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Readers following the benefit corporation movement may be interested to learn that Twitter co-founder, Christopher Isaac “Biz” Stone, reported on NPR’s Marketplace on that he plans on making his new web app company, Jelly, a benefit corporation.  You can listen to the December 2nd interview (which is only 5 minutes) here, with the last 90 seconds devoted to the benefit corporation issue.

When commenters look back at the financial crisis, many blame the ratings agencies, at least in part – and in particular, the dominance of a small number of firms (Moody’s, S&P, and – distantly – Fitch).  This is why, for example, the SEC has been criticized for erecting barriers that prevent other agencies from earning the coveted NRSRO label. 

Which is why I found this story regarding an apparent effort by Moody’s to eliminate a competitor so fascinating.  According to the WSJ:

Moody’s Corp. doesn’t often give away its thoughts free of charge.

But the ratings firm made an exception recently, issuing an unsolicited credit rating to National Penn Bancshares Inc., a small community bank it had never assessed before.

Moody’s grade was lower than one issued just weeks earlier by Kroll Bond Rating Agency Inc., which the bank had hired to rate a new bond.

Kroll contends Moody’s deliberately lowballed its rating—a move that could have ripple effects through the market for National Penn’s bonds—to scare other small banks into hiring it for future deals.

“It seems this was nothing less than intimidation,” said Kroll President Jim Nadler. “Investors and issuers are worried that Moody’s, if it’s not

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I have something of a follow-up to Haskell’s earlier post. 

While companies like Wal-Mart will be open on Thanksgiving – a decision that has garnered no small amount of public criticism– others have conspicuously declared that they will be closed, in order to allow their employees to spend time with their families.

Now, you can call this a sincere commitment to employees’ well-being if you like, but my cynical brain views this as a standard share value-maximizing decision – whether management has decided that adverse publicity would harm the brand, or that employees who get holidays off are less likely to agitate for higher wages, or that regulators are less likely to step in if the business makes some minimal concessions to employee welfare, it’s still a decision that’s about benefitting the bottom line.  If nothing else, it can be cast that way – which is precisely why, precisely as has been frequently argued on this blog, it’s difficult to understand why the separate concept of a benefit corporation is necessary, except to the extent it represents the ultimate in marketing commitment.  Or maybe some corporate directors just don’t want to have to come up with…

I just booked my hotel for Sunday and Monday for a mini-writing retreat before the Thanksgiving holiday.  This has been an effective (although intimidating) format for me in the past to tackle big writing projects (and deadlines).  The idea is that you block 24-48 hours, remove yourself from your normal world and responsibilities and dig into the big thinking to make progress.  This is a popular format at Georgia State, and I know several colleagues who book a writing weekend by themselves or with a good friend.  This is my first solo endeavor, and I sorely wish I had my normal writing companion heading into battle with me.  No one likes to stress-eat chocolate covered almonds and wear sweat pants alone.  It feels indulgent and fun with someone else; desperate when you are alone.

My current confusion and lack of direction on how to write this article (is it a short piece? a full article? a response piece?) has lead to my postponing its writing since June (!!!) and is creating a considerable amount of anxiety.  I don’t know what I fear most at this point:  the tailspin that will inevitably happen in that hotel room around midnight on Sunday or…

Back in 2011, Judge Rakoff famously delivered a blistering indictment of the SEC’s enforcement tactics when he rejected the SEC’s settlement with Citigroup over a CDO alleged to have been designed to fail. 

The decision was immediately appealed (and ultimately reversed), but was pending before the Second Circuit for over two years.  During that time, other district judges followed Rakoff’s lead, scrutinizing the SEC’s settlements more closely.

Judge Rakoff’s criticism was incredibly influential, or perhaps just captured a zeitgeist regarding the lack of serious sanctions against large financial institutions in the wake of the mortgage crisis – the SEC even announced it would revise its “no admit-no deny” settlement policy as a result.

After the Second Circuit reversed Judge Rakoff, he reluctantly approved the Citigroup settlement – but with a footnote warning (1) that the SEC would simply bring more cases administratively to avoid any court review at all, and (2) that such administrative decisions might be unconstitutional.  

Judge Rakoff seems a bit prescient in that respect, because the SEC has openly stated it plans to bring more administrative cases – and the data shows that’s apparently a smart move, since its administrative judges, at least recently, deliver…

We are covering freeze out mergers in my corporations class this week, which is great fun (and I even think a few students would agree with me on this).  Thinking about these issues reminded me that I needed to get comfortable with a spring 2014 Delaware Supreme Court opinion in Kahn v. M & F Worldwide Corp., 88 A.3d 635(Del. 2014), which applies the business judgment rule (rather than the entire fairness standard) to review these transactions if certain conditions are met.  The holding is summarized below: 

[I]n controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.

Kahn at 645.
 
This case is a great end-of-semester recap on some important themes.  It reviews the role

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What’s it like to fight the SEC? For 13 years? The defense attorneys in SEC v. Obus, an insider trading case that the SEC lost last spring, try to answer that question in the latest edition of The Review of Securities & Commodities Regulation. (SEC v. Obus: A Case Study on Taking the Government to Trial and Winning, 47 REV. SEC. & COMMOD. REG. 247 (Nov. 5, 2014). (If the case name is familiar to you, it’s probably because in 2012 the Second Circuit issued an important opinion in the case addressing the misappropriation theory of insider trading.)

The article provides a great insider’s view of the case, including suggestions for attorneys fighting SEC actions. The authors’  criticism of the procedures when Obus was required to testify under oath at the SEC is priceless. Obus was not told whether he was a target of the investigation. He was not allowed to review documents to refresh his recollection. His attorneys were not allowed to object to questions (although they apparently did anyway). They were told not to take notes and they were not allowed to review the transcript for errors. Home court advantage and all that, I guess.…