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As many readers have likely seen from the client updates going out from law firms, the Fifth Circuit struck down the Department of Labor’s fiduciary rule on March 15th.  A divided panel ruled that Labor overstepped its authority when issuing the rule.  A copy of the opinion is available here.  

One thing that jumped out to me as I read the opinion was the characterization of persons that hold themselves out to the public and advertise their services as financial advisers as mere “salespeople.”  Admittedly, the law here is a mess.  The biggest problem I see is that the SEC never held the line on only allowing stockbrokers to give “incidental” advice to make use of the broker-dealer exception to the Investment Advisers Act.  That provisions exempts brokerage houses from the Investment Advisers Act if it’s “a “broker or dealer” whose advice is “solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor.” 15 U.S.C. § 80b-2(a)(11)(C).  Of course, one wonders why someone would work with a self-described financial adviser if not for the advice.

Labor has until April 30 to make a decision about whether to seek en banc review.

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It’s that time of year again!  Tulane is hosting its 30th Annual Corporate Law Institute, a 2-day conference devoted to developments in corporate law, particularly mergers & acquisitions. 

I was only able to attend some of the panels on the first day, but I very much enjoyed getting a sense of what lawyers – and judges – are thinking about these days.  Below is a summary of some of the highlights that I found most intriguing:

[More after the jump]

I had the pleasure of taking a group of students to Washington for the most recent meeting of the SEC’s Investor Advisory Committee.  Among other things, they discussed issues with dual class shares.  In a nutshell, dual class shares give one set of shareholders much greater voting control than other sets.  In practice, it provides a means for insiders to permanently entrench themselves and retain control over a corporation even as their economic stake declines.  A number of leading companies (Facebook, Snapchat, and Google) have pursued similar structures aimed at entrenching existing founders and owners.

The committee issued a recommendation and suggested that the Commission take a close look at the kinds of risks these arrangements may create.  It also highlighted how these developments could widen the separation between ownership and control for many corporations:

For instance, while Snap disclosed the major governance provisions it planned to adopt, its IPO registration statement did not clearly disclose that those provisions would enable each of the co-founders to reduce his equity stake to below 1% of total economic ownership without relinquishing control. The fact that the governance structure adopted by Snap could – without further shareholder check – lead over time to such a dramatic divergence

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I’ve been consumed by the latest twist in Broadcom’s attempt at a hostile takeover of Qualcomm: the dramatic entrance of CFIUS.

For those who haven’t been following the saga, Broadcom, a Singaporean technology company, has been attempting to acquire San Diego-based Qualcomm for months.  After its attempts at a friendly merger were rebuffed, it launched a proxy contest, proposing its own nominees to replace Qualcomm’s existing directors. 

Qualcomm responded with what is apparently becoming de rigueur in contested proxy solicitations: in addition to setting up a website devoted to making its case to shareholders, it also promoted various tweets on the subject.

One intriguing aspect of Qualcomm’s argument has been that – as a leader in research and development – the merger would be bad for innovation and consumers.  This point is reiterated on its website, which fascinates me because it assumes that investors as investors would be persuaded by an argument directed toward consumer wellbeing. 

That may not have been the right tack; according to news reports, at least some large shareholders were poised to vote for Broadcom, giving Broadcom a fighting chance at a hostile takeover.

But the day before the crucial shareholder meeting, Qualcomm won…

The main premise behind self-regulation is that an industry has an incentive to police its ranks if industry members bear the costs of misbehavior.  An organized industry won’t tolerate particular industry members cheating or taking advantage to get an edge for themselves if it imposes greater costs on the industry as a whole.  Notice here that profit-seeking industry self-regulators will construe “misbehavior” as actions that impose costs or reduce the profits of the industry as a whole—not necessarily as activities that generate costs elsewhere.  For example, self-regulating manufacturers may not limit environmental pollution because distant customers do not bear the environmental costs generated by their operations.   Their customers may even prefer pollution-spewing factories because they pay less for goods and bear no liability for the environmental cleanup.

The New York Stock Exchange’s history as a self-regulating exchange bears this out.  Traditionally, the NYSE aggressively policed its own ranks to prevent its members from undercutting the standard fixed commission rates.   It did not, however, aggressively police its members’ extraordinarily profitable market-manipulating stock pools.   The incentive to self-police, therefore, failed to check exploitation of the public for at least two reasons:  (i) the NYSE members that did not participate in the stock…

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