Uncategorized

Subscribe to Uncategorized via RSS

I’ve previously expressed concern about Delaware organizational law intruding into other states’ spaces.  A new entry into the genre is VC Slights’s opinion in AG Resource Holdings, LLC, et al. v. Thomas Bradford Terral.

In AG Resource Holdings, Thomas Terral cofounded an LLC called AG Resource Management.  The business was eventually bought out by a private equity firm and restructured as a holding company, AG Resource Holdings LLC, that wholly owned the operating subsidiary, AG Resource Management LLC.  Terral was designated as one of several managers of the LLCs, and also was an officer.

Terral’s contractual obligations were embodied in separate agreements.  First, he had an Employment Agreement, which had various noncompetes, and a Delaware choice of law clause.  Second, the LLC agreements themselves required him to act in good faith and not compete, and chose Delaware law, and Delaware forums, to resolve any disputes. 

Terral was fired after it was discovered he was planning to compete with the companies, and he filed a complaint in Louisiana seeking to have the noncompete in the Employment Agreement declared unenforceable.  Terral’s argument – which a Louisiana court accepted on a motion for a preliminary injunction – was that because…

Almost exactly one year ago, I blogged about an unusual books and records lawsuit involving Facebook.  The plaintiffs were seeking documents pertaining to Facebook’s $5 billion settlement with the FTC, on the theory that Facebook had improperly agreed to pay larger fines in order to protect Mark Zuckerberg, personally, from liability.  That, the plaintiffs claimed, was an interested transaction involving a controlling shareholder, subject to entire fairness review if not cleansed using MFW procedures.

As I said at the time, the reason this struck me as novel was because the entire lawsuit depended on Delaware’s slow evolution of thinking surrounding controlling shareholder transactions, and highlighted the box Delaware has put itself in.  Is it true that any controlling shareholder transaction gets entire fairness review absent MFW procedures?  Because if the controlling shareholder involved in day-to-day operations, that’s a very broad rule, and if that’s not the rule, what kinds of transactions qualify?

Anyhoo, VC Slights just issued his opinion in the 220 action and the remarkable thing about it is that it says … nothing.

I mean, it says something, obviously, it holds that (1) plaintiffs may obtained non-privileged electronic communications pertaining to the settlement and (2) plaintiffs…

Holger Fleischer has posted Corporate Purpose: A Management Concept and its Implications for Company Law on SSRN (here).  I like the idea of distinguishing (1) a “management concept” of identifying a corporate purpose “beyond mere profit” from (2) a corporate law conception of the for-profit corporation as a profit-maximizing entity.  Here is the abstract:

Many companies have recently been following the so-called corporate purpose concept that is recommended by leading management scholars. To this end, they identify a raison d’être for their enterprise that goes beyond mere profit making and they anchor it in the entire value chain. This paper puts the corporate purpose concept in perspective by linking it to the larger debate on corporate social responsibility and by outlining its theoretical foundations and practical application. It then goes on by explaining how this management concept fits into the company law framework, looking to France and the UK as well as to the US and Germany. Finally, this paper assesses various policy proposals made by leading purpose proponents, ranging from mandatory purpose clauses in the articles of association to say-on-purpose shareholder voting and dual-purpose business organisations.

Nevada legislators recently introduced legislation to create a statutory exemption from licensure for the investment advisers for certain qualifying private funds.  The language appears nearly identical to the model regulation released by the North American Securities Administrators Association (NASAA). Notably, NASSA explained that its regulatory approach would be “contingent in many respects on how the SEC moves forward on implementation in this area. Consequently, if the SEC makes significant alterations to its proposals NASAA may be required to reevaluate the provisions in any proposed model rule or rules.”  Nevada’s own Securities Division also recently released a proposed regulatory update which includes NASAA’s model regulatory exemption.

There are really two questions here.  The first is whether an appropriately tailored exemption from licensing requirements should exist for certain private funds.  Nevada’s own securities regulators support the exemption and included it in their draft regulations. As it stands, putting the exemption into place does not require the Nevada Legislature to do anything.  The exemption appears highly likely to be embodied in the final regulatory code at the conclusion of the ordinary regulatory process.  I filed a comment letter on this with the Nevada legislature and have reviewed the letters filed by supporters of…

After Ben posted about the GameStop Affair last week, Joan predicted that the saga would be a “great gift to law professors.”  That seems about right, because here I am with a post about the subsidiary issue of Robinhood, or rather, Robinhood’s platform.

FINRA just issued a report on its current Risk Monitoring and Examination Activities, which highlights certain areas that FINRA will be investigating going forward.  It doesn’t mention Robinhood by name, but it flags some of Robinhood’s practices for special attention and, in particular, its game-like user interface.  In specific, it says:

we are increasingly focused on communications relating to certain new products, and how member firms supervise, comply with recordkeeping obligations, and address risks relating to new digital communication channels. This focus includes risks associated with app-based platforms with interactive or “game-like” features that are intended to influence customers, their related forms of marketing, and the appropriateness of the activity that they are approving clients to undertake through those platforms (e.g., under FINRA Rule 2360 (Options)).

…

While such features may improve customers’ access to firm systems and investment products, they may also result in increased risks to customers if not designed with

…

Tulane Law School invites applications for a Forrester Fellowship. Forrester Fellowships are designed for promising scholars who plan to apply for tenure-track law school positions. The Fellows are full-time faculty in the law school and are encouraged to participate in all aspects of the intellectual life of the school. The law school provides significant support, both formal and informal, including faculty mentors, a professional travel budget, and opportunities to present works-in-progress in various settings.

 

Tulane’s Forrester Fellows teach legal writing in the first-year curriculum in a program coordinated by the Director of Legal Writing. Fellows are appointed to a one-year term with the possibility of a single one-year renewal. Applicants must have a JD from an ABA-accredited law school, outstanding academic credentials, and significant law-related practice and/or clerkship experience. Candidates should apply through Interfolio at http://apply.interfolio.com/82676. If you have any questions, please contact Erin Donelon at edonelon@tulane.edu.

 

The law school aims to fill this position by March 2021. Tulane is an equal opportunity employer and encourages women and members of minority communities to apply.

Paul Mahoney and Adriana Robertson just posted a fascinating new paper arguing that many index providers are, in fact, investment advisers under the legal definition, and therefore should be deemed to owe fiduciary duties to the mutual funds who license their indices. 

The paper builds on Robertson’s earlier work studying index funds, including her finding that many indices are “bespoke”; they are created in order to be licensed to a single fund.  Notice how the fees work in that scenario: the fund itself can charge a low management fee for a purported “passive” fund, and then bundled with other fees is an additional fee to license the index – often created by an affiliate of the fund.  And, in fact, she finds that ETFs that call themselves passive but license an index from an affiliate charge higher fees than those that do not use an affiliated license provider.

Anyhoo, the new paper with Mahoney takes this to the next logical conclusion: in these kinds of cases, the index provider is serving as an investment adviser to the fund, and should be regulated that way.

If you haven’t been living under a rock, you probably know about the rally in GameStop’s stock price now causing losses for hedge funds and dominating the news cycle.  Today, major retail brokerages began to restrict trading activity in the stock, limiting their customers ability to place additional buy orders for the stock.  

The increase in GameStop’s stock’s trading price from about $4 a share in July 2020 to a brief high of $492 today seems plainly disconnected from any fundamental value thesis.  Many retail investors may have been simply buying the stock on the theory that because other people are buying the stock they’ll be able to sell at a profit amid the continuing rise.  Of course, it’s impossible to know with certainty when this obvious bubble will pop.  

A variety of reasons may explain the decision to no longer execute buy orders into the expanding GameStop bubble.  Some of it may be simple paternalism.  Regulators might ask why brokerages are letting retail investors commit possible financial suicide by buying into the bubble.  Of course, this makes unknowable assumptions about the sources of capital being used to fuel the rally.  We don’t know how many people are actually putting…

Have you heard about the idea of central bank digital currencies (CBDCs) and stablecoins?  Are you interested in learning more… but maybe just the basics, briefly and quickly (because you’re not focused on banking like some of us)?  I’ve got a great solution for you!  Today I read Clifford Chance’s thought leadership piece, Central Bank Digital Currencies and Stablecoins – How Might They Work in Practice?  It’s a mere 7 pages of text, incredibly accessible, and provides a great introduction to these topics and even includes some banking and payment systems history.  It will take you 15 minutes to read.  You’ll be glad that you did!  Here’s the abstract:

Payment media, from gold coins to stablecoins, exist to be used, and in practice their use requires payment systems. In my paper ‘Central Bank Digital Currencies And Stablecoins – How Might They Work In Practice?’ I consider the way in which existing payment infrastructures and particularly payment banks — might reconfigure their services to accommodate Central Bank Digital Currencies (CBDCs) and stablecoins.

For this purpose, it is probably irrelevant whether the ‘coins’ concerned are created by central banks…