Securities Regulation

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[I]t is counterproductive for investors to turn the corporate governance process into a constant Model U.N. where managers are repeatedly distracted by referenda on a variety of topics proposed by investors with trifling stakes. Giving managers some breathing space to do their primary job of developing and implementing profitable business plans would seem to be of great value to most ordinary investors. –Hon. Leo E. Strine Jr., Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, 114 COLUMBIA L. REV. 449, 475 (2014).

When was the last time you remember the U.S. Chamber of Commerce, the National Association of Corporate Directors, the National Black Chamber of Commerce, American Petroleum Institute, the Latino Coalition, Financial Services Roundtable, Center On Executive Compensation, and the Financial Services Forum joining forces on an issue? Well yesterday they signed on to a petition for rulemaking that was submitted to the SEC regarding the resubmission of shareholder proposals that “fail to elicit meaningful shareholder support.” 

Shareholders who own at least $2,000 worth of a company’s stock for at least one year may require a company to include one shareholder proposal in the company’s proxy statement…

Earlier this spring, I posted about transactional resources  (the current source list is available here: Download Transactional Law Resources).

Continuing with the theme, I want to highlight a new hybrid resource, JURIFY, which is a mostly-free, online transactional law resource. 

“Jurify provides instant access to high-credibility, high-relevance legal content, including forms and precedent in Microsoft Word® format written by the world’s best lawyers, white papers and webinars from top-tier law firms, articles in prestigious law journals, reliable blog posts and current versions of statutory, regulatory and case law, all organized by legal issue.”

Here are the stats:  Jurify, launched in 2012, covers 5 broad transactional areas:  General Corporate, Governance, Mergers & Acquisitions, Securities and Startup Companies.  The 11,000+ sources that the website currently contains have been verified by transactional attorneys and generated from free on-line platforms or submitted by private attorneys who are voluntarily sharing their work.  Documents are organized according to 586 tags.  Three transactional attorneys started this website (husband/wife duo and their former law-firm colleague); none take compensation from editors, publishers or law firms. 

Jurify is a unique transactional law resource for the following reasons: 

  • FREE (mostly). Website contents including primary law, secondary sources

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On March 27th, SEC commissioner Daniel M. Gallagher’s delivered the keynote address at the 26th Annual Corporate Law Institute  at Tulane University Law School.  Addressing the intersection of governance and securities disclosure, Commissioner’s Gallagher’s remarks (available here) are summarized below:

Dodd Frank increased the federalization of corporate law.

“This mandated intrusion into corporate governance will impose substantial compliance costs on companies, along with a one-size-fits-all approach that will likely result in a one-size-fits-none model instead.”

Shareholder proposals are costly, problematic and used by only a small group of shareholders with particular interests and agendas that may not be alligned with other shareholders. Citing first to the 41% increase in shareholder proposals post Dodd-Frank, and the meager 7% passage rate, Commission Gallagher outlined which shareholders use the proposal process and the punch line is that only 1% are brought by ordinary institutional investors.

  • 34% are from organized labor;
  • 25% are from social, policy or religious institutions; and
  • 24% of the proposals were brought by just two individuals whom the Commissioner described as “corporate gadflies.”

The shareholder proposal process should be reformed by narrowing the scope of those eligible to bring proposals and the subject matter of the proposals.…

As regular readers of this blog may know, I sit on the Department of Labor’s Whistleblower Protection Advisory Committee. The Occupational Health and Safety Administration, a division of the Department of Labor, may not be the first agency that many people think of when it comes to protecting whistleblowers, but in fact the agency enforces almost two dozen laws, including Sarbanes-Oxley and the Consumer Financial Protection Bureau’s law on whistleblowers.  The Consumer Financial Protection Act was promulgated on July 21, 2010 to protect employees against retaliation by entities that offer or provide consumer financial products.

Today OSHA released its interim regulations for protecting CFPB whistleblowers.  The regulation defines a “covered person” as “any person that engages in offering or providing a consumer financial product or service.” A “covered employee” is “any individual performing tasks related to the offering or provision of a consumer financial product or service.” A “consumer financial product or service” includes, but is not limited to, a product or service offered to consumers for personal, family, or household purposes, such as residential mortgage lending and servicing, private student lending and servicing, payday lending, prepaid debit cards, consumer credit reporting, credit cards and related activities. The Consumer Financial …

I wonder how many people are boycotting Hobby Lobby because of the company’s stance on the Affordable Health Care Act and contraception. Perhaps more people than ever are shopping there in support. Co-blogger Anne Tucker recounted the Supreme Court’s oral argument here in the latest of her detailed posts on the case. The newspapers and blogosphere have followed the issue for months, often engaging in heated debate. But what does the person walking into a Hobby Lobby know and how much do they care?

I spoke to reporter Noam Cohen from the New York Times earlier today about an app called Buycott, which allows consumers to research certain products by scanning a barcode. If they oppose the Koch Brothers or companies that lobbied against labels for genetically modified food or if they support companies with certain environmental or human rights practices, the app will provide the information to them in seconds based on their predetermined settings and the kinds of “campaigns” they have joined. Neither Hobby Lobby nor Conestoga Woods is listed in the app yet. 

Cohen wanted to know whether apps like Buycott and GoodGuide (which rates products and companies on a scale of 1-10 for their health, environmental…

It’s proxy season and the Conference Board has released a series of reports on investor engagement and corporate governance. In “The Conference Board Governance Center White Paper: What is the Optimal Balance in the Relative Roles of Management, Directors, and Investors in the Governance of Public Corporations?” the authors provide a 76-page overview of the evolution of US corporate governance, describing key trends and issues.

The report begins by discussing the history of the allocation of roles and responsibilities for governance of public companies. If I thought my law students would read it, I would assign this section to them.  The second part of the paper addresses the legal, social and market trends that have influenced the historical allocation of rights. Specifically, it reviews:

a) the increasing influence of institutional investors resulting from the concentration of ownership in institutional investment, changes in voting rules and practices and more assertive shareholder activism;

b) shifting conceptions about the purpose of the corporation and the duty to maximize corporate value, with a strong emphasis on shareholder wealth maximization;

c) decreased public trust of business leaders following the corporate scandals of 2001-2002 and 2007-2008;

d) federal regulation intended to enhance the influence of shareholders…

I study both business law issues and shale oil and gas regulation, and I see a lot of overlaps between the two. Big business, is after all, big business.

The political intensity related to shale oil & gas development, is a concentrated version of many other types of regulation, such as we related to securities and publicly traded corporations.  I am currently finalizing an article regarding the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth, which overturned Act 13, the state’s law designed to promote hydraulic fracturing and horizontal drilling.  In major part, Act 13 largely eliminated local zoning of oil & gas development.  

David B. Spence’s article, Responsible Shale Gas Production: Moral Outrage vs. Cool Analysis, provided one good source for analyzing the regulatory backdrop of shale law and regulation.  I recommend it highly. 

Here’s the abstract:      

The relatively sudden boom in shale gas production in the United States using hydraulic fracturing has provoked increasingly intense political conflict. The debate over fracking and shale gas production has become polarized very quickly, in part because of the size of the economic and environmental stakes. This polarized debate fits a familiar template in American

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The federal restrictions on offering securities are a mess. Section 5, even with the recent additions of subsections (d) and (e), is short—less than 600 words by my count. However, as every Securities Regulation student comes to appreciate, that brevity is deceptive. Section 5 is incredibly complex. The SEC regulations increase that complexity: almost everything in Section 5 has been modified or displaced by SEC regulations.

Consider just the question of what an issuer may say before filing its registration statement. Section 5(c) says the issuer may not make an offer to sell the securities. But the SEC says “offer to sell” means more than just asking people to buy the securities. It includes any communication, even if you don’t mention the offering, that might generate public interest in buying the security, what the SEC calls conditioning the market. But, if it’s more than 30 days prior to when you’re going to file your registration statement, see Rule 163A. After that, see Rule 163, Rule 168, or Rule 169, depending on what type of company you are. But don’t mention the offering in any of those communications, unless, of course, you fit within Rule 135.

Or consider section 5(b)(1)’s bar…

This week in Lawson v. FMR, LLC the Supreme Court extended the reach of Sarbanes-Oxley to potentially millions more employers when it ruled that SOX’s whistleblower protection applies to employees of private employers that contract with publicly-traded companies. In 2002, Congress enacted SOX with whistleblower protection provisions containing civil and criminal penalties. The law clearly protects whistleblowers who work for publicly-held companies, and courts have generally ruled against employees who work for privately-held firms. But the Department of Labor’s Administrative Review Board has ruled that contractors at public companies enjoy whistleblower protection as well. The Supreme Court agreed with that assessment, with Justice Ginsburg writing for the majority. The dissent, written by Justice Sotomayor, noted the “stunning reach” based on the majority’s interpretation and opined that the extension was not what Congress intended.  The plaintiffs in Lawson did not work for Fidelity, but were contracted to provide advice to Fidelity Mutual Fund customers. Plaintiffs voiced concerns to management regarding problems with cost-accounting methodologies and the alleged improper retention of millions of dollars in fees. Because Fidelity has no employees of its own, it was not a party to the suit.

This development will likely be among the many that the Whistleblower Protection…

Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics.  Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.

As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel  read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for…