellent. The podcast is now available on the AALS web site, but, it’s password-protected, so only AALS members can access it. The audio is low quality, but it’s definitely worth listening to if you have access. (It’s not easy to work your way through the list of podcasts on the AALS site, but the program was on Sunday, January 4, at 10:30-12:15.)

The problem business law professors face is similar to that faced by undergraduate departments in dealing with underprepared high school students—those who have insufficient math or…

Last Wednesday, I reported on a New York Times story that, prior to Alibaba's registered public offering this fall, a Chinese government agency secretly contacted Alibaba about allegedly illegal practices on its shopping web sites. Not surprisingly, the U.S. securities litigation industry has swung into action and filed a securities class action lawsuit against Alibaba. Details here. Welcome to America!

Students, want to learn more in law school? Look back, not just forward. As the semester begins, instead of focusing solely on the new classes you’re taking, review the exams you took last semester. Those exams aren’t just for assigning you a grade; you can also use them as a learning tool.

Read the exam questions and your answers. Look at the professor’s comments on your exam and any model answers the professor has provided. What did you get wrong? What in the course did you misunderstand? If some areas are still unclear to you, make an appointment with the professor and review the exam with him or her.

If you do that, you’ll have a much better understanding of the courses you took than if you let your learning stop at the end of your final moment of exam preparation. Professors constantly reevaluate what we know and whether we’re right; you should too. You don’t want to carry that B grade into your legal career; you want to be an A lawyer. If you review your exams, you emerge from that review process with a better understanding of the subject matter.

You might think you’ll never use that material…

There’s a very interesting sentence in a New York Times story today about the Chinese company Alibaba.  China’s State Administration for Industry and Commerce has released a report criticizing illegal practices on Alibaba’s shopping web sites. Here’s the sentence that I as a securities lawyer found most interesting:

“The agency said that it had presented the findings to unidentified top Alibaba executives in a July 17 meeting at the company’s headquarters . . . , but that it had kept the results confidential at the time so as ‘not to affect Alibaba’s preparations for a stock market listing.’”

Alibaba made an initial public offering in the United States in September. If the story’s accurate, it means: (1) a Chinese government regulator deliberately withheld a government report so a Chinese company could sell its stock to U.S. investors at a higher price; (2) the Chinese company, knowing the Chinese regulator was going to issue an unfavorable report, intentionally withheld that information from offerees.

For the last three years, I have been teaching my Accounting for Lawyers course as a distance education course. It’s only available to students at my law school, but everything except the final exam is online; there are no in-person classes. I think it’s worked well, better than the in-person accounting class I used to teach, but that’s a topic for another day. Today, I want to talk about four things I’ve learned teaching the course.

1. Law students are not used to “learning as they go.”

The typical law school class involves a single end-of-semester exam, and law students get used to pulling things together by cramming at the end of the semester. Almost all of my students read the daily assignments, but many of them, even some of the most conscientious students, really haven’t actively wrestled with the material.

I usually teach by the problem method, and I use books with a large number of problems. I strongly urge students to answer those problems before class. Almost all of my students read the problems before class; many of them think about the problems before class; but it’s clear that few of them have thoroughly worked their way through…

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…