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The Economist has an interesting piece on how “[a] mutation in the way companies are financed and managed will change the distribution of the wealth they create.”  You can read the entire article here.  A brief excerpt follows.

The new popularity of the [Master Limited Partnership] is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works…. Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised…. [The] beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer….

Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and…

In 2011, I met with members of the SEC and Congressional staffers as part of a coalition of business people and lawyers raising concerns about the proposed Dodd-Frank whistleblower provision. Ten days after leaving my compliance officer position and prior to joining academia, I testified before a Congressional committee about the potential unintended consequences of the law. The so-called “bounty-hunter” law establishes that whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act are eligible for ten to thirty percent of the amount of the recovery in any action in which the SEC levies sanctions in excess of $1 million dollars. The legislation also contains an anti-retaliation clause that expands the reach of Sarbanes-Oxley. Congress enacted the legislation to respond to the Bernard Madoff scandal. The SEC recently awarded $14 million dollars to one whistleblower. To learn more about the program, click here.

I argued, among other things, that the legislation assumed that all companies operate at the lowest levels of ethical behavior and instead provided incentives to bypass existing compliance programs when there are effective incentive structures within the existing Federal Sentencing Guidelines for Organizations.  Although they…

As noted over at the Family Law Prof Blog, Stanford Graduate School of Business recently issued a report, “Separation Anxiety: The Impact of CEO Divorce on Shareholders” (pdf),  in which a study considered the impact CEO divorces have on the CEO’s corporation.  The report indicates that recent events “suggest that shareholders should pay attention to matters involving the personal lives of CEOs and take this information into account when making investment decisions.” 

The study found that a CEO’s divorce has the potential to impact the corporation and shareholders in three primary ways. First, is a possible reduction in influence or control if a CEO as to sell or transfer stock in the company as part of the divorce settlement. Second, divorce can negatively impact “the productivity, concentration, and energy levels of the CEO” or even result in premature retirement.  Third, the sudden change in wealth because of the divorce could lead to a change in the CEO’s appetite for risk, making the CEO either more risk averse or more willing to take risks.  

The report argues that this matters because:

1. Divorce can impact the control, productivity, and economic incentives of an executive—and therefore corporate value.

…

Last week, I posted a response to the New York Times article criticizing law reviews.  A friend pointed me to a cover story from the Economist, How science goes wrong: Scientific research has changed the world. Now it needs to change itself.  It’s an interesting read.  This paragraph jumped out at me:

In order to safeguard their exclusivity, the leading journals impose high rejection rates: in excess of 90% of submitted manuscripts. The most striking findings have the greatest chance of making it onto the page. Little wonder that one in three researchers knows of a colleague who has pepped up a paper by, say, excluding inconvenient data from results “based on a gut feeling”. And as more research teams around the world work on a problem, the odds shorten that at least one will fall prey to an honest confusion between the sweet signal of a genuine discovery and a freak of the statistical noise. Such spurious correlations are often recorded in journals eager for startling papers. If they touch on drinking wine, going senile or letting children play video games, they may well command the front pages of newspapers, too.

 The article also calls for more acceptance…

Jennifer Taub has published a new book, “Other People’s
Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made
Home Mortgages a Thrilling Business.” 
Here is an excerpt from the Yale University Press description:

Focusing new light on the similarities between the savings
and loan debacle of the 1980s and the financial crisis in 2008, Taub reveals
that in both cases the same reckless banks, operating under different names,
received government bailouts, while the same lax regulators overlooked fraud
and abuse. Furthermore, in 2013 the situation is essentially unchanged. The
author asserts that the 2008 crisis was not just similar to the S&L
scandal, it was a severe relapse of the same underlying disease. And despite modest
regulatory reforms, the disease remains uncured: top banks remain too big to
manage, too big to regulate, and too big to fail.

UPDATE: The book will be in bookstores in May, but can be
pre-ordered now.

Bill Black takes down claims of a “victory for the
government in its aggressive effort to hold banks accountable for their role in
the housing crisis.”  (HT: naked
capitalism.)  The full piece is available here, and
I highly recommend you go read the whole thing. 
What follows is a brief excerpt:

The author of the most brilliantly comedic statement ever
written about the crisis is Landon Thomas, Jr…. 
Everything worth reading is in the first sentence, and it should trigger
belly laughs nationwide. “Bank of America, one of the nation’s largest banks,
was found liable on Wednesday of having sold defective mortgages, a jury
decision that will be seen as a victory for the government in its aggressive
effort to hold banks accountable for their role in the housing crisis.” … Yes,
we have not seen such an aggressive effort since Captain Renault told Rick in
the movie Casablanca that he was “shocked” to discover that there was gambling
going on (just before being handed his gambling “winnings” which were really a
bribe)…. The jurors found that BoA (through its officers) committed an orgy of
fraud in order to enrich those

…

CEOs and executives just can’t get a break in the news
lately.  A jury found both former Countrywide
executive Rebecca Mairone and Bank of America liable for fraud for
Countrywide’s “Hustle” loans in 2007 and 2008 (see
here). Martha Stewart has had to renegotiate her merchandising agreement
with JC Penney to avoid hearing what a judge will say about that side deal in
the lawsuit brought against her by Macy’s, with whom she purportedly had an
exclusive merchandising deal (see
here).  JP Morgan Chase is in talks
to pay $13 billion to settle with the Department of Justice over various
compliance-related failures, but the company still faces billions in claims
from angry shareholders. The company isn’t out of the woods yet in terms of potential
criminal liability (see
here). CEO Jamie Dimon isn’t personally accused of any wrongdoing, and in
fact has been instrumental in achieving the proposed settlements. But in the
past he has faced questions from institutional shareholders about his dual
roles as chair of the board and CEO. Those questions may come up again in the
2014 proxy season.

The Bank of America verdict and the recent JP Morgan Chase
settlement may herald a…

Yesterday, the Executive Director, James Leipold, of
NALP (the National Association of Law
Placement) presented data regarding law graduate hiring trends from 2000
through 2012, both nationally and for my school (Georgia State University
College of Law).  It provided an
understanding of the changes to the legal market as a whole, and for our graduates
specifically.  I wasn’t aware of the data
compiled by NALP and available on their website prior to this presentation, and
man was I impressed.  As a faculty member
who frequently counsels students on job searches, the data paints a very
interesting story about HOW a majority of law graduates find jobs and WHERE
they find them.  The data also tells a
very compelling story of how the 2008 financial crisis/Great Recession has
impacted the legal hiring market.  (In
short:  big law jobs are down
significantly which was created downward pressure on alternative career paths
as students who would have traditionally pursued big law jobs compete for other
positions.) 

On the HOW question, the data confirmed a suspicion
of mine about how a majority of students find jobs.  Of course these statements will be either
more or less true depending on the reputational capital of your…

Yesterday, the New York Times published what I consider a medicocre criticism of law reviews.  Not that some criticism isn’t valid.  It is.  I just think this one was poorly executed.  Consider, for example, these thoughtful responses from Orin Kerr and Will Baude.

As I have thought about it, one thing that struck me was about the Times article was the opening:

 “Would you want The
New England Journal of Medicine to be edited by medical students?” asked
Richard A. Wise, who teaches psychology at the University of North Dakota. 

Of course not. Then why are law reviews, the primary
repositories of legal scholarship, edited by law students?

I don’t disagree with the premise, but note how limiting it is.  First, it talks about one journal, one that is highly regarded.  I know some people hate all law reviews, but I humbly suggest that most people consider elite journals like the Yale Law Journal a little differently.  (It’s also true that some journals like the Yale Law Journal happen to use some forms of peer review in their process.) 

Second, the implication is that medical journals have it all figured out.  That’s apparently not true, either.  An article from…

Stephen Davidoff recently posted a piece on DealBook
entitled “A Push to End Securities Fraud Lawsuits Gains Momentum,” in which he notes
that “Halliburton is asking the Supreme Court to confront one of the
fundamental tenets of securities fraud litigation: a doctrine known as “’fraud
on the market.’”  He goes on to provide a
lot of interesting additional details, so you should definitely go read the
whole thing, but I focused on the following:

In its argument, Halliburton is asking the
Supreme Court to confront one of the fundamental tenets of securities fraud
litigation: a doctrine known as “fraud on the market.” The doctrine has its
origins in the 1986 Supreme Court case Basic v. Levinson. To state a claim for
securities fraud, a shareholder must show “reliance,” meaning that the
shareholder acted in some way based on the fraudulent conduct of the company. In
the Basic case, the Supreme Court held that “eyeball” reliance — a requirement
that a shareholder read the actual documents and relied on those statements
before buying or selling shares — wasn’t necessary. Instead, the court adopted
a presumption, based on the efficient market hypothesis, that all publicly
available information about

…