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PIABA, the Public Investor Advocate Bar Association, and the PIABA Foundation released a new report on FINRA expungement earlier this week. The current report gives a good snapshot of where things stand at the end of an era with a new set of FINRA rules around expungement going into effect on October 16, 2023.  FINRA adopted some of these changes after comment letters I sent in on earlier proposals. On the whole, my record remains mixed with FINRA continuing to keep this process in arbitration.  James Tierney and I have a forthcoming paper on this contending that an administrative procedure would produce much better results than leaving this outsourced to the arbitration forum.  My core view is that the current structure simply fails to generate any real scrutiny, much less adversarial scrutiny, for most of these requests.

To address the scrutiny problem, we have some changes.  One of the biggest changes to the rules is a new process for notifying state regulators and allowing them to participate in hearings.  On the one hand, this is a good thing.  State regulators should be able to take steps to appropriately prevent the deletion of public records.  But on the other…

So here’s a bizarre little PSLRA procedural case out of the Ninth Circuit.  Mark Habelt, a shareholder of iRhythm, filed a securities action on behalf of himself and a class of other investors, alleging the company committed fraud.  As is not uncommon in these cases, other class members moved to be appointed lead.  Habelt himself did not so move, and eventually, the Public Employees’ Retirement System of Mississippi was appointed lead, and its counsel – a different firm than Habelt’s – was appointed lead counsel.

Again, as is common, PERSM filed an amended complaint that continued to name Habelt in the caption, but did not include him as a named plaintiff in the substantive allegations.  Eventually, the case was dismissed on the pleadings, and PERSM did not appeal.

Habelt, however, did.  And the Ninth Circuit, 2-1, held that he did not have standing to do so.  The court reasoned:

“[a] person or entity can be named in the caption of a complaint without necessarily becoming a party to the action.”… Beyond an individual’s mere inclusion in the caption, the more important indication of whether she is a party to the case are the “allegations in the body of the

…

Last week, I posted about a discussion group I am organizing on teaching numeracy for the Southeastern Association of Law Schools (SEALS) 2024 annual meeting.  (Thanks to those who responded!)  I also am working with folks who are organizing another session.  More on that in another post!  And some of you or others you know also may be proposing panels or discussion groups.  But the Business Law Workshop at the conference can always use another program, imv.

With that thought in mind, I am reaching out to suggest that you organize a business program for the SEALS 2024 annual meeting.  The SEALS submission webpage includes instructions and information about the submission process and a hypertext link to the the submission site.  The submission site is open for 2024 program proposals now and is easy to navigate.  I am happy to help by answering any questions you may have (or by getting answers for you).

The only tricky parts are determining the type of session you want to organize and complying with the requirements for that type of session.  The two most common types of programs are panels and discussion groups, as follows:

PANELS

Panels are the traditional presentations at most…

Natalya Shnitser posted a really fascinating paper that taught me about collective investment trusts (CITs), which, I have to admit, wasn’t something I knew anything about.

As I understand it, they function very much like a mutual fund, but they’re managed by banks instead of investment companies.  As such, they are exempt from much of the securities regulation that protects mutual fund investors – very little transparency or liquidity – but they’re increasingly showing up on 401k menus, to the point where, according to Shnitser, they now represent 30% of defined contribution plan assets.

The rationale for this exemption from securities regulation is that, once upon a time, when defined benefit plans dominated the workplace, it was assumed employers/pension plans would be able to bargain on equal terms, but that’s not true today, when individual workers simply select CITs from among other investment choices.

One area I’m particularly interested in is their role in corporate governance.  Because these are retirement plan assets, CITs are ERISA fiduciaries, and that means, among other things, that they must vote their shares to benefit the plan, just like a pension fund would.  But because they don’t have to publicly report their votes, there’s no…

Another case challenging FINRA’s constitutionality has generated a District Court opinion upholding FINRA’s constitutionality.  Judge Reyes found that, Alpine “does not suggest that courts must enjoin every challenged FINRA enforcement action pending the Alpine merits decision.”

Kim differs from Alpine in some significant ways.  The plaintiff does not face expulsion, just an ordinary fine and disciplinary proceeding.  Kim faces a possible $30,000 fine and a requirement to disgorge $16,000 in profits.  This, unsurprisingly, complicates his attempt to secure an injunction against the enforcement action because it doesn’t seem as though he will face any irreparable harm–just “an enforcement hearing, months away, and most likely, monetary fines.”

The case also differs in that amici got involved at an early stage this time.  The opinion thanks “CBOE Global Markets, Inc.; CME Group Inc.; National Futures Association; and the Securities Exchanges.”  

Most courts will not be familiar with SROs.  Given that, it makes sense for a range of amici to come in on these cases to help give context to courts.

Ultimately, how this issue will turn out for Kim depends on the pending Alpine appeal.

On September 29, the Supreme Court granted cert in Macquarie Infrastructure Corp. v. Moab Partners, to decide:

whether the Second Circuit erred in holding—in conflict with the Third, Ninth, and Eleventh Circuits—that a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even in the absence of an otherwise-misleading statement. 

(The question, I think, mischaracterizes the Third Circuit; you’ll get a sense of why below, the parties will argue the rest.  But leaving that point aside – )

I have no idea how the case will unfold, of course, but I tend to assume that despite the narrow framing, the real question is whether silence in the face of a regulatory duty to disclose constitutes a misleading omission.  I.e., it does not matter what the particular required disclosure is, or what the cause of action is; the question is whether, if you remain silent when a regulation requires you to speak, that is the equivalent of an affirmatively misleading statement.  The Second Circuit has repeatedly held yes, it is, usually in the context of 10b claims over Item 303 omissions.  Other circuits – well, to be honest, have been muddled.

This…

You may be interested in an event taking place on October 11 at the Center for American Progress in Washington, DC, which will focus on the regulation of private markets and feature SEC Commissioner Caroline Crenshaw, as well as business law professors Renee Jones (BC) and George Georgiev (Emory).

The registration link (in-person or virtual) is as follows: https://www.americanprogress.org/events/accessing-public-capital-without-public-disclosure/

Event description:

Accessing Public Capital Without Public Disclosure

Oct. 11, 2023

12:30 PM – 12:35 PM

Introductory remarks provided by CAP Senior Vice President for Inclusive Growth Emily Gee.

12:35 PM – 1:05 PM

Keynote remarks provided by Caroline A. Crenshaw, Commissioner of the U.S. Securities and Exchange Commission.

1:05 PM – 1:45 PM

A panel discussion with experts on the topic moderated by CAP Senior Director for Financial Regulation Alexandra Thornton, featuring Renee Jones (Boston College Law School) and George Georgiev (Emory University School of Law)

Today, more capital is raised annually in private markets than in the public markets. Hundreds of multibillion-dollar companies can raise all the capital they need from an unlimited number of unaffiliated investors, while selling products and services to tens of thousands of customers and employing thousands of people. Many are unicorns—companies that started in…

Dear BLPB Readers:

“Minnesota State University Mankato is hiring a full-time tenure track Assistant Professor of Business Law position starting Fall 2024. Here is a link to the job posting –https://minnesotastate.peopleadmin.com/postings/2485.

The Business Law program offers a stand-alone certificate and teaches a robust curriculum to undergraduate and MBA students. Classes regularly offered include Legal Environment of Business; Contracts, Sales and Professional Responsibility; Employment and Labor Law; Technology and Intellectual Property Law; Negotiation and Conflict Resolution, International Legal Environment of Business; and Environmental Law.

Applications will start to be reviewed after December 1 and continue until the position is filled. MSU-Mankato is an equal opportunity employer and is a member of the Minnesota State System. Contact Wade Davis if you have any questions: wade.davis@mnsu.edu.”

Last week, we hosted the Fourth Annual Corporate Governance Summit at the Wynn in Las Vegas.  You can see the program here.  Stephen Bainbridge came in to give our keynote address in a talk focused on his new book, The Profit Motive.  We ended up drawing about 130 participants.  I’m incredibly grateful to Mike Bonner at Greenberg Traurig and the rest of the Greenberg team that helped put the event together.  We were also fortunate to have some great sponsors for the event: Joele Frank, Connor Group, Deloitte, J.P. Morgan Chase & Co., and Whittier Trust.  

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