Ten days ago, co-blogger John Anderson posted about a new insider trading paper co-authored by  Sureyya Burcu Avci, Cindy Schipani, Nejat Seyhun, and Andrew Verstein,  A revised version of the paper, entitled Insider Giving, was recently posted on SSRN.  In the interim, I have been in communication with two of the co-authors, both friends of the BLPB (and of mine), Cindy Schipani and Andrew Verstein.  This paper, forthcoming in the Duke Law Journal, has a lot to offer.

As an insider trading nerd, I was pulled into this paper from the get-go.  Having written my own insider trading piece about gifting information a few years ago, I was intrigued by the ides of looking at the gifting of the subject securities themselves as possible violative conduct.  Of course, what Insider Giving starkly portrays is a situation in which stock is not donated wholly “from a ‘detached and disinterested generosity,’ … ‘out of affection, respect, admiration, charity or like impulses.’” Commissioner v. Duberstein, 363 U.S. 278, 285 (1960) (citations omitted) (defining a gift for federal income tax purposes).  The article presents significant information about insider gifts, including background on the motivation for these transactions, empirical data on abnormal returns, and relevant legal principles and analyses.  #recommend!

Although I support reform of the nation’s insider trading laws (as do the article’s co-authors), my principal interest in the article relates to its analysis of the legality under § 10(b) and Rule 10b-5 (of and under, respectively, the Securities Exchange Act of 1934, as amended) of a charitable gift of a publicly traded firm’s stock made by a clear insider (officer or director) of the firm to a recognized IRC § 501(c)(3) entity while the insider is in possession of material nonpublic information.  Specifically, I am focused on a gift that is made at a time when negative material facts about the issuer of the gifted security remain undisclosed.  Although in various places the article refers to a gift of this kind as manipulative, my understanding of that term (as used in the Section 10(b)/Rule 10b-5 context) is that it relates to conduct that alters markets (e.g., for securities, trading price or volume).  Instead, I conceptualize these gifts (as portrayed in the article), as potentially deceptive conduct in connection with the purchase or sale of a security–the general basis for insider trading liability under § 10(b)/Rule 10b-5.  I provide a brief analysis below.

The deception in insider trading occurs through the breach of a fiduciary or fiduciary like duty of trust and confidence by someone holding that duty. In the posited scenario, that duty holder is the corporate insider.  A person with that duty of trust and confidence must refrain from trading while aware (in possession) of material nonpublic information, unless that information is disclosed (and, as applicable, fully disseminated in relevant trading markets).  Accordingly, leaving aside the applicable scienter requirement, the legality of the charitable gift as a matter of § 10(b)/Rule 10b-5 insider trading law would depend on whether the insider breached their duty and whether the gift constitutes, or otherwise is in connection with, a sale of the subject securities.

The breach of duty seems clear. The stock gift was not made for the firm’s purposes/in the firm’s best interest. It was made for the insider’s purposes/ for their self-interest, which may include both altruism and a tax benefit (among other things).  The resulting excess benefits inuring to the insider may be seen to be “secret profits,” as referenced by the U.S. Securities and Exchange Commission in In re Cady, Roberts & Co., 40 S.E.C. 907, 916 n.31 (1961).

But what about the requisite connection to the “sale” of a security that is essential to a successful insider trading claim under § 10(b)/Rule 10b-5?  Under § 3(a)(14) of the 1934 Act, “[t]he terms ‘sale’ and ‘sell’ each include any contract to sell or otherwise dispose of.”  Admittedly, I have not yet taken the time to  look at any rule-making or decisional law on the definition of “sale” under the 1934 Act.  However, it seems from the statute that the term “sale” is even more broad under the 1934 Act than it is under § 2(a)(3) of the Securities Act of 1933, as amended (where there is a “for value” requirement—although there is a disposition for value on these facts because of the tax benefit to the donor), but for the fact that the 1934 Act statutory definition appears to necessitate a “contract” for sale or disposition. If the determination of a contract relies on common law, one might well find one in this situation, since there is an offer and acceptance and, likely(?), consideration . . . . In fact, stock donors also often sign gift agreements with charitable nonprofits that are binding at least as to some terms (and may be seen as a contract to dispose of the securities). Of course, as the article’s co-authors point out, the transaction itself does not need to be a sale; but there must be some connection to a purchase or sale. I agree with that observation and note also that the “in connection with” requirement has been read relatively broadly. The co-authors also accurately indicate that charities often sell donated stock (in my experience, as soon as possible after securing record ownership), making the gift transaction look a lot like a sale of the security by the insider and a subsequent gift of the proceeds by the insider to the charity.  (As the co-authors note, the U.S. Supreme Court has found that type of substance-over-form argument persuasive in the breach of duty analysis in another insider trading context–tippee liability–in Dirks v. SEC, 463 U.S. 646, 664 (1983).  I also note the repetition of that language and reliance in the more recent Salman v. United States, 580 U.S. ___ (2016).)

Bottom line? I see a relatively clear path to § 10(b)/Rule 10b-5 liability here, assuming the insider has the requisite state of mind (scienter). Overall, my argument tracks the related argument in the article.  I am not saying the argument is a decisive winner or that there would or should be enforcement activity. Tracking these transactions for enforcement purposes will depend on the accurate filing of a Form 5 (or a voluntary Form 4).  The article describes the role that these disclosure forms serve. 

Based on the analysis provided here (which is not based on research–just general knowledge), I would advise the insider that there is a real insider trading liability risk in making a gift in circumstances where the insider cannot make a sale.  Do you agree?  If not, what am I missing?

My friend and colleague Prof. Victoria Haneman has shared her paper, Menstrual Capitalism, Period Poverty, and the Role of the B Corporation.  Here is the abstract: 

A menstruation industrial complex has arisen to profit from the monthly clean-up of uterine waste, and it is interesting to consider the way in which period poverty and menstrual capitalism are opposite sides of the same coin. Given that the average woman will dispose of 200 to 300 pounds of “pads, plugs and applicators” in her lifetime and menstruate for an average of thirty-eight years, this is a marketplace with substantial profit to be reaped even from the marginalized poor. As consciousness of issues such as period poverty and structural gender inequality increases, menstrual marketing has evolved and gradually started to “go woke” through messaging that may or may not be genuine. Companies are profit-seeking and the woke-washing of advertising, or messaging designed to appeal to progressively-oriented sentimentality, is a legitimate concern. Authenticity matters to those consumers who would like to distinguish genuine brand activism from appropriating marketing, but few objective approaches are available to assess authentic commitment.

This Essay considers the profit to be made in virtue signaling solely for the purpose of attracting customers and driving sales: pro-female, woke menstruation messaging that may merely be an exploitative and empty co-optation. Feminists should be expecting more of menstrual capitalists, including a commitment that firms operating within this space address the diapositive issue of period poverty, one of the most easily solved but rarely discussed public health crisis of our time, and meaningfully assist those unable to meet basic hygiene needs who may never be direct consumers. This Essay serves as a thought piece to explore the idea of B Corporation certification as an implicit sorting device to distinguish hollow virtue signaling from those menstrual capitalists committed to socially responsible pro-womxn business practices.

It is well-known that I am not fond of benefit corporation statutes, but given that they are a thing (along with B Corp certification), we have to deal with them.  I still feel strongly that they benefit entity type, as it currently exists, is not helpful and potentially counterproductive.  And I really don’t like that B Corp certification has moved to include mandating entity type.  But that’s just facts, for now, anyway.  

My opposition to benefit entities, though, is not anti-signaling by an entity of their values, and there’s little doubt in my mind that a benefit entity (if it must exist) certainly makes sense for nonprofits (thought I still think the nonprofit thing told us all we needed to know).  We’re stuck with benefit entities, so Professor Haneman is probably correct that choosing the entity type could have value in marketing and signaling to consumers shared values.  I still think companies should signal through acts, not entity choice, and that all entity types should have the latitude to do such signaling. But in the world we live in, this just may be how it is.  Regardless, I recommend taking a look — even when I disagree, Professor Haneman is always thoughtful, smart, and entertaining.  

Cancel culture has been a hot topic for years, so when the University of Miami Law Explainer podcast asked me to talk about it, I had some reservations. I’m not shy, but I’m also not looking to be a headline in our campus newspaper, a meme, or a topic on Fox News. But I have strong feelings about this, and I agreed to speak.

I’m providing the link to the 20-minute interview here. I talked about my history as a radical protestor in college and law school (and my run in with Rush Limbaugh),  the effect of boycotts and buycotts, whether Teen Vogue missed a teachable moment after firing an editor for tweets she made as a teenager, whether corporations are doing the right thing when they bow to pressure from vocal consumers, the uproar over the 1619 project, and more. If you want a break from drafting contracts or writing exams, take a listen and let me know what you think. 

I’m finishing my second semester of teaching Legal Environment of Business, an introductory undergraduate business law course, asynchronously.  One of the challenges of an asynchronous course is creating a sense of community among students.  I’ve previously blogged about using negotiation exercises in my business law courses (here and here).  In this post, I want to share with readers how I’ve continued to use such materials in my asynchronous courses to promote experiential learning and to create a sense of community.

Canvas is the learning management system for my courses.  My asynchronous courses are organized into weekly modules.  Students can find all materials for a specific week (assigned readings, videos, assignments etc.) in that week’s module.  The feedback I’ve received indicates that students find this an easy to follow format.  So, for any week in which there is a negotiation exercise, the students’ role assignments, the negotiation materials, and the assignment itself will be posted in that week’s module.  For each exercise, I use Canvas groups to randomly organize students into negotiation teams.  Use of Canvas groups also facilitate students’ ability to contact each other, coordinate their negotiation, and complete their assignment.  I group students into a different team for each negotiation.  Students can negotiate by Zoom or in person.  I recommend that a date be set by which students must have a date/time arranged for the negotiation and the completion of the assignment.  In the related assignment, students are generally asked to reflect upon the negotiation and to apply the related chapter materials to the negotiation context.  Readers are welcome to reach out to me for additional logistical details/advice/assignment information.  In the remainder of this post, I’ll mention a bit about each negotiation exercise that I’ve used in my asynchronous courses this semester.

House on Elm Street.  I use this negotiation with the chapter on business ethics.  It’s a great exercise and its free (thank you, Professor George Siedel)!  It not only raises ethical issues, but it also powerfully demonstrates the importance of creative thinking and of understanding your negotiation counterparty’s underlying interests.

Waltham Construction Supply Corp. v. Foster Fuels, Inc. In this negotiation, Waltham trucking alleges that antifreeze purchased from Foster Fuels had a corrosive impact on its trucks.  I use this negotiation with the chapter covering alternative dispute resolution because the materials themselves include both a bilateral negotiation and a video mediation of the case.  Students can watch the video after the exercise to learn about mediation.  Another great thing about this exercise is that once the video is purchased from Harvard’s Program on Negotiation (PON), you can use the accompanying negotiation materials without paying additional fees.

DirtyStuff II.  In this negotiation, a variety of stakeholders are negotiating the text for an administrative agency rule set for proposal about the regulation of an industrial by-product.  Naturally, I use this six-student negotiation in covering administrative law.  I think it’s a great way to promote students’ understanding of the administrative rulemaking process.

Super Slipster.  I love this negotiation because it reminds me of using backyard water slides when I was a kid!  From a quick Google search, I see that these slides are way fancier now than back then (well, I guess it has been a few years…)!  Fortunately, I don’t recall anyone becoming seriously injured from such products.  Unfortunately, Adam Sidwell suffers serious injuries after using the Super Slipster, making this negotiation exercise a perfect accompaniment in covering tort law/products liability.

Finally, Harborco, a six-player negotiation about the building of a new port, is one of PON’s most popular exercises and generally a student favorite.  It’s a great capstone exercise (I use it at the end of the course) and way to have students apply contract law in an experiential context.

Business Law Today, the American bar Association’s business law magazine, has published a super guide to The Corporate Transparency Act, which became effective earlier this year.  The guide comes in the form of an article, “The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information,” co-authored by Robert W. Downes, Scott E. Ludwig, Thomas E. Rutledge, and Laurie A. Smiley.  The article reviews the act and clarifies a number of its key provisions.  The following background is excerpted from the introduction of the article:

The Corporate Transparency Act requires certain business entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury (“Treasury”). The information will not be publicly available, but FinCEN is authorized to disclose the information:

– to U.S. federal law enforcement agencies,

– with court approval, to certain other enforcement agencies to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and

– with consent of the reporting company, to financial institutions and their regulators.

The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. When fully implemented in 2023, it will create a database of beneficial ownership information within FinCEN. The purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.” Prior to the implementation of the Corporate Transparency Act, the burden of collecting beneficial ownership information fell on financial institutions, which are required to identify and verify beneficial owners through the Bank Secrecy Act’s customer due diligence requirements. The Corporate Transparency Act will shift the collection burden from financial institutions to the reporting companies and will impose stringent penalties for willful non-compliance and unauthorized disclosures.

The Secretary of the Treasury is required to prescribe regulations under the Corporate Transparency Act by January 1, 2022 (one year after the date of enactment).  It is expected that any implementing regulations will be promulgated by FinCEN pursuant to a delegation of authority from the Secretary of the Treasury. The effective date of those regulations will govern the timing for filing reports under the Corporate Transparency Act.

I am grateful to the co-authors (two of whom are friends and ABA colleagues) for providing this helpful resource.  Now that business firms, rather than financial institutions, are bearing the burdens of disclosure in this space, it will be important for business lawyers to become familiar with the law and begin to develop best practices for its effective implementation.  I intend to provide updates in this space.

ANNOUNCEMENT

Proposal and Nomination Deadline Extension

It is our pleasure to announce that the proposal and award nomination deadlines for Emory Law’s seventh biennial transactional law and skills education conference have been extended to 5 pm EDT May 7, 2021. Registration is open for the conference, which will be held virtually on June 4, 2021.

Join us to celebrate and explore our theme – Emerging from the Crisis: The Future of Transactional Law and Skills Education with you. This year, we have reduced the registration fee to $50 per person. Secure your space today!

Take a moment to review the Call for Proposals and submit your proposal here. Also, please share the CFP with your colleagues who may not have attended the Conference before. Consider forwarding it to adjuncts and professors teaching relevant subjects. Can you also think of any teachers who might be interested in attending or presenting? The Call for Proposals deadline is 5 p.m. EDT May 7, 2021. We look forward to receiving your proposals.

Last, but certainly not least, at this year’s Conference, we will announce the winner of the second Tina L. Stark Award for Teaching Excellence. Would you like to nominate yourself or a colleague for this award? We are currently accepting nominations for the 2021 Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills. You may submit your nomination here. The nomination deadline is 5 p.m. Friday, May 7, 2021. Please see here for more information about the nomination and selection process.

If you have questions regarding any of this information, please contact Kelli Pittman, Program Coordinator, at kelli.pittman@emory.edu or 404.727.3382.

Sue Payne | Executive Director

Katherine Koops | Assistant Director

Kelli Pittman | Program Coordinator

Just a quick follow-up to my April 12 post on COVID-19 and Lawyers Working from Home.  In that post, I indicated that law firms had been slow to adopt work from home before COVID-19 hit.  I also raised a question about the extent to which work-at-home solutions would survive the pandemic.  And I noted that “[t]here is so much I could say about all this.”

I learned this week that property security solutions provider Kastle Systems International LLC has created an online “Back to Work Barometer” that tracks real estate occupancy.  Based on data reported for last week (April 12 & 13), “[t]he legal industry is returning to work at a much higher rate than other industries.”  The average reported occupancy rate for all industries was 24%.  But for the legal industry, the reported average rate was 37.2%. 

Earlier this year, it was predicted that many law firms would begin to return to work in earnest in the spring.  See here.  But reports also note later return dates and continued work from home for some.  See here and here.

Culture considerations also may interact with post-COVID-19 returns to the workplace, as I briefly indicated in my April 12 post.  Maureen Naughton, Goodwin Procter’s Chief Innovation Officer, recently wrote a piece published by Bloomberg Law that offers some important reflections and wise advice on the culture issue:

While a commitment to a more flexible, work-from-anywhere workplace is welcome and overdue, consider its effect on your organization’s culture and sense of community.

Culture takes a long time to build but can dissipate quickly. And culture is certainly stronger when people can spend time together; spontaneous meetings and interactions increase our sense of community, foster development and mentorship, and spark innovative ideas at a moment’s notice.

Such meetings are at the foundation of an innovative and collaborative culture and we must make a concerted effort to preserve what makes us unique while maintaining a healthy, safe environment for our clients and colleagues.

As we evaluate the post-Covid-19 workplace, we must balance the flexibility afforded by remote work with its cultural implications. It is a careful balance, which—if calibrated properly—can benefit rather than harm your culture.

I may be wrong, but I do see office culture as a key concern for law firms–and, in all honesty, for law schools, too.  The autonomy of law professors is well known.  Even before the pandemic, many had decreased their time in the office.  Weaker cultural bonds as among faculty may have impacts on faculty shared governance.

I still may have more to say on this, but I wanted to note these points while they were still fresh on my mind . . . .

I previously blogged about benefit corporations going public, with my main point being that the legal requirements in the benefit corporation statute are so weak that they do not, as a practical matter, bind companies to adhere to their social purpose.  As a result, publicly traded benefit corporations are vulnerable to market pressures to favor shareholders over other stakeholders.  The newly-public benefit corporations have therefore chosen to adopt more mundane devices to insulate them from the market for corporate control – high inside ownership, staggered boards, etc – to stay on mission.  The drawback, however, is the same as exists for all antitakeover devices: managers may use their power to advance social purposes, but they may also use it to seek personal rents.

Anyway, I mention all of this because I noticed that another company recently went public as a benefit corporation, namely, Coursera, a provider of online education.  Coursera is in some ways following the path charted by Laureate Education, which is a for-profit university system that is also organized as a benefit corporation.  Both are also certified B-Corps (which provides a bit more reassurance of staying on mission; B-Corp status does not impose legal obligations but it functions as an independent monitor of corporate social performance), and both use inside ownership to insulate the company from public shareholder pressure.  Laureate has dual-class stock, and Coursera, well:

Our directors, executive officers and principal stockholders beneficially own a substantial percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Upon completion of this offering, our existing directors, executive officers, greater than 5% stockholders and their respective affiliates will beneficially own in the aggregate approximately 56.3% of our outstanding common stock, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock. Therefore, these stockholders will continue to have the ability to influence us through their ownership position, even after this offering

Additionally, Coursera does not allow shareholders to call special meetings or act by written consent, has a staggered board, an advance notice bylaw, and a supermajority voting requirement for certain bylaw and charter amendments.

One thing I find interesting – and I remarked on this in my earlier post – companies are still figuring out how they talk about benefit corporation status in their prospectuses.  That is, they can’t quite decide whether they want to say that benefitting stakeholders is itself a way of maximizing value to stockholders, so that benefit corporations are really just no different than any other corporation, or whether they want to say that they may sacrifice shareholder wealth to benefit other constituencies.  In my prior post, I pointed out that Lemonade goes more in the shareholder wealth maximization direction, while Vital Farms focuses on stakeholders.

Coursera seems to be in the former category, which makes sense to the extent that, as an educational institution in particular, creating at least the appearance of a stakeholder focus might really be necessary for profit maximization.  Anyway, this is what Coursera says in its prospectus:

There is no assurance that we will achieve our public benefit purpose or that the expected positive impact from being a PBC will be realized, which could have a material adverse effect on our reputation, which in turn may have a material adverse effect on our business, results of operations and financial condition…

As a PBC, we are required to publicly disclose at least biennially on our overall public benefit performance and on our assessment of our success in achieving our specific public benefit purpose. If we are not timely or are unable to provide this report, or if the report is not viewed favorably by parties doing business with us or by regulators or others reviewing our credentials, our reputation and status as a PBC may be harmed.

If our publicly reported B Corp score declines, our reputation could be harmed and our business could suffer

We believe that our B Corp status enables us to strengthen our credibility and trust among our customers and partners. Whether due to our choice or our failure to meet B Lab’s certification requirements, any change in our status could create a perception that we are more focused on financial performance and no longer as committed to the values shared by B Corps. Likewise, our reputation could be harmed if our publicly reported B Corp score declines and there is a perception that we are no longer committed to the B Corp standards. Similarly, our reputation could be harmed if we take actions that are perceived to be misaligned with B Corp values. …

[W]e may take actions that we believe will be in the best interests of those stakeholders materially affected by our specific benefit purpose, even if those actions do not maximize our financial results. While we intend for this public benefit designation and obligation to provide an overall net benefit to us and our partners and learners, it could instead cause us to make decisions and take actions without seeking to maximize the income generated from our business, and hence available for distribution to our stockholders. Our pursuit of longer-term or non-pecuniary benefits may not materialize within the timeframe we expect or at all and may have an immediate negative effect on any amounts available for distribution to our stockholders. Accordingly, being a PBC and complying with our related obligations could harm our business, results of operations, and financial condition, which in turn could cause our stock price to decline….

Our focus on the long-term best interests of our company as a PBC and our consideration of all of our stakeholders, including our shareholders, learners, partners, employees, the communities in which we operate, and other stakeholders that we may identify from time to time, may conflict with short- or medium-term financial interests and business performance, which may negatively impact the value of our common stock.

We believe that focusing on the long-term best interests of our company as a public benefit corporation and our consideration of all of our stakeholders, including our shareholders, learners, partners, employees, the communities in which we operate, and other stakeholders we may identify from time to time, is essential to the long-term success of our company and to long-term shareholder value. Therefore, we have, and may in the future, make decisions that we believe are in the long-term best interests of our company and our shareholders, even if such decisions may negatively impact the short- or medium-term performance of our business, results of operations, and financial condition or the short- or medium-term performance of our common stock. Our commitment to pursuing long-term value for the company and its shareholders, potentially at the expense of short- or medium-term performance, may materially adversely affect the trading price of our common stock…

This is not to say it entirely ignores the possibility that it may favor nonshareholder constituencies – it’s more like, Coursera emphasizes the shareholder-centric view of PBC status while also warning shareholders that Coursera’s Board is, you know, unaccountable:

[B]y requiring the boards of directors of PBCs consider additional constituencies other than maximizing stockholder value, Delaware public benefit corporation law could potentially make it easier for a board to reject a hostile bid, even where the takeover would provide the greatest short-term financial yield to investors.

Our directors have a fiduciary duty to consider not only our shareholders’ interests, but also our specific public benefit and the interests of other stakeholders affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our shareholders.

I also note that under its “Description of Capital Stock,” Coursera says:

We believe that an investment in the stock of a public benefit corporation does not differ materially from an investment in a corporation that is not designated as a public benefit corporation. Further, we believe that our commitment to achieving our public benefit goals will not materially affect the financial interests of our stockholders.

That’s almost word-for-word what Lemonade says as well:

We do not believe that an investment in the stock of a public benefit corporation differs materially from an investment in a corporation that is not designated as a public benefit corporation. We believe that our ongoing efforts to achieve our public benefit goals will not materially affect the financial interests of our stockholders.

But not Vital Farms, which doesn’t say anything like that in its Description of Capital Stock; instead, it simply redescribes what was then the existing legal regime for public benefit corporations, and adds “We believe that our public benefit corporation status will make it more difficult for another party to obtain control of us without maintaining our public benefit corporation status and purpose.”

 

With recent studies suggesting that insiders are availing themselves of SEC Rule 10b5-1(c) trading plains to beat the market by trading their own company’s shares based on material non-public information, Congress may be poised to act. In March of 2021, Representative Maxine Waters reintroduced a bill entitled the Promoting Transparent Standards for Corporate Insiders Act. The same bill passed the house in the 116th Congress, but died in the Senate. If passed, the bill would require the SEC to study a number of proposed amendments to 10b5-1(c), report to Congress, and then implement the results of that study through rulemaking. I identified some problems with the bill in my article, Undoing a Deal with the Devil: Some Challenges for Congress’s Proposed Reform of Insider Trading Plans. But if significant reforms are in store for insider trading plans, then insiders may look to other creative “loopholes” that permit them to monetize access to their firms’ material nonpublic information.

Professors Sureyya Burcu Avci, Cindy Schipani, Nejat Seyhun, and Andrew Verstein, have identified “insider giving” as another strategy for hiding insider trading in plain sight. Here’s the abstract for their article, Insider Giving, which is forthcoming in the Duke Law Journal:

Corporate insiders can avoid losses if they dispose of their stock while in possession of material, non-public information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective and it faces lax reporting requirements and legal restrictions. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. “Insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that it is not limited to officers and directors. Large investors appear to regularly receive material non-public information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating – investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.

Dear BLPB Readers:

Wharton Professors David Zaring and Peter Conti-Brown share that:

We’re delighted to host the annual Wharton Financial Regulation Conference this coming Friday, April 16, from 10 am to 5pm. All are welcome to come–we don’t expect record crowds, so we will use a Zoom room. Our keynote speaker will be Greg Ip from the Wall Street Journal. Attached is the program. Zoom link is here. Papers are here. 
 
We’re especially keen to see our junior colleagues–anyone pre-market or pre-tenure–and will ensure that their questions and participation receive priority, so please circulate to your own colleagues. 
 
I’m looking so forward to this event!!  Hope to “see” many of you there!  Here’s the agenda: Download Agenda-Wharton-Finreg-2021-April 13