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… but going back to corporations for a moment – a while ago, I speculated that corporate forum-selection bylaws could unfairly work to favor management, because management can choose to invoke them at will – they can deploy them to dismiss cases when it will benefit them, but also can refuse to invoke them when it would work to their advantage to have plaintiffs’ firms compete with each other in different jurisdictions.

Alison Frankel now reports that the FX company is doing just that.  According to her report, FX enacted a forum-selection bylaw choosing Utah as the forum; but now, faced with shareholder lawsuits in Nevada and Utah, it is choosing not to enforce the bylaw – precisely because, according to the Utah plaintiffs, it benefits management to have the plaintiffs compete for the opportunity to settle the case on sweetheart terms.

The basic problem is that these bylaws do not resemble contractual forum selection clauses, in that they can only be invoked by management – not plaintiffs.  And at least according to Delaware, they are only valid because they allow management the freedom to choose whether to invoke them (i.e., they contain a fiduciary out).  As a…

Well, it turns out Halliburton is going – you guessed it – back to the Fifth Circuit on 23(f) review.

If you recall, the Fifth Circuit overturned the district court’s class certification order in the first go-round – a decision that was vacated by the Supreme Court in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011).  The district court recertified the class; the Fifth Circuit granted 23(f) review, and the Supreme Court vacated – again!  And then the district court certified the class for a third time, and the defendants petitioned for 23(f) review, and the Fifth Circuit has – again! – granted the petition. 

The thing that’s so amazing, of course, is that this case has hit the Supreme Court twice, the district court three times, and now the Fifth Circuit three times, and it’s the exact same argument, over and over and over, on the same evidence – just using slightly different words.  Namely, the defendants’ position that if there is no price increase at the time of an initial false statement, and no price drop in reaction specifically to news that later reveals the earlier statements to have been false…

Just a few days ago, San Franciscans voted against Proposition F, a referendum that would have placed restrictions on AirBnBs and other short-term housing rentals. This type of legislation is far from unique. Fueled by arguably the United States’ most prominent housing crisis, San Francisco has enacted layers of housing laws intended to protect tenants from skyrocketing rents, arbitrary evictions, and diminished rental supplies. Notable examples include laws governing rent controls (landlords have little ability to raise rents), market exoduses (the Ellis Act often incentives landlords to withdraw from the San Francisco rental market for five years), and buyout restrictions (landlords face numerous obstacles in buying out a tenant’s lease). Although the motives behind these statutes is admirable—considering affordable housing’s position as a social justice issue—many housing laws intended to benefit tenants are misguided, harming both tenants and landlords.

The folly of housing laws is neatly described by an economics term known as the “cobra effect,” which refers to solutions that exacerbate an original problem. The term was coined after cobras overran Delhi, prompting city officials to issue bounties for each killed cobra. Upon learning that local residents had begun farming cobras to generate additional bounties, city…

One of the best news stories to come in the wake of the financial crisis was L’Affaire du Chaton, in which the accusation was lobbed that Goldman Sachs literally abandoned a group of stray kittens. Goldman, apparently recognizing that there are limits to the amount of profit-seeking the public is willing to tolerate, set not one, but two spokespeople to quell the looming media disaster.

Which is what I’m reminded of when I read this story about Goldman Sachs’s investment in social impact bonds sold by Utah to fund its preschool program.

As I understand it, Utah’s Granite School District needed money to finance its preschool program – which, it believed, prevented at-risk students from needing expensive special education later.

So Utah’s United Way of Salt Lake sold Goldman bonds.  The money was used to finance the preschool program, and Goldman was to be paid by the United Way and Salt Lake County to the extent that the program did result in cost-savings by reducing the need for special education.

The problem was that Utah itself set a rather specious standard for determining whether the pre-school program avoided the need for special education, by inflating the numbers…

Gday

Please join me in welcoming guest blogger Greg Day. 

Greg is a legal studies professor at the Spears School of Business at Oklahoma State University. Greg earned a JD at the University of North Carolina and a PHD in political science (with a focus on international relations) at the University of Mississippi. Before joining the faculty at Oklahoma State, Greg practiced with Morris, Nichols, Arsht & Tunnell LLP, a Delaware-based law firm. His scholarship focuses on the relationship between law and market inefficiencies.

Thanks to Greg for joining us, and I look forward to his posts. 

As you may have heard, the SEC has finally adopted the rules required to implement the crowdfunding exemption. The final release (686 pages) is available here.

But the crowdfunding exemption was not the only item on the SEC’s agenda. At the same meeting, it proposed some rather significant amendments to Rule 504 of Regulation D and to Rule 147, the intrastate offering safe harbor. The release proposing those changes is available here. (It’s only 168 pages.)

The proposed amendment to Rule 504 would increase the dollar amount of the exemption from $1 million to $5 million and would also add bad actor disqualifications similar to those that currently apply to Rules 505 and 506.

The proposed changes to Rule 147 would almost significantly restructure the rule. Here’s a description of the significant changes, taken from an SEC news release:

The proposed amendments would modernize Rule 147 to permit companies to raise money from investors within their state without concurrently registering the offers and sales at the federal level.  The proposed amendments to Rule 147 would, among other things:

  • Eliminate the restriction on offers, while continuing to require that sales be made only to residents of the issuer’s state

…

. . . are you sure I qualify?

From a spam email I recently received:

Dear Steve,

On behalf of The International Women’s Leadership Association, it is my distinct pleasure to notify you that, in consideration of your contribution to family career, and community, you have been selected as a woman of outstanding leadership.

I recently spoke at a crowdfunding conference in Germany. One of the professors there made a comment about entrepreneurship in Germany that I thought was interesting.

He indicated that small business entrepreneurs in Germany avoid hiring any employees for as long as possible, to avoid all of the (expensive) rights given to employees under German law.

Another example of the possible unintended consequences of regulation. Regulations intended to protect employees actually keep them from being hired.

The title of my talk at the conference was Regulating Investment Crowdfunding: Small Business Capital Formation and Investor Protection. I discussed how crowdfunding should be regulated, using the U.S. and German regulations as examples. The talk will eventually be posted online; I’ll supply a link when it’s available.