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I attended my first Law and Society meeting this year (made easier by the fact that it was held in New Orleans, my newly-adopted city!)   And as Joan indicated in a prior post, she gave a presentation on her most recent project, tentatively titled “Pillow Talk, The Parent Trap, Sibling Rivalries, Kissing Cousins, and Other Personal Relationships in U.S. Insider Trading Cases.”  And very shortly after she concluded, a news story dropped in my inbox about SEC v. Maciocio, involving two longtime friends charged in an insider trading scheme that lasted for several years. 

The reason the case interests me is that I assume the SEC (and the DOJ in a parallel criminal complaint) are teeing it up in light of the pending Supreme Court case of Salman v. United States. 

According to the SEC’s allegations, Maciocio worked for a pharmaceutical company that engaged in business dealings with several other companies.  Hobson was his longtime childhood friend.  The details of their relationship are described in the SEC’s complaint, including their days of Little League baseball, and daily phone calls and emails.

Hobson, as it turns out, was a securities broker.  So, Maciocio tipped off Hobson…

How much do we trust institutional investors to protect their interests?

Delaware law has gradually been inching toward a recognition that in a stock market dominated by institutional investors, old assumptions – about a dispersed,  uninformed, and rationally passive shareholder base – must give way to a new recognition of shareholder sophistication and incentives.

You can see the tendrils of this growing awareness in, for example, opinions like Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015), where the Delaware Supreme Court held that a shareholder vote in favor of a merger would act as a ratification of the directors’ conduct – a ruling that implicitly relied on an expectation of shareholder sophistication.  See id. (“When the real parties in interest—the disinterested equity owners—can easily protect themselves at the ballot box by simply voting no, the utility of a litigation-intrusive standard of review promises more costs to stockholders in the form of litigation rents and inhibitions on risk-taking than it promises in terms of benefits to them.”)  You can see it in then-Vice Chancellor Strine’s opinion in In re Pure Res. S’Holders Litig., 808 A.2d 421 (Del. Ch. 2002), where he held that controlling shareholder tender…

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As a former student of modern American History (yes, that was my undergraduate major, along with International Relations), I find Memorial Day both sobering and inspiring.  The number of servicemen and servicewomen, as well as others, that we have lost at war is staggering.  As I may have written in a former post, my dad, my father-in-law, and my secretarial assistant all are veterans.  I am glad they made it out alive.  So, today I will spend some time reflecting on those who didn’t emerge victorious in the fight for life at war as well as on those who did emerge victorious from that fight.  I am grateful for them all.

Public companies are required to report certain material events within 4 business days on Form 8-K.  These events include such matters  as the departure of directors or officers, the disposition of assets, or material impairment of assets. 

In their paper Strategic Disclosure Misclassification, Andrew Bird, Stephen A. Karolyi, and Paul Ma find that in their 8-K filings, corporate managers seem to be taking a leaf from Roseanne’s bill paying system:

Specifically, Bird et al. find that companies frequently “misfile” their 8-Ks, categorizing them as miscellaneous “other” rather than properly identifying them in the appropriate category.  “Misfiling” is particularly likely to occur for negative events, and during periods when investor attention is high – suggesting that misfilings are part of a strategic effort to deflect investor attention.  Happily for corporate managers, the strategy is an effective one: misfiled 8-Ks not only receive less traffic, but they also have less stock price impact.

Roseanne would be so proud.

Last week, Chancellor Andre Bouchard dismissed the derivative complaint filed against Walmart concerning the WalMex bribery scandal, on the grounds of issue preclusion:  Earlier, a federal court in Arkansas had dismissed identical claims filed by a different set of plaintiffs. 

The reason that the Arkansas decision came so much earlier than the Delaware decision was, of course, that the Arkansas plaintiffs filed their complaint without first exercising their inspection rights under Section 220.  The Delaware plaintiffs did exercise their rights, as Delaware has repeatedly counseled plaintiffs should do, and fought Walmart for years over it – taking a trip to the Delaware Supreme Court as a result.

Standing alone, then, this case stands for the proposition that Delaware has no way of enforcing its own guidance to plaintiffs that they seek books and records before filing a derivative claim. 

But there’s hope – because this is exactly the kind of destructive competition among plaintiffs’ firms that forum selection bylaws were meant to address.  Had such a bylaw been in place, all of the plaintiffs could have been shunted into a Delaware forum.

Right?

Unfortunately, no.  Because defendants have the freedom to ignore a forum selection bylaw if their interests…

Money Monster, directed by Jodie Foster, is the latest addition to the pop cultural anti-finance zeitgeist.  George Clooney plays – well, Jim Cramer, with Julia Roberts as his long-suffering director.  Their usual television buffoonery is interrupted by a disgruntled investor who lost his life savings by following Clooney’s advice to invest in – well, Knight Capital.  Now he insists on holding Clooney hostage at gunpoint until he can get an explanation for the trading “glitch” that caused his investment to go sour.

Warning:  Below be spoilers, though I’ll try to keep them to a minimum (roughly movie review standards).