Delaware recently amended its General Corporation Law to permit corporations to adopt charter provisions that would exculpate top officers, as well as directors, from damages liability associated with care violations.

The catch is, unlike with directors, officer liability can only be eliminated for direct shareholder claims – not claims brought by the corporation, including derivative claims.  In other words, the amendments aren’t there to prevent officer liability; they’re there to prevent officer liability as dictated by shareholders.  When directors decide officers should be liable – or shareholders can show directors are incapable of deciding – then officer liability may follow.

So this is a little different than the theory behind director exculpation.  Director exculpation is a protection against the threat of frivolous lawsuits, to some extent, but it also functions so directors can substantively do their jobs without fear that they will be subject to ruinous liability for well meaning mistakes.  That fear, it was posited, would deter people from wanting to be directors in the first place.

Officers, though, they aren’t exactly being protected from ruinous liability over their mistakes – the corporation/directors can still sue them for those.  Which means there’s a lot less concern that…

FINRA has returned to the SEC with a new proposed rule change to address problems with its expungement system.  Although the proposal continues to use arbitration to facilitate stockbroker expungements, the new proposal makes some significant changes over prior proposals.

A bit of history may help put this in context.  Two years ago, FINRA released a proposal to reform its expungement process. I wrote two comment letters in response to that proposal, prompting FINRA to amend the proposal twice.   The twice-revised proposal was ultimately withdrawn so FINRA could study the issue before returning with another proposal.  That new proposal is now here.  I put together this chart to track some of my recommendations to see what has been adopted and what has not.

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I’m currently working on a piece on anti-ESG legislation for our upcoming BLPB Symposium. According to The Heartland Institute (here), as of April 5, 2022, twenty-eight states have initiated some form of “anti-ESG action.” So, recent news of Florida Governor Ron DeSantis pushing for further action in this area caught my eye. Here is an excerpt from relevant coverage by WFSU (go read the full piece here):

DeSantis plans to have the State Board of Administration, which oversees investments, direct pension-fund managers against “using political factors when investing the state’s money.” So-called ESG policies have drawn criticism from Republicans across the country…. Renner, who will become House speaker after the November elections, called the corporate practices a national-security issue and a pocketbook issue. “What we have is these large corporations and banks that are pursuing a woke agenda that is artificially driving up our costs in energy,” Renner said. “There’s a reason why we haven’t built new refineries. There’s a reason why we’re not drilling for oil even though we have more reserves in this country than any other place in the world, it’s because the banks and this woke agenda is choking off their ability to

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As the world watches this unfold, I figured I’d blog this week to make a point I’ve expressed in other spaces (Twitter, etc), but I haven’t articulated here.

Where we are in this saga:  Musk sent a letter to Twitter on July 8, publicly filed with the SEC, purporting to terminate the merger agreement due to what he claimed were three contract breaches by Twitter.  First, Twitter falsely represented the amount of spam/bots on the platform; second, Twitter failed to provide information to Musk that was necessary to consummate the transaction (i.e., information about the amount of spam on the platform); third, Twitter failed to operate in the ordinary course by instituting a hiring freeze and laying off some employees. 

Twitter filed a lawsuit against Musk on July 12 seeking specific performance, arguing that it had not breached the agreement and that Musk, himself, was in breach, by failing to use his best efforts to consummate the deal as he promised to do.  (Links to case filings, by the way, are taken from this handy archive set up by Andrew Jennings.)

Musk filed an answer with counterclaims yesterday, but it’s under seal, so we’ll have to wait for a…

A vanishingly small cadre of investor protection clinics now exist at law schools across the United States.  Most are on the east coast with the greatest concentration of clinics in and around New York City.  Pace’s Jill Gross wrote the leading history of the rise and possible extinction of these clinics. The major problem has always been funding.  I ran one at Michigan State before taking my first tenure-track teaching post.  We recovered hundreds of thousands for ordinary people.  It closed after I left for lack of funding.

In 2018, the SEC’s Investor Advisory Committee formally recommended financial support for investor clinics.  Four years later, help sits just over the horizon.  Earlier today, Nevada’s Senator Cortez Masto introduced legislation to create a sustainable funding mechanism for investor protection clinics.  Similar legislation has also been introduced in the House by Illinois Congressman Mike Quigley.

The proposed legislation would allow the SEC to administer grants roughly similar to what the IRS already does for tax clinics.  This would create sustainable support for these clinics and ensure that services remain available.

A few years back, I ran an investor clinic at UNLV.  We had some notable successes, including this $40,000 win over Wells…

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…