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A while back, I posted about the SEC’s proposal to adopt new rules on private investment funds.  Among other things, the SEC expressed concern about “side letters,” namely, tailored agreements with specific investors in particular funds, giving those investors preferential terms regarding information, redemption rights, and similar matters, as compared to other investors in the same fund.

Which is why it’s very timely that two new papers have been posted to SSRN conducting empirical analyses of what these side letters contain.

The first, Side Letter Governance, by Elisabeth de Fontenay and Yaron Nili and forthcoming in the Washington University Law Review, finds that side letters rarely offer financial preferences; instead, fund sponsors favor particular investors by other means, such as separate accounts and co-investment opportunities.  They do, however, find that side letters have become overly complex and difficult to negotiate, in part because each investor wants to make sure that it is not placed at a disadvantage relative to other investors in the fund.  They recommend, among other things, that all side letters be disclosed to other fund investors, and that certain provisions – concerning investors’ tax and regulatory concerns – be standardized across different investor types.

The…

The AALS Section on Securities Regulation invites submissions from junior scholars (defined as those who have been in a tenure-track position for 7 or fewer years) for its Emerging Voices session at the 2023 AALS annual meeting. The session will be held in-person on Saturday, January 7 from 3:00 – 4:40 p.m (PST). The session brings together junior and senior securities regulation scholars for the purpose of providing junior scholars feedback on their scholarship and helping them prepare their work for submission for publication. Junior scholars’ presentations of their drafts will be followed by comments from senior scholars and further audience discussion.

If you would like to present your draft as a junior scholar, by August 31, 2022, please send your draft to Professor Benjamin Edwards (Benjamin.Edwards@unlv.edu). We welcome submissions at any stage of development, although preference may be given to more fully developed papers over abstracts and paper proposals. The authors of the selected papers will be notified by mid-September 2022. 

If you would like to volunteer to provide feedback as a more senior scholar, please let Professor Edwards know, at Benjamin.Edwards@unlv.edu, by August 31, 2022. Thank you in advance for your generosity.

On behalf of the…

Earlier this year I wrote about a startling Georgia decision finding that FINRA’s arbitrator selection process had been manipulated.  In response, FINRA announced that it would retain an independent firm to conduct an investigation. 

The results of that investigation are now publicly available in a Report from Christopher W. Gerold.  The report found that the outside firm “not believe that there was any agreement between Weiss and FINRA regarding the panels for Weiss’s cases.”  It did not find any “documentary evidence – including any emails or other material – suggested in any way that such an agreement existed.”

The Report also recommended a series of changes to improve FINRA’s dispute resolution system, including:

  • Implementing ongoing, mandatory training for staff;
  • Requiring written explanations, upon a party’s request, of approval or denial of a causal challenge to the selection of an arbitrator or an arbitrator removal by the DRS Director for cause;
  • Conducting an updated external procedural review of the arbitrator selection algorithm to determine if it is still the most effective means for creating random, computer-generated arbitrator lists; and
  • Updating the DRS Manual and rules to clarify staff roles and procedures, and to ensure consistency and transparency.

Hopefully FINRA will move

Last week, I posted the abstract to my paper Crony Stakeholder Capitalism (here).  One of the comments to that post perspicaciously noted the issue of “how to ensure democratic accountability for private actors that are taking on social goals historically reserved for democratically accountable government.”  In my brief reply, I focused on the duties to shareholders, but I want to follow-up here to note that I do in fact flag the relevant threat to democracy in a footnote in my paper:

A related concern is the potential for stakeholder capitalism to undermine our political system by shifting governmental power to private actors, thereby undermining public accountability of government. Cf. Dorothy S. Lund, Asset Managers as Regulators, THE CLS BLUE SKY BLOG (June 16, 2022) (“allowing three private investment companies that lack political accountability to set regulatory policies for the U.S. economy is dangerous for our democracy”), available at https://clsbluesky.law.columbia.edu/2022/06/16/asset-managers-as-regulators/ ….

Along these lines, I recently came across some related podcast comments from Vivek Ramaswamy, author of Woke, Inc.: Inside Corporate America’s Social Justice Scam, and co-founder and Executive Chairman of Strive Asset Management (“Our mission is to restore the voices of everyday citizens in the…

I have posted a draft of my latest paper, Crony Stakeholder Capitalism (Kentucky Law Journal, forthcoming), on SSRN (here).  The abstract is below.  Comments are most welcome.

Capitalism in the context of corporate governance may be understood as an economic system that equates efficiency with corporate managers only pursuing projects that they reasonably expect will have a positive impact on the value of the corporation’s shares (accounting for opportunity costs). Such projects may be referred to as positive net-present-value (NPV) projects. Stakeholder capitalism, on the other hand, may be understood a number of different ways, including: (1) an improved form of calculating NPV; (2) a conscious choice to sacrifice some NPV in order to advance broader social objectives; (3) a form of rent-seeking; (4) a form of green-washing; (5) a manifestation of the agency problem whereby managers prioritize their personal political preferences over NPV; (6) a manifestation of the agency problem whereby managers prioritize their personal financial wealth over NPV; (7) a form of crony capitalism. Of these, an argument can be made that only the first is both legal and efficient, at least in the case of Delaware corporations operating under the relevant default rules. Given the…

is something I said on Twitter in connection with l’affaire de Musk. 

What I meant by that is not the specific legal rule of Revlon regarding directors’ fiduciary duties, but the orientation of Revlon, meaning, shareholder wealth maximization as the raison d’etre of corporate law, with the recognition that once a company is sold for cash, it is effectively dead, at least as far as its former investors are concerned.  It had no purpose other than as a vehicle for their wealth, and, once liquidated, that purpose is fulfilled.

Much of the commentary regarding the Twitter dispute – usually, though not always, coming from pundits outside the corporate space – is genuinely disorienting for a corporate law person, because it treats Twitter as an entity that exists as the collective sum of its stakeholder interests, rather than as an avatar for investor interests.

Which is a totally normal, human way to think about the problem from the perspective of a citizen or as a person who inhabits this planet, but is almost entirely illegible from the perspective of Delaware corporate law.

To wit:

…

FINRA recently filed a proposed rule change with the SEC to “to release information on BrokerCheck® as to whether a particular member firm or former member firm is currently designated as a ‘Restricted Firm.'”  A restricted firm is one that poses “a high degree of risk to the investing public, based on numeric thresholds of firm level and individual-level disclosure events.”  Essentially, these are firms with “a significant history of misconduct.”

As it stands, the public does not know which firms have been designated by FINRA as “restricted firms.” FINRA’s proposal would release this information through BrokerCheck®. This would be a strong signal to investors to more closely monitor their accounts or move them to a different brokerage. 

Only two comment letters were filed in response to the proposal.  One letter of support came from PIABA. The other was filed by Professors Nicole G. Iannarone and Christine Lazaro.  The Professors’ letter supported the proposal and urged FINRA to also “provide a plain English explanation of what restricted firm designation means on the BrokerCheck report if a firm is so designated.”  The Professors are undoubtedly right that retail customers simply won’t understand what “restricted firm” means without clear contextual…

 

The William S. Boyd School of Law at the University of Nevada, Las Vegas, invites applications from both entry-level and lateral candidates for two tenure-track or tenured faculty positions expected to begin July 1, 2023. For these two positions, we seek creative and productive scholars: one with relevant expertise in teaching Legal Writing and one with experience teaching a live-client Clinic. Our faculty who teach legal writing or clinical courses are full members of our unified tenure system with all of the privileges and scholarly expectations associated with tenure; faculty who teach legal writing or clinical courses may teach a podium course as part of our standard 3-course teaching load. Subject matter needs for podium courses are broad and include, but are not limited to, business and commercial law, criminal law, evidence, and property. 

The William S. Boyd School of Law at UNLV is a leading public law school founded on a commitment to public service and community engagement. With its nationally ranked Lawyering Process Program, Saltman Center for Conflict Resolution, and the Thomas & Mack Legal Clinic, Boyd offers a dynamic curriculum designed to teach students critical thinking and lawyering skills. Boyd has an LL.M. in Gaming Law…

Over at The Volokh Conspiracy, Jonathan Adler has posted “Does West Virginia v. EPA Doom the SEC’s Climate Disclosure Rule?” Here is a brief excerpt:

One regulatory proposal sure to get additional scrutiny in the wake of WVA v. EPA is the Security and Exchange Commission’s proposal to “enhance and standardize climate-related disclosures for investors.” In today’s Wall Street Journal, former SEC Commissioner Paul Atkins and former OIRA Administrator Paul Ray make the case that the SEC’s proposal is likely to be struck down in light of the WVA decision. According to Atkins and Ray, the SEC is seeking to repurpose pre-existing statutory authority to address a new concern outside of the SEC’s core expertise. In other words, it is seeking to pour new wine out of old bottles, and this is something the Court rejected in WVA (as well as in its decision invalidating the OSHA test-or-vax mandate)….

More broadly, WVA v. EPA and NFIB v. Dept. of Labor suggest that the Court is likely to be skeptical of the Biden Administration’s “whole of government” approach to climate change insofar as it involves deploying statutory authority that was not enacted with climate change in mind…. [T]he Court

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The following comes to us from Paul Rose.

The Ohio State University Moritz College of Law seeks candidates for two tenure-track positions. We are seeking a junior to mid-career lateral candidate for a position in the area of Tax Law or in both Business and Tax Law, and an entry-level candidate with interdisciplinary teaching and scholarship interests related to race and criminal justice.

The Ohio State University Moritz College of Law is committed to building and maintaining a diverse and inclusive community to reflect human diversity and improve opportunities for all. Diversity, inclusion, and equity are essential to the excellence of our community, culture, and curriculum, and the pursuit of this excellence is critical to our educational mission. We value diversity in all of its dimensions, including gender, gender identity or expression, race, ethnicity, religion, age, sexual orientation, physical and learning abilities, socioeconomic status, veteran status, and viewpoint. We seek to reflect multiple perspectives, backgrounds, and interests in all facets of our community. The Ohio State University is committed to equal employment opportunity and does not discriminate on any basis prohibited by law in its activities, programs, admission, and employment. All qualified applicants will receive consideration for employment without…