At this point, drawing inferences from corporate jet usage is its own mini-genre in the business literature.  There was David Yermack’s famous Flights of Fancy, which found that companies underperform when the CEO makes use of the company jet for personal business (often, apparently, golfing-related business); other studies have found that corporate jet use can enhance firm value, or detract from it, depending on whether the company has weak corporate governance, and that public firms have larger jet fleets than firms owned by private equity funds, suggesting the excessive fleet size is due to agency costs in public firms.

(And these studies, naturally, were conducted before everyone knew about GE’s now-discontinued practice of having its CEO travel with a jet and a spare.)

Now there’s a new contribution to the genre: Corporate Jets and Private Meetings with Investors, by Brian J. Bushee, Joseph J. Gerakos, and Lian Fen Lee. 

The authors begin with the previously-documented phenomenon that when investors have the opportunity to engage in private meetings with corporate management, their trading improves.   Regulation FD prohibits management from providing these investors with nonpublic material information, but somehow – whether through outright violations of the rule or simply subtle cues that the investors can synthesize with their own information – these meetings benefit investors who are fortunate enough to have the opportunity to participate in them.

The rest of the world, however, usually doesn’t know when these meetings are taking place.  If they occur at a publicized conference researchers can deduce their existence, but otherwise, there’s no obvious way to tell.

The authors figured out that they could deduce when private meetings were taking place by tracking corporate jet usage.  They found that when the corporate jets were used to rapidly fly to multiple cities where their investors are based, there are increases in the level of local institutional stock ownership, and detectable market reactions (which the authors attribute to investors acting on what they believe to be improved private information).  The authors also found that these trips were more likely to occur when the firm was undergoing various conditions that might increase investors’ demand for information. 

The part that I find interesting, though, is that evidence was mixed as to whether institutions were actually benefitting from these meetings in the form of trading gains – and they were more likely to do so when the trips were taken to large cities with finance industries rather than to other locations.  The authors don’t say it, but that piece makes me wonder if there’s a distinction in investor sophistication at play; all investors are not created equal, and some institutions may be better able to make use of the information revealed in private meetings than others. 

I love the Kardashians. I don’t watch the reality show, but I do keep up with them because I use them in hypotheticals in class and in exams for entity selection questions. The students roll their eyes, but invariably most of them admit to knowing everything about them. When the students can relate to the topic, it makes my job easier. That’s why I used the SNAP IPO last year as our case study on basic securities law. Every year I pick a “hot” offering to go through some of the key principles and documents, and Snap was the logical choice because the vast majority of the students love(d) the Snapchat app. The company explained as its first risk factor “… the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement.” I used myself as an example to explain that risk factor in class. I have over 100 apps on my smartphone, and I have a son in the target demographic, but I  never open Snapchat unless my six-year-old goddaughter sends me something. I just don’t get the appeal even though millions of celebrities and even mainline companies use it for marketing. My students were aghast when I told them that I wouldn’t invest in any stock that depended on the vagaries of their ever-changing taste. 

Enter Kylie Kardashian. She’s the youngest Kardashian (20 years old), is worth at least $50 million, runs a cosmetics empire on track to earn a billion dollars, has 95 million followers on Instagram, and has 24 million followers on Twitter.

Kylie

After she offhandedly tweeted that she doesn’t really open Snapchat anymore yesterday, Snap lost $1.3 billion (6%) in value. This plunge added to an already bad week for Snap after Citi issued a sell rating and the company confirmed to 1.2 million change.org petition signers that its new redesign was here to stay. But it was Kylie’s tweet that caused the real damage. Perhaps one of Kylie’s lawyers or business managers alerted her to the fallout because she later tweeted out, “still love you tho snap… my first love.” Kylie probably forgot how much power she really has. When she released a video about her pregnancy and childbirth, 24 million people watched in less than 24 hours because she had refused to allow any of her followers to see pictures of her belly. She knows marketing. 

Meanwhile, after seeing Kylie’s first tweet, cosmetics competitor Maybelline went on Twitter to ask its users if it should stay on Snapchat, noting that its Snapchat views had dropped dramatically. The company later deleted the tweet, but users had already voted 81% to 19% to leave on the Twitter poll.

Snap appears determined to stick to its unpopular redesign, and its CEO received a $637 million bonus last year after the IPO. Perhaps the CEO should use some of that money to pay for a new Kylie tweet. In 2016, when Kylie earned only $18 million, 20% of that haul came from social media endorsements. It looks like the President isn’t the only one who can move markets with a tweet. 

The Supreme Court just released its opinion in Digital Realty Trust, Inc. v. Somers.  The case resolves a controversy over whether employees making internal reports of securities law violations qualify for Dodd-Frank’s whistleblower protections. The Court ruled that internal reporters do not qualify because they are not “whistleblowers” under the statutory definition.  Writing for the Court, Justice Ginsberg focused on the the statutory provision specifically defining whistleblowers as persons that provide “information relating to a violation of the securities laws to the Commission.”  Under this strict reading, a person that called a company’s ethics hotline to blow the whistle on misconduct in their office would not qualify as a whistleblower unless she also went to the SEC with the information.

The Court read the definition and the Dodd-Frank provision in light of existing whistleblower protections.  Sarbanes-Oxley already protects internal reporters from retaliation.  Yet pursuing a Sarbanes-Oxley claim requires a whistleblower to jump through some quick procedural hoops.  The first step is filing a complaint with the Department of Labor within 180 days of the retaliation.  If Labor does not issue a decision within 180 days of the whistleblower’s filing, the whistleblower can go to court for reinstatement, backpay with interest, and litigation costs. In contrast, Dodd-Frank provides a better remedy.  A qualifying whistleblower can go directly to federal court anytime within six years and seek double back pay plus interest.  

There is another piece to this puzzle.  Dodd-Frank also contains a bounty program. Whistleblowers that report information to the SEC may qualify for awards if the SEC recovers significant funds because of the information provided by a whistleblower’s tip.  News reports indicate that the SEC may soon announce an eye-popping $48 million award for a whistleblower under that program.

A statutory definition limiting “whistleblowers” as persons that provide information to the SEC makes sense for the bounty program.  It makes less sense for the anti-retaliation provision.  To protect internal reporters from retaliation, the SEC had used its rule-making authority to craft a different definition for purposes of the anti-retaliation provision, covering persons that make internal reports.  The Supreme Court rejected that contextual definition and limited Dodd-Frank’s more generous protections to persons that “tell the SEC” about their concerns.

What does this mean in practical terms?  It means that employees with concerns about actual or potential securities law violations should make reports to the SEC before (or in lieu of) reporting their concerns internally. If they do not report to the SEC, they’ll lose the more significant Dodd-Frank protections.  

If reporting behavior shifts in the wake of this decision, the SEC’s bounty program may receive more noise than signal.  If persons report to the SEC simply to secure protection from retaliation, the SEC may not receive as much targeted and useful information as it would otherwise. Increased volume may diminish the SEC’s ability to focus on the most useful tips.

There is room to be skeptical about whether tip volume will materially increase after this decision.  A potentially culpable potential whistleblower faces a dilemma.  She has to consider whether blowing the whistle to the SEC would somehow serve as an admission of wrongdoing.  It’ll be interesting to see if the SEC receives an increased volume of tips in the wake of this decision.

 

The Columbia Law School/Columbia Business School Program in the Law and Economics of Capital Markets is seeking a full time Capital Markets Research Fellow.  The incumbent would be appointed as a Postdoctoral Research Scholar.  The appointment will run from July 1, 2018 to June 30, 2020.

This position is intended for a person who expects to begin a law school teaching career at the start of the 2020-21 academic year and who desires an interim position that would help the person prepare for such a career by offering the time and facilities needed to do serious research and to develop further expertise.   More information is available here.

Law Teaching for Adjunct Faculty and New Professors Conference

Law Teaching for Adjunct Faculty and New Professors is a one-day conference for new and experienced adjunct faculty, new full-time professors, and others who are interested in developing and supporting those colleagues. The conference will take place on Saturday, April 28, 2018, at Texas A&M University School of Law, Fort Worth, Texas, and is co-sponsored by the Institute for Law Teaching and Learning and Texas A&M University School of Law.

Sessions will include:

  • Course Design and Learning Outcomes – Michael Hunter Schwartz

  • Assessment – Sandra Simpson

  • Active Learning – Sophie Sparrow

  • Team-based Learning – Lindsey Gustafson

  • Technology and Teaching – Anastasia Boles

Details are here. 

 

CALL FOR PRESENTATION PROPOSALS

Institute for Law Teaching and Learning—Summer 2018 Conference Exploring the Use of Technology in the Law School Classroom June 18-20
Gonzaga University School of Law
Spokane, Washington

The Institute for Law Teaching and Learning invites proposals for conference workshops addressing the many ways that law teachers are utilizing technology in their classrooms across the curriculum. With the rising demands for teachers who are educated on active learning techniques and with technology changing so rapidly, this topic has taken on increased urgency in recent years. The Institute is interested in proposals that deal with all types of technology, and the technology demonstrated should be focused on helping students learn actively in areas such as legal theory and knowledge, practice skills, and guided reflection, etc. Accordingly, we welcome proposals for workshops on incorporating technology in the classrooms of doctrinal, clinical, externship, writing, seminar, hybrid, and interdisciplinary courses.

The Institute invites proposals for 60-minute workshops consistent with a broad interpretation of the conference theme. The workshops can address the use of technology in first-year courses, upper-level courses, required courses, electives, or academic support roles. Each workshop should include materials that participants can use during the workshop and when they return to their campuses. Presenters should model effective teaching methods by actively engaging the workshop participants. The Institute Co-Directors are glad to work with anyone who would like advice on designing their presentations to be interactive.

Second, our summer conference will be at Gonzaga Law, June 18-20 and will focus on the use of technology in the classroom.  We’re currently accepting proposals for that conference (and the deadline has been extended to March 2).  More info here.  

Mark your calendars!

March 1, 2018 is the deadline for nominations for the inaugural award of the Grunin Prize.

The Grunin Prize has been created to recognize the variety and impact of lawyers’ participation in the ways in which business, whether for-profit or not-for-profit, is increasingly advancing the goals of sustainability and human development.

Lawyers, legal educators, policymakers, in-house counsel, or legal teams that recently have developed innovative, scalable, and social entrepreneurial solutions using existing law, legal education, or the development of new legal structures or metrics are eligible for nomination. And self-nominations are encouraged!

The Grunin Prize will be presented on June 5, 2018 at the IILWG/Grunin Center conference. To learn more about the Grunin Prize and the nomination process, go to http://www.law.nyu.edu/centers/grunin-social-entrepreneurship/grunin-prize.

June 5-6, 2018 are the dates of the Impact Investing Legal Working Group (IILWG)/Grunin Center for Law and Social Entrepreneurship’s 2018 Conference on “Legal Issues in Social Entrepreneurship and Impact Investing – in the US and Beyond.” This year’s IILWG/Grunin Center’s annual conference will take place at NYU School of Law in New York City.

The themes of this year’s conference include:

· Embedding Impact into Deal Structures and Terms
· Policy and Regulation of Impact Investing and Social Entrepreneurship
· Blending and Scaling Capital for Impact
· Building Investment-Ready Social Enterprises
· Mainstreaming Impact

Last year over 250 lawyers and other stakeholders attended this groundbreaking conference for lawyers working in the fields of social entrepreneurship and impact investing. In a post-conference survey of these conference attendees, we learned that:

· Over 99% of survey respondents rated the conference as “excellent” (over 76%) or “very good” (23%);
· Over 84% of survey respondents were very likely to recommend attending this conference to others; and
· Over 64% of survey respondents made 6 or more new connections at this conference.

Come join this growing community of legal practice!

Conference registration will open in April. For more information about the conference, go to http://www.law.nyu.edu/centers/grunin-social-entrepreneurship.

June 7, 2018 is the date of the first Grunin Center Legal Scholars convening. This convening, which is scheduled to take place immediately after the IILWG/Grunin Center Annual Conference, is intended to advance legal scholarship in the fields of social entrepreneurship and impact investing by bringing together legal scholars who are writing and researching in these fields and introducing them to the legal/policy challenges and opportunities that legal practitioners are facing in these fields.

Law school faculty (fulltime and adjunct), other academic personnel working fulltime in law schools who are engaged in legal scholarship, practitioners who are engaging in legal scholarship, and professors who are teaching law in other schools yet are engaging in legal scholarship are invited to join this convening.

If you are interested in joining this community of legal scholars, please contact the Grunin Center (law.gruninsocent@nyu.edu) and we will send you more information about the June 7, 2018 Legal Scholars convening.

Best Regards,

Helen Scott and Deborah Burand
Co-Directors, Grunin Center for Law and Social Entrepreneurship
New York University School of Law
245 Sullivan Street, 5th Floor
New York, NY 10012

The possibility lurking in Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd,  2017 WL 6375829 (Del. Dec. 14, 2017), has now materialized.

For those of you just joining us, in Dell and DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346 (Del. 2017), the Delaware Supreme Court threw some cold water on the practice of appraisal arbitrage.  The two decisions suggest that in an appraisal action, courts should not try to conduct their own valuation of a company except in unusual circumstances; instead, where the deal was negotiated appropriately, the deal price itself represents the best evidence of fair value.

That alone would be enough to discourage would-be appraisers, absent evidence of significant dysfunction in the process by which the deal price was reached, but the decisions went further: both contained extensive endorsements of the efficient markets hypothesis and the accuracy of market pricing.   In the context of the opinions themselves, the market price discussions were puzzling, because they played little role in the Court’s actual analysis.  In both cases, the Court ultimately suggested that the deal prices – which were above market price – were appropriate.  At the same time, however, in neither case did the defendants argue that the deal price included value arising from the merger itself (which is unavailable in an appraisal action) – a point that the DFC court in particular highlighted.

That left open the possibility that in future cases, defendants would be able to successfully argue that the market price of a publicly traded company is the best evidence of its value, and that any premium above that amount represents value arising out of the merger.  Such an argument would leave appraisal petitioners with, at best, market price – which is usually a figure less than the deal price, rendering the appraisal remedy itself not worth pursuing for most publicly-traded companies.  Worse, it would do so even in situations where there were significant problems in the deal negotiations.  After all, no matter how hair-raising the process by which the deal price was reached, if that price was above market price – and if market price is evidence of the standalone fair value of the target as a going concern – then appraisal provides no remedy.

Well, that’s what just happened.  In Verition Partners Master Fund, Ltd., et al. v. Aruba Networks, Inc., C.A. No. 11448-VCL, memo. op. (Del. Ch. Feb. 15, 2018), VC Laster concluded that after Dell, he had no choice but to accept the market price as the best evidence of the target’s fair value – even in the face of evidence that the acquirer made an employment offer to the target’s CEO while negotiations were continuing (in violation of a prior agreement with the target, and without the Board’s knowledge), and in the face of evidence that the target’s financial advisors were trying to curry favor with the acquirer.  As a result, he awarded the dissenters the pre-deal market price of $17.13 per share, a figure significantly below the merger price of $24.67 per share.

It appears that unless the Delaware Supreme Court steps in to say this isn’t what it meant in Dell and DFC, going forward, appraisal arbitrageurs will have to show both that there were dysfunctions in deal negotiations, and that there were significant reasons to distrust the pre-deal market price, before they can hope to come out ahead.  That’ll be quite an uphill climb.