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Over at the New York Times Dealbook,  the man responsible for a $6 billion hedge funds says just that in an article by Alexandra Stevenson: 

Mr. Spitznagel, the founder of Universa Investments, which has around $6 billion in assets under management, says the stock market is going to fall by at least 40 percent in one great market “purge.” Until then, he is paying for the option to short the market at just that point, losing money each time he does.

….

Mr. Spitznagel’s approach is unusual approach for a money manager: To invest with him, you’ve got to believe in a philosophy that is grounded in the Austrian school of economics (which originated in the early 20th century in Vienna). The Austrians don’t like government to meddle with any part of the economy and when it does, they argue, market distortions abound, creating opportunities for investors who can see them.

When those distortions are present, Austrian investors will position themselves to wait out any artificial effect on the market, ready to take advantage when prices readjust.

Apparently his primary reason for this coming purge, which he says is needed, is that the Fed will have to readjust its monetary…

Should we flip the way we teach Business Associations?

Last week I asked whether law schools are teaching the law of securities regulation, particularly Securities Act exemptions, backwards. I proposed that the current rule-by-rule approach be flipped to a more topical approach. This week, I’m asking the same question about Business Associations, but I’m much less sure of the correct answer.

The basic Business Associations course at most law schools today includes much more than the law of corporations. Most Business Associations courses cover partnerships and limited liability companies, and often limited partnerships and agency law as well. 

The leading publishers offer a number of business associations casebooks, but their basic organizational structure is the same: each entity is covered separately. A typical casebook might, for example, begin with partnership law, then cover the law of corporations, then limited liability companies. The topics covered for each entity are similar: formation, management, fiduciary duty, the liability of investors, exit rights, and so on. 

Why not flip this organizational structure and organize business associations courses by substantive topic rather than by entity? We could begin with a chapter on formation that discusses how all of the entities are created. A chapter on management…

I recently came across a couple of seemingly related items
that I thought might be of interest to our readers:

Awrey, Blair & Kershaw on the “Role for Culture and
Ethics in Financial Regulation”

Dan Awrey, William Blair, and David Kershaw have posted “Between
Law and Markets: Is There a Role for Culture and Ethics in Financial
Regulation?” on SSRN.  Here is a portion
of the abstract:

The limits of markets as mechanisms for constraining
socially suboptimal behavior are well documented. Simultaneously, conventional
approaches toward the law and regulation are often crude and ineffective
mechanisms for containing the social costs of market failure. So where do we
turn when both law and markets fail to live up to their social promise? Two
possible answers are culture and ethics. In theory, both can help constrain
socially undesirable behavior in the vacuum between law and markets. In
practice, however, both exhibit manifest shortcomings.

To many, this analysis may portend the end of the story.
From our perspective, however, it represents a useful point of departure. While
neither law nor markets may be particularly well suited to serving as “the
conscience of the Square Mile,” it may nevertheless be possible…

Ethan J. Leib, David L. Ponet, and Michael Serota have
posted “Mapping Public Fiduciary Relationships” on SSRN.  Here is the abstract:

Fiduciary political theorists have neglected to explore
sufficiently the difficulty of mapping fiduciary-beneficiary relationships in
the public sphere. This oversight is quite surprising given that the proper
mapping of fiduciary-beneficiary relationships in the private sphere is one of
the most longstanding and strongly contested debates within corporate law.
After decades of case law and scholarship directed towards the question of to
whom do a corporation’s directors or managers serve as fiduciaries, private law
theorists remain deeply divided. This debate within private law should be of
perennial interest to public fiduciary theorists because the cartography of
public fiduciary relationships is essential to operationalizing the project.
After all, it is only through identifying the relevant fiduciary and
beneficiary that one is able to determine the precise contours of the fiduciary
framework’s ethical architecture. As such, loose mapping of
fiduciary-beneficiary relationships in the public sphere precludes a clear
understanding of whose interests are pertinent to the public fiduciary’s
representation, and what the public fiduciary is to do when beneficiaries’
interests collide. The purpose of this chapter, then, is to

I received the following announcement in my inbox today, and felt the content would be of interest to readers of this blog even if they have no intention of attending the meeting or submiting a proposal.  For more information, go here.

We are pleased to announce the 2014 Midyear Meeting Workshop
on Blurring Boundaries in Financial and Corporate Law, June 7-9, 2014 in
Washington, D.C….

We invite you to submit a proposal to participate in this
two-day program, which is designed to explore the various ways in which the
lines separating distinct, identifiable areas of theory, policy, and doctrine
in business law have begun to break down….. Proposals are due October 25, 2013,
by e-mail, to 14blurringboundaries@aals.org.

Why Attend this Workshop? 

Understanding how capital is formed and transformed in
today’s economy and how financial risk is spread requires that scholars and
students understand financial and corporate law and the theory and policy
underlying the doctrine.  If scholars
work solely within the traditional boundaries of any single field in the
financial and corporate law spectrum, they risk having a parochial view of
vital legal questions.  Indeed, each area
of financial and corporate law faces a broader set of questions than it has
historically engaged.   Securities
regulation covers much more than initial public offerings.  The regulation of financial institutions can
no longer concern itself primarily with deposit-taking banks (indeed, the label
“banking law” seems now outdated). 
Insurance regulation is no longer entrusted exclusively to state
regulators, and those regulators can no longer ignore systemic risks or the
modernization of consumer products and consumer protection strategies.  Business associations involve more than
publicly traded corporations.  These are
but a few examples….

I first became interested in the Dodd-Frank conflict
minerals law after leaving my former employer, which managed other companies’
supply chains, and while serving as a founding board member of Footprints
Foundation, a nonprofit that works with rape survivors, midwives and hospitals
in the Democratic Republic of Congo (“DRC”) (see here). During a fact-finding
mission for the foundation to the DRC in late 2011, I observed the law through two
lenses– both as a compliance officer who used to conduct audits around the
world, and as a board member trying to determine whether this law would really
help stem the unconscionable violence which I witnessed first-hand when I saw
five massacred civilians lying on the road on my way to visit a mine.  (Note, my blog posts reflects my views only
and should neither be attributed to Footprints nor my former employer).  My 2011 trip and subsequent research convinced
me that the conflict minerals law could have unintended consequences that Congress had not
sufficiently thought through, and that the SEC, in writing the rules, had not
adequately addressed. For an article that describes the mining in the DRC today and some of the compliance successes and challenges see here. …

Apple
hasn’t released pre-order numbers yet for its highly anticipated iPhone 5s and
5c, but if media reports and my own call to the Apple Store are any indication,
throngs of consumers will be lining up tomorrow to get the latest product.  It’s very likely that most of the customers
have no idea of the highly successful campaign against Apple and other
electronics manufacturers that led in part to Dodd-Frank §1502, the conflict
minerals provision which is now up on appeal to the DC Circuit. Incorporated
into Dodd-Frank only days before its passage, it aims to focus investor and
consumer attention to potential corporate complicity in human rights abuses in
the Democratic Republic of the Congo (“DRC”), a country where the United
Nations recently deployed drones against rebel groups and where over five
million have died due to civil wars, malnutrition, disease and poverty in recent years. Eighty
thousand people were displaced from their villages due to fighting between rebels and the army in
just the last month according to a report out today from the UN. A UN
representative once called the country was once called the “rape capital of the
world.”

The
law affects an estimated 6,000 companies–almost…

I just finished reading an interesting book on entrepreneurship, and I thought I would share it with the blog. It’s Worthless, Impossible and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value, by Daniel Isenberg.

Isenberg uses case studies to explode three myths: (1) that entrepreneurs must be innovators; (2) that entrepreneurs must be experts; and (3) that entrepreneurs must be young. He argues that successful entrepreneurship has three elements: (1) perceiving extraordinary value; (2) creating extraordinary value; and (3) capturing extraordinary value. (He obviously likes to group things into triplets.) All three are necessary for success. I, for example, might be able to think of a value creation opportunity but, since I have spent most of my life in the classroom, it’s unlikely I could do much to create that value-turn the idea into reality.

But my favorite part of reading the book was seeing the many examples of successful entrepreneurs being told initially by venture capitalists and others that it just wouldn’t work–that the idea was worthless, impossible, or stupid.

EGCs lead IPOs due to JOBS Act’s relaxed SEC regs, like secret
review filings, exempt exec. compensation and reduced financial disclosures.

For the record as a TWITTER novice, I had to look up the rules pertaining to the 140 character limit and make several attempts to compose a coherent sentence under the limit.  For a more thorough discussion…keep reading.

The latest news on the IPO market is that TWITTER has
announced it has filed with the SEC. 
Last week, Twitter tweeted (a cannibalistic concept in my mind at least),
“We’ve confidentially submitted an S-1
to the SEC for a planned IPO. This Tweet does not constitute an offer of any
securities for sale.”

 The JOBS
Act, passed in April 2012, focused in part on easing access to capital for
“smaller” companies. The JOBS act created a new category of issuer, emerging
growth companies (EGCs), those with revenue
less than $1 billion, and eased the registration regulatory burdens for
IPOs.  (To recap:  “smaller” means less than $1 billion in
revenue.)  The regulatory relief offered
by the JOBS Act allowed for EGCs to (1) submit a confidential draft
registration statement for nonpublic review by the SEC, (2) be exempt from
disclosing…