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POSITION ANNOUNCEMENT

NORTHERN ILLINOIS UNIVERSITY COLLEGE OF LAW invites applications for an anticipated opening for an entry-level tenure-track faculty position beginning August 2021. Duties include engaging in high quality research and teaching, as well as being an active participant in law school and university service. Applicants must hold a J.D. degree from an ABA accredited law school, or a foreign law school equivalent, and must provide evidence of the potential for engaging in high quality research and teaching.

Preferred qualifications include record of scholarly publication, teaching experience (particularly in a law school), legal practice experience, strong law school record, law journal membership, and clerkship experience.

We will consider candidates with a broad range of teaching and research interests, but the successful candidate will be expected to teach at least one first-year course (which may include Constitutional Law I: The Federal System). Our upper-level needs include, but are not limited to, Business Law, Commercial Law, Criminal Law and Procedure, Tax, Trusts and Estates, and skills courses. Applications are encouraged from women, members of minority groups, and others whose background and experience would contribute to the diversity of the law school community.

If you wish to apply, please go to the position posting at the NIU applicant tracking system at https://employment.niu.edu/postings/55269 where you will find a full description of the position (including preferred qualifications) along with a list of documents you will need to submit for the search committee’s consideration.

Please direct questions to the search committee chair, Professor Marc Falkoff, at mfalkoff@niu.edu, or to Tita Kaus, Administrative Assistant to the Dean, at 815-753-1068 or tkaus@niu.edu. For full consideration, applications should be received by March 1, 2021.

    Commenters have likened the recent retail “meme” trading in stocks such as GameStop Corp. to buying a ticket on a roller coaster—“You don’t go on a roller coaster because you end up in a different place, you go on it for the ride and it’s exciting because you’re part of it.” See, Bailey Lipschultz and Divya Balji, Historic Week for Gamestop Ends with 400% Rally as Shorts Yield, Bloomberg (January 29, 2021).

    The comparison is apt in a number of respects. These retail traders, led by some members of the “WallStreetBets” group on the Reddit social media platform, “got on” GameStop a couple weeks ago at just under $20 a share, and, despite its rapid rise to a high of just under $500 a share, I think most people expect (including the meme traders) that the price at which this turbulent ride will end is somewhere around where it began. After all, GameStop’s fundamentals have not changed. It remains a brick-and-mortar business that was devastated by the pandemic, and it is expected to steadily lose market share to online vendors.

    For anyone interested in the mechanics of the “short squeeze” and how these traders managed to move price of GameStop so far out of whack with its presumed value, see some helpful articles here, here, and here. For some thoughts on the controversial limitations on trading by retail brokerage firms such as Robinhood, see my Co-bloggers Ben Edwards’ and Anne Lipton’s recent posts here and here. And see some other interesting takes from my Co-blogger Joan Macleod Heminway here. My purpose in this post is to highlight one aspect of the meme-trading phenomenon that has, I think, been underappreciated.

    Given that we all have a pretty good idea of how this roller-coaster ride is going to end, why did many retail traders (along with others) continue to pile on? One answer is that these traders were just blinded by greed and FOMO. Indeed, concern that amateur traders are being led astray in this way by social media influencers and “game-like” trading interfaces has led some to call for paternalistic trading restrictions by brokerage firms and/or regulatory intervention. But it seems to me that something quite different may be going on here as well. There is evidence to suggest that at least some of the meme traders who have taken the markets by storm over the last couple weeks are not (and never were) buying these heavily-shorted stocks simply to make money, but rather to make a point.

    The “points” being made by these traders are not necessarily coordinated or consistent. They range from the oft-expressed goal of “taking it to” Wall-Street hedge funds to “hurt the big guys” in the same vein as the Occupy Wall Street movement of 2008, to protesting the demise of bricks-and-mortar businesses by Big-Tech and mega online vendors, to the populist rejection of perceived top-down elitism (private and public) that elevated Donald Trump to the Presidency in 2016. Indeed, former SEC Commissioner, Laura Unger, recently compared the recent social-media-driven short squeezes to the Capitol Hill riots on January 6. Some have even gone so far as to suggest that some meme traders are buying stocks on aesthetic grounds, to bring back retro companies like Blackberry and Blockbuster as “nostalgia plays.”

    If retail traders are trading as a form of political, social, or aesthetic expression, then what are the implications? What does this mean for the Efficient Market Hypothesis? What (if anything) should (or can) regulators and/or legislators do about it? These are some questions my co-authors Jeremy Kidd, George Mocsary, and I plan to explore in a forthcoming article. I plan to post some more thoughts on the possibility of retail securities trading as a form of speech (and its social, market, and regulatory implications) in the coming weeks.

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 the appropriate compliance considerations in mind. Firms must evaluate these features to determine whether they meet regulatory obligations to…comply with any Reg BI and Form CRS requirements if any communications constitute a “recommendation” that requires a broker-dealer to act in a retail customer’s “best interest”…

Brokers must act in the customer’s best interest when making investment recommendations.  Interfaces that encourage more trading simply to generate revenue for the platform – rather than based on a personalized assessment of the customer’s needs – aren’t going to comply with that standard, so the question is whether these kinds of encouragements are, in fact, recommendations.

This is an issue more broadly for electronic platforms that use algorithms to do everything from bringing certain items to the customer’s attention to providing responses to customer-initiated searches.  For example, Regulation Crowdfunding creates a new kind of entity known as a Funding Portal; basically, a website where investors can browse available offerings by issuers.  Funding Portals are exempt from broker-dealer registration as long as they limit their activities, including refraining from giving investment advice or making any investment recommendations.

The problem is that when you’re talking about a website, where algorithms determine the order in which investments appear on a page and which ones are highlighted at a particular time and which ones pop up when you type in search words, it’s very hard to tell what counts as “investment advice.”  Is it “advice” to say “These investments are trending”?  To say “These companies have been profitable for a year”?  Does it matter if the customer first searched for these criteria, or if they just popped up on the screen, unprompted?  What if the platform itself contains suggested search criteria?

The SEC tried to address this problem in Regulation CF Rule 402(b), which permits portals to highlight particular offerings based on “objective criteria.”  The adopting release contains a long discussion of the issues, and as you can see, this is … not easy to resolve.

Back to Robinhood.  As readers are probably aware, Massachusetts is currently suing Robinhood over its interface, and that’s the gravamen of the complaint as well: That Robinhood’s interface is functionally making recommendations to customers when it highlights particular securities based on purportedly objective criteria, like “100 most popular,” “Food and Drink,” and so forth.  The app even says things like “Can’t decide which stocks to buy? Check out the most popular stocks.” 

And then, of course, there’s the question whether more subtle aspects of the platform – like confetti graphics congratulating customers on a trade – are encouraging more trading and therefore are also, in a sense, making recommendations (i.e., a recommendation of churning).

All of which is to say, this is apparently what FINRA plans to confront going forward.

Finally, I’ll add, if it turns out the Robinhood interface was designed with little regard for FINRA’s rules, it might turn out to be relevant that Robinhood’s CEO is not registered with FINRA, and there’s a legitimate question whether he’s improperly managing Robinhood’s operations.  Per CNN:

Unless granted an exemption, FINRA generally requires that the CEOs of registered broker-dealers be registered with the agency….

The CEO of a parent company that owns a broker-dealer does not necessarily need to be registered. ​

In this case, Tenev is the CEO of Robinhood Markets, the parent company that is not registered with FINRA. Robinhood Markets owns a broker-dealer and a clearing broker.

Robinhood told CNN Business that Tenev does not directly manage the FINRA-registered leaders of the broker-dealer or clearing broker — but declined to say who does. None of Tenev’s direct reports appear to be registered with FINRA. ​…

So, we can perhaps put that on the list of issues as well.

Dear BLPB readers:

The Wharton School of the University of Pennsylvania will host its annual Wharton Financial Regulation Conference on April 16, 2021, virtually. The conference will include keynote addresses from Greg Ip, Chief Economics Commentator, The Wall Street Journal, and an as-yet confirmed senior policymaker in financial regulation.

We issue a call for papers to any scholars from any discipline—law, economics, political science, history, business, and beyond—to submit papers on any topic related to financial regulation, broadly construed. Special attention will be paid to junior scholars and those new to the financial regulation community, but we welcome all submissions, including from those who have presented before. Here’s the complete announcement: Download 2021 FinReg Call for Papers

Over the years, I have been contributor to the Texas A&M Journal of Property’s annual oil and gas law survey. This year’s article (available here) took a little longer to post than usual, but given all that’s gone on in the past year, that’s pretty much unavoidable.  For those who wonder what oil and gas law as to do with business law, well, I humbly submit that access to energy is, in the modern world, the foundation upon which virtually all business is built. 

I don’t think that’s overstating it, though it may be overstating the importance of this particular piece. Nonetheless, hopefully it will have value for some folks.  The abstract for my Oil & Gas Survey: West Virginia (2020) follows: 

This Article summarizes and discusses important recent developments in West Virginia’s oil and gas law as determined by recent West Virginia Supreme Court of Appeals cases. There were no substantial legislative changes in the covered period.

The discussed cases considered:

(1) whether hydraulic fracturing and horizontal drilling were allowed when an old lease could not have contemplated such methods were not permissible;

(2) proper interpretation of deed language;

(3) whether all oil and gas leases have implied rights of pooling;

(4) whether partial, but regular, tax payments precluded a tax sale; and

(5) whether the West Virginia Code allowed for a cap placed on operating expense deductions and if the cap can be described as both a percentage and dollar figure.

Wow.  All I can say is . . . wow.  Last Monday, GameStop Corp. was, for me, just a dinosaur in the computer gaming space–a firm with a bricks-and-mortar retail store in our local mall that I have visited maybe once or twice.  What a difference a week makes . . . .

Now, GameStop is: frequent email messages in my in box; populist investor uprisings against establishment institutional investors; concern about students investing through day-trading accounts; news and opinion commentary on all of the foregoing (and more); compulsion to inform an under-informed (and, in some cases, bewildered) community of friends and family.  This change of circumstances, which is centered on, but not confined to, the volatile market for GameStop’s common stock, raises many, many questions–legal questions and factual questions.  Some are definitively answerable, others are not.

The legal questions run the gamut from possibilities of securities fraud (including insider trading) and market manipulation, to the governance of trading platforms, the propriety of trading limitations and halts, and the authority and control of clearinghouses.  Co-blogger Ben Edwards published a post here last Thursday on the trading halts in GameStop stock, the role of clearinghouses, and the possibility of market manipulation.  Others also have written about these and other legal issues–including the role of the U.S. Securities and Exchange Commission as the cop on the beat (see, e.g., here and here).

But there are few answers to these legal queries given that many facts remain unknown.  Who are the short-sellers in these stocks?  Who are the community members on electronic bulletin boards (and elsewhere) urging active trading in the stock of GameStop and other firms that have been subject to significant short-selling that has led to perceived under-valuation by others in the market?  Who are the populist traders actively bidding up the price of these firms?  What knowledge do all of these people have about GameStop and the trading of its securities?  Assumptions are being made about all of these things and more.  However, our current knowledge is limited and, as time progresses, the composition of these groups undoubtedly has changed and will continue to change as traders rapidly enter and exit the market for these securities.  

As many of our law schools hold forums on the GameStop phenomenon (UT Law has a roundtable featuring some of your favorite BLPB editors on Wednesday), more legal and factual questions will be raised.  The situation will be dynamic, and regulators and policymakers will enter the fray in unknown (and perhaps unanticipated) ways.  As I teach Securities Regulation and Advanced Business Associations this semester, all of this will be happening.  Some of the topics of conversation would not normally be part of my course plans.  But, like others I know who teach business law courses, I am pivoting to meet the need to respond to these evolving circumstances in our securities markets.  Throughout, there are many roles that lawyers (and law professors) are playing and will continue to play.  I suspect GameStop will be an asset this semester in educating our students on securities law and much more.

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.

Please join me for this ABA Conference on February 10-11. I’m excited to serve as a mock board member on the 11th as well as on the plenary panel on “Leading Voices in ESG Initiatives” with representatives from United Airlines, Microsoft Asia, and others focusing on the many and sometimes conflicting imperatives of implementing ESG goals. I’ll be particularly interested in the session by the General Motors GC, who will speak about the plan to go away from gasoline-powered vehicles, which GM just announced.

You can register by clicking here.

About the Virtual Conference:

The state of New York, on December 9, 2020, announced that its pension fund with over $226 billion in assets would divest its oil and gas stocks in companies that, in its view, contribute to global warming. The announcement emphatically highlights how ESG factors (Environmental, Social and Governance) across borders represent business risks but also opportunities for companies, their stockholders, and their other stakeholders. In-house legal departments are the first line of defense to re-orient business operations to address global ESG issues and to identify risks. These challenges, risks and opportunities are creating additional demands on legal departments with constrained resources as they navigate this “New Normal” in addition to their traditional responsibilities to stockholders.  This two-day conference will provide in-depth critical analysis through three tracks that efficiently canvas each of the ‘E’, ‘S’ and ‘G’ elements. Through these three tracks, the conference will identify, explore, and evaluate key areas of relevance to in-house counsel wanting to navigate the numerous complex legal and operational issues raised by ESG in jurisdictions around the globe.

Key Speakers:

  • Craig Glidden, Executive Vice President and General Counsel, General Motors
  • Tim O’Connor, Senior Director, Environmental Defense Fund
  • Olga V. Mack, CEO, Parley Pro
  • Ashley Scott, Senior Counsel, Lime
  • In-House Executives: Several current and former General Counsel, along with numerous senior in-house counsel across various industries, including Google, Nestle, Microsoft, General Motors, Accenture, LexisNexis, Chubb, United Airlines, Liberty Mutual, OPEC, Lazard, Iron Mountain, Willis Towers Watson, Norsk Hydro, and Equinor.
  • ESG leaders: Leading ESG voices from law firms, non-profit organizations, and universities

What to Expect

This two-day cutting-edge conference will provide opportunities for-in-depth analysis of these issues through three tracks of interactive panel discussions that canvas each of the ‘E’, ‘S’ and ‘G’ elements, including how COVID-19 is accelerating ESG trends. Key areas of relevance to in-house counsel wanting to navigate the numerous complex legal and operational issues raised by ESG in jurisdictions around the globe, including NGO and government stakeholder perspectives, will also be examined.

CLEs will be available. I hope to see you there!