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Stefan J. Padfield

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Director of the NCPPR's Free Enterprise Project. Prior experience includes 15+ years as a law professor, two federal judicial clerkships, private practice at Cravath, Swaine & Moore, LLP, and 6 years enlisted active duty (US Army). Immigrant (naturalized).

On January 25, 2022,  Fulton Superior Court Judge Belinda Edwards issued an order vacating a FINRA arbitration award and finding, among other things that “Wells Fargo and its counsel manipulated the arbitrator selection process.”   Yesterday, the Public Investors Advocate Bar Association (PIABA) issued a statement calling for a Congressional investigation into whether FINRA’s arbitration forum tilts the scales in favor of industry firms by manipulating the arbitrator selection process. The Wall Street Journal has already started covering the fracas.  What happened here? 

This story starts in the standard fashion.  Wells Fargo managed the claimants accounts and allegedly over-concentrated their accounts into single stocks and industries.  When the claimants suffered some losses and complained, Wells Fargo assigned a different broker to their account.  The claimants became increasingly dissatisfied with Wells Fargo’s management of their accounts and eventually brought an arbitration claim in the FINRA forum because their Wells Fargo account opening agreement contains a pre-dispute arbitration agreement.  All perfectly normal.   

Things soon became more interesting.  Wells Fargo hired Terry Weiss as outside counsel to defend it.  The arbitration proceeded in the normal course.  FINRA circulates lists of potential arbitrators for the parties to rank and potentially strike before FINRA assigns…

I’ve started reading Tom Lin‘s new book, The Capitalist and the Activist: Corporate Social Activism and The New Business of Change.  Although I’m only through the first chapter so far, I’ve found it to be an extraordinarily accessible and even-handed account of the current state of play.  Using story after story he knocks down perceived walls between social activists and capitalists.  He takes a nuanced, thoughtful approach and encourages readers to reject simplified portraits of capitalist and activists.  These words jumped out at me:

Recognizing the significant good that capitalists can bring about for society does not blind us to the serious harms that they can sometimes create or perpetuate in society.  Recognizing the transformative power wielded by activists does not deny the obstacles they can sometimes present for policymaking.  Just as humans are neither all good nor all bad, their institutional and collectively efforts at capitalism and activism are neither all good nor all bad.

His first chapter tackles the debate over corporate purpose and sketches the different sides of the debate.  He rightly recognizes that corporate social activism and expectations of corporate engagement are likely here to stay even as debates about corporate purpose will inevitably continue. …

There is an interesting new paper, Misconduct Synergies, by  Heather Tookes and Emmanuel Yimfor, which was recently the subject of a Business Scholarship Podcast.  The paper looks at misconduct at registered investment advisory firms after M&A activity.  It finds that “that disclosures of new disciplinary events in the combined firm drops by between 25 and 34 percent following mergers. This reduction is driven mainly by separations of high misconduct employees at the target firm.”  In short, after M&A, employees with disciplinary records are much more likely to depart the firm.  

The RIA space is an interesting place to study employee misconduct and M&A activity.  Unlike most other industries, RIA firms have to disclose disciplinary and regulatory information in a way where it becomes publicly accessible.  It’s also an interesting area to study because M&A activity has been booming for RIA firms.  Trimming away potential future regulatory issues may be a way to set up the combined firm for another deal.  It also finds that more of the target firm’s employees separate than the acquiror, finding that “the sensitivity of separations to employee misconduct increases for target firm employees following mergers, suggesting stricter disciplinary mechanisms for target employees…

The Drexel University Thomas R. Kline School of Law invites applications for a two Visiting Assistant Professor positions.   One position is dedicated to a faculty member who will teach and research in the area of tax.  The other position is open, with a preference for someone who does research that touches on legal implications of new technology and/or someone open to teaching Torts.  Each position will last two years and VAP’s are expected to fully participate in the intellectual life of the law school.

We seek candidates who hold (at minimum) a JD or appropriate equivalent degree.  We are particularly interested in candidates embarking on an academic career.  The Kline School of Law is committed to recruiting, developing, retaining, and rewarding faculty members who bring scholarly interests and life experiences that contribute to the diversity and success of our students, our University, and our communities.

Drexel University, founded in 1891, is an R1 comprehensive research institution.  Drexel established its law school in 2006, and it has rapidly developed a reputation for innovative scholarship across disciplines, a diverse portfolio of academic programs, and a focus on civic engagement.  The Kline School of Law is home to the Center for Law and…

The New Jersey Bureau of Securities recently announced that it would let its state fiduciary rulemaking expire.  In its release, it indicated that it intended to shift focus to gamified digital brokerage practices:

Since the Bureau published its rule proposal in 2019, the securities industry has seen a dramatic rise in the use of digital platforms and digital engagement practices by broker-dealers and investment advisers. COVID-19 accelerated this trend, as millions of investors turned to trading applications and social media for investment advice. Meanwhile, the Bureau has been monitoring federal regulatory developments.

“Prior to finalizing a Fiduciary Rule, the Bureau intends to reassess the rapidly changing landscape of the financial industry and determine whether further modernization of the Bureau’s rules is necessary,” said Christopher W. Gerold, Chief of the New Jersey Bureau of Securities. 

The financial industry’s use of digital engagement practices, including digital marketing, has drawn new investors into the market, many of whom have little or no prior investment experience. These unsophisticated investors may be particularly susceptible to predatory tactics, including the use of gaming features (for example, point scoring and competition with other investors) to increase trading activity, a practice known as “gamification.”

Undoubtedly New Jersey has…

More information about our dean search can be found here.  This is the ad if you’d like to come join me in fabulous Las Vegas:

The University of Nevada, Las Vegas, invites applications and nominations for the position of Dean of the William S. Boyd School of Law. This year, Boyd secured its position as one of the country’s top 30 public law schools for the 15th consecutive year. The school’s Lawyering Process Program ranked first among legal writing programs in the nation, its part-time program is rated among the top 20 in the country, and its Saltman Center for Conflict Resolution ranked fifth among the top dispute resolution programs, according to U.S. News & World Report’s 2022 rankings. Dedicated to serving both the city of Las Vegas and the state of Nevada as its only law school, Boyd is an integral component of one of the fastest growing and most diverse universities in the nation. Boyd is committed to nurturing a learning community of excellence and diversity, and strongly encourages applicants from a wide range of backgrounds to explore this exceptional opportunity.

Founded in 1957, UNLV is a thriving urban research institution of more than 31,000 students that

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Friend of the blog Bernard Sharfman has posted The Problem of Three In the Voting of Public Company Shares over at RealClearMarkets.  A brief excerpt follows.

The problem of the Big 3’s concentration of voting power is illustrated in Engine No. 1’s proxy fight at ExxonMobil …. Engine No. 1’s stated objectives in seeking the election of its own nominees was to: 1) enhance the value of ExxonMobil’s common stock; 2) reduce ExxonMobil’s carbon emissions; and 3) transition ExxonMobil into a global leader in profitable clean-energy production. Yet Engine No. 1 never provided specific recommendations on how it was going to accomplish these objectives. This was odd, as one would expect Engine No. 1 to present such recommendations if it were to convince shareholders that its director nominees were worthy of being elected.

The inability to provide such recommendations must have been a clear indication to the shareholders of ExxonMobil, including the Big 3, that Engine No. 1 was not truly informed about the operations of ExxonMobil or how it was going to achieve its stated objectives. Nevertheless, Engine No. 1 succeeded in getting three of its four nominated directors elected to Exxon’s board. How in the world was it…

Prof. Carla L. Reyes has published Autonomous Business Reality in the Nevada Law Journal.  The article apparently just became available on Westlaw.  The abstract is below and you can find a version of the paper on SSRN here.

Society tends to expect technology to do more than it can actually achieve, at a faster pace than it can actually move. The resulting hype cycle infects all forms of discourse around technology. Unfortunately, the discourse on law and technology is no exception to this rule. The resulting discussion is often characterized by two or more positions at opposite ends of the spectrum, such that participants in the discussion speak past each other, rather than to each other. The rich context that sits in the middle ground goes disregarded altogether. This dynamic most recently surfaced in the legal literature regarding autonomous businesses. This Article seeks to fill the gap in the current discussion by creating a taxonomy of autonomous businesses and using that taxonomy to demonstrate that automation, standing alone, is not what makes autonomous businesses exceptional. Rather, the capacity of autonomous businesses to make radical governance changes more prevalent in the market pushes the boundaries of current choice of entity…

The following showed up in my inbox this week and may be of interest to readers of this blog:

As part of our Capitalism & Rule of Law Project (CapLaw), the Law & Economics Center (LEC) at George Mason University Antonin Scalia Law School is having a big week, including by focusing attention on an important anniversary in the debate over capitalism and the rule of law. Two years ago today, on August 19, 2019, the influential Business Roundtable released what it called a “new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.” This statement is one of many alarming calls for the abandonment of traditional and time-tested principles of corporate governance, perhaps most succinctly captured in the title of Milton Friedman’s 1970 essay in The New York Times: “The Social Responsibility Of Business Is to Increase Its Profits.”

Here’s a selection of CapLaw highlights from this week: 

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