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In December, the Deal Professor, Steven Davidoff, wrote a great piece about the grey areas triggered by DISH Network Chairman Charles Ergen’s debt purchase from LightSquared (a failing satellite-based broadband comany).  This case has several twists and turns, and I plan to write a few posts on some of these areas.  Today, we’ll start with debt purchase. 

As Davidoff explains, Lightsquared’s debt could not (per the debt documents) be purchased by “direct competitor” (e.g., Dish Network), so Ergen used a personal investment vehicle to buy the debt.  This, the Deal Professor notes, appears acceptable under the debt documents (even if it’s not what was intended):

In a court filing, LightSquared contends that Mr. Ergen breached the debt agreement because the documents define a “direct competitor” to also be a subsidiary of a direct competitor. LightSquared is arguing that because Mr. Ergen controls both Dish and the hedge fund that bought the debt, the fund is a subsidiary of Dish.

Yet that argument stretches the plain meaning of a “subsidiary” — a company owned or controlled by a holding company — language that is not in the document. So LightSquared’s claims against Mr. Ergen are tenuous at best.

The acquisition itself seemed…

On Tuesday, I attended the oral argument for the National Association of Manufacturers v. SEC—the Dodd-Frank conflict minerals case. Trying to predict what a court will do based on body language and the tone of questioning at oral argument, especially in writing, is foolish and crazy, but I will do so anyway.

I am cautiously optimistic that the appellate court will send the conflict mineral rule back to the SEC to retool based on the three arguments generated the most discussion. First, the judges appeared divided on whether the SEC  had abused its discretion by changing the statutory language requiring issuers to report if minerals “did” originate from the DRC or surrounding companies rather than the current SEC language of “may have” originated. This language would sweep in products in which there is a mere possibility rather than a probability of originating in covered countries. One judge grilled the SEC like I grill my law students about the actual statutory language and legislative intent, while another appeared satisfied with SEC’s explanation that issuers did not have to file if the lack of certainty was due to a small number of responses from suppliers or for lack of information. My prediction-…

As the Conglomerate, M&A Law Prof Blog, and WSJ have reported, Chancellor Leo Strine, Jr. has been nominated by Delaware Governor Jack Markell for the Chief Justice of the Delaware Supreme Court position.  The official announcement is here, courtesy of Brian Quinn.

Chancellor Strine’s office was just a few feet from mine when I clerked for former Vice Chancellor Stephen Lamb, and I can confirm that Chancellor Strine is every bit as colorful and witty as his opinions suggest.  Chancellor Strine (then a Vice Chancellor and called “VCS” by the clerks) is also the only judge (other than my own) that I chose to watch in action while in Delaware.  

My former co-clerk wonders, on Twitter, why Chancellor Strine would even want this job, as his current position as Chancellor arguably gives him more direct influence over the course of corporate law.  As Chancellor, he not only gets a more steady dose of corporate cases, but also is the sole author of those cases.  As Chief Justice, he will have to share the pen, and will hear plenty of non-corporate cases.  My guess is that Strine will enjoy having a hand in shaping the controlling precedent handed…

The following information was shared with me by my friend, Professor Ciara Torres-Spelliscy at Stetson Law.  On February 28, 2014, Stetson Law in Gulfport, FLorida, will host: 

Taking Stock of Citizens United: How the Law Has (and Has Not) Changed Four Years Later.

Panel One: Quantifying the Problem of Money in Politics
Citizens United opened a new avenue for corporations and unions to spend in politics by purchasing political ads. This ability to spend was added to older avenues of political activity such as corporate and union segregated funds (SSFs or PACs), lobbying and direct contributions in certain states. The question of what political spenders get in return for this largess remains an open one.
 
Panel Two: The Risk of Corruption Collides with Free Speech
From a Constitutional law perspective, the courts have long wrestled with the placing political spending into a single paradigm. On one hand, courts have recognized that running for political office is costly and fundraising implicates First Amendment concerns such as the freedom of speech and association. On the other hand, campaign spending can be a corrupting force in the democratic process. Layered on top of this is an impulse by the courts to treat

…

News Release: 

The Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) have signed two Memoranda of Understanding (MOU) to address circumstances of overlapping jurisdiction and to share information in connection with market surveillance and investigations into potential market manipulation, fraud or abuse. The MOUs allow the agencies to promote effective and efficient regulation to protect energy market competitors and consumers.

Finally, the CFTC and FERC seem to have resolved some serious jurisdictional overlap problems between the agencies related to Dodd-Frank (section 720(a)(1)), which required the agencies to adopt a Memorandum of Understanding (MOU) to resolve several key issues. It’s taken a while to get here.  Recall that settling (or at least improving) jurisdictional questions became especially acute in the wake of the Brian Hunter case, where the CFTC joined the defendant against FERC claiming that the CFTC had exclusive jurisdiction over Hunter’s alleged trading violations.  The DC Circuit agreed with Hunter and the CFTC (opinion pdf). 

At long last, there are two MOUs, one related to jurisdiction (pdf) and the other related to information sharing (pdf). According to the FERC news release, the jurisdiction MOU provides a process the…

The Generation Foundation (the “Foundation”), which focuses on sustainable capitalism, commissioned Mercer and Canadian law firm Stikeman Elliott LLP to study ways to foster more long-term thinking in the capital markets. In a prior report the Foundation proposed five actions to counteract the effects of short-termism including: (1) identifying and incorporating risks from stranded assets; (2) mandating integrated reporting; (3) ending the default practice of issuing quarterly earnings guidance; (4) aligning compensation structures with long-term sustainable performance; and (5) encouraging long-term investing with loyalty-driven securities. 

Loyalty-driven securities provide differentiated rights or rewards to shareholders based on their tenure of shareholding.  These rewards could include extra dividends, warrants or additional voting rights for owners who held shares for three years (or some other time period), limiting proxy access to shareholders of a specified minimum duration, or inferior voting rights for short-term shareholders.   The idea is not far-fetched. Apparently, the European Commission is considering proposals to reward certain shareholders with additional voting rights. 

In a report issued in December 2013 the Foundation, Mercer and the law firm outline the results of their legal review of almost a dozen countries and the interviews of over 120 experts. Interviewees included academics, pension funds, investors…

Happy New Year!  2014 holds much promise and many challenges.  One such item: a recent World Bank report (key findings pdf) finds some things we all probably suspected: 

The report finds that economies with greater numbers of restrictions on women’s work have, on average, lower female participation in the formal labor force and have fewer firms with female participation in ownership. Conversely, economies which provide a greater measure of incentives for women to work, have greater income equality.

Here’s hoping 2014 brings you all you seek.  More equality in the workplace, starting by removing legal barriers to gender equity, is high on my list.

Lucian A. Bebchuk & Allen Ferrell recently posted “Rethinking Basic” on SSRN.  Here is the abstract:

In the Halliburton case, the United States Supreme Court is expected to reconsider next spring the Basic ruling that, twenty-five years ago, adopted the fraud-on-the-market theory and has facilitated securities class action litigation. In this paper we seek to contribute to the expected reconsideration.

We show that, in contrast to claims made by the parties, the Justices need not assess, or reach conclusions regarding, the validity or scientific standing of the efficient market hypothesis; they need not, as it were, decide whether they find the view of Eugene Fama or Robert Shiller more persuasive. We explain that class-wide reliance should not depend on the “efficiency” of the market for the company’s security but on the existence of fraudulent distortion of the market price. Indeed, based on our review of the large body of research on market efficiency in financial economics, we show that, even fully accepting the views and evidence of efficiency critics such as Professor Shiller, it is possible for market prices to be distorted by fraudulent disclosures. Conversely, even fully accepting the views and evidence of market efficiency by…

Sofya Manukyan has published “Can the ICESCR Be an Alternative for Environmental Protection? Analysis of the Effectiveness of the ICESCR in Holding State and Non-State Actors Accountable for Environmental Degradation” on SSRN.  Here is an excerpt of the abstract:

[O]ne method for tackling the problem of environmental degradation is creating universal mandatory norms to which all corporations would adhere. Another method, however, which is considered in this work in more details, is the approach to the issue of environmental degradation from the human rights perspective, particularly from the perspective of each human being having the right to live in a healthy, clean environment. As the reflection of this right is found in the state binding UN Covenant on Economic, Social and Cultural Rights (ICESCR), we consider this indirect approach to the environmental protection as a possible effective method for addressing the issues of environmental degradation.

Therefore, in this work we first justify our choice of approaching the environmental protection from the perspective of state’s human rights obligations, rather than from the perspective of voluntary guidelines adopted by corporations and financial institutions. We then analyze how relevant articles of the ICESCR address the issue of environmental degradation. After…

Andrew F. Tuch has posted, “Financial Conglomerates and Chinese Walls,” on SSRN.  Here is the abstract:

The organizational structure of financial conglomerates gives rise to fundamental regulatory challenges. Legally, the structure subjects firms to multiple, incompatible client duties. Practically, the structure provides firms with a huge reservoir of non-public information that they may use to further their self-interests, potentially harming clients and third parties. The primary regulatory response to these challenges and a core feature of the financial regulatory architecture is the Chinese wall or information barrier. Rather than examine measures to strengthen Chinese walls, to date legal scholars have focused on the circumstances in which to deny them legal effect, while economists have focused on demonstrating Chinese walls’ practical ineffectiveness in a range of important contexts.

This paper discusses the phenomenon of failing Chinese walls, explains why it occurs, and proposes a regulatory solution. The paper argues that limits on market discipline and evidential difficulties in detecting and proving the use of non-public information account for the failures of Chinese walls. It shows how the Volcker Rule, a core plank of the Dodd-Frank Act, will likely reduce harms flowing from failing Chinese walls, despite the rule’s…