I’m finding the district court’s decision in Marcu v. Cheetah Mobile, 2020 WL 4016645 (S.D.N.Y. July 16, 2020) fascinating, not because it’s wrong on the law – it isn’t, in my view, at least with respect to its falsity determination – but because it illustrates the artificiality of a lot of securities fraud litigation.

Cheetah Mobile is a Chinese company that develops apps that used to be downloadable from Google Play.  It went public on the NYSE in 2014, and quickly developed a reputation for poor quality products that used intrusive advertisements and interfered with the functioning of users’ phones.  In 2017, a short-seller accused it of fabricating revenue and clicks, and in 2018, Buzzfeed exposed that 7 of its 18 apps were engaged in a type of clickfraud scheme that improperly credited Cheetah Mobile with referrals to other apps.  Google removed the offending apps, and earlier this year, apparently fed up with Cheetah’s behavior, booted it from its platform entirely.

A putative class of Cheetah investors brought Section 10(b) claims shortly after the Buzzfeed expose, alleging that Cheetah misled investors about its business practices.  The district court dismissed the case in large part because the plaintiff could not identify any false statements.  The company accurately described its revenues – even if some portion of those revenues were generated through the clickfraud scheme – and accurately described its users’ experiences with its products.  As the court put it:

Nor do Plaintiffs plausibly allege that the challenged statements regarding revenue and profit derived from the apps are misleading. “[A] violation of federal securities laws cannot be premised upon a company’s disclosure of accurate historical data.” In re Sanofi Sec. Litig., 155 F. Supp. 3d 386, 404 (S.D.N.Y. 2016). …That said, a statement may be misleading if it describes the factors that influence the reported figures but omits the fact that one such factor is the alleged misconduct.  For example, in In re VEON Ltd. Securities Litigation, No. 15-CV-8672 (ALC), 2017 WL 4162342 (S.D.N.Y. Sept. 19, 2017), the plaintiffs alleged securities fraud on the ground that the defendant had concealed that it had paid bribes to receive favorable treatment in Uzbekistan. Notably, the court held that “references to sales and subscriber numbers in Uzbekistan” were not, in themselves, misleading. Id. at *6. By contrast, assertions that growth in the Uzbekistani market was due to “the improving macroeconomic situation, product quality and efficient sales and marketing efforts” were misleading because the “growth also was due to bribe[ry].” Id.; see also In re Braskem S.A. Sec. Litig., 246 F. Supp. 3d 731, 758-61 (S.D.N.Y. 2017) (holding that a list of reasons for the low price the defendant had paid for a good was plausibly misleading because it omitted a “key factor, the bribery-affected side deal” with the supplier and therefore amounted to “a classic half-truth”)…

…[Cheetah’s] disclosures did “not put the source of [Cheetah Mobile’s] success at issue.” In re KBR, Inc. Sec. Litig., No. CV H-17-1375, 2018 WL 4208681, at *5 (S.D. Tex. Aug. 31, 2018) (emphasis added). That is, they did not “put the circumstances surrounding” the means by which Cheetah Mobile’s apps generated revenue “‘in play’ — by, for instance, touting some legitimate competitive advantage or specifically denying wrongdoing — but instead merely report[ed] the facts that some of the reported revenue and income came from ‘increased progress,’ or ‘increased activity’ . . . and the like — reports that Plaintiffs do not contend were false.” Id.

Plaintiffs come closer to the mark with respect to Defendants’ disclosures explaining the drivers of revenues and profits from mobile apps, but here too they ultimately fall short.  Specifically, Plaintiffs take issue with Cheetah Mobile’s representations that it “generate[d] online marketing revenues primarily by referring user traffic and selling advertisements on our mobile and PC platforms.” SAC ¶ 49 (emphasis omitted). Cheetah Mobile also articulated its “belie[f] that the most significant factors affecting revenues from online marketing include[d],” inter alia, “a large, loyal and engaged user base,” which “results in more user impressions, clicks, sales or other actions that generate more fees for performance-based marketing,” and “the fee rate [Cheetah Mobile] receive[d] per click or per sale.” Id.; see also id. ¶¶ 63, 72, 79 .… At first glance, these statements appear akin to those found actionable in In re VEON Ltd. … But there is a critical difference: The disclosures here did not, explicitly or implicitly, rule out other factors playing a role in generating revenue. To the contrary, by using words such as “primarily” and “most significant,” Defendants overtly acknowledged that other factors might play a role. To be sure, the statements did unmistakably imply that any unstated factors played a minor role relative to the stated factors. But Plaintiffs allege no facts suggesting, let alone showing, that implication to be false. 

2020 WL 4016645, at *5 (some quotations omitted).

The court here is correctly summarizing existing caselaw: Accurate reporting of past financial results – even if those results were achieved by illegal or improper means – is not misleading, but it becomes misleading if those results are falsely attributed to legitimate factors.  Here, Cheetah hedged just enough to make its disclosures technically truthful; Cheetah did not rule out clickfraud, it just, you know, emphasized everything else.

Except.

That is insane.

Does anyone seriously think that investors were any less misled because Cheetah only said its loyal user base was mostly responsible for its revenues?  Are we to believe that there is such a big difference between mostly responsible and just, responsible, full stop, that it would have made a difference to a single trader?

I call this kind of thing a Rumpelstiltskin game; it only counts if the exact magic words are used; if not, case dismissed.  Like the Supreme Court’s decision in Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175 (2015) – which invited issuers to couch every statement with the phrase “I believe” in order to have it treated legally as a matter of opinion rather than a representation of fact – these decisions allow defendants to escape liability with a slight rephrase that, in context, is unlikely to have much substantive impact on the listener.

That said, Cheetah is an example of a broader issue I frequently revisit here, which is the doctrinal distortion caused by courts’ continued attempts to distinguish between fraud claims – covered by federal law – and governance claims, which are supposed to be the purview of state law.  Companies are allowed to engage in bad behavior under the federal securities laws; they’re just not permitted to lie about it.  By contrast, poor management is policed by state fiduciary standards.  The line between the two is often very difficult to parse, especially when a fairly anodyne statement conceals pervasive corporate dysfunction.

So in Cheetah’s case, the problem for the court was, yes, there’s little difference between statements like “our success is mainly attributable to our loyal user base” and “our success is attributable to our loyal user base,” but in reality, it’s not clear that investors would care about either statement.  It’s an app company; of course it makes money from users.  Investors are looking at the revenue stream, and if they’re fooled, it’s because they’re making certain assumptions about business regularity.  As I wrote in my article, Reviving Reliance, in these cases, “it is not so much the company’s statements, but its business model that acts as a fraud on shareholders; its mere existence on the market in the guise of a legitimate investment” is the fraud. 

And yeah, we have a concept for that: “Fraud-created-the-market.” But most courts have rejected that theory, so plaintiffs are stuck hunting for isolated misstatements.

But – and here’s the rub – consider Cheetah Mobile in another light.  If we’re going to be honest about it, do we think that any investor really assumed a Chinese mobile app developer distributing programs like “Battery Doctor” and “Speed Booster” operated regularly?  Just how fooled were they likely to be?  Yes, Google kicked them off the platform, but there’s a good argument that this was less because Google suddenly discovered problems than because Google changed, especially in an altered political environment.  We might say that anyone who invests in a skeevy mobile app company notorious for crapware pretty much knows what they’re getting. Which is, in a sense, exactly why the fraud-created-the-market theory proved unmanageable, and we’re stuck playing Rumpelstiltskin.

Yesterday, I had the pleasure of moderating a panel of Black entrepreneurs sponsored by the Miami Finance Forum, a group of finance, investment management, banking, capital markets, private equity, venture capital, legal, accounting and related professionals. When every company and law firm was posting about Black Lives Matter and donating to various causes, my colleague Richard Montes de Oca, an MFF board member, decided that he wanted to do more than post a generic message. He and the MFF board decided to launch a series of webinars on Black entrepreneurship. The first panel featured Jamarlin Martin, who runs a digital media company and has a podcast; Brian Brackeen, GP of Lightship Capital and founder of Kairos, a facial recognition tech company;  and Raoul Thomas, CEO of CGI Merchant Group, a real estate private equity group.

These panelists aren’t the typical Black entrepreneurs. Here are some sobering statistics:

  • Black-owned business get their initial financing through 44% cash; 15% family and friends; 9% line of credit; 7% unsecured loans; and 3% SBA loans;
  • Between February and April 2020, 41% of Black-owned businesses, 33% of Latinx businesses, and 26% of Asian-owned businesses closed while 17% of White-owned business closed;
  • As of 2019, the overwhelming majority of businesses in majority Black and Hispanic neighborhoods did not have enough cash on hand to pay for two weeks worth of bills;
  • The Center for Responsible Lending noted that in April, 95% of Black-owned businesses were tiny companies with slim change of achieving loans in the initial rounds of the Paycheck Protection Program;
  • Only 12% of Black and Hispanic business owners polled between April 30-May 12 had received the funding they requested from the stimulus program. In contrast half of all small business had received PPP funds in the same poll.

Because we only had an hour for the panel, we didn’t cover as much as I would have liked on those statistics. Here’s what we did discuss:

  • the failure of boards of directors and companies to do meaningful work around diversity and inclusion- note next week,  I will post about the spate of shareholder derivative actions filed against companies for false statements about diversity commitments;
  • the perceptions of tokenism and “shallow, ambiguous” diversity initiatives;
  • how to get business allies of all backgrounds;
  • the need for more than trickle down initiatives where the people at the bottom of the corporation/society don’t reap benefits;
  • the fact that investing in Black venture capitalists does not mean that those Black VCs will invest in Black entrepreneurs and the need for more transparency and accountability; 
  • whether the Black middle class still exists and the responsibility of wealthier Black professionals to provide mentorship and resources;
  • why it’s easier for entrepreneurs to get investments for products vs. services, and a hack to convince VCs to invest in the service;
  • whether a great team can make up for a so-so product when a VC hears a pitch; 
  • why there are so many obstacles to being a Black LGBTQ entrepreneur and how to turn it to an advantage when pitching; and
  • whether reparations will actually help Black entrepreneurs and communities.

If you want to hear the answers to these questions, click here for access to the webinar. Stay safe and wear your masks!

I wanted to share with BLPB readers that two of my articles that I’ve mentioned in previous posts (here and here) have now been published.  I’ve posted them to SSRN.  Comments welcome!

An abstract for Ethics of Legal Astuteness: Barring Class Actions Through Arbitration Clauses, written with Daniel T. Ostas and published in the Southern California Interdisciplinary Law Journal is below, and the article is here.

Recent Supreme Court cases empower firms to effectively bar class
action lawsuits through mandatory arbitration clauses included in
consumer adhesion and employment contracts. This article reviews
these legal changes and argues for economic self-restraint among
both corporate executives and corporate lawyers who advise them.
Arbitration has many virtues as it promises to reduce transaction costs
and to streamline economic exchange. Yet, the ethics of implementing
a legal strategy often requires self-restraint when one is in a position
of power, and always requires respect for due process when issues of
human health, safety, and dignity are in play.

An abstract for Banking on the Cloud, written with David Fratto and Lee Reiners, and published in Transactions: The Tennessee Journal of Business Law is below, and the article is here.

Cloud computing is fast becoming a ubiquitous part of today’s
economy for both businesses and individuals. Banks and financial
institutions are no exception. While it has many benefits, cloud
computing also has costs and introduces risks. Significant cloud
providers are single points of failure and, as such, are an important
new source of systemic risk in financial markets. Given this reality,
this article argues that such institutions should be considered critical
infrastructures and designated as systemically important financial
market utilities under Dodd-Frank’s Title VIII

 

 

One of my Westlaw alerts contained a link to a recently published article I thought BLPB readers might find of interest.  Here is the abstract:

The reigning antitrust paradigm has turned the notion of competition into a talisman, even as antitrust law in reality has functioned as a sorting mechanism to elevate one species of economic coordination and undermine others. Thus, the ideal state idea of competition and its companion, allocative efficiency, have been deployed to attack disfavored forms of economic coordination, both within antitrust and beyond. These include horizontal coordination beyond firm boundaries, democratic market coordination, and labor unions. Meanwhile, a very specific exception to the competitive order has been written into the law for one type of coordination, and one type only: that embodied by the traditionally organized, top-down business firm.

This Article traces the appearance of this legal preference and reveals its logical content. It also explains why antitrust’s firm exemption is a specific policy choice that cannot be derived from corporate law, contracts, or property. Indeed, because antitrust has effectively established a state monopoly on the allocation of coordination rights, we ought to view coordination rights as a public resource, to be allocated and regulated in the public interest rather than for the pursuit of only private ends. Intrafirm coordination is conventionally viewed as entirely private, buoyed up by the contractarian theory of the firm. But the contractarian view of the firm cannot explain antitrust’s firm exemption and is inconsistent with the conventional justifications for it. This Article also briefly sketches policy choices that flow from the recognition that coordination rights are a public resource, focusing upon expanding the right to engage in horizontal coordination beyond firm boundaries.

Sanjukta Paul, Antitrust As Allocator of Coordination Rights, 67 UCLA L. Rev. 378 (2020).  A version of the paper is available via SSRN here.

A few of us have blogged about benefit corporations here from time to time; they’re a controversial business form, in part because there are disputes about whether they actually are materially different from the ordinary corporate form, and in part because of flaws in states’ adopting legislation.

The basic issue here is that, as we all know, the business judgment rule is robust enough that corporate directors are perfectly free, as a practical matter, to pursue a stakeholder-oriented mission without the need of any special form.  The reason they do not has little to do with their formal legal obligations, and everything to do with the market for corporate control: If directors do not put shareholders first, their companies may become ripe for a takeover and they may be voted out of office.

In theory, benefit corporations could solve a shareholder collective action problem. Let’s assume, as some theorize, that given the choice, many shareholders would actually prefer not to maximize their own welfare but instead to share those gains with other stakeholders.  The problem is, they may experience defection in their own ranks.  Over time, some shareholders may change their minds and prefer to keep all excess profits; or, they may fear other shareholders will do so.  As a result, at any given time, individual shareholders may sell their shares to a profit maximizer (a hedge fund, etc), who ultimately takes control and abandons the stakeholder-oriented mission.

The benefit corporation form, then, could theoretically precommit shareholders to remaining true to their original purpose.  But that only works if there are credible bonding mechanisms.

In Delaware, one bonding mechanism was the statutory requirement that companies could only adopt, or abandon, benefit corporation status by a 2/3 vote of the shareholders (more on that below).  This requirement ensured a hedge fund would have to acquire a supermajority stake before abandoning a benefit corporation’s altruistic mission.  But locking shareholders into the form wouldn’t have much of an effect unless the form itself offered a meaningful commitment to stakeholderism.

That’s why Delaware has an additional bonding mechanism, namely, that directors are legally required to balance the interests of all stakeholders when managing the corporation.  The problem – and this is well discussed in the literature – is that the mechanisms for enforcing this requirement are rather meager.  Many states, Delaware included, also require directors of benefit corporations to issue reports on the actions they have taken to advance public benefits, but Haskell Murray has found that many benefit corporations simply don’t issue the reports.

So, if you assume a rapacious hedge fund wanted to take over a benefit corporation and profit by abandoning its social mission, the 2/3 vote requirement might impede the fund from obtaining enough shares to formally convert the company’s status, but the fund could still gain enough votes to steer decisionmaking in a more rapacious direction, with very little to fear in terms of legal reprisal.

As a result, some companies have chosen to obtain certification as a B-Corp.  B-Lab is a private organization that certifies that companies have complied with its standards for pursuing a stakeholder oriented mission, i.e., B-Corp certification.  This third-party certification does not create legal obligations for directors, but may serve as some kind of assurance to shareholders that a particular company remains committed to its social purpose.

The reason I’m mentioning all of this now is that given the weaknesses inherent in benefit-corporation status, we have not seen many standalone publicly-traded benefit corporations, especially ones organized in the United States.  (Or, for that matter, B-Corps – Etsy famously abandoned its B-Corp status not long after going public, exactly as the theory of shareholder defection would predict).  Laureate Education is one of the very few publicly-traded benefit corporations, and it maintains its status with dual-class stock that gives control to a single entity, Wengen Alberta (that entity, however, is controlled by several private equity firms and, well … you get the feeling Laureate’s benefit-corp status is less about stockholders deciding to share profits than a recognition that, given Laureate’s business model, publicly doing good really is necessary to do well).  There’s also Amalgamated Bank, which – as a bank incorporated in New York – cannot formally adopt benefit-corporation status but recently amended its articles of incorporation to make the same kind of commitment.  Amalgamated, like Laureate, is also not depending on its charter to enforce that commitment, though; it’s 40% owned by unions.

And now, two new companies are joining this list.

First up is the insurance company Lemonade, which went public earlier this year.  Lemonade is an odd duck; one would not ordinarily think of an insurance company as a natural fit for benefit corporation status, but it describes its public mission thusly:

This corporation’s public benefit purpose is to harness novel business models, technologies and private-nonprofit partnerships to deliver insurance products where charitable giving is a core feature, for the benefit of communities and their common causes.

In short, Lemonade donates some of the premiums it receives to charities designated by policyholders.  And how does Lemonade expect to be able to maintain its commitment to this benefit once its shares are freely-tradeable?  With a combination of extensive inside ownership and antitakeover devices.  The co-founders control more than half the votes, and they’ve reached an agreement with Softbank – which controls another 21% – to decide with Softbank how Softbank’s shares will be voted.  There’s a staggered board and various other garden-variety antitakeover provisions (advance notice procedures, no written consent, shareholders can’t call meetings, directors can adopt poison pills, 2/3 vote requirement for shareholders to amend bylaws and various charter provisions).  Lemonade also has regulatory protections:

Under applicable state insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition.

Second, we have Vital Farms, which just unveiled its S-1 last week.  Vital Farms is an “ethical food company that is disrupting the U.S. food system,” and is also incorporated as a Delaware public benefit corporation:

The public benefits that we promote, and pursuant to which we manage our company, are: (i) bringing ethically produced food to the table; (ii) bringing joy to our customers through products and services; (iii) allowing crew members to thrive in an empowering, fun environment; (iv) fostering lasting partnerships with our farms and suppliers; (v) forging an enduring profitable business; and (vi) being stewards of our animals, land, air and water, and being supportive of our community

But again, Vital Farms is not relying on PBC status to commit to its purpose; instead, insiders own 61.7% of the company and, like Lemonade, it has a staggered board and similar antitakeover provisions.

My point here is that benefit-corporation status is not, in fact, serving as a commitment device for any of these companies; instead, to remain true to their mission, these companies are relying on more mundane types of insulation from the market for corporate control.  But that kind of insulation carries the same risk as any other entrenchment device; the companies will pursue stakeholder interests only so long as their managers feel it in their interests to do so.  The benefit-corporation form is not doing much work.

Notably, Delaware is adopting amendments to the DGCL that eliminate benefit corporations’ only real commitment device, namely, the 2/3 vote requirement necessary to shed benefit corporation status.  With these amendments – which were, I believe?, only just signed into law – we really may as well just call them “corporations” and be done with it.

One final observation: it’s interesting to compare the risk factors in the prospectuses of Lemonade and Vital Farms – especially since publicly-traded benefit corporations are so rare that there isn’t much of a template.  Lemonade notes the dual risks that its pursuit of stakeholder-oriented goals may diminish profits, and the fact that it may fail to achieve those goals may result in reputational harms that diminish profits.  As Lemonade puts it, “There is no assurance that we will achieve our public benefit purpose or that the expected positive impact from being a public benefit corporation 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.”  Benefit-corp status is thus treated at least in part as a mechanism for pursuing shareholder wealth maximization on the “do well by doing good” theory.

Vital Farms, by contrast, while warning of the risk that it may fail to achieve its stakeholder benefits and suffer related reputational harm, mostly just highlights that benefiting stakeholders may ultimately result in some sacrifice of shareholder welfare: “While we believe our public benefit designation and obligation will benefit our stockholders, in balancing these interests our board of directors may take actions that do not maximize stockholder value.”  Vital Farms does not, in other words, treat benefit corp status as itself contributing to shareholder value (via marketing or otherwise).

This coming week, the Association of American Law Schools will host its seventh week of special summer webinars geared to providing assistance to under-supported law faculty in our current unusual circumstances.  The series, dubbed “Faculty Focus,” is described in the following way on the program website (which also includes information about upcoming programs):

COVID-19 has affected the normal rhythms of the legal academy in ways that may be particularly disruptive for early-career faculty.

AALS invites tenure-track, clinical, and legal writing faculty to join us on Tuesday afternoons for “Faculty Focus,” a series of weekly webinars organized around issues these individuals may be facing as well as challenges affecting higher education and the profession in general.

Each 60-minute webinar will feature expert advice from law school leaders followed by shared experiences from early career law faculty. The sessions will be structured to encourage conversation and connection, with opportunities for participants to crowdsource solutions and discuss common issues across schools and teaching areas.

Although I am not in the target audience, I have enjoyed several of these programs.  Here is a list of the programs held to date:

Week 1: Work-Life Balance and the Demands of Scholarship
Tuesday, June 9, 2020

Week 2: Meeting the Needs of All Students Online
Tuesday, June 16, 2020

Week 3: Excellence in Online Instruction
Tuesday, June 23, 2020

Week 4: Racism, Justice, and Your Fall Classes
Tuesday, June 30, 2020

Week 5: A Perspective from the Dean’s Offices
Tuesday, July 7, 2020

Week 6: Effective Use of Research Assistants
Tuesday, July 14, 2020

Week 6: How to Become an Excellent Teacher While Starting Your Career in a Pandemic
Thursday, July 16, 2020

I was honored to be asked to participate in the panel discussion, convened last Tuesday, on Effective Use of Research Assistants.  The recording for that session and the other past programs is available here.  This coming week, the session focuses on What Every Faculty Member Should be Doing This Summer. You can register for it here.

In a past post (here), I mentioned stumbling (thankfully!!) into teaching in the area of Negotiation and Dispute Resolution while a PhD student focused on financial regulation.  For so many reasons, the opportunity to pursue doctoral studies in the Ethics & Legal Studies Program at the Wharton Business School was truly a great blessing!  So, I’m delighted to share with BLPB readers that applications for the Program’s incoming class of 2021 are now being accepted.  If you – or someone you know – might be interested in learning more, an quick overview is provided below and an informational flyer here: Download Ethics&LegalStudiesDoctoralProgram

The Ethics & Legal Studies Doctoral Program at Wharton focuses on the study of ethics and law in business. It is designed to prepare graduates for tenure-track careers in university teaching and research at leading business schools, and law schools.

Our curriculum crosses many disciplinary boundaries. Students take a core set of courses in the area of ethics and law in business, along with courses in an additional disciplinary concentration such as law, management, philosophy/ethical theory, finance, marketing, or accounting. Students can take courses in other Penn departments and can pursue joint degrees. Additionally, our program offers flexibility in course offerings and research topics. This reflects the interdisciplinary nature of our Department and the diversity of our doctoral student backgrounds.

Faculty and student intellectual interests include a range of topics such as:

  • legal theory • normative political theory • ethical theory • firm theory • law and economics • private law theory • penal theory • constitutional law • bankruptcy • corporate governance • corporate law • financial regulation • administrative law • empirical legal studies • blockchain and law • antitrust law • fraud and deception • environmental law and policy • corporate criminal law • corporate moral agency • corruption • behavioral ethics • negotiations.

Earlier today (July 14), Fordham University hosted a webinar entitled Reopening Justly or Just Reopening: Catholic Social Teaching, Universities & COVID-19.   

Speakers on the topic of the ethics of reopening schools include the following theology professors: 

Christine Firer Hinze discussed Catholic Social Thought, human dignity, and solidarity. She reminded us that reopening universities is literally a question of life and death, but is also a question of livelihood. Gerald Beyer stressed looking to the the latest science and considering the common good (the flourishing of all). Craig Ford commented on the reality that some universities may be facing financial collapse, that the pandemic is likely to be with us for a long while, and that there are no perfect solutions. Ford also suggested a focus on protecting those who are most vulnerable. Kate Ward talked about moral injury, lamentation, and redemption. A question and answer period — including on the topics of racial justice, transparency, shared sacrifices and mental health — followed opening remarks.

Earlier today, I submitted a book chapter with the same title as this blog post.  The chapter, written for an international management resource on Digital Entrepreneurship and the Sharing Economy, represents part of a project on crowdfunding and poverty that I have been researching and thinking through for a bit over two years now.  My chapter abstract follows:

The COVID-19 pandemic has exacerbated and created economic hardship all over the world.  The United States is no exception.  Among other things, the economic effects of the COVID-19 crisis deepen pre-existing concerns about financing U.S. businesses formed and promoted by entrepreneurs of modest means.

In May 2016, a U.S. federal registration exemption for crowdfunded securities offerings came into existence (under the CROWDFUND Act) as a means of helping start-ups and small businesses obtain funding.  In theory, this regime was an attempt to fill gaps in U.S. securities law that handicapped entrepreneurs and their promoters from obtaining equity, debt, and other financing through the sale of financial investment instruments over the Internet.  The use of the Internet for business finance is particularly important to U.S. entrepreneurs who may not have access to funding because of their own limited financial and economic positions. 

As the pandemic continues and the fifth year of effectiveness of the CROWDFUND Act progresses, observations can be made about the role securities crowdfunding has played and may play in sustaining and improving prospects for those limited means entrepreneurs.  A preliminary examination indicates that, under current legal rules, securities crowdfunding is a promising, yet less-than-optimal, financing vehicle for these entrepreneurs.  Nevertheless, there are ways in which U.S. securities crowdfunding may be used or modified to play a more positive role in promoting economic inclusion through capital raising for the innovative ventures of financially disadvantaged entrepreneurs and promoters.

I value the opportunity to contribute to this book with scholars from a number of research disciplines and countries.  I have been looking for ways to concretize some of my ideas from this project in a series of shorter publications, and this project seems like a good fit.  Nevertheless, I admit that I have been finding it challenging to segment out and organize my ideas about how securities crowdfunding may better serve entrepreneurs and investors, especially in the current economic downturn.  As always, your ideas are welcomed.

Helpful article here (on SSRN) by Nina Kohn. (H/T to Jessica Erickson on Twitter).

As law school classes move online, it is imperative that law faculty understand not only how to teach online, but how to teach well online. This article therefore is designed to help law faculty do their best teaching online. It walks faculty through key choices they must make when designing online courses, and concrete ways that they can prepare themselves and their students to succeed. The article explains why live online teaching should be the default option for most faculty, but also shows how faculty can enhance student learning by incorporating asynchronous lessons into their online classes. It then shows how faculty can set up their virtual teaching space and employ diverse teaching techniques to foster an engaging and rigorous online learning environment. The article concludes by discussing how the move to online education in response to COVID-19 could improve the overall quality of law school teaching.