For the last three years, I have been teaching my Accounting for Lawyers course as a distance education course. It’s only available to students at my law school, but everything except the final exam is online; there are no in-person classes. I think it’s worked well, better than the in-person accounting class I used to teach, but that’s a topic for another day. Today, I want to talk about four things I’ve learned teaching the course.

1. Law students are not used to “learning as they go.”

The typical law school class involves a single end-of-semester exam, and law students get used to pulling things together by cramming at the end of the semester. Almost all of my students read the daily assignments, but many of them, even some of the most conscientious students, really haven’t actively wrestled with the material.

I usually teach by the problem method, and I use books with a large number of problems. I strongly urge students to answer those problems before class. Almost all of my students read the problems before class; many of them think about the problems before class; but it’s clear that few of them have thoroughly worked their way through the problems .

In my online course, assignments are due every week. Students must learn the material as they go, or they won’t be able to do the assignments. Cramming at the end is not an option. They learn in the first couple of weeks that the shallower daily preparation that works in many law school classes won’t work in Accounting. As their study habits change, they learn more, but it requires a real adjustment on their parts.

2. Regular practice and feedback is important.

The educational literature stresses the value of regular practice and feedback (or even regular practice without feedback). I use the problem method in all of my classes because of that. It forces students to apply the materials on a daily basis, with in-class feedback from me. Seeing how much more students learn in my Accounting course, with its regular assignments and feedback, just reinforces that point.

3. If there’s an ambiguity in anything, at least one student will find it.

I didn’t really learn this lesson teaching the online course. It’s obvious every time I grade an exam. No matter how good the casebook, no matter how careful I am in class, some students will manage to misinterpret something. Law students are experts at finding ambiguity. This shouldn’t surprise us; it’s one of the things we teach them to do. The problem is often not due to a failure to read or listen, but a single-minded focus on some isolated statement taken out of context.

In a course like Accounting that has weekly assignments, I don’t have to wait until the final exam to see those misunderstandings, and I can correct them before they do too much damage. But seeing misunderstandings like this on a weekly basis has also made me much more careful in my other classes, more aware of possible ambiguities in the readings and what I say. I would rather over-explain than risk a semester-long misunderstanding.

4. Oral communication is better than written communication, especially for criticism.

In an online course, I’m forced to communicate with my students almost exclusively in writing. Writing, unlike direct, oral communication, is very bad at conveying nuance or sentiment. That difference is especially important when my communication is primarily critical, correcting  and evaluating student work.

Students, like most of us (including me), are sensitive to criticism. And, unless one is very careful, they tend to see critical comments as more negative and personal than they are intended to be. As I’m not a particularly careful person when it comes to criticism or anything else (the word “blunderbuss” is relevant), this is problematic.

In person, my true intent comes through more easily. I recently heard, second-hand, a comment from a student who had taken Accounting and was now in one of my in-person classes. He reportedly said, “I thought Professor Bradford was really mean after Accounting, but I like him in this course.”

The Second Circuit just split from the Ninth in Stratte-Mcclure v. Stanley, 2015 U.S. App. LEXIS 428 (2d Cir. N.Y. Jan. 12, 2015) regarding whether a company violates Section 10(b) – and is subject to private lawsuits – for failure to disclose required information.  The holding would be well-positioned for a Supreme Court grant except that it was not outcome determinative, functionally insulating the decision from Supreme Court review.  But this is definitely a split to watch in the future.

[More under the jump]

Continue Reading Circuit Split Over Section 10(b) Claims for Failures to Disclose

I recently updated my research chart entitled Corporate Forms of Social Enterprise: Comparing the State Statutes. Always open to suggestions on how to improve the chart.

As the number of corporation-based social enterprise state statutes has grown, the chart has become a bit unwieldy. Previous versions of the chart went state by state, detailing the differences from the Model statute. I think the new format (a short summary chart with details in the footnotes) is better for comparing/contrasting the state statutes, but is still far from perfect. For example, some of the abbreviations used in the summary chart require going to the footnotes for explanation, but it is difficult to remedy that and keep the summary chart short.  

Also, here is a link to the latest report of Delaware Public Benefit Corporations (“PBCs”). [This is my first time linking to an outside Excel sheet, but it worked for me by saving to my Desktop and then opening.]  The number of Delaware PBCs has grown to 234 entities. This is still tiny in comparison to the more than 1 million total entities in Delaware, but it is still early.

I have just returned from Dublin, which may be one of my new favorite cities. For the fifth year in a row, I have had the pleasure of participating as a mentor in the LawWithoutWalls (“LWOW”) program run by University of Miami with sponsorship from the Eversheds law firm. LWOW describes itself as follows:

LawWithoutWalls, devised and led by Michele DeStefano, is a part-virtual, global, multi-disciplinary collaboratory that focuses on tackling the cutting edge issues at the intersection of law, business, technology, and innovation.  LawWithoutWalls mission is to accelerate innovation in legal education and practice at the same time.  We collaborate with 30 law and business schools and over 450 academics, students, technologists, venture capitalists, entrepreneurs, business professionals, and lawyers from around the world. We seek to change how today’s lawyers approach their practice and how tomorrow’s lawyers are educated and, in so doing, sharpen the skills needed to meet the challenges posed by the economic pressures, technologization, and globalization of the international legal market. We seek to create the future of law, today. Utilizing a blend of virtual and in-person techniques, LawWithoutWalls offers six initiatives: LWOW Student Offerings,LWOW Live, LWOW INC., and LWOW Xed.  

 I first joined the program as a practitioner mentor and have now served as an academic mentor for two years. Each team has students from law or business school who develop a project of worth addressing a problem in legal education or the legal profession. Mentors include an academic, a practitioner, an entrepreneur, and an LWOW alum.

In the LWOW Live version, the students and mentors meet for the first time in a foreign city (hence the trip to Dublin) and then never see each other in person again until the Conposium, a Shark-Tank like competition in April at the University of Miami, where they present their solution to a venture capitalist, academic, and practitioner in front of a live and virtual audience.

Over the period of a few months the students and mentors, who are all in different cities, work together and meet virtually. Students also attend mandatory weekly thought leader sessions. Past topics have included developments in legal practice around the world and the necessity of a business plan. For many law students, this brings what they learned in Professional Responsibility and Business Associations classes to life. At the Dublin kickoff, audience members watched actual live pitches to venture capitalists from three startups, learned about emotional intelligence and networking from internationally-renowned experts, and started brainstorming on mini projects of worth.

This year, I am coaching a virtual LWOW Compliance team working on a problem submitted by the Ethics Resource Center. My students attend school in London and Hamburg but hail from India and Singapore. My co-mentors include attorneys from Dentons and Holland and Knight. The winner of the LWOW Compliance competition will present their solution to the Ethics Resource Center in front of hundreds of compliance officers. In past years, I have had students in LWOW Live from Brazil, Israel, China, the US, South Africa, and Spain and mentees who served as in-house counsel or who were themselves start-up entrepreneurs or investors. Representatives from the firms that are disrupting the legal profession such as Legal Zoom serve as mentors to teams as well. In the past students have read books by Richard Susskind, who provides a somewhat pessimistic view of the future of the legal profession, but a view that students and mentors should hear.

As I sat through the conference, I remembered some of the takeaways from the AALS sessions in Washington in early January. The theme of that conference was “Legal Education at the Crossroads.” Speakers explained that firms and clients are telling the schools that they need graduates with skills and experience in project management, technology, international exposure, business acumen, emotional intelligence, leadership, and working in teams. Law schools on average don’t stress those skills but LWOW does. Just today, LWOW’s team members were described as “lawyers with solutions.” I agree and I’m proud to be involved in shaping those solutions.

 

One week after the SEC levied the largest dark pool trading violation fine against USB, a group of nine banks (including Fidelity, JP Morgan, BlackRock, etc.) introduced a new dark pool platform, an independent venture called Luminex Trading & Analytics.  Dark trading pools are linked to the role of high frequency trading and the notion that certain buyers and sellers should not jump the queue and shouldn’t be the first to buy or sell in the face of a large order. The financial backers of Luminex were quoted in a Bloomberg article describing it as a platform “where the original purpose of dark pools, letting investors buy and sell shares without showing their hand to others, will go on without interference.”

The announcement raises public scrutiny about dark pools, but among financial circles (like those at ZeroHedge, it is being touted as a smart self-regulatory move by the major mutual funds to prevent the money leach to HFT’s, which some seeing as the beginning of the end for HFTs. 

If you are looking for more resources on dark pools and HFTs– there are two brand new SSRN postings on the subject:

-Anne Tucker

I was watching the Michigan State-Iowa basketball game a couple weeks ago, and commentator Jay Bilas noted his view (which he has stated previously) that the lane violation rule is wrong. I am teaching Sports Law and an Energy Law Seminar this semester, so (naturally) I linked his comments to a broader framework. 

So start, here’s the current rule.  Basketball for dummies explains: 

Lane violation: This rule applies to both offense and defense. When a player attempts a free throw, none of the players lined up along the free throw lane may enter the lane until the ball leaves the shooter’s hands. If a defensive player jumps into the lane early, the shooter receives another shot if his shot misses. An offensive player entering the lane too early nullifies the shot if it is made.

Bilas argues that a defensive lane violation should result in the ball being awarded to shooter’s team instead of another attempt at the free throw for the shooter.  His rationale is, “The advantage to be gained going in early is on the rebound, not the shot. Give the ball to the non-violating team.” This is probably right, though a player might enter the lane early to distract the shooter, too.  I suppose one could award a reshot for a lane violation if the ball is not live (e.g., the violation occurs on the first freethrow of a two-shot foul), and award the ball to the shooter’s team on a missed live ball.  

I think there is some merit to Bilas’s argument, but I think there’s a practical reason the rule remains as it is: the penalty is not too harsh, making it something referees are willing to call.  A favorite quote of mine comes from Ben Franklin, who once warned, “Laws too gentle are seldom obeyed; too severe, seldom executed.”   

Here, I think Bilas is probably right on the penalty-incentive link, but the rule he proposes may prove too severe for lane violations to be called as willingly as they are today.  In addition, practically speaking, if the shooter makes the free throw anyway, the shooter’s team would still need to get the ball after a lane violation, if the punishment is really about discincentivizing cheating for a rebound.  This could be the rule, and it might be right, too, but that would make the penalty even more severe, making referees even less likely to make the call. (You could, I suppose, give the shooter’s team a choice — the the point or the ball — but that gets messy.)  

I used the Ben Franklin quote in my article from a few years back, Choosing a Better Path: The Misguided Appeal of Increased Criminal Liability after Deepwater Horizon, which was  published in the William & Mary Environmental Law and Policy Review (available here). In the article, I argued that increased criminal liability for energy company employees was not likely to be any more effective in preventing disasters like the blowout of BP oil well in the Gulf of Mexico because the likelihood of actually sending people to jail is highly unlikely.

I still believe this is true in a many contexts.  It’s not to say we should not have harsh penalties for certain behaviors, but we need to be sure the laws or rules are more than justifiable.  We also need to be sure they will be executed in a manner that the laws or rules serve the actual purpose for which they were designed.  

To be clear, we also need to be sure that the penalties are not so gentle that no one will follow the rule.  In the energy and business sector, I am of the mind that we regularly err on both sides — some rules are too gentle and others too severe.  Sports can be that way, too, though we often don’t even know the penalty for certain acts like, say, allegedly deflating a few footballs.  

As for lane violations, though, I think the rule has the balance right, even if there is a justification for a harsher rule.  

Today, unlike most Mondays during the school year, I will not be in the classroom.  The University of Tennessee is closed in celebration of the life of Martin Luther King, Jr., our nation’s iconic non-violent civil rights leader.  Today also is the day that my daughter is in transit back to her college in New York for her last semester as an undergraduate.  It seemed only fitting, honoring both occasions, to go out on Friday night with my daughter and my husband to see the movie Selma.

Despite its historical inaccuracies (which have been played out in the public media, e.g., here), the movie is a successful one.  Among other things, it spoke to me of the amazing amount that one man can accomplish in a mere 39 years with focus, action, and perseverance.  I admittedly felt a bit lazy and ineffectual by comparison.

Selma also reminded me, however, of the near daily opportunities that King had to speak out on matters of public importance.  I wondered if there was anything in his teachings that would speak directly to me today.  Specifically, I wondered if I could find something he’d said that helped to guide me as a business law professor in the current business law or legal education environment.

Of course, King spoke out against  Jim Crow laws, which provided for legal segregation of the races in both businesses and education.  But I was looking for something a bit more personal.  Then, I found this quotation:  “The function of education . . . is to teach one to think intensively and to think critically. . . .  Intelligence plus character–that is the goal of true education.”  

Continue Reading Reflecting on MLK and Legal Education

Every U.S. law school, or at least every law school I’m aware of, offers a securities regulation course. But those courses usually focus on the Securities Act of 1933 and the Securities Exchange Act of 1934. A typical securities regulation course covers the definition of security, materiality, the registration of securities offerings under the Securities Act, and liability issues under both the Securities Act and the Exchange Act. If the professor is ambitious, those courses may also cover the regulation of securities markets and broker-dealers.

Almost none of those basic securities regulation courses spends any significant time on the 1940 Acts—the Investment Company Act and the Investment Advisers Act. It’s not because those two statutes are unimportant. A good proportion of American investment is through mutual funds and other regulated investment companies, not to mention hedge funds which depend upon Investment Company Act exemptions. And the investment advisory business is booming. When I attend gatherings of securities lawyers, I’m always amazed at how many of the lawyers present are dealing with issues under the 1940 Acts.

The lack of coverage of the 1940 Acts in the basic securities law course would be acceptable if law schools offered separate, stand-alone courses dealing with those issues, but many of them do not. I began teaching a course on the 1940 Acts in 1997. (I subsequently expanded the course to include a segment on the regulation of brokers.) At that time, you could count the number of law schools offering 1940 Act courses on one hand. Since then, more law schools have begun to offer such courses, but many law schools still do not.

Why are law schools not offering such an important business law course? One problem may be staffing. Many schools, including my own, have only one securities law professor. That person often also has to teach Business Associations, Mergers and Acquisitions, and other such courses, leaving no time for a second securities course. I have been able to offer my course only by rotating it with Mergers and Acquisitions on a biennial basis.

The lack of 1940 Act courses may also be due to the backgrounds of people teaching securities law. Some (certainly not all) securities law professors come from the litigation side of practice. Securities litigation centers on the 1933 and 1934 Acts. Litigation is a less important part of practice under the 1940 Acts, so many securities litigators aren’t exposed to it much.

A third problem is a lack of teaching materials. There isn’t much available on the 1940 Acts. I was lucky when I began teaching the course to discover a set of materials put together by Larry Barnett at Widener University. Those materials, supplemented with my own handouts and problems, have worked well. Unfortunately, Larry just retired and will no longer be updating his materials, so I’m not sure what I’m going to do now. I suspect more people would teach the course if more books were available, but there’s a chicken-and-egg problem. The major publishers aren’t interested in offering materials for a course that few schools teach.

Whatever the reason, the lack of such courses is a serious deficiency at any school preparing students for a securities law practice.

I’m interested to hear from commenters: are there any other courses law schools aren’t teaching that are crucial to business law practice?