Seton Hall faces a need for a visitor to teach their four-credit Business Association course this spring. The class is taught in the daytime, in person. Syllabi and teaching materials are available from faculty who ordinarily teach the course there. If interested, contact:

Devon Corneal, M.S., JD (she/her/hers)
Associate Dean for Academics 
Seton Hall University School of Law
One Newark Center 
Room 307
Newark, NJ 07102
+1.973.642.8726
devon.corneal@shu.edu

This week, the Second Circuit issued an opinion reversing a district court’s dismissal of a securities fraud complaint filed against The Hain Celestial Group. The facts are these.

The plaintiffs alleged that Hain Celestial Group, and certain of its officers, engaged in a channel stuffing scheme by offering various concessions to distributors, so that it could book sales early and meet Wall Street expectations.  Allegedly, Hain failed to properly account for the concessions that it offered, which were accomplished through “off book” arrangements.  Distributors were granted an “absolute right to return,” with one employee reportedly processing hundreds of thousands of dollars in returns in one quarter – but the sales were included in Hain’s financial results regardless.

Eventually, as with all channel stuffing schemes, things fell apart, and the whole thing ended in the restatement of several years of financial results and a dramatic drop in sales.

The Second Circuit first held that the plaintiffs had properly alleged misstatements in violation of Section 10(b).  Restatements are a per se admission of falsity, so that covered the financials.  Further, Hain had engaged in misleading half-truths when it attributed its purportedly positive results to customer demand, rather than the distributor concessions.

As for scienter, Hain’s CEO, Chair, and founder sold 66% of his stock during the class period; the CEO of Hain North America sold 74%.  Meanwhile, confidential witnesses stated they had personal knowledge of these defendants directing the sales practices at issue.  Confidential witnesses also stated that they heard the individual defendants affirmatively attempt to conceal these practices – by telling employees not to talk about them, and so forth.

Finally, Hain had shifted personnel in a suspicious manner.  The CFO left in 2015 after only two years, allegedly after objecting to the CEO over Hain’s accounting.  Another executive in charge of accounting was demoted.  Two other finance executives resigned mid class period.  The CEO of Hain North America was removed.  The CFO resigned with the restatements, new financial personnel were brought on, and the CEO/founder resigned in 2018.

Collectively, then, the Second Circuit concluded that plaintiffs had alleged scienter, and remanded to the district court for further proceedings.

It seems very difficult to quarrel with these conclusions, and normally, I’d leave it as, this is a securities case with overwhelming prima facie indicia of fraud.  Not even that interesting, legally, except –

Let’s take a step back for a minute.

In 2016, Hain announced that its financial results would be delayed while it reviewed its accounting.  In 2017, it still had not filed its financial results, had received subpoena requests from the SEC, and announced that it had expanded its investigation to include historical periods.  That’s when the CEO of Hain North America was removed, and the company was warned that due to its failure to file financials, it was subject to NASDAQ delisting.

In 2017, Hain finally filed its 2016 financial results, and restated its finances for 2014 and 2015.  The restatements revealed that instead of hitting Wall Street consensus earnings predictions for each quarter, it in fact had missed them every quarter.  At the same time, several finance personnel, including the CFO, were fired.  In 2018, the SEC concluded a two year investigation and settled with Hain on internal books and records charges.

The first securities cases were filed in 2016, and were eventually consolidated into a single action.  The district court dismissed the complaint in 2019, and the amended complaint in 2020.  The Second Circuit reversed that dismissal and remanded in 2021, at which point, the district court dismissed for a third time in 2023.  The second appeal was docketed in 2023, argued in December 2024, and finally decided nearly a year later in September 2025.

It’s now been over nine years since this company started to unravel, and despite admitted extensive accounting problems, despite the ultimate departure of multiple top officers – including the founder/CEO – despite the turnover of almost all the accounting personnel, despite a dramatic shift in financial results, the plaintiffs will only now get to begin discovery.

What are we doing here?

I know, I know, nuisance suits, yadda yadda yadda, but doesn’t this all suggest that perhaps maybe the PSLRA – and the layers of doctrine that have been piled on top of it – overcorrected a bit?

And as we head into this period where the SEC is operating (when the government is open) with far less staff, will be conducting (apparently) fewer enforcement actions and fewer routine reviews, as quarterly reporting will apparently be eliminated, at the same time multiple states race to eliminate fiduciary constraints on managerial behavior – in this period, private securities actions may be one of the few remaining deterrents to corporate misconduct. And we seem to have kneecapped those as well.

Update: Well, this is awkward. A reader points out that even though the Second Circuit did, in fact, point to a restatement as per se falsity, in fact, there was no big R restatement in this case – not because the GAAP accounting was correct, Hain admitted it wasn’t – but because it concluded the errors were immaterial, and it made non-restatement “revisions” instead. Not sure if that changes the picture, but it’s worth mentioning.

Also, quick plug.  I was privileged to participate in the 2025 Accountability in a Sustainable World digital conference, sponsored by the Center for Accounting Research and Education.  The full online program is now available here; my remarks – Corporate Sustainability Disclosure: Who’s Listening? – are available if you scroll down a few videos after the lunch break.

And another thing.  On this week’s Shareholder Primacy podcast, Mike Levin and I talk about mandatory arbitration of federal securities claims.  Here at Apple, here at Spotify, and here at YouTube.

Dear BLPB Readers:

Below is information regarding the 2026 Midwest Academy of Legal Studies in Business (MALSB) Conference Call for Participation:

“MALSB invites you to join us for the annual conference in Chicago on March 25-27, 2026, and to share your scholarship, including: papers, abstracts, panel presentations, or other substantive presentations. Submissions to the MALSB/Legal Studies track must relate to business law, the legal environment of business or ethics, or the teaching of one of these topics. Program sessions provide an opportunity to present papers and learn from the scholarship of others in a collegial environment. The submission deadline is January 20, 2026.

MALSB encourages submission for its Master Teacher Competition, its Proceedings Awards, and its newly created Student Paper Competition. Submissions for these awards must comply with the requirements outlined below and final papers must be received by the submission deadline. Submissions will be evaluated for Awards and MALSB Proceedings, based upon a peer review process.

Abstracts, substantive presentations, and works in progress may be submitted. While a proposal may be accepted for presentation based upon an abstract or similar, all presenters must prepare and submit substantive materials by March 1, 2026. These substantive materials are required to support CLE credit.

MALSB also invites and strongly encourages participation as a peer reviewer for the Proceedings and Awards. If you are willing to assist with peer review, please email Proceedings Editor, Cara Putman (cputman@purdue.edu).”

The complete call for participation is here:2026 MALSB Conference Call for Participation

A while back, I posted about what was then the new voting choice programs being adopted at large mutual fund complexes, giving retail shareholders the right to choose voting policies that would apply to their pro rata share of fund ownership.

Well, Alon Brav, Tao Li, Dorothy S. Lund, and Zikui Pan have a new paper out, The Proxy Voting Choice Revolution, that dissects the early results for Vanguard’s funds, and what is actually the thing that stands out to me is not what the choices reveal about retail shareholders, but what they reveal about proxy advisors.

The thing is, proxy advisors have a benchmark policy of standard voting recommendations, and they have custom policies that can be tailored to the needs of their individual clients, and they also have “themed” policies which are somewhere in between – “off the rack” so a client doesn’t have to pay for tailoring, but specialized beyond the basic policy.  Except we don’t have a lot of insight into exactly how ballots are cast for these themed policies – until, apparently, now.

The authors are able to use the data from Vanguard to infer how Glass Lewis’s ESG themed voting policy worked in practice.  So, for example, GL’s ESG policy rejected auditor ratification at a very high rate, apparently because the policy frowns on prolonged auditor-client relationships.  More generally, though, the authors find that a number of the ESG-themed votes cannot be explained by the ESG voting policy as described in Glass Lewis’s materials.  (They’re not, I take it, singling out Glass Lewis or ESG themed policies as a particular problem; it’s just, this was where they could spot differences.  They point out, for example, that Egan-Jones has a “wealth focused” voting policy which apparently is defined mainly by opposition to DEI and ESG, which, among other things, may not be what retail investors expect.)

Anyway, this highlights one of the issues that will arise going forward if retail shareholders are expected to choose policies – we’re going to need better explanations of what that exactly they will entail; retail, unlike institutional clients, can’t discuss the matter directly with proxy advisor reps. 

But there’s more! The authors note that though there has been little uptake for Vanguard’s voting choice program so far, of those who do participate, most have chosen the “vote with management always” policy.  I don’t know if that tells us what’s likely to happen as the program expands – the early adopters may differ systematically from those who have to be coaxed into making a selection – but it does perhaps? Provide some insight into another retail voting program, which is, the one recently adopted by Exxon.

As most readers probably know, Exxon recently got SEC approval to allow its retail shareholders – direct holders, not through funds – to choose to adopt standing voting instructions that will have them always vote with management unless they later opt out (of the program entirely, or for a particular shareholder meeting).  Law firms have since been jumping to issue memos to clients recommending that they consider adopting similar programs. One big question mark is whether retail shareholders will have much appetite for the program; the Vanguard data, anyway, suggests there may very well be some.

And another thing.  On this week’s Shareholder Primacy podcast, Mike Levin and I talk about – what else! – the Exxon program, as well as the new proposal to eliminate quarterly earnings reports.  Here at Apple, here at Spotify, and here at YouTube.

Yesterday, the Nevada Supreme Court officially created a Commission to Study the Adjudication of Business Law Cases. I previously covered the Supreme Court’s proposal here and submitted a letter in support of the proposal.

The order creating the Commission contemplates a continuing public process. It provides that the Commission “shall conduct all hearings in public and post all meeting minutes and documents considered by the Commission on the Supreme Court’s website.”

At present, I have not been able to find a page set up specifically for the Commission on the Supreme Court’s website. Of course, much of Nevada’s state government has been struggling in recent weeks because of a large-scale cyber attack on Nevada systems–including the judiciary. The Supreme Court might also simply opt to continue to use the existing administrative docket. Or we could see something show up in the near future.

There are some changes from the Petition. The Petition identified 21 proposed members. The final order expands to 24 members, adding: (1) “Judge” as a Rural Representative; (2) “Attorney” as a Rural Representative; and (3) Virginia Valentine as a representative of the Nevada Resort Association.

Historically, it has been difficult to observe the operation of Nevada’s existing business courts. For example, the courts in Washoe County and the courts in Clark County now use different filing systems.

But we may have more data soon. As part of a larger project, I’ve begun to attempt to pull together data about Nevada courts and business court practice. The current system for Clark County does allow case searches by bar number and that has given me a way to identify how often particular attorneys show up in Clark County cases. Unsurprisingly, my rough statistics show that the Southern Nevada Attorneys with a business litigation practice have substantial experience.

I keep explaining in various spaces so I may as well articulate it here too: It’s tough to make predictions, especially about the future, but I would be surprised if Texas wins the current chartering race, or at least, wins the race it’s currently running.

The issue for Texas is that it keeps demonstrating that it is not interested in crafting a well-designed – even manager-friendly – corporate law; instead, it is interested in using corporate governance as another cudgel in the culture war.

Let’s look, for example, at two recent amendments to its corporate code: allowing corporations to limit shareholder proposals by those who hold either less than $1 million worth of stock or 3% of voting shares; and the proxy advisor law that puts a variety of restrictions on proxy advisor advice.

These laws explicitly take aim at liberal-coded measures; shareholder proposals, for example, have historically been oriented toward liberal causes (despite a recent upsurge in anti-ESG proposals), and the proxy advisor law is targeted at “ESG” advice.

The laws are also a model of poor drafting. The shareholder proposal law, for example, does not apply to corporations chartered in Texas, but does apply to corporations headquartered in Texas or listed on the (currently nonexistent) Texas Stock Exchange. The proxy advisor law, by contrast, applies to corporations chartered in Texas or headquartered in Texas, but not companies listed on the TSE. I don’t know why the inconsistency, and I’m guessing neither does the Texas legislature.

The shareholder proposal law allows corporations to limit proposals by shareholders with less than $1 million in stock or less than 3% of the stock, but does not make clear whether it’s the lesser or the greater of the two. I.e., if you own $1 million but less than 3%, can the corporation bar you from making proposals? I cannot tell. It also allows the company to limit proposals to those who solicit 67% of the shares, but if it’s a 14a-8 proposal included in corporate documents, doesn’t that mean 100% of shareholders are solicited?

The proxy advisor law, of course, defines “ESG” advice as nonfinancial, even though the “G” includes “governance” – and requires proxy advisors to confess publicly to offering nonfinancial advice whenever they make ESG recommendations. That would cover virtually every bit of advice a proxy advisor offers, and label such matters as board independence, overboarding, and related party transactions as per se nonfinancial concerns. The statute takes pains to define the term “proxy proposal,” but then goes on to actually use the term “shareholder-sponsored proposal” and I have no idea if they are the same thing (the reason they may not be is, not all shareholder-sponsored proposals are offered through the Rule 14a-8 process). The final portion of the statute, titled “conflicting voter advice,” appears to attack scenarios where a proxy advisor offers different advice to different clients, but enigmatically includes within its sweep scenarios where the advisor counsels that “one or more clients vote for or against the proposal in opposition to the recommendation of the company’s management,” i.e., simply opposes management – which has nothing to do with conflicting voter advice.

There’s more, but I’m lazy and that’s enough to make the point: No one took these laws seriously as actual regulation of corporate governance; they read more as an expressive attack on wokeness. But that has not dissuaded the Texas Attorney General from – and this just hit the docket today – immediately appealing to the Fifth Circuit to overturn the preliminary injunction that a Texas court issued to block him from enforcing the proxy advisor law. At the same time, he’s chosen to launch an investigation into Glass Lewis’s and ISS’s ESG advice.

Meanwhile, there is one thing we know for a fact corporations want, because they strong-armed the Delaware legislature to get it: the ability to sign expansive shareholder agreements. But those kinds of agreements continue to be somewhere between very difficult and impossible to adopt in Texas, see TX BUS ORG §§ 21.101(b); 21.109, and the Texas legislature apparently preferred to spend its valuable session time outlawing ESG than loosening those restrictions.

The problem with Texas as an incorporation hub, then, is that the signal being sent by the legislature is that it views corporate law solely as a mechanism to police business activity that is insufficiently conservative-coded, and that makes boards vulnerable to retaliation if they fail to toe the line. The danger is especially acute in light of poorly-reasoned decisions like Spence v. American Airlines, 775 F. Supp. 3d 963 (N.D. Tex. 2025), where a Texas (federal) court held American Airlines breached its fiduciary duties under ERISA by including ordinary BlackRock funds in its 401(k) plans, at a time when BlackRock supported nonbinding climate change proposals (discussed with Mike Levin on the Shareholder Primacy podcast, here).

You might be thinking, Texas’s protections against shareholder lawsuits are so robust that there would be little opportunity for a politically-motivated attack to gain traction. But I can see ways that a sympathetic (or unsympathetic, depending on which side of the “v” you sit) court could allow a claim to proceed. For example, Texas bars inspection of books and records in anticipation of litigation, see TX BUS ORG § 21.218; but a claimant might disclaim a litigious purpose. And, that permission Texas corporations have to limit shareholder lawsuits to 3% holders? Only applies in derivative actions, see TX BUS ORG § 21.552, and the direct/derivative distinction is endlessly malleable. Finally, of course, the Texas Attorney General could always sue to dissolve a corporation’s charter.

Delaware famously dismissed a shareholder lawsuit against Disney concerning its opposition to the “Don’t Say Gay” law, but I genuinely can’t be sure a Texas court would do the same – and, more importantly, neither can corporate boards.

And another thing. No new Shareholder Primacy podcast this week, but if you really want to hear me talk even more about Elon Musk’s pay package, and Texas corporate law vs Delaware’s, here’s me on Fordham Law School’s Bite-Sized Business Law podcast, and on Bloomberg’s Odd Lots podcast.

Last week, I posted about the SEC’s proposal to reconsider its stance on arbitration of federal securities claims – today, they went and did what was entirely obvious and greenlighted the inclusion of securities arbitration provisions in charters and bylaws.

As I posted last week, Delaware just banned these in September, more in anticipation of bylaws that select a forum without jurisdiction to hear a dispute than arbitration provisions. Commissioner Atkins’s statement all but called on Delaware to change its law and/or invited other states to compete by offering a more favorable law; I expect we’ll see movement along those lines soon.

(I also imagine there will be a resurgence of arguments that arbitration provisions in corporate constitutive documents are not, in fact, contracts, and their enforceability, especially with respect to federal claims, is not controlled by the chartering state. I of course find that argument persuasive, but a number of courts have already rejected it in the context of forum selection bylaws; let’s see if they start to walk that back).

The thing is, it feels like we’re seeing an attack on public information on a number of fronts. To the attacks on the BLS and NOAA and the CDC to the proposed shift to semi-annual reporting to eliminating investor class actions and shunting any remaining disputes into private arbitration, we seem to be rapidly entering a world where the general public has a lot less insight into the American economy and its general well being. That, of course, makes it easier for insiders to exploit their informational advantages – including by manipulating or slanting what gets publicly released, so as to influence popular perceptions. And of course, when legal compliance cannot be policed by the general public – when it is only policed by federal regulators – that makes it easier for regulators to favor some and disfavor others with their enforcement choices.