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This week, we had two interesting, and very different, decisions on the validity of anti-activist bylaws.

The first decision, out of Delaware, upheld certain advance notice bylaws in the context of a motion for a preliminary injunction, while the second, from the Second Circuit, rejected control share acquisition bylaws adopted by a closed-end mutual fund.

The first decision, Paragon Technologies v. Cryan, concerned Paragon’s activist attack on penny stock Ocean Powers Technology (OPT).  After Paragon expressed interest, OPT adopted an advance notice bylaw requiring director nominees offer a wealth of information, including any plans that would be required to be disclosed on a 13D, any business or personal interests that could create conflicts between the nominees and OPT, and any circumstances that could delay a nominee receiving security clearance, while simultaneously adopting a NOL pill (for more on those, read Christine Hurt).

Paragon submitted some documents in connection with the bylaw, but the “plans” only said it would “fix OPT.”  OPT identified numerous deficiencies in Paragon’s submission, Paragon submitted more information including that its plans were to reduce expenses and focus on industry growth.  Long story short: OPT kept finding deficiencies to complain about, and ultimately…

As these may also be of interest to our readers here, I wanted to link to a couple of recent op-eds. 

As to the first, I drafted one with Joe Peiffer about FINRA’s expungement process. It ran in Financial Planning Magazine on November 15.  The crux of the argument is that FINRA’s reforms to its expungement process won’t fully solve the problem and will instead burden state regulators with additional unfunded responsibilities.  Here is a small excerpt:

Ultimately, the current reforms offer incremental improvements that will likely slow the deletion of valuable public records. Sadly, however, the current system continues to outsource expungement decisions away from FINRA — the primary regulator for brokerage firms — and onto independent contractor arbitrators. This system leaves the responsibility for educating those arbitrators about reasons not to grant expungements to complaining customers and thinly resourced state regulators.

This approach benefits FINRA because it allows it to avoid entangling itself on these issues. It also shifts costs away from FINRA. After all, parties seeking expungements pay hefty fees to FINRA for arbitration costs. Yet the public pays the price when FINRA  outsources responsibility for wise expungement decisions to poorly informed arbitrators who usually only hear

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The big corpgov news this week is obviously L’Affaire du OpenAI, but I have no idea what I think about that so instead I’m quickly going to highlight an interesting new lawsuit filed by a retired Oklahoma pensioner, alleging that the state’s anti-ESG law violates the First Amendment, as well as both state and federal requirements.

You can find all the relevant documents at this link, but the backstory is that Oklahoma passed a law prohibiting state agencies from contracting with financial institutions that “boycott” oil and gas interests.  OPERS – the state retirement system – took advantage of an exception that allowed continued investment if necessary to fulfill fiduciary responsibilities, which then prompted some nastygrams back and forth between the State Pension Commission (headed by the Treasurer, who is on the OPERS board, but was outvoted) with OPERS itself, regarding whether OPERS qualified for the exception.

And now, a former officer of the Oklahoma Public Employees Association has sued, claiming that the state is using his retirement assets to make an (illegitimate) political statement instead of protecting retiree savings.  The lawsuit is backed by the Oklahoma Public Employees Association.

Anyway, I’m not going to express an opinion…

Back when I was in practice, so many years ago, I spent a bit of time on the IPO Cases, namely, a series of around 300 class actions involving dot-com startup IPOs that, we alleged, had been manipulated by underwriters.  Details differed from case to case, but the typical claim was that the underwriters used manipulative techniques, such as laddering, to cause dot com startups to “pop” in price upon their initial offering, thereby violating Section 10(b).

But we stumbled at class certification.  For false statements, there’s a well established paradigm for creating a classwide presumption of reliance that satisfies Rule 23.  For manipulative conduct there isn’t a paradigm, and our cases faltered.  The Second Circuit reversed one grant of class certification and remanded, In re IPO Securities Litigation, 471 F.3d 24 (2d Cir. 2006) and 483 F.3d 70 (2d Cir. 2006).  We moved for class certification a second time, and eventually matters settled.

Anyway, the recent decision denying class certification in In re January 2021 Short Squeeze Litigation, 21-2989-MDL-ALTONAGA (S.D. Fla. Nov. 13, 2023), takes me back.  It is not on Westlaw or Lexis yet, so all I can do is link the Law360 article…

Today, I am at the ILEP conference that Joan blogged about, honoring the career of Jill Fisch.  In keeping with the ESG theme of the conference, this week, I’ll make a brief observation.

For the past couple of years, there has been a rising anti-ESG backlash on the right, accusing Disney and Target and Bud Light of engaging in “woke” marketing, and seeking to bar the likes of BlackRock and other large asset managers from taking ESG factors into account.  The latest salvos are taking place in Congress, where subpoenas are being issued to groups like As You Sow, accusing them of antitrust violations, and another hearing was just held to criticize ESG investing – this time, focusing on the Department of Labor’s new rules.

Now, the thing about the anti-ESG push on the right is, it’s not making headway with voters.  Which isn’t surprising; most people don’t think much about corporate law or investing guidelines, so I’d honestly be more surprised if the anti-ESG push was getting political traction.

So when politicians continue to ostentatiously push this line, the obvious question is – why?  And my instinct has always been, despite the attention paid to DEI…

If you’ve been following along, you know all about the pending challenge to FINRA in the D.C. Circuit.  Many amicus briefs have come in, including my own.  To make it easier for people to see what’s happening, I’ve pulled the briefs and put them in a Google Drive folder for easier access.  The briefs in the folder include:

  • FINRA
  • Alpine Opening
  • DTC & Clearing Groups
  • National Futures Association
  • North American Securities Administrators Association
  • Public Investor Advocate Bar Association
  • Securities Exchanges
  • Horseracing
  • Free Enterprise Chamber of Commerce
  • New Civil Liberties Alliance
  • The United States of America
  • Benjamin P. Edwards

We also have additional litigation raising similar issues now pending in North Carolina.

I predicted that we’d see these challenges and that they could pose big risks to the financial system in my Supreme Risk article.  So far, I’ve been cited by Alpine and the DTC and other clearing corporation’s amicus.  The DTC  brief agreed with my assessment and block quoted the article.

Any perceived weakness in Amici’s authority to enforce their rules could undermine their ability to deliver critical functions to the markets, such as individual participant risk monitoring, the setting of collateral requirements to cover credit, market, and liquidity risk

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Texas Tech University School of Law, Lubbock, Texas

Summary Information

The School of Law at Texas Tech University invites applications for a full-time, 9-month tenure-track Professor of Law position to begin in August of 2024.  The position is open to both entry-level candidates and candidates who are on the tenure-track or tenured at another school.  Candidates who satisfy Texas Tech University’s requirements to be hired with tenure will also be eligible to hold the Frank McDonald Endowed Professorship in business law.

Required Qualifications

In line with TTU’s strategic priorities to engage and empower a diverse student body, enable innovative research and creative activities, and transform lives and communities through outreach and engaged scholarship, applicants should have experience or demonstrated potential for working with diverse student populations at the undergraduate and/or graduate levels within individual or across the areas of teaching, research/creative activity, and service.

Specific required qualifications are:

  1. Candidates should have a J.D.;
  2. Candidates should have a demonstrated potential for excellence in research, teaching, and service; and
  3. Candidates should have demonstrated potential for excellence in the areas of Contracts and in corporate/business law, such as Business Entities, Securities Regulation, Mergers & Acquisitions, and related courses.

Preferred Qualifications

In addition to…

The Financial Times recently reported that

A group of veteran US financial journalists is teaming up with investors to launch a trading firm that is designed to trade on market-moving news unearthed by its own investigative reporting.

The business, founded by investor Nathaniel Brooks Horwitz and writer Sam Koppelman, would comprise two entities: a trading fund and a group of analysts and journalists producing stories based on publicly available material…

The fund would place trades before articles were published, and then publish its research and trading thesis….

I saw a lot of online commentary asking why this isn’t just a model for insider trading, and even though Matt Levine went through some of the issues here and here, I am moved to do something I rarely do and delve into insider trading law to explain the matter further.  For a lot of readers, this is probably nothing new, but hopefully this will be helpful for some of you.

So, the first thing to make clear is that the rules for what counts as insider trading in the U.S. are bizarre and arcane.  And the reason for that is, with a few exceptions like the “Eddie Murphy” provisions…

In an address on Halloween, President Biden announced his support for a new rule proposal from the Department of Labor.  The rule would impose a fiduciary duty on persons giving advice about retirement assets.  His remarks framed the issue as addressing “junk fees” in financial services.

The rule targets critical transactions.  In 2022, Americans moved about $800 billion from 401(k) type plans into individual retirement accounts.  The decisions people make when moving their funds out of their 401(k) and into something else matter.  It’s also often a vulnerable point for many.  We know that cognitive decline affects a greater percentage of the population as they age. Yet our regulatory infrastructure does not currently impose consistent standards on persons giving advice about that pot of money.

The kind of advice a retiree receives depends on the person and product at issue.  A registered investment adviser will owe a fiduciary duty under the Investment Advisers Act.  A stockbroker will owe an obligation to give advice in the investor’s “best interest” under the SEC’s regulation “Best Interest.” 

What about the duties owed by insurance producers who often aim to divert retirement savings into insurance products?  An insurance agent selling equity-indexed or fixed-indexed annuities…

I’ve mentioned before in this space that Delaware’s increasingly baroque rules for cleansing transactions – and thus winning business judgment rule protection – are starting to resemble the MBCA in their rigidity, and are drifting from the more equity-focused caselaw of the past, where cleansing procedures were less clear and cases often seemed to turn on the court’s gut instinct about a transaction’s fairness.

So I was delighted to see Dalia Tsuk Mitchell’s new article, Proceduralism: Delaware’s Legacy.  Her thesis is that when managerialism reigned as a corporate philosophy – viewing corporate elites as a kind of enlightened guardian of the public – Delaware justified deference to their decisionmaking on the grounds of their expertise.  Later, as managerialism fell out of favor, Delaware courts developed a new narrative to justify deference, namely, procedural fairness, that was not rooted in managers’ expertise or elite status at all.  She contends that the new proceduralism, which focuses solely on firms’ internal decisionmaking process, parallels a shareholder primacist view of the world, which abandons any notion that corporate managers have responsibilities to the communities in which they operate.  

Here is the abstract:

This article examines the Delaware courts’ 1980s shift from managerialism

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