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Shu-Yi Oei and Diane Ring of Boston College Law School have posted Is New Code Section 199A Really Going to Turn Us All into Independent Contractors? to SSRN.  Here is the abstract:

There has been a lot of interest lately in new IRC Section 199A, the new qualified business income (QBI) deduction that grants passthroughs, including qualifying workers who are independent contractors (and not employees), a deduction equal to 20% of a specially calculated base amount of income. One of the important themes that has arisen is its effect on work and labor markets, and the notion that the new deduction creates an incentive for businesses to shift to independent contractor classification. A question that has been percolating in the press, blogs, and on social media is whether new Section 199A is going to create a big shift in the workplace and cause many workers to be reclassified as independent contractors.

Is this really going to happen? How large an effect will tax have on labor markets and arrangements? We think that predicting and assessing the impact of this new provision is a rather nuanced and complicated question. There is an intersection of incentives, disincentives and risks in play among

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As Joan and Josh previously posted, Stefan organized an excellent AALS panel on Rule 14a-8. We covered a number of topics, including the appropriate role of retail and employee shareholders, the proper sphere of activity for shareholders vis a vis managers, the true audience for shareholder proposals, and how to construct Rule 14a-8 so that frivolous and improper proposals can be easily weeded out.

In my remarks, I focused on the fact that shareholder proposals are usually precatory, even when they don’t have to be.  For example, shareholders have the right to pass bylaws, but even the Boardroom Accountability Project typically sponsors proposals that merely request that directors use their power to craft proxy access bylaws.  (I assume that’s at least in part because a good bylaw must address administrative matters that shareholders are ill-equipped to manage – for example, see management’s response to Proposal Ten, for a majority-rule bylaw at Netflix).

Because shareholder proposals are precatory, their main function is informational: they allow shareholders to communicate with management, with each other, and with the market more generally.  I suspect that this function may become especially important as passive investing’s popularity increases; absent the ability to sell…

Ponzi schemes recur with an astounding regularity.  The latest comes from the Woodbridge group of companies.  The $1.2 billion scheme ran for about five years.  It took advantage of about 8,400 investors, many of them elderly. 

Like many other Ponzi schemes, commission-hungry sales agents brought fresh infusions of capital to the scheme.  Interestingly, the scheme allowed sales agents to pick how much they would receive in commissions:

The sales agents were paid well. According to the SEC complaint, “Woodbridge offered its [mortgage] product to its external sales agents at a 9% wholesale rate, and the agents in turn offered the [mortgage notes] to their investor clients at 5% to 8% annual interest — the external sales agent received a commission equivalent to the difference,” the SEC asserted.

In total, Woodbridge may have paid out over $64 million in commissions to sales agents.  Some of these sales agents had been kicked out of the securities industry.  The Investment News details some of the sales claims that enabled the scheme:

For example, one insurance salesman and former broker, James H. Gilchrist, promoted the loans at dinners in Jensen Beach. The invitation encouraged potential attendees to “learn how to earn 6% fixed interest”

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Over the holidays, I saw The Greatest Showman and Molly’s Game.  You wouldn’t have thought they’d be all that similar, but in fact, they’re both stories about nontraditional entrepreneurs who build unusual businesses from scratch. Molly’s Game understands that; sadly, Greatest Showman does not.  As a result, Molly’s Game is the more successful film.

The bulk of Molly’s Game is spent on building a business.  She learns the field, she identifies prospects, she finances and markets her game, she maintains her position and handles competition.  This is the heart of the movie and much of its appeal lies in the illustration of her ingenuity and expertise.

Those are also the best parts of The Greatest Showman, yet – and I rarely say this about a movie – the film was too short (1.5 hours). Too short because it quickly moves away from that theme to focus on a different story, namely, something about inclusion and acceptance for people who don’t fit society’s mold.  As one review put it, “it doesn’t really tell Barnum’s story. Rather, it appropriates his name for a pop-culture sermon on inclusion that lets us know, just in case we didn’t realize, that 500-pound men…

The New York Times recently covered the puzzling persistence of high mutual fund fees.  The article focuses on Baron Funds, a mutual fund family led by Ronald S. Baron. It points out that Baron’s fees exceed the industry average by 54 percent.  Despite the high fees and finishing ahead of their indexes this year, the funds lag behind their benchmarks over a five year period. Baron argues that investors should take a broader view.  According to Baron, an investor that bought his flagship fund in 1994 would have roughly doubled the return otherwise obtainable from holding the S&P 500 over the same period. 

Notably, and not addressed by the Times, the content of Baron funds has changed since their launch.  Investors should not expect today’s large Baron funds to replicate their early performance.  Although Baron funds once made concentrated bets on small companies, the funds have changed as they have grown.  One 2012 article, pointed out that Barons changed its investment policies after a large stake in Sotheby’s imploded.  Baron changed the rules so that “no new investment can account for more than 10 percent of any of [the] funds.”  

Mutual funds get away with high fees for a variety of…

I did my annual Westlaw check-up on the use of “limited liability corporation” in place of the correct “limited liability company.”  I did a similar review for 2015 and 2016 about this time, and revisiting the same search once again showed consistency (not in a good way). I keep hoping for major improvement, but some noticeable reductions in a few areas is a positive sign. 

Since January 1, 2017, Westlaw reports the following using the phrase “limited liability corporation”:

Type

2017

2016

2015

Cases

352

363

381

Trial Court Orders

110

99

93

Administrative Decisions & Guidance

132

172

169

Secondary Sources

989

1116

1071

Proposed & Enacted Legislation

83

148

169

Modest improvement by courts (yay, judges and clerks!), a little worse showing for trial court orders in trial court orders (boo, judges and clerks!), and sizeable reductions showed up in administrative decisions and on the legislative front, and a modest reduction appeared in secondary sources. 

Hard to say what the cause of any of this is, and I am inclined to think that the legislative number is far more focused on the types of bills being proposed than anything else. That is, all of the other areas have recurring and…

I am laboring with what I hope is the tail end of the fourth cold I have had since the end of October–two in December alone.  Ugh.  So, I am afraid that my new year’s day spirit is somewhat dulled by all the cold medicine.  (I get on a plane for San Diego tomorrow morning, so getting all the head congestion out of the way today is a primary goal!)

Nevertheless, since New Year’s Day is commonly associated with resolutions, I thought I would offer one in the spirit of the BLPB.   It’s not your typical new year’s resolution.  But my co-bloggers and most of our readers will no doubt find it oddly familiar . . . .  Here goes.  (Oh, and happy new year!)

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CONSENT OF SOLE NEW YEAR’S DAY BLPB BLOGGER

Monday, January 1, 2018

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WHEREAS, our weblog is blessed by some of the best blog editors known to man (and woman and others); and

WHEREAS, our weblog has garnered over 1,045,000 page views; and

WHERAS, our readers are amazing, patient folks with interesting and diverse ideas, thoughts, and perspectives; and 

WHEREAS, all of…

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There is so much to unpack in FINRA’s recent settlement with Citigroup Global Markets over its analyst ratings. (Press release here.)

The short version is that due to a glitch in one of Citigroup’s clearing firms, there was a nearly five year period when its displayed ratings for 1800 different equity securities (buy, sell, hold) were incorrect.  Buys were listed as sells; securities that weren’t covered received a rating, etc.  As I understand it, the research reports themselves were accurate – so you could probably click through to see the true rating – but in various summaries made electronically available to customers and brokers, the bottom line recommendation was wrong.  My guess – and this is just a guess – is that some brokers and customers probably figured out that the summary ratings were unreliable and made a habit of clicking through to check the research reports, but nonetheless FINRA alleges the mistakes impacted trading in various ways, including by allowing trades in violation of certain account parameters (i.e., accounts that were supposed to be restricted to securities rated “buy,” and so forth).

The problem did not go entirely unnoticed within the firm, but there wasn’t a firm…