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In my undergraduate course, The Law of Business Organization, we’re studying material on “Investor Protection, Insider Trading, and Corporate Governance.”  During our last class, we examined the registration statement for last year’s Dropbox IPO.  Before this exercise, however, we reviewed a highly-generalized funding life cycle for businesses in the U.S. that eventually went public.  In doing this, I shared with students that an important caveat to this presentation was the increasing role of private capital in U.S. debt and equity markets.  I mentioned that the cost not only of going public, but also of the related and continuing reporting and compliance requirements could be a potential explanation for this shift.  As it turns out, I’m planning to supplement my explanation of the role of regulation in this shift during tomorrow’s class.     

Several weeks ago, I mentioned in a post the increasing role of private capital in U.S. capital markets.  Shortly thereafter, I was chatting with my Finance Division colleague, Bill Megginson, about this trend and other financial market developments.  It proved to be good timing as Megginson (along with coauthors Gabriele Lattanzio and Ali Sanati) had recently posted a new article, Listing Gaps, Merger Waves, and …

Where we last left off in our saga, Professor Hal Scott of Harvard Law School, as trustee for the Doris Behr 2012 Irrevocable Trust, sought to introduce a shareholder proposal at Johnson & Johnson to amend the corporation’s bylaws to require arbitration of federal securities claims by any J&J stockholder, on an individual basis.  (You can read a full accounting of all of this, with links, here)

J&J sought to exclude the proposal on two grounds.  First, that the proposal would cause the company to violate federal law because an arbitration bylaw of this sort would act as a prohibited waiver of rights under the Exchange Act, and second, that the proposal would violate state law because – as Delaware Chancery’s decision in Sciabacucci v. Salzberg made clear – corporate bylaws and charters only govern claims pertaining to corporate internal affairs, and cannot impose limits on non-internal affairs claims, like federal securities claims.  J&J was boosted in this latter effort by an opinion letter from the NJ Attorney General agreeing that NJ law would be in accordance with Delaware on this issue.  In light of the NJ AG letter, the SEC granted J&J’s request for no-action relief.

Undaunted, the…

Financial Planning’s Ann Marsh recently published an article detailing how a registered investment adviser’s chief operating officer allegedly stole $6 million from the firm and clients.  As often happens, the alleged thefts started small and gradually escalated over time, becoming more and more daring.  The COO allegedly first began by meddling with the firm’s payroll to increase his own pay.  When a client later raised questions about charges to his account with the CEO, the SEC’s complaint alleges that the CEO took the concern to the COO who “confessed to overbilling clients in order to personally profit himself.”

Although nothing in the report indicates that the CEO had any idea any of this was going on, there are some lessons.  Despite managing nearly half a billion dollars, the CEO held three different roles simultaneously:  CEO, Chief Compliance Officer, and Chief Investment Officer. When the same person occupies all three roles, it necessarily means that they cannot devote themselves entirely to any one role.  Although there is no guarantee that a full-time chief compliance officer or CEO would have caught this earlier, it’s hard to imagine that they would have stood a worse chance than someone overburdened with three simultaneous roles.…

At the 2018 Annual Conference of the Academy of Legal Studies in Business, I spoke on a panel, New Developments in Corporate Governance, with Vincent S.J. Buccola, Gideon Mark, Josephine Sandler Nelson, and David Zaring, the organizer (thanks again, David!). 

Buccola discussed governance aspects of corporate bankruptcy law in the modern economy.  I was particularly intrigued by his argument that “Bankruptcy law is potentially valuable…insofar as it can toggle from property to liability rule in domains where legal or practical impediments prevent investors from arranging their own, “tailored” toggles.” 

I’ve taught Corporate Bankruptcy, and in my research at the time, I was analogizing bargaining processes in the context of the recovery and resolution of clearinghouses to bargaining processes in private restructurings and formal bankruptcy filings.  I wondered about the potential application of Buccola’s work within the clearinghouse context, and have been eagerly awaiting his article.  I’m excited to share with readers that the wait is over!  Bankruptcy’s Cathedral: Property Rules, Liability Rules, and Distress, an impressive and significant new work, is forthcoming in the Northwestern University Law Review, and also now available on SSRN.  Here’s its abstract:            

What justifies corporate bankruptcy…

Earlier this week, the Supreme Court issued its opinion in Lorenzo v. SEC, and the thing that strikes me the most about it is that the dissenters do more to undermine Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), than the majority does.

I previously posted about Lorenzo here; the remainder of this post assumes you’re familiar with the problem posed by Lorenzo and its relationship to the earlier Janus decision.

[More under the jump]

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Entrepreneurs and entrepreneurism have always fascinated me.  Hence, I was thrilled to see that in a recent TCU Neeley Institute for Entrepreneurship and Innovation ranking that “tracks research articles in premier entrepreneurship journals for the past five years,” my colleagues in the University of Oklahoma’s Price College of Business Tom Love Division of Entrepreneurship and Economic Development, directed by Professor Tom Lumpkin, were 7th in the WORLD!  Boomer Sooner!

And since coming to OU, I’ve had the good fortune to meet an inspirational, 4th generation Oklahoma entrepreneur, Merideth VanSant, in attending 405 Yoga OKC, the 2018 Best Yoga Studio in OKC, and one of four studios owned by VanSant.  The U.S. has more than 6000 yoga studios, so VanSant’s success is no small feat.  Yoga is big business: Americans spend about $16 billion a year on classes, clothes, and related equipment.  In fact, America is now a “Nation of Yoga Pants.” 

VanSant has long made extensive use of her entrepreneurial and leadership abilities, whether in running award-winning yoga studios, supporting various federal agencies in the transportation and aviation areas (and receiving the 2014 National Senior Consultant of the Year…

A few months ago, I read John Carreyrou’s Bad Blood: Secrets and Lies in a Silicon Valley Startup about Elizabeth Holmes and the Theranos fraud, and I was very curious to see how the same story would play out in the new documentary The Inventor: Out for Blood in Silicon Valley.  (Sidebar: I am truly on the edge of my seat for the forthcoming Adam McKay adaptation starring Jennifer Lawrence – but that’s a whole ‘nother thing).  In general, I preferred the book: it has far more detail, and the documentary has little new information to contribute. That said, there was power in the immediacy of actually watching Elizabeth Holmes, hearing her speak, and seeing how people reacted to her.  So, below are some of my general thoughts.

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