Alternative mutual funds, with assets under management reported from $300-500 billion, mimic riskier investment strategies employed by hedge funds such as investing in commodities, private debt, shorting assets and complex derivatives.  The trading strategies, as you can guess, are funded through higher fees charged to investors.  The funds are touted as a new way for mainstream investors to diversify their assets.  Forbes ran a great, short piece back in February describing the investment advantages and disadvantages of alternative mutual funds.

These alternative mutual funds are now in the cross hairs of the SEC and FINRA, the self-regulatory branch of the securities industries.  FINRA issued an Investor Alert on “alt” funds in June, available here.  The Wall Street Journal reported yesterday that the SEC will conduct a limited scope (15-20 funds) national sweep to identify fund oversight, ready assets, and disclosure of investment strategies.  Included in the funds sweep are large investment firms such as BlackRock and AQR Capital Management, as well smaller firms that are new market entrants.

For additional information on Alternative Funds, see the 2013 report issues by SEI, available here, compiling available data on these funds.

-Anne Tucker

Kinder Morgan, a leading U.S. energy company, has proposed consolidating its Master Limited Partnerships (MLPs) under its parent company. If it happens, it would be the second largest energy merger in history (the Exxon and Mobil merger in 1998, estimated to be $110.1 billion in 2014 dollars, is still the top dog). 

Motley Fool details the deal this way:

Terms of the deal
The $71 billion deal is composed of $40 billion in Kinder Morgan Inc shares, $4 billion in cash, $27 billion in assumed debt. 

Existing shareholders of Kinder Morgan’s MLPs will receive the following premiums for their units (based on friday’s closing price):

  • Kinder Morgan Energy Partners: 12%
  • Kinder Morgan Management: 16.5%
  • El Paso Pipeline Partners: 15.4%
Existing unit holders of Kinder Morgan Energy Partners and El Paso Pipeline Partners are allowed to choose to receive payment in both cash and Kinder Morgan Inc shares or all cash. 
As I understand it, the exiting holders of the partnerships would have to pay taxes on the merger (this is partnership to a C-corp), but please, consult your tax professional.  
 
The goal here is said to be to increase dividend potential and use the C-corp structure to maximize opportunities that the MLP structure is now apparently less effective in generating.
 
I, for one, like that this company is seeking to generate income from real products, invest in new infrastructure, and pay dividends.  I’m no financial planner or investment consultant, but I like the idea of companies that offer dividend value rather than value to shareholders solely through increase share price. It seems to me it leads to better long term planning.  I am also intrgigued by the part of Richard Kinder story where he ended up not leading Enron.  As Forbes explained in 2012,
The most important man in the American Energy Boom wears brown slacks and a checkered shirt and sits in a modest corner office with unexceptional views of downtown Houston and some forgettable art on the wall. You would expect to at least see a big map showing pipelines stretching from coast to coast. Nope. “We don’t have sports tickets, we don’t have corporate jets,” growls Richard Kinder, 68, CEO of Kinder Morgan, America’s third-largest energy firm. “We don’t have stadiums named after us.”
I will be watching to see if this deal goes through, and I think the chance to have a big study in consolidating partnerships with a C-Corp could be a great teaching moment. Stay tuned! 
 
 

Ah, yes . . . .  The public/private divide . . . .  My co-blogger Ann Lipton fairly begged me to write about this topic today, given that she had to miss the discussion session on the subject (entitled “Does The Public/Private Divide In Federal Securities Regulation Make Sense?”) convened by me and Michael Guttentag at last week’s Southeastern Association of Law Schools (SEALS) annual conference.  Arm-twisting aside, however, this is a topic of current interest (and actively engaged scholarship) for me.

The discussion session allowed a bunch of our corporate and securities law colleagues to explore historical, present, and projected future distinctions between public and private offerings and public and private companies/firms.  The discussion ranged widely, as did the short papers submitted by the participants.  Some topics of conversation were oriented in part toward corporate governance concerns–comments from Lisa Fairfax on linkages to shareholder empowerment and from Jill Fisch on executive compensation in the post-Dodd-Frank public environment come to mind in this regard.  Other discussion topics engaged securities regulation more centrally, including by, e.g., questioning the coherence of the rationale underlying the Section 12(g) and 15(d) reporting thresholds (with interesting commentary from Amanda Rose and Usha Rodrigues); offering historical observations about the difference between public offerings and private placements and how that history does, should, and may play out in offering markets (Dale Oesterle and Wulf Kaal); expressing concern about  accredited investor status in the wake of the new Rule 506(c) under the Securities Act of 1933, as amended (Jonathan Glater); and analyzing the CROWDFUND Act at the public/private offering and company divides (me).

Different notions of “publicness” and “privateness” were offered up, dissected, and used in the discussion.  Many pointed to the formative work of Hillary Sale (The New ‘Public’ Corporation, Public Governance, and J.P. Morgan: An Anatomy of Corporate Publicness) and Don Langevoort and Bob Thompson (Redrawing the Public-Private Boundaries in Entrepreneurial Capital-Raising and ‘Publicness’ in Contemporary Securities Regulation after the JOBS Act) as important touchstones.  Both sets of papers address issues involving the publicness of firms.  The Langevoort and Thompson Redrawing article also addresses public and private offerings of securities on a detailed level.  

Yet, not everyone anchored their ideas to these existing works.  One participant (Ben Means) provocatively suggested, for example, analyzing public disclosure rules using the bumpy-versus-smooth taxonomy for legal rules described in Adam Kolber’s recent California Law Review article.  I was not familiar with this piece.  I now plan to read it.

Many discussants denied the continued existence or salience of a public/private divide in securities regulation, believing instead that there is a sliding scale or continuum between public and private.  Although this argument has more traction after the JOBS Act and the Dodd-Frank Act, evidence of an indistinct line both in finance and entity law predates those legislative initiatives.  Some of us were uncomfortable in declaring the death of the public/private divide–or in letting go of the analytical distinction between publicness and privateness because of the role that it serves in scholarship and teaching.  The public/private divide has been a heuristic in securities regulation that people find hard to abandon . . . .

My paper, which is founded on the works of Professors Langevoort, Sale, and Thompson, is forthcoming in the University of Cincinnati Law Review.  Although the draft is not “ready for Prime Time” yet, I am happy to share it with anyone who may be interested in it.  Other papers submitted for the discussion group may or may not be precursors to works in process.  But you can contact any discussion group participant (or ask me to contact one or more participants on your behalf) if you want to explore their ideas further.

Although I am not yet fully ready to step back into the classroom to teach next week, I am better prepared for the experience (and for the research and writing I am doing) thanks to the SEALS conference.  And now, to finish that syllabus . . . .

One of the blogs in last week’s list of blogs I follow was Lowering the Bar, a collection of humorous legal items edited by Kevin Underhill, a San Francisco lawyer.

Underhill recently released a book, The Emergency Sasquatch Ordinance. The book is a collection of silly, weird, and humorous laws, with commentary by Underhill. The title comes from an ordinance adopted by the board of commissioners of Skamania County, Washington that made it illegal to slay Bigfoot. Apparently, the threat was serious because the county commissioners designated it as an emergency ordinance so it could become immediately effective.

Both Underhill’s selection of laws and his commentary are a little uneven. Some of the laws he features are not that interesting (or funny). And Underhill’s commentary on the laws, while often quite funny, sometimes falls flat. I also wish Underhill would have provided more legislative history. He sometimes does, but not always, and it would be interesting to know what motivated some of these strange laws. But the book contains some real gems, and that alone makes it worth reading.

Some of the laws are funny because of their clear unconstitutionality. In 2011, for example, the Gould, Arkansas city council passed a law that (1) requires city council approval for the mayor or council members to participate in a meeting of any organization; (2) bans the Gould Citizens Advisory Council from doing business in the city; and (3) requires city council approval for any new organization in the city.

Some of them are just weird. A California law, for example, provides that

It is unlawful for any person to immerse or soak the carcass of any slaughtered rabbit in water for a period longer than necessary to eliminate the natural animal heat in the carcass and in no event for a period longer than 2 ½ hours.

Many of them make you wonder whether the legislative body didn’t have more important things to do. One Arkansas law, for instance, specifies how to pronounce Arkansas and another specifies the possessive form of Arkansas. (In case you were wondering, it’s pronounced “By Texas” and the possessive form is “Our’n.”) A Massachusetts statute that I’m sure my wife the law librarian will love makes it illegal to disturb people in a public library by making noise.

But my favorite law from the Underhill book confirms my view of tax law and tax lawyers. According to an Australian law, the tax commissioner may

  • Treat a particular event that actually happened as not having happened;
  • Treat a particular event that did not actually happen as having happened and, if appropriate, treat the event as having happened at a particular time and having involved particular action by a particular entity; or
  • Treat a particular event that actually happened as having happened at a time different from the time it actually happened, or having involved particular action by a particular entity (whether or not the event actually involved any action by that entity).

The Emergency Sasquatch Ordinance is an easy read and each law is in a separate chapter, so it’s easy to pick and choose. It’s worth a look.

The following paragraph is an excerpt from Micro-Symposium on Competing Theories of Corporate Governance, 62 UCLA L. Rev. Disc. 66, which can be found online (here) and is also available via Westlaw.

On Friday, April 11, and Saturday, April 12, 2014, the UCLA School of Law Lowell Milken Institute for Business Law and Policy sponsored a conference on competing theories of corporate governance…. This conference provided a venue for distinguished legal scholars to define the competing models, critique them, and explore their implications for various important legal doctrines. In addition to an oral presentation, each conference participant was invited to contribute a very brief essay of up to 750 words (inclusive of footnotes) on their topic to this micro-symposium being published by the UCLA Law Review’s online journal, Discourse. These essays provide a concise but powerful overview of the current state of corporate governance thinking….

The included essays:

  • Stephen M. Bainbridge, An Abridged Case For Director Primacy
  • George S. Georgiev, Shareholder vs. Investor Primacy in Federal Corporate Governance
  • David Millon, Team Production Theory: A Critical Appreciation
  • Usha Rodrigues, David and Director Primacy
  • Stefan J. Padfield , Citizens United, Concession Theory and Corporate Social Responsibility (CSR)
  • Christopher M. Bruner, Corporate Governance Theory and Review of Board Decisions
  • Robert T. Miller, The Board Veto and Efficient Takeovers
  • Lisa M. Fairfax, Toward a Theory of Shareholder Leverage
  • Iman Anabtawi, Shadow Directors
  • Michael D. Guttentag, Shareholder Primacy and the Misguided Call for Mandatory Political Spending Disclosure by Public Companies
  • James J. Park, Averages or Anecdotes? Assessing Recent Evidence on Hedge Fund Activism

Shameless self-promotion excerpt:

In extremely truncated form, my argument proceeds as follows. While both director primacy and shareholder primacy differ in terms of who should control corporate decisionmaking, both identify shareholder wealth maximization as the positive and normative goal of corporate governance. In addition, while team production theory tempts advocates of CSR, in the end it also falls short of supporting mandatory CSR. As for the theories of corporate personality, both aggregate theory and real entity theory view the corporate entity as standing in the shoes of natural persons to some meaningful degree (typically the shareholders in the case of aggregate theory and the board of directors in the case of real entity theory), thereby providing corporations a basis for resisting government regulation. Only concession theory, which views the corporation as fundamentally a creature of the state created to serve public ends, can support mandatory CSR as a normative matter. Thus, the advocates of mandatory CSR should use concession theory, with its emphasis on the public roots of corporations, to provide the compelling narrative necessary to move our corporate law beyond its exclusive focus on shareholder wealth maximization.

Stefan J. Padfield , Citizens United, Concession Theory and Corporate Social Responsibility (CSR), 62 UCLA L. Rev. Disc. 84, 86 (2014).

Cincinnati
Below is a posting for up to two (nontenured) legal studies positions at University of Cincinnati.
 
———————
 
The Accounting Department of the Lindner College of Business at the University of Cincinnati invites applicants for up to two full-time Professor of Business Law, Educator track positions (nontenured, but union), with an August 2015 start date. UC has a large accounting program, with 700 undergraduate majors, a Master of Science in Accounting, a Master of Science in Taxation, and a doctoral program. Business Law is part of the Accounting Department, and offers required and elective business law courses at both the undergraduate and graduate levels (including MS Accounting). The Lindner College of Business is nationally ranked in the top 100 business schools, and the MBA program was recently ranked #60 nationally by US News and World Report.
Primary responsibilities involve teaching and related service activities. High quality teaching is expected; teaching load and rank will be determined commensurate with teaching credentials, prior professional law experience, and prior research productivity. Sustained academic and professional engagement is required, and publishing in quality business law related journal is desirable.  Candidates must have a JD from an accredited institution approved by the US American Bar Association (ABA) and be licensed to practice law in a US jurisdiction.  
 
Preferred qualifications include: an undergraduate or graduate degree in accounting or business; professional law or tax work experience; experience teaching undergraduate and graduate business law courses at a US AACSB accredited institution, with evidence of effective classroom outcomes; the ability to interact effectively and professionally with other faculty and the business community; a passion for teaching and mentoring students; the ability to build quality academic programs; and research skills and recent journal publications. Candidates must possess both written and spoken English fluency, and provide evidence of such throughout the interview process.  
 
For additional information about the university please go to www.uc.edu.  To apply for position (214UC8724), please see www.jobsatuc.com.  For questions, please contact Ilse Hawkins at hawkinis@ucmail.uc.edu  or the Department Head, Dr. Robert Larson at Robert.Larson@uc.edu.

Wharton

Below is a call for abstracts from Professor Amy Sepinwall (Wharton).

———————–

Call for Abstracts for the Normative Business Ethics Workshop Series of the Carol and Lawrence Zicklin Center for Business Ethics Research:

Over the 2014-2015 academic year, the Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School, University of Pennsylvania, will be convening a regular works-in-progress series for scholars working in normative business ethics (NBE).

Workshop Objectives:

The series is part of an effort to foster, and increase the prominence of, normative business ethics in the academy and the public sphere. This particular initiative has two key objectives: First, it endeavors to provide a regular forum for scholars working on business ethics from a normative perspective. The community of such scholars is relatively small, and dispersed across numerous institutions, and there are few opportunities for these individuals to convene and share work. This series is an effort to connect these scholars, and enrich their shared intellectual life. Second, the series aims to be especially valuable to junior faculty, by providing them with feedback from, and opportunities to interact with, more established members of the normative business ethics community. To that end, we hope to have one junior author and one senior author at each session. 

Workshop Format:

The workshop will meet roughly once a month over the academic year, for a total of 6 sessions per year. Anyone with an interest in normative business ethics is invited to attend the sessions. Faculty interested in having their paper discussed at the workshop should submit an abstract and list, in order of preference, the date(s) they could present from those listed below. (Further information about submission can be found under the “Call for Abstracts” below.) Two draft papers will be selected for each session. Complete draft papers will be circulated at least one week in advance of each session and participants will be expected to have read them carefully, and to arrive at the workshop prepared to offer constructive feedback.

The sessions will be structured so as to maximize the opportunity for paper improvement through the comments of a community of scholars committed to normative business ethics. To that end, authors will not present at the session for which their paper has been assigned. Instead, those gathered will go around the table and each participant will offer a few points of feedback on the paper.

An author whose paper is selected for presentation in a given semester will bear an obligation to attend the other two sessions that semester or to send feedback via email to the authors whose papers are presented at any session that she is unable to attend. In this way, each author will be assured of a good number of responses to her paper.

The Zicklin Center will provide the room and refreshments for each session. Attendees will be asked to pay for their own travel expenses. Some travel funding is available for paper authors for the session at which their paper will be discussed.

For Fall 2014, the workshop will be held on the following dates:

Friday, October 10, 2014, 2:00-4:30 PM.

Friday, November 14, 2014, 2:00-4:30 PM.

Friday, December 5, 2014, 2:00-4:30 PM.

Call for Abstracts

We invite individuals interested in workshopping a paper in normative business ethics to submit a paper abstract. The abstract should be a maximum of 500 words, and the accompanying email should indicate preferred dates of presentation from those listed above. Please send these to Lauretta Tomasco, tomascol@wharton.upenn.edu, by September 1, 2014. Individuals will be notified about whether their paper has been selected for presentation by September 15, 2014.

Please address all questions to Amy Sepinwall, sepin@wharton.upenn.edu.

The exact measure of damages in a fraud on the market 10(b) action has long been a bit of a muddle, because it raises many difficult evidentiary and legal issues.  However, because most securities class actions are dismissed or settle, there actually are not many court decisions discussing the problem.   The Supreme Court’s decision in Comcast Corp. v. Behrend (2013), an antitrust case, may have begun to change that – as the BP litigation demonstrates.

[More under the cut]

Continue Reading Causation in Section 10(b), the Comcast v. Behrend Remix

Maybe having a suitcase that has more books in it than clothes is a sign that I need to follow Steve Bradford’s lead and get an e-reader.

This week I am in Seattle for the 2014 ALSB conference, which I may blog about when I return.  In my suitcase, in addition to a few clothes, are:

Some of these, like Bainbridge, Klein, and O’Hara’s books, I have already read, but I thought they would be worth revisiting while I wait on some new books I recently ordered.