Friend of the blog Bernard Sharfman has posted The Problem of Three In the Voting of Public Company Shares over at RealClearMarkets.  A brief excerpt follows.

The problem of the Big 3’s concentration of voting power is illustrated in Engine No. 1’s proxy fight at ExxonMobil …. Engine No. 1’s stated objectives in seeking the election of its own nominees was to: 1) enhance the value of ExxonMobil’s common stock; 2) reduce ExxonMobil’s carbon emissions; and 3) transition ExxonMobil into a global leader in profitable clean-energy production. Yet Engine No. 1 never provided specific recommendations on how it was going to accomplish these objectives. This was odd, as one would expect Engine No. 1 to present such recommendations if it were to convince shareholders that its director nominees were worthy of being elected.

The inability to provide such recommendations must have been a clear indication to the shareholders of ExxonMobil, including the Big 3, that Engine No. 1 was not truly informed about the operations of ExxonMobil or how it was going to achieve its stated objectives. Nevertheless, Engine No. 1 succeeded in getting three of its four nominated directors elected to Exxon’s board. How in the world was it…

A couple of weeks ago, I posted about how courts are not terribly precise when evaluating allegations of corporate scienter in Section 10(b) claims.  Since then, a couple of cases were decided that provide some useful examples of the problem.

First up, there’s the Second Circuit’s Plumbers & Steamfitters Local v. Danske Bank, decided earlier this week.  Apparently, the Estonia subsidiary of Danse Bank got into trouble for money laundering, and the plaintiffs alleged this resulted in a number of false statements by Danse Bank itself.  The court dismissed all of the statement claims on various grounds, and then turned to the final allegations that, due to Estonia’s conduct, Danse Bank had engaged in a scheme to defraud.  The court rejected the claim in a few brief sentences:

At no point do [the plaintiffs] articulate with precision the contours of an alleged scheme to defraud investors, or which specific acts were conducted in furtherance of it. Instead, the claim rests upon the incorporation of the previous 140 pages of the pleading paired with the conclusory assertion that “Defendants carried out a common plan, scheme, and unlawful course of conduct that was intended to . . . deceive the investing

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For your reading enjoyment, I’ve posted a new draft, Supreme Risk, to SSRN.  This is the abstract:

While many have discussed the social issues that might arise because of a majority-conservative Supreme Court, one critical consequence of the current Supreme Court has been overlooked: the role of the Supreme Court in generating or avoiding systemic risk. For some time, systemic financial risk has been regulated by a mix of self-regulatory organizations (SROs), such as the Depository Trust Corporation, and federal regulators such as the Financial Stability Oversight Council. However, the Supreme Court’s recent jurisprudence now creates real risk that federal courts will declare keystone SROs unconstitutional because they do not fit neatly into an eighteenth-century constitutional framework.

SROs are under-appreciated regulatory entities comprised of industry members regulating their own industries with deferential oversight from federal administrative agencies. While ordinary civics discussions entirely omit SROs, they play a critical legal and economic roles and exercise enormous power delegated to them by the federal government. Yet as nominally private entities, they enforce federal law and their own rules without abiding by the restrictions imposed on governmental entities, such as providing due process.

This article makes three contributions to the literatures in

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Prof. Carla L. Reyes has published Autonomous Business Reality in the Nevada Law Journal.  The article apparently just became available on Westlaw.  The abstract is below and you can find a version of the paper on SSRN here.

Society tends to expect technology to do more than it can actually achieve, at a faster pace than it can actually move. The resulting hype cycle infects all forms of discourse around technology. Unfortunately, the discourse on law and technology is no exception to this rule. The resulting discussion is often characterized by two or more positions at opposite ends of the spectrum, such that participants in the discussion speak past each other, rather than to each other. The rich context that sits in the middle ground goes disregarded altogether. This dynamic most recently surfaced in the legal literature regarding autonomous businesses. This Article seeks to fill the gap in the current discussion by creating a taxonomy of autonomous businesses and using that taxonomy to demonstrate that automation, standing alone, is not what makes autonomous businesses exceptional. Rather, the capacity of autonomous businesses to make radical governance changes more prevalent in the market pushes the boundaries of current choice of entity…

The following showed up in my inbox this week and may be of interest to readers of this blog:

As part of our Capitalism & Rule of Law Project (CapLaw), the Law & Economics Center (LEC) at George Mason University Antonin Scalia Law School is having a big week, including by focusing attention on an important anniversary in the debate over capitalism and the rule of law. Two years ago today, on August 19, 2019, the influential Business Roundtable released what it called a “new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.” This statement is one of many alarming calls for the abandonment of traditional and time-tested principles of corporate governance, perhaps most succinctly captured in the title of Milton Friedman’s 1970 essay in The New York Times: “The Social Responsibility Of Business Is to Increase Its Profits.”

Here’s a selection of CapLaw highlights from this week: 

• Yesterday, August 18, the LEC hosted a luncheon panel, “Business Roundtable v. Milton Friedman: Reflections on the Second Anniversary of ‘Redefining’ the Purpose of the Corporation” attended by

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Insider trading isn’t really my specialty – that’s John’s area – but everyone’s talking about SEC v. Panuwat, which means I feel like I need to weigh in.

In short: Company insider (Panuwat) obtains confidential information from his employer that the firm is to be acquired.  He immediately trades in the stock of a similar but unrelated company – recognizing, correctly, that news of the acquisition will lift the stocks of comparable firms.  Has he violated Section 10(b) and Rule 10b-5 by misappropriating confidential information from his employer?

First, I note that Panuwat’s trades took place on August 18, 2016 and the SEC filed its complaint on August 17, 2021.  Which, you know, tells you something about the SEC’s ambivalence and risk assessment for this case. (The statute of limitations for imposing a penalty is 5 years).

Second, this problem has been considered before.  Here’s Ian Ayres and Joe Bankman on the subject (h/t to the Twitter birdie who called this to my attention), and here’s a recent empirical paper by Mihir N. Mehta, David M. Reeb, and Wanli Zhao concluding that these kinds of trades are relatively common (discussed in this Law360 article).

There’s probably a lot that can…

A few days ago, NYU’s Robert Jackson and Yale’s John Morley filed a lawsuit contending that the world’s largest SPAC was actually an investment company and thus subject to the Investment Company Act of 1940.  A copy of the complaint is available here.  The case has also been covered by the D&O Diary and the N.Y. Times.

A few days after the suit was filed, Bill Ackman, the SPAC’s sponsor, announced an intention to return investor funds.  He also took the opportunity to take a swipe at Jackson and Morley:

Why you might ask, would a PSTH shareholder bring such a meritless lawsuit when any shareholder would understand that the mere filing of the lawsuit, and the delays inherent in its resolution, would impair PSTH’s ability to create shareholder and warrant holder value within its remaining term, by interfering with the process of consummating a merger transaction?

While the lawsuit is brought on behalf of a purported shareholder of PSTH, this individual is simply an unwitting prop to enable the academics, and the plaintiff law firms with whom they have partnered, to bring the lawsuit. The two law professors who concocted the legal theory behind the complaint conceded

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