Pfizers’s CEO sold about 60% of his stake in the company on the same day that Pfizer announced vaccine trial results.  These sales reportedly occurred pursuant to a pre-arranged 10b5-1 plan, which Pfizer adopted on August 19, 2020.  Pfizers’s stock rallied over 14% on the release of vaccine trial information on the day the CEO liquidated nearly two-thirds of his holding.

Of course, Pfizer is not the only company to release curiously positive results in periods coinciding with their pre-arranged 10b5-1 plans.  Moderna also released positive information on a similar schedule.  Wharton’s Daniel Taylor provided context:  

Taylor, of the Wharton business school, said the stock sales by Pfizer’s CEO brought to mind similar concerns with another coronavirus vaccine-maker, Moderna. As NPR reported in September, multiple executives at Moderna adopted or modified their stock-trading plans just before key announcements about the company’s vaccine. Those executives have sold tens of millions of dollars in Moderna stock, even though the company has not completed its vaccine trials.

“It’s troubling to me that the general counsel or the internal controls of these companies would consider it legitimate to adopt a 10b5-1 plan one day before a major vaccine announcement,” said Taylor. “If this isn’t a wake-up call for the SEC and a wake-up call that we need to reform these 10b5-1 plans, I don’t know what it is.”

The SEC may need to take a close look at 10b5-1 plans if the research indicates that companies are manipulating information flow to the markets in order to maximize their personal returns around pre-determined trading dates.  I’m not certain whether these plans must now be publicly disclosed in advance or not, but that could be a simple place to look first.

Update:

Thanks to Haskell Murray, Kurt Wolfe and others for contributing and pointing out that these plans are not currently mandatory disclosure items:

There are also doubts out there about whether or not we should require these plans to be disclosed and whether the SEC or Congress should make that decision. My tentative opinion is that SEC may want to mandate disclosure and continue to study the issue. Others, including Max Schatzow, think it’s probably best for Congress to make that determination.

UPDATE #2:  John Anderson has written about the challenges with these trading plans.  Much more informed thinking available here.

Over at Law & Liberty (here), David Osborne argues that Uzuegbunam v. Preczewski could impact “attack and retreat” strategies employed by labor unions.  Here is a brief excerpt:

Attack, retreat. Attack, retreat. Unfortunately, this is the tactical offensive increasingly used by the country’s biggest public-sector unions to keep dues money flowing. They “attack” by imposing unconstitutional, restrictive policies on public employees but “retreat” whenever they are challenged in court. Historically, it has allowed union officials to avoid important court rulings that would otherwise allow public employees to choose whether to become or remain union members.

But the Supreme Court may put an end to it this term….

The Court will hear a free speech case, Uzuegbunam v. Preczewski, that could have profound implications for public-sector union members who want to resign their union membership but keep their jobs. On its face, the case [involving two college students who distributed religious literature outside their college campus’s “free speech zones”] has nothing to do with public-sector unions. But Uzuegbunam has turned into a case about an important justiciability issue called “mootness”—and about the courts’ willingness to protect constitutional rights.

First: To all the veterans — thank you for your service!  As an immigrant who became a U.S. citizen in college and served 6 years of active duty in the U.S. Army before attending law school, I am proud to have joined you in taking the oath to support and defend the Constitution of the United States against all enemies, foreign and domestic.

Second: Jody Greene and Sharif Youssef have published “Human Rights after Corporate Personhood: An Uneasy Merger” (you can order an examination copy here or pre-order via Amazon here).  I am grateful to have had the opportunity to contribute a chapter: “Killing Corporations to Save Humans: How Corporate Personhood, Human Rights, and the Corporate Death Penalty Intersect.”  Here’s the University of Toronto Press pitch:

Human Rights after Corporate Personhood offers a rich overview of current debates, and seeks to transcend the “outrage response” often found in public discourse and corporate legal theory. Through original and innovative analyses, the volume offers an alternative account of corporate juridical personality and its relation to the human, one that departs from accounts offered by public law. In addition, it explores opportunities for the application of legal personality to assist progressive projects, including, but not limited to, environmental justice, animal rights, and Indigenous land claims.

Presented accessibly for the benefit of non-specialist readers, the volume offers original arguments and draws on eclectic sources, from law and poetry to fiction and film. At the same time, it is firmly grounded in legal scholarship and, thus, serves as an essential reference for scholars, students, lawmakers, and anyone seeking a better understanding of the interface between corporations and the law in the twenty-first century.

BLPB Readers, below are hiring announcements of the Kelley School of Business at Indiana University:

Tenure Track Posting

The Kelley School of Business at Indiana University seeks applications for a tenured/tenure-track position in the Department of Business Law and Ethics, effective fall 2021. The candidate selected will join a well-established department of 26 full-time faculty members who teach a variety of courses on legal topics, business ethics, and critical thinking at the undergraduate and graduate levels. It is anticipated that the position will be at the assistant professor rank, though appointment at a higher rank could occur if a selected candidate’s record so warrants. Complete posting here: Download BLE tenure-track ad (to start fall 2021)

Lecture (non tenure track) Posting

The Kelley School of Business at Indiana University seeks applications for a full-time, non-tenure-track lecturer position in the Department of Business Law and Ethics, effective fall 2021. The candidate selected will join a well-established department of 26 full-time faculty members who teach a variety of residential and online courses on legal topics, business ethics, and critical thinking at the undergraduate and graduate levels. Lecturers have teaching and service responsibilities, but are not expected to engage in research activities. Complete posting here: Download BLE Lecturer ad (to start fall 2021)

 

In today’s post, I thought I’d share with BLPB readers a few tidbits of information that caught my eye this morning:

1) Today, the Financial Stability Board (FSB) released the “2020 list of global systemically important banks (G-SIBs).”  Topping the list of 30 are Citigroup, HSBC, and JP Morgan Chase.

2) The FSB also recently released a discussion paper for public consultation: Regulatory and Supervisory Issues Relating to Outsourcing and Third Party Relationships.  Reading it has now been added to my “do to list” as it addresses issues such as banks’ reliance on cloud computing, a topic I wrote about in Banking on the Cloud (w/David Fratto and Lee Reiners), an article for last year’s BLPB symposium.

3) Bill Ackman, CEO of the hedge fund Pershing Square, is “hedging the pandemic again.” 

4) Ok, so this one didn’t really catch my eye so much as I went looking for it!  I’m working on finishing this year’s BLPB symposium article… Huang and Takát’s The CCP-bank nexus in the time of Covid-19 shares the happy news that despite the intense market volatility of March 2020, clearinghouses performed well.  However, procyclical margin calls by clearinghouses did create liquidity squeezes during this time of market stress.  The authors state that  “Going forward, the interaction of CCPs [clearinghouses] with clearing member banks is critical (“CCP-bank nexus”). Importantly, actions that might seem prudent from an individual institution’s perspective, such as increasing margins in a turmoil, might destabilise the nexus overall.  Therefore, central banks need to assess banks and CCPs jointly rather than in isolation.”  Sounds incredibly wise to me!  

The University of Alabama School of Law seeks to fill as many as two tenure-track positions for the 2021-22 academic year. Candidates must have outstanding academic credentials, including a J.D. from an accredited law school or an equivalent degree (such as a Ph.D. in a related field). Entry-level candidates should demonstrate potential for strong teaching and scholarship. The primary focus of these positions is in Contracts and Torts; however, qualified applicants in other areas may be considered. Among our secondary interests are Family Law and Business Law. We welcome applications from candidates who approach scholarship from a variety of perspectives and methods. The University embraces diversity in its faculty, students, and staff, and we welcome applications from those who would add to the diversity of our academic community.

Interested candidates should apply online at https://facultyjobs.ua.edu/postings/47619. Salary, benefits, and research support will be nationally competitive. All applications are confidential to the extent permitted by state and federal law; the positions remain open until filled. Questions should be directed to Professor Fred Vars, Chair of the Faculty Appointments Committee (facappts@law.ua.edu).

The University of Alabama is an Equal Employment/Equal Educational Opportunity Institution. All qualified applicants will receive consideration for employment without regard to race, color, religion, national origin, sex, sexual orientation, gender identity, gender expression, pregnancy, age, genetic or family medical history information, disability, or protected veteran status, or any other legally protected basis, and will not be discriminated against because of their protected status. Applicants to and employees of this institution are protected under Federal law from discrimination on several bases. Follow the links below to find out more.

“EEO is the Law” http://www1.eeoc.gov/employers/upload/eeoc_self_print_poster.pdf 
“EEO is the Law” Poster Supplement http://www.dol.gov/ofccp/regs/compliance/posters/pdf/OFCCP_EEO_Supplement_Final_JRF_QA_508c.pdf

Perhaps of interest (full statement here):

Press Release: According To a New Siemens Stiftung Study, Social Enterprises Are Expected To Create Much Needed Jobs in Africa

The comprehensive analysis in 12 selected African countries estimates that, by 2030, 1 million new jobs can be created by local social enterprises (SEs). In addition, recommendations are outlined on how to support SEs in leveraging their job creation potential. The study, Social Enterprises as Job Creators in Africa – The Potential of Social Enterprise to Provide Employment Opportunities in 12 African Countries 2020-2030 is available as trilogy – Part I: Main Report; Part II: Country Profiles; Part III: Case Studies….

Overall, SEs focus on social effects through their products and services but also through the jobs and income opportunities they provide to marginalized groups.

This week I want to call everyone’s attention to a fascinating new paper by Edwin Hu, Joshua Mitts, and Haley Sylvester, Index Fund Governance: An Empirical Study of the Lending-Voting Tradeoff.

As the authors explain, for a long time, the SEC prohibited mutual funds from lending their shares to short-sellers if doing so would interfere with the funds’ stewardship obligations.  As a result, funds typically would recall any loaned shares in time to vote them at the annual shareholder meeting.  However, in 2019, the SEC changed its rules to allow funds to loan their shares even if doing so would sacrifice their ability to vote, so long as it would be in the funds’ best interest.  Hu, Mitts, and Sylvester study the effects of the rule change and find that the number of shares available to borrow around the time of shareholder meetings jumped by 58% in companies with a high level of index fund ownership, and there are increases even when important matters, like proxy fights, are on the ballot.  The extra shares don’t result in greater short interest, but they do apparently take them out of the voting pool – or potentially make them available for activists to vote.

The really interesting question this raises is whether these managers really are acting in the funds’ best interest – trading the value of the vote against the value of the lending fees – or whether instead, perhaps due to a fee split between the fund and the adviser, the managers are sacrificing the interests of the fund in order to benefit the adviser.  It’s complicated; not every share that becomes available to borrow actually does get lent out, which, as I understand it, means no fees are earned but the vote is still lost.  On the other hand, for some votes, the fund may reasonably calculate that there is unlikely to be an impact on value, or that the fund’s votes are unlikely to be pivotal (on this, I direct interested readers to Fatima Zahra Filali Adib’s paper, previously highlighted in this space, observing that funds can determine when their votes are likely to matter to outcomes, and they allocate attention accordingly).  That said, the authors also tell the tale of a company called GameStop, where activists won a proxy contest, arguably because index fund holders – who would otherwise have voted with management – loaned their shares instead of voting them.

Relatedly, Joshua Mitts has just posted another paper on share lending, where he argues that passive funds that are part of large mutual fund complexes can use negative information about a stock gleaned from the active side of the business to raise the prices they charge to short sellers who borrow their shares.  Doing so allows passive funds to, in a way, earn profits from “active” participation in the market.  Mitts also claims that this activity helps make prices more efficient, which is ultimately to the long term benefit of passive investors.

Michigan Law School 2021 Junior Scholars Conference

April 16-17, 2021

Call for Papers

Deadline for Submission: January 4, 2021

The University of Michigan Law School is pleased to invite junior scholars to attend the 7th Annual Junior Scholars Conference which will take place virtually on April 16-17, 2021. The conference provides junior scholars with a platform to present and discuss their work with peers and receive feedback from prominent members of the Michigan Law faculty. The Conference aims to promote fruitful collaboration between participants and to encourage their integration into a community of legal scholars. The Junior Scholars Conference is intended for academics in both law and related disciplines. Applications from graduate students, SJD/PhD candidates, postdoctoral researchers, lecturers, teaching fellows, and assistant professors (pre-tenure) who have not held an academic position for more than four years, are welcomed.

Complete call for papers Download Cfp Michigan Law School 2021 Junior Scholars Conference.

Over at Law & Liberty (here), George R. La Noue argues that: “Training sessions based on critical race theory run contrary to an employer’s responsibility to avoid creating a hostile work environment.”  Here is an excerpt:

Asking one set of employees to confess to the sins of their racial ancestors or their individual current white privilege runs contrary to an employer’s responsibility to avoid creating a hostile work environment.

Laws about hostile or toxic work environments are based in both Title VII and Title IX of the Civil Rights Act. The U.S. Equal Employment Opportunity Commission defines a hostile or toxic work environment as one that involves “unwelcome conduct that is based on race, color, religion, national origins, age, disability, or genetic information.” That conduct “may include, but is not limited to offensive jokes, slurs, epithets or name calling, physical assaults or threats, intimidation, ridicule or mockery, insults or put downs, offensive objects or pictures and interference with work performance.” CRT certainly can involve “slurs, epithets or name calling,” as well as “ridicule or mockery, insults or put downs.”

EEOC cautions against making petty slights, annoyances, or isolated incidents illegal, but calling out one racial group as privileged or fragile in official training sessions or institutional statements surely does create a work environment that is “intimidating, hostile or offensive to reasonable people.” It is impossible to have a civil fact-based discussion about race when the discussion is centered on stereotyping people on the basis of race.