June 29, 2015
icon Family Film Blogging: Inside Out
Posted by Christine Hurt

I'm rarely in on anything cool, but two weeks ago, my seven year-old and I stumbled upon a "sneak preview" of Disney/Pixar's Inside Out, with commentary.  We even got lanyards.  My former colleague and movie friend Kenworthey Bilz joined us, so we had an actual psychologist with us.  We all loved it.

I had seen the trailer, and quite frankly, I didn't really understand what the movie was about.  Now, I think I have it.  Riley, an eleven year-old girl, moves with her parents from Minnesota to San Francisco.  Riley's emotions, personality, thoughts, and behaviors are guided by five main characters in her brain:  Joy, Disgust, Anger, Fear and Sadness.  As one would hope, Joy is in control.  After the move, however, Sadness keeps winding up front and center, turning once happy memories into sad ones.  (It took me a long time to see this as reflecting inevitable reality:  happy memories with loved ones become tinged with sadness once those loved ones are gone or those times have passed.)  Joy tries everything she can to keep Sadness out of the picture, but that makes things worse.  Ultimately, Joy and Sadness will have to leave "headquarters" to retrieve Riley's "core memories" that become lost in the shuffle.  These core memories help support Riley's "islands of personality":  family, friendship, goofiness, hockey and honesty.  One by one, as Joy and Sadness get sidetracked on their adventure into "long-term memory" and Fear, Anger and Disgust are left at the controls, these islands begin to crumble.  As our tween begins to shut out friends and family because of feelings about the move, she makes poor decisions.  In the end, Anger convinces the other two emotions and implant an idea into Riley's consciousness that will prove disastrous unless Joy can regain the controls.

The beginning of the movie feels like any other animated feature, but halfway through you realize that this is no silly kids' movie.  This is Pixar.  And Pixar can make grown-ups cry like no other film company.  Toy Story 3?  Up?  Yep, you're in for it again.  Unless you were asleep during Toy Story 2 and 3, you've realized by now that the grown-ups at Pixar are parents, and they understand the pain of parenthood better than anyone.  When Riley's islands of personality start slipping away, I almost lost it.  If you've ever watched an eleven year-old girl (or 12, or 13, or 14) disappear, then you know what I'm talking about.  Goofiness island doesn't come back.  But, other islands take its place, and Riley and her parents make more core memories.  Family island is rebuilt, even bigger and better.  But goofiness island doesn't come back.

Joy is also the quintessential helicopter parent.  She is running around, doing somersaults, bending over backwards trying to make sure that Riley feels nothing but Joy/joy.  What we learn from the movie is that Sadness is also very important.  Sadness also keeps us from making poor decisions.

Like Up, this is a movie that we probably won't see over and over again but really do appreciate for its thoughtfulness and intelligence.  But I do want to see it with my daughter.

Permalink | Film | Comments (View) | Bookmark

icon Law And Custom On The Federal Open Markets Committee
Posted by David Zaring

My article on the administrative law and practice of the FOMC is available on SSRN, and has come out as part of a great symposium in Law and Contemporary Problems, with articles by Jim Cox, John Coates, Kate Judge, and many other people smarter than me.  Do give the paper a download, and let me know what you think.  Here's the abstract:

The Federal Open Market Committee (FOMC), which controls the supply of money in the United States, may be the country’s most important agency. But there has been no effort to come to grips with its administrative law; this article seeks to redress that gap. The principal claim is that the FOMC’s legally protected discretion, combined with the imperatives of bureaucratic organization in an institution whose raison d’etre is stability, has turned the agency into one governed by internally developed tradition in lieu of externally imposed constraints. The article evaluates how the agency makes decisions through a content analysis of FOMC meeting transcripts during the period when Alan Greenspan served as its chair, and reviews the minimal legal constraints on its decisionmaking doctrinally.

In addition to being your one stop shop for the legal constraints on the FOMC, the paper was an opportunity to do a fun content analysis on Greenspan era transcripts, and to see whether any simple measures correlated with changes in the federal funds rate.  In honor of Jay Wexler's Supreme Court study, I even checked to see if [LAUGHTER] made a difference in interest rates.  No!  It does not!  But more people may show up for meetings where the interest rate is going to change, tiny effect, but maybe something for obsessive hedge fund types.  Anyway, give it a look.

Permalink | Administrative Law, Finance, Financial Institutions | Comments (View) | Bookmark

icon Family Film Blogging (Summer Blockbuster Edition): Jurassic World
Posted by Christine Hurt

I have a lot of reviewing-catching up to do.  Two weeks ago, I took eight children (only two were mine) to see Jurassic World.  I am still reeling with its awesomeness!

So, you may have seen some reviews that say that the movie (i) has no plot or no good plot; (ii) is merely a special effects vehicle; and (iii) is merely a product placement vehicle.  I will address these claims in order.

First, the movie has a plot, though it is not well-developed.  Claire (Bryce Dallas Howard) works at the Jurassic World theme park, which is built on the site (island) of the original Jurassic Park.  Claire is some sort of executive who is concerned with "the investors" and the return on "assets."  (The "assets" are the dinosaurs, and I suppose "the investors" are shareholders, presumably private shareholders.)  Now, having seen Jurassic Park (but not the other two sequels), I can only imagine that someone  had their bad idea jeans on when they thought opening Jurassic World theme park was a great idea, and the folks in charge don't seem to have done much "worst case scenario" planning.  I.e., the park's scientists have created a hybrid dinosaur (Indominus Rex) that seems to be indestructible as well as super-crafty.  But, they put the dinosaur in a pen with 40-feet walls, so everything should be ok.  Owen (Chris Pratt) is some sort of velociraptor-whisperer who trains raptors at the park.  He seems to be sort of a hired-gun boy wonder that one of the investors/directors brought in to bring credibility to the "assets."  Vincent D'Onofrio is Hoskins, and I have no idea what he is doing in the park.  He seems to head up some sort of paramilitary group, though Wikipedia says he is head of security.  Anyway, he wants to weaponize the raptors for combat, which of course our hero Owen knows is hubris heading toward a fall.  When everything falls apart at Jurassic World, Hoskins' group takes control of the park by orders of the board of directors.  As you may guess, Hoskins will try to bring down Indominus Rex with the raptors, but he'll need Owen's help to do it.  The overarching theme, of course, is that human hubris and commercialization are about to meet their match against mother nature.

The two subplots involve Claire and Owen.  Claire's sister is having marital problems, so she sends her two tween/teenage boys to the park for a fun weekend away.  Claire is supposed to be spending family time with them, but she's not much on "family" or "time."  But, when Indominus escapes its pen, she and Owen must go search for the boys and protect them.  How did Owen get involved?  Because of the second subplot:  Owen and Claire are star-crossed lovers, having had one disastrous first date.  But, Owen is the only person Claire can turn to, etc.  For artistic reasons that seem fairly stupid, Claire does a lot of heroic things in heels and a white dress.  Laura Dern got hiking boots and khaki shorts (and weird mom jeans), but Claire gets a wardrobe barely suitable for work, let alone running from dinosaurs.  Owen, of course, gets Indiana Jones clothes, but Claire gets Marion Ravenwood-style white dresses.  So, there's the plot, which seems completely sufficient.  The winningness of these subplots is that Chris Pratt is the most likeable actor since Harrison Ford.  You would have to have a heart three sizes too small not to love him and Owen.  

Second, the special effects are awesome.  Do the effects substitute for plot?  Not for me.  The effects make the plot worthwhile.  I can't tell you how many times I gasped, screamed, yelled, etc.  The movie is like a roller coaster ride, and after the ride you say "Let's do that again!"  

Third, the product placements are there, but in a way they reflect the plot.  In the movie, Jurassic World is an over-the-top theme park, complete with high-end shopping and brand-name corporate sponsors.  To tell that story, the set would need some high-end trademarks to give the park that corporate feel.  The irony, of course, is that the stores and brands get trampled on and ruined by mother nature.  But, you still saw the brand names before they were destroyed!  Because of the theme park plot, the movie also gets to have product placements for itself!  So, one employee is chastised for a considerable amount of time for wearing a "Jurassic Park" t-shirt.  I bet they are selling those like hotcakes!

The homages to the original movie do not stop with the t-shirt and are nice Easter eggs for those JP aficionados. The t-shirt wearing employee has a workstation reminiscent of the cluttered and clumsy traitor in the first movie.  The lost boys find a shed with all sorts of museum pieces from original park.  I would list more, but I don't want to give away the end!

The bottom line is that we thought Jurassic World was a great summer blockbuster and can't wait to see it again!

Permalink | Film | Comments (View) | Bookmark

June 28, 2015
icon Greece Resorts To The Oldest Bank Supervisory Trick In The Book
Posted by David Zaring

Greece is going to close its banks and stock market until it sorts out how to prevent its citizens from withdrawing their assets from their financial intermediaries post haste.  This is a pretty old school technique - the US did some of these to prevent panic withdrawals during the Great Depression, and the UK did the same during the currency crisis of 1968, during which it also shut the London Gold Market for two weeks.  New technology has made these holidays less oppressive - ATMs with withdrawal limits were kept open when Cyprus did this.  But it is still quite the heavy hand of the state, and one of the first resorts when a bank run is really on.  As they say, developing.

Permalink | Europe, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

June 26, 2015
icon Using Relegation To Prevent NBA Tanking
Posted by David Zaring

A little off topic, but now that the local basketball team has used its third top pick in a row to take a center, it looks like another season of tanking is in order in Philadelphia.  As someone has said of the Sixers management team, they're profoundly dedicated to the proposition of winning an NBA championship, no earlier than 2025.

How can we do something about this?  Relegating the three worst teams in the NBA to the D-league would make every game count for every team.  And I think I'd rather see the Albany Patriots or whoever being plucky than whatever weird formation art project will be worked out next year in the Wells Fargo Center.

Permalink | Sports | Comments (View) | Bookmark

June 24, 2015
icon AALS Section for Business Associations and Law & Economics CFP
Posted by Usha Rodrigues

Call for Papers – AALS Sections on Business Associations and Law & Economics

The AALS Sections on Business Associations and Law & Economics are pleased to announce a Call for Papers for a joint program to be held on Friday, January 8, 2016 at the AALS 2016 Annual Meeting in New York City.  The topic of the program is “The Corporate Law and Economics Revolution 40 Years Later: The Impact of Economics and Finance Scholarship on Modern Corporate Law.”

Corporate law scholarship continues to engage in a dialogue with the wave of law and economics scholarship that exploded in the 1980s.  The law and economics revolution dramatically shifted the way that scholars, courts, practitioners, and business leaders see the relationship between management and shareholders. 

Modern corporate law theories owe much to literature in economics and finance, such as Jensen and Meckling’s 1976 article on agency costs within the firm and Eugene Fama’s work on efficient capital markets.  By the 1980s, many ambitious legal scholars were applying insights from economics and finance literature to corporate law and the capital markets.   They explored such ideas as the market for corporate control, the market for corporate law, the need for systematic corporate disclosure, the role of the board, and the role of shareholders in corporate governance. Of course, these issues live on.

Later generations questioned the assumptions of the first wave of corporate law and economics scholarship.  Critics questioned the agency cost framework, argued that the law and economics movement had created perverse incentives for managers, insisted that stakeholders other than shareholders held an important place in corporate law, and advanced critiques from behavioral economics and behavioral finance. 

Forty years since the Jensen and Meckling article, the time seems ripe to take stock of the impact of law and economics on corporate law: where has it been, where is it now, and where is it going?  How will economics and finance scholarship shape the next decade of corporate law scholarship and the next generation of corporate law scholars?  Taking stock also means asking some difficult questions: what is the comparative advantage of legal scholars compared to their colleagues in economics and finance departments when it comes to interpreting complex financial institutions?  What are the costs and benefits of the growing empirical movement in corporate law scholarship?  What is the next big idea? Or are all the big ideas already on the table?  Have we again reached “the end of corporate law?”

Form and length of submission

Eligible law faculty are invited to submit manuscripts or abstracts that address any of the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of final manuscripts.   Manuscripts may be accepted for publication but must not be published prior to the Annual Meeting.  Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.  

The initial review of the papers will be blind.  Accordingly, the author should submit a cover letter with the paper.  However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school.  The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes. 

Deadline and submission method

To be considered, manuscripts or abstracts must be submitted electronically to Professor Usha Rodrigues, Chair-Elect of the Section on Business Associations, at  rodrig@uga.edu.  The deadline for submission is  Tuesday, August 27, 2015.  Papers will be selected after review by members of the Executive Committees of the Section on Business Associations and the Section on Law & Economics.  The authors of the selected papers will be notified by Thursday, September 24, 2015.

Eligibility

Full-time faculty members of AALS member law schools are eligible to submit papers.  The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools. Papers co-authored with a person ineligible to submit on their own may be submitted by the eligible co-author.

The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Permalink | AALS, Calls for Papers | Comments (View) | Bookmark

June 20, 2015
icon Job Announcement: St Thomas
Posted by David Zaring

The school's in Minneapolis, and has a big commitment to business law and ethics.  Position after the jump.

more ...

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June 18, 2015
icon The Modern Business Judgment Rule
Posted by Gordon Smith

I just posted a new paper on SSRN entitled "The Modern Business Judgment Rule." It's short, so it won't take long to read, especially if you skip the footnotes. My goal is to describe this complex doctrine in simple terms, but the paper is packed with insights that were new to me, even though I have been teaching and writing about this subject for 20 years. Here is the abstract:

For over 150 years, the business judgment rule performed a relatively straightforward task in the corporate governance system of the United States, namely, protecting corporate directors from liability for honest mistakes. Under the traditional version of the business judgment rule, when the board of directors is careful, loyal, and acting in good faith, courts refuse to second-guess the merits of the board’s decisions, even if the corporation or its shareholders are harmed by those decisions.

While modern courts continue to insulate directors from liability for honest mistakes according to this traditional formula, in the 1980s Delaware courts began assigning the business judgment rule a more expansive role. The modern business judgment rule is applied not only in cases without procedural infirmities, but in cases where procedural infirmities at the board level have been mitigated by a special committee, stockholder approval, or partial substantive review by the court. In these new contexts, a court must satisfy itself that a board decision is worthy of respect, not because the decision was substantively correct, but because the effect of the procedural infirmities was sufficiently muted. After the court reaches that point, the business judgment rule “attaches” to protect the substantive merits of the decision from (further) review.

The modern business judgment rule is not a one-size-fits-all doctrine, but rather a movable boundary, marking the shifting line between judicial scrutiny and judicial deference. In describing the transformation of the business judgment rule, this chapter focuses on Delaware judicial opinions, with special attention to cases involving mergers and acquisitions, where the most important changes in the business judgment rule have been forged. The scripting of the business judgment rule’s new role by the Delaware courts is a work in progress, and the current law is inconsistent and confusing. Nevertheless, I trace the development of the modern business judgment rule and attempt to rationalize that development around the simple idea that the rule guides courts through the review of director conduct and marks the point at which judicial evaluation of a decision ends.

I hope you find this paper worthwhile. Comments and insights are most welcome.

Permalink | Corporate Governance, Corporate Law, Delaware, Fiduciary Law | Comments (View) | Bookmark

icon Victories With No Damages
Posted by David Zaring

The AIG suit is over, and the shareholder who was zeroed out by the government won a judgment without damages.  These kinds of moral victories are cropping up against the government: a Georgia judge just ruled that the SEC's ALJ program was unconstitutional, but easily fixed.  The Free Enterprise Fund held that PCAOB was illegal, but not in any way that would undo what it had achieved.  And now AIG.  A right without a remedy isn't supposed to be a right at all, but it is true that this is incremental discipline of the government for business regulation excesses.  That won't make any of these plaintiffs happy, however.

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

June 17, 2015
icon Family Film Blogging: Tomorrowland
Posted by Christine Hurt

We are on the road this June, but the littlest one and I have gotten to the movies (finally).  We recently caught up with Tomorrowland, a movie that caught our eye(s) in the previews.

So, you may or may not like Tomorrowland depending on whether you take your cynical hat off before you enter.  If you are a cynic and hate George Clooney because you think he is a Hollywood ignoramous trying to shove his liberal agenda down consumers' throats, then don't go.  If you are a cynic and hate Walt Disney because you think everything is a marketing ploy and a plot to shove licensed consumer goods down consumers' throats, then don't go.  However, if you accept that grown-ups, politicians and corporations choose short-termism over the long view every time and that sometimes we need to listen to children and geniuses (and child geniuses), then go to the movies!

The framework of the movie is not completely clear until the end (and then not completely), but the basic plot is thus:  At some point, geniuses like Verne, Edison, Tesla and Eiffel created a city in a different dimension.  Brilliant folks would be recruited to this dimension to invent, problem-solve, create, etc. without intervention from pessimists and bureaucrats.  There are some clues that this secret city-lab was to be revealed to the public during the 1964 World's Fair, but that plot strand is sort of left hanging somewhere.  Anyway, one child genius is recruited in 1964:  Frank (Clooney).  Though I'm still fuzzy on this point, he seems to be exiled in the 1980s for creating an algorithm that calculates the end of Earth.  This "bad" machine seems to destroy Tomorrowland in some way, and recruiting stops.  However, one recruiter, Athena, continues to look for brilliant geniuses on Earth who may still be optimistic about the fate of our planet in a world turned ultra-Malthusian.  (The end of the NASA space program is used here as a symbol of at least the United States giving up on new frontiers and new solutions.)

Athena's last hope is the daughter of a NASA engineer, Casey.  She is the 2015 version of Frank, and Athena believes that her optimism can change the course of destiny, which the bad machine has calculated as 100% probable that the world will end in 58 days.  Much is made of the concept that accepting that destiny makes it happen, but one does not have to merely accept it.  The future can be changed by believing in a different outcome.  Casey is the kind of person who does not accept the current course of future events.  Of course, for Athena and Casey to get back to Tomorrowland, they need Frank's help, but Frank has become a Lorax-style hermit.  The other twist is that Athena broke Frank's heart years ago.  The scenes between the still-hurting Frank and Athena work remarkably well, given that Frank is a 62 year-old man and Athena is a 12 year-old android.  (How's that -- a Hollywood movie that has a leading man playing someone a little older than himself!)

My seven year-old and I enjoyed the movie, though it probably won't go into the Disney Hall of Fame.  The movie is a little wacky like older Disney films Bedknobs and Broomsticks with a little Meet the Robinsons thrown in for good measure.  Enjoy!

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June 14, 2015
icon Hiring Announcement: Bentley Law and Tax
Posted by David Zaring

It's Boston, and they've got a great faculty.  Notice after the jump.

 

more ...

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June 11, 2015
icon Systemically Significant Financial Misconduct?
Posted by David Zaring

We've been speaking about international banking ethics this week, and Christina Parajon Skinner has just come out with a paper on the subject.  She thinks that countries that encourage private firms to develop schemes that help to uncover misconduct ought to get a break on their capital requirements.  And this encouragement has a history:

two concrete examples that have proven their potential for activating private markets on a transnational scale. The first example is whistleblower programs that incentivize private employees to come forward with information about ongoing wrongdoing. The second is stress testing, which has the ability to open lines of communication between an institution’s risk managers and national supervisors.

Worth a look if you, like me, are unsure exactly what is meant by the term "international banking ethics."  This is one way to make it concrete.

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June 10, 2015
icon The SEC's Inferiority Complex
Posted by Usha Rodrigues

While reading this article I was pleased to find quotes from my good friend and colleague, Kent Barnett. I asked him to share with the Glom readers further insights on Judge May's recent ruling that the SEC's use of an ALJ in an insider trading case may be unconstitutional.  Here's Kent with more:

In, what is to my knowledge, an unprecedented decision this week, a federal district court in Atlanta preliminarily enjoined the SEC from proceeding with an enforcement action before an Administrative Law Judge (ALJ) because the ALJ’s appointment violated the U.S. Constitution.  
 
The court held (as I have argued elsewhere) that ALJs are not mere employees, but instead “inferior officers of the United States,” whose appointments are subject to the Appointments Clause. That clause requires that inferior officers be appointed in one of four ways: through presidential appointment and senatorial confirmation or through appointment “by the President alone, in the Courts of Law, or in the Heads of Departments.”  Here, the relevant appointment mechanism is the last one—appointment by the head of a department. According to the court’s opinion, the ALJ was not appointed by the SEC Commissioners (the head of the department), but instead by a Chief ALJ.
 
Is this sky going to fall for the SEC if ALJs were not appointed properly? Not based on my initial take. From what I can tell, there is an easy fix: the SEC merely needs to have the Commissioners reappoint current ALJs and approve future ALJs that the Chief ALJ selects. (But I hope that those with more knowledge about the SEC can correct me if I’m wrong.)
 
Congress does not need to take any legislative action; the SEC already has authority under Section 4(b) of the ’34 Act to appoint “officers . . . and other employees.” The problem here is that, despite the SEC’s broad legislative authority to delegate functions under Section 4A(a), the delegation of appointment power is unconstitutional. That does not mean, of course, that the SEC must interview and review the CVs of ALJ candidates going forward. Instead, for future ALJs, the SEC can simply preclude the Chief ALJ’s selection from becoming effective without the Commissioners’ approval. Indeed, retaining final say on appointments is not only constitutionally required but also expressly permitted by Section 4A(b), which says that the SEC retains discretion to review delegated actions. For current ALJs, the SEC can simply reappoint them. Agencies have done so successfully in the face of past Appointments Clause violations. SeeEdmond v. United States.
 
So, in light of the easy fix, is this decision much ado about nothing? No.
 
First, this is the only decision of which I’m aware that (correctly, I think) holds that ALJs are inferior officers. Most ALJs are likely appointed by heads of departments, and thus their appointments are valid regardless of their status. But other ALJs may be appointed by agencies that are not departments, such as the CFPB or FERC (as I’ve argued elsewhere). If so, their appointments would violate the Appointments Clause.
 
Second, the decision shows how little attention agencies may be giving to appointments internally, even if statutory authority otherwise permits a constitutional appointment. The SEC’s experience suggests that the heads of departments should, as a matter of default agency design, be required to sign off on all hiring for federal officials who may be deemed inferior officers. For agencies that list of officials may be relatively lengthy, considering that courts have held that the following were inferior officers:  district-court clerks, clerks within certain executive departments, assistant surgeons, cadet-engineers, election monitors, federal marshals, military judges, and general counsel for the Department of Transportation. Approving hiring decisions may be more onerous than agencies would like, but the Appointments Clause requires that minimal involvement by the head of the department.

Permalink | Administrative Law, Securities, White Collar Crime | Comments (View) | Bookmark

icon Private Lies, Public Harm?
Posted by Usha Rodrigues

Today's WSJ brings a page one headline: Tech Startups Play Numbers Game.  The gravamen of the charge is that still-private companies are using unusual revenue-like/revenue-lite metrics like "billings" or "bookings" to paint a rosier picture than their finances warrant for would-be investors.  Rob Beardon, entrepreneur-in-residence at UGA's Terry business school, was the article's lead example: His company Hortonworks forecast a "strong $100 million run rate" in 2014, but at Hortonworks' 2015 IPO the application of traditional accounting methods led to only $46 million of reported revenue.

The WSJ's tone is one of revelation and shock, but is this really surprising? Consider (with occasional color quotes from the WSJ article)

  • Venture capitalists funds take rich people's money and invest it in private companies that are not subject to the 1933 and 1934 Act disclosure rules.  These investments are by definition risky; associate with that risk is the prospect of a greater return than the public markets can provide.
  • A bubble currently exists in the valuation of private tech companies.
  • In a bubble, rational people become less rational: (From Benchmark partner Bill Gurley's blog, quoted in the WSJ "Late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible “unicorn” companies, have essentially abandoned their traditional risk analysis.")
  • If private investors aren't doing their own diligence, they'll pay the price eventually.
  • Entrepreneurs are always optimistic.  That's why they're entrepreneurs.  Of course they're going to paint a rosy picture ("Many tech-company executives say nontraditional numbers often are a better barometer of a firm’s progress at luring customers, outrunning competitors and pushing the company’s value higher.")
  • Accountants don't want a barometer.  They want the facts.  (“Everyone loves [the non-traditional bookings metric] except the SEC,” [accounting consultant Barrett Daniels] says, adding that it is “easily inflated, and the auditors won’t review it.”)

So will this "numbers game" be the scandal du jour? The SEC doesn't generally concern itself ex-ante with fraud in private firms, but is "increasing its scrutiny of non-GAAP terms at young companies." 

I don't this the SEC should concern itself much with this.  The private markets are private for a reason--supposedly these investors can fend for themselves.  If ever the future crowdfunded companies, in which Joe Public can invest, start touting their "bookings,"then the SEC should act.  

Still, private venture-backed companies would do well to remember that puffery may be ok, but Rule 10b-5 makes it a federal securities violation to lie when you sell securities-- even if you're private.

 

Permalink | Securities | Comments (View) | Bookmark

icon Checking In With The Takings Cases
Posted by David Zaring

The Washington Post has a story on the AIG and Fannie and Freddie cases, which, as you might remember, use the Takings Clause to go after the government for its financial crisis related efforts.  In theory, that's not the worst way to hold the government accountable for breaking the china in its crisis response - damages after the fact rectify wrongs without getting courts in the way.  And I've written about both cases, here and here.

Anyway, the Post has checked in on the cases, and the view is "you people should be worrying more about the possibility that the government may lose.

Greenberg is asking the court to award him and other AIG shareholders at least $23 billion from the Treasury. He says that’s to compensate them for the 80 percent of AIG stock that the Federal Reserve demanded as a condition for its bailout. Judge Thomas Wheeler has repeatedly signaled his agreement with Greenberg. A decision is expected any day.

In the Fannie and Freddie case, the decision is further off, with the trial set to begin in the fall. The hedge funds are challenging the government’s decision to confiscate all of the firms’ annual profits, even if those profits exceed the 10 percent dividend rate that the Treasury had initially demanded. This “profit sweep” effectively prevents the firms from ever returning the government’s $187 billion in capital and freeing themselves from government control.

Earlier this year, Judge Margaret Sweeney refused to dismiss the case and gave lawyers for the hedge funds the right to sift through the memos and e-mails of government officials involved. Within weeks, Fannie and Freddie shares, which had been trading at about $1.50, started trading as high as $3 based on rumors that the documents revealed inconsistencies in government officials’ statements.

They checked in with me on the article, so there's that, too.

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

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