November 05, 2015
icon "Private Sector Influence on the U.S. Regulatory Process: A Study of the Volcker Rule"
Posted by David Zaring

I enjoyed this work, apparently a thesis by a Berkeley undergrad, that involved a ton of data gathering.  The piece looks into how the proposed Volcker rule changed when made final, and then looks at lobbying expenses, SEC meeting data, and the requests made in bespoke comment letter for changes - and whether those changes were adopted.  The bottom line is that lobbying worked in specific ways in relation to this rule.  So much hand collection that you worry about errors, and the empirics are straightforward correlations, though I do not view that as a criticism of this author. You might like it too!

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November 04, 2015
icon ICYMI: Crowdfunding Is Final!
Posted by David Zaring

The final rule is 686 pages long, which Corp Counsel describes, reasonably, as "humongous."  I'm generally fine with lengthy statues, and have no problem being opposed to arguments like "they wrote the Constitution on an index card and last year's budget on a pallet of A4, and look which one is better!"

But still, that's quite a long release for a rule that shouldn't be all that technical.  I think I'll wait for some law firm memos before I dive in.

Permalink | Securities | Comments (View) | Bookmark

November 03, 2015
icon Jennejohn on "Multivalent Contracting"
Posted by Gordon Smith

My colleague, Matt Jennejohn, has just posted to SSRN an excellent paper on innovation and contract design. The Private Order of Innovation Networks (forthcoming in the Stanford Law Review) takes aim at the theory of braided contracts described by Ron Gilson, Chuck Sabel, and Bob Scott. According to Gilson et al., formal contracts "braid" with informal norms to mitigate the potential for opportunism. Jennejohn suggests that the weakness of this approach is that it "conceives of the exchange problem only in terms of opportunism." As a result, braiding theory cannot explain many prominent features of strategic alliances, especially the diversity one perceives in alliance agreements. Jennejohn argues instead that "exchange hazards in innovation networks are multidimensional," and he proposes a new conceptual tool for contract analysis, which he calls "multivalent contracting."

Multivalent contracting is the notion that alliance contracts respond to a number of exchange hazards at once. In Jennejohn's words, "The argument is that expanding the menu of exchange hazards from a singular focus on holdup problems to also include 'spillover' and 'entropy' issues explains alliance diversity by illuminating the interdependencies between collaborators’ governance strategies." Jennejohn illustrates the promise of this approach with a preliminary empirical analysis of management committees in alliance contracts.

The paper also includes some ideas that will be of special interest to scholars interested in contract interpretation. Braided contracting is "largely a self-enforcement theory of contract [in which] the focus of much of the analysis is on how parties can solve their own problems without recourse to the courts." By contrast, the theory of multivalent contracting seems to better explain what courts actually do in many cases, namely, using multiple adjacent doctrines to resolve disputes. Thus, according to Jennejohn, "the choice before the enforcement court is not simply whether it will hew to a more formalist or contextualist mode of contract interpretation, but also how it will efficiently intermix a number of available doctrines."

Highly recommended!

Permalink | Contracts, Economics, Empirical Legal Studies, Innovation | Comments (View) | Bookmark

icon Are You Listening to Undisclosed?
Posted by Christine Hurt

Like many, many people this time last year, I was fascinated by the NPR podcast Serial, a true-life police procedural plowing through the evidence and clues from a 15 year-old case.  That case ended with a mistrial and then a retrial, after which Adnan Syed was convicted of murdering his former girlfriend, Hae Min Lee, in January 1999, when both were high school seniors.  Adnan remains in prison, but because of the attention given his case, he has several hopeful avenues of appeal that are being explored.

After the podcast ended, I (like many others) had a sense of anticlimax and wanted to know more.  Mostly, I wanted an ending -- was Adnan guilty?  was the evidence so poor that he gets a new trial?  was his attorney, Christina Gutierrez incompetent, giving Adnan a new trial?   was the prosecution so sneaky that Adnan gets a new trial?  I needed more.

So, for months I've been listening to Undisclosed, a follow-on podcast created by Syed family friend and attorney Rabia Chaudry, University of South Carolina law professor Colin Miller, and lawyer Susan Simpson.  I don't have a commute, but I listen to the podcast when I run.  A new episode is posted late every Monday, give or take.  I highly recommend it.  And for all my friends who insisted after Serial that Adnan was guilty -- just wait.  One caveat:  Sarah Koenig told the story of Adnan Syed as a story.  These three legal minds on Undisclosed take apart evidence like a lawyer taking apart evidence.  Professor Miller does a good job of stopping and explaining to nonlaw audiences what Brady evidence is, what the Frye test is, and so on, but it's still fairly detail-oriented and not presented in a narrative arc.  Sometimes I wish I could run and take notes at the same time.  And, if the podcast is not enough for you, the website contains documents and Professor Miller expounds on some issues on Evidence Prof Blog.

Of course, while I'm enjoying these podcasts, Adnan is in jail, along with thousands of other defendants who may or may not be guilty, who may or may not be victims of prosecutorial misconduct, and who many or may not have had competent counsel.  The difference is that America seems to be crowdsourcing Adnan's appeal.  Two points:  one, how many other defendants will get a handful of lawyers and law professors poring over the details in their cases, along with thousands of listeners chiming in?  Second, the only reason that NPR was able to make Serial and that three lawyers could make Undisclosed is that Adnan did not plead guilty.  If Adnan had pled guilty early on in his questioning, then there wouldn't be any hope to appeal or any evidence from which to do so.  Because the vast majority of criminal defendants plead guilty, Adnan's case is fairly rare.

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icon The Psych Lab Goes to Hollywood
Posted by Matt Bodie

There's a new movie out on the Milgram experiments -- the ones where subjects were told, calmly and patiently, to keep upping the level of electric shocks to an increasingly distraught victim in another room.  "Experimenter" stars Peter Sarsgaard as Stanley Milgram, Winona Ryder as his wife, and John Leguizamo and Anthony Edwards (among others) as the subjects.  You can catch the trailer here.  There is also film of the actual experiments themselves; here's one segment.  Watching these is painful -- it's not surprising that we now have IRBs -- but the experiments really capture something important about human nature.

2015 is apparently a boom year for dramatic films about psychology experiments.  "The Stanford Prison Experiment" came out earlier this year -- here's the trailer.  There's also existing archival footage as well.  Next year I'm looking forward to a gripping thriller about subjects trying to decide how much to charge for a mug.  "I want to charge more, but it's just ... not ... RATIONAL!"

Permalink | Film, Popular Culture | Comments (View) | Bookmark

icon The Due Process Restoration Act of 2015 Would Kill Administrative Adjudication At The SEC
Posted by David Zaring

Rep. Scott Garrett has introduced a bill that would make administrative proceedings optional for all defendants, and also change the standard of proof for them.  It would basically kill things for SEC ALJs, and the enforcement division's new policy of directing cases their way (with one caveat that I bring up below).  The bill's introduction suggests that not everyone is happy with the agency's attempt to hold onto its discretion to bring enforcement actions administratively or judicially by lengthening the time for proceedings to eight months (from four), and permitting a smidgen of discovery.

Check out the language of the bill:

“(a) Termination Of Administrative Proceeding.—In the case of any person who is a party to a proceeding brought by the Commission under a securities law, to which section 554 of title 5, United States Code, applies, and against whom an order imposing a cease and desist order and a penalty may be issued at the conclusion of the proceeding, that person may, not later than 20 days after receiving notice of such proceeding, and at that person’s discretion, require the Commission to terminate the proceeding.

“(b) Civil Action Authorized.—If a person requires the Commission to terminate a proceeding pursuant to subsection (a), the Commission may bring a civil action against that person for the same remedy that might be imposed.

“(c) Standard Of Proof In Administrative Proceeding.—Notwithstanding any other provision of law, in the case of a proceeding brought by the Commission under a securities law, to which section 554 of title 5, United States Code, applies, a legal or equitable remedy may be imposed on the person against whom the proceeding was brought only on a showing by the Commission of clear and convincing evidence that the person has violated the relevant provision of law.”.

I've never heard of another place where a defendant has the discretion to insist that an enforcement action against her be dismissed - not move for it, just send notice that the defendant will be dismissing the action.  And I've never heard of this clear and convincing stuff before - the argument has been that the SEC has advantages before ALJs, but not particularly because of the burden of proof.  In one way, the bill would make the defendant's decision a bit more difficult.  On the one hand, she can have court whenever she wants, but on the other, administratively, she gets the benefit of a clear and convincing standard, more demanding (in theory) than a preponderance of the evidence standard.  Decisions, decisions.


Permalink | Administrative Law, Securities | Comments (View) | Bookmark

October 29, 2015
icon It's Official--and Unanimous!
Posted by Usha Rodrigues

Yesterday the Delaware senate unanimously confirmed Tamika Montgomery-Reeves as the next Vice Chancellor of the Chancey Court.  We could not be more proud of her here at Georgia Law

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icon Seth Harris to head the Fantasy Sports Control Agency
Posted by Matt Bodie

For-profit fantasy sports have taken a huge leap forward in the last year or so, with ads for daily/weekly fantasy competitions blanketing the airwaves.  Earlier this month, a scandal erupted over employees of two of the sites using insider information to get an advantage over other players.  Although largely not regulated as gambling (based on the skill/luck distinction), Nevada has stepped in to characterize these fantasy competitions as gambling and thereby require the websites to get a gambling license (or shut down).  Other states seem likely to follow with additional regulation.

In the wake of this legal and media scrutiny, the industry has created a new Fantasy Sports Control Agency to begin a system of self-regulation. The press release lists four parts to the system.  They are (quoting the release):

  • Standards: Develop a system of standards for the fantasy sports industry founded on transparency, integrity and ethical behavior.
  • Company Controls, Processes, and Leadership: Every FSTA member company will be expected to respond to the FSCA’s standards by establishing a system of controls and processes to ensure compliance. In addition, every member company will be expected to appoint a senior leader reporting to top executives and overseeing compliance efforts.
  • Auditing Policies and Procedures: Implementation of a sound, regular auditing process to measure and report on company compliance.
  • Enforcement: Establishment of a system that provides incentives and public recognition for compliance with FSCA guidelines and penalties for failure to comply.

Heading up the FSCA will be Seth Harris, former Acting Secretary of Labor and Deputy Secretary of Labor in the Obama Administration.  Prior to his service to DoL, Harris was a professor at New York Law School and a beloved member of the labor & employment law academy.  On his new position, he said that "[t]he reason that the FSTA established an independent authority and asked me to lead this organization is to ensure that it’s not a sham, that it’s not a fake, that it’s not just a publicity stunt."  You can hear Seth being interviewed by his brother (KTRS host Paul Harris) about his new position here.

The creation of the FSCA and the hiring of Seth are smart moves by the nascent industry.  Regulations will be coming at the state and possibly federal level, and the industry should get out in front of them and hope to blunt their force with a credible effort to self-police.  For new industries, especially those along the "vice" spectrum, regulation can actually help prevent a market for lemons and can facilitate greater consumer participation.  But prohibition can't!  They key is finding the regulatory sweet spot that prevents attention-grabbing abuses but allows the industry to grow.  The creation of this new agency demonstrates a recognition by the fantasy sports industry that there is likely "no freedom without regulation."

Permalink | Business Ethics, Gambling, Games | Comments (View) | Bookmark

October 27, 2015
icon Carmen Segarra Had A Case
Posted by David Zaring

I've expressed some sympathy for the whistleblowing bank examiner Carmen Segarra in the past, and I wrote up my concerns over at DealBook.  A taste of the argument:

The bank whistle-blower statute was part of the changes passed after the savings and loan crisis of the 1980s, when hundreds of financial institutions had to be “resolved” – that’s bank terminology for taken through a quick bankruptcy – by the Federal Deposit Insurance Corporation. The statute covers a “person who is performing, directly or indirectly, any function or service on behalf” of the F.D.I.C. The appeals court said that it was “frankly silly” to suggest that Fed employees were working for the F.D.I.C.

But I don’t think it is frankly silly. The purpose of the statute is to protect whistle-blowers who work at, among other places, Federal Reserve banks who bring information to light about mismanagement in a way that performs a service to the F.D.I.C. Moreover, the statute is supposed to be broadly construed.

Goldman Sachs is a bank holding company, but it does not have depositors.

Nonetheless, the F.D.I.C. is a full voting member of the Financial Stability Oversight Council, which has designated Goldman a systemically important financial institution, subject to heightened supervision and its particular attention. Moreover, the F.D.I.C. would play a role in resolving Goldman, if it came to that, under the Dodd-Frank law’s overhaul of the government’s resolution powers.

So I do think that supervising Goldman counts as performing a service to the F.D.I.C.

Do go over there and give it a look.

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

October 26, 2015
icon Family Film Blogging: Goosebumps
Posted by Christine Hurt

Our whole family finally was together for a movie night this weekend, and we went to see a movie we had been waiting for since viewing the trailer:  Goosebumps.  What attracted us about the trailer?  Two things:  the Goosebumps books and Jack Black.  I have to say as a disclaimer thought that I have never read a Goosebumps book; however, I have been forced to read aloud another R.L. Stine series, Rotten School.  If gross were a genre, Rotten School would win that category.

So, in case you (also) don't know, the Goosebumps series contains many short-ish books aimed at older elementary school children that are slightly creepy.  Sort of like how Nancy Drew/Hardy Boys are slightly mysterious.  Not creepy enough to scare kids away or make parents throw the book out, but just creepy enough to make kids feel pretty cool for reading them.  In the 1990s, these books were wildly popular and made Stine a bestselling author.  (In the movie, the character Stine brags that he has sold more books than Stephen King, and that seems to be true from Wikipedia at least).  There was a TV series based on the books, and my second grader has been watching it (completely unsupervised) on Netflix.  But, how do you make a full-length movie based on scores of short books?

The answer is both creative and fun.  Cute teenager Zach moves to a quiet Delaware town with his mom.  His father has recently passed away, but Zach and mom seem pretty well-adjusted and caring with one another during this move for a change of scenery.  Zach soon spies pretty teenager Hannah next door, but Hannah's single dad (Jack Black) tells Zach in no uncertain terms to stay on his side of the fence.  Of course, Zach and Hannah do not do this and fall in love.  One night Zach becomes convinced that Hannah's dad has somehow hurt Hannah to punish her and so decides to break in the house with his new friend, Champ.  (The movie competently walks a fine line here -- Zach calls the police to report a "domestic disturbance" and then tells Champ that he thinks the dad "locked Hannah up."  At no point would little ears worry about some sort of child abuse scene being played out.)  Inside the house, Zach and Champ find the original manuscripts to all the Goosebumps books, which are locked, with the key kept under glass on a desk.  Unfortunately, they open one of the books and the abominable snowman literally leaps off of the page.

If that was all that happened, then our heroes could deal with one sort of clueless monster.  However, one of the Goosebumps with Slappy the Dummy has also been opened.  Slappy was instantly recognized by my kids.  He is by far the creepiest Goosebumps villain, and he continues his villainy in the movie, using the key to open all the manuscripts, thus letting loose all the villains.  The horde of monsters, zombies, and freaky things wreak havoc on the town and the high school dance.  To stop the horde, Stine, Zach, Hannah and Champ will have to work together to come up with a global solution.  Stine says at the end of the movie that every great story has a "beginning, a middle, and a twist."  There are enough twists in the movie to keep anticipation high, but enough light moments to keep kids from getting too frightened.  The scariest scene involves zombies in a cemetery, but it is very short and over before it begins.


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icon Family Film Blogging: Hotel Transylvania 2
Posted by Christine Hurt

After recounting the horror of watching Pixels, I noted in my post that Kevin James and Adam Sandler should be banned from making movies together unless they are cartoons about a hotel for monsters.  Here, the two have teamed up again for the sequel to Hotel Transylvania, a movie about a hotel for monsters.  I'm glad they made it, but I'm not sure I'll count the days until the DVD.

I went to this film with just the 8 year-old.  The plot of Hotel Transylvania 2 picks up from the original:  Dracula's 118 year-old daughter, Mavis, has married her human beau, Johnny, and they now have a five year-old son named Dennis.  Dennis seems a lot more humanish than vampirish, and this bothers Drac.  Even though he has changed his ways and adopted the mantra "Vampire?  Human?  Unicorn?" to show his tolerance, he of course wishes that Dennis would start to show signs of being a vampire -- fangs, flying, etc.  His hopes may be intrinsic or instrumental; the more human that Dennis seems, the more Mavis senses that he should be raised in Santa Cruz, CA near Johnny's family and not in Transylvania at the monster hotel.

Drac concocts a scheme whereby Johnny (who wants to stay at Hotel T. and doesn't particularly want to live with his human family in Santa Cruz) takes overprotective mom Mavis on a vacation to California to "check it out," leaving Dennis with his "Vampa."  While the mom is away, Drac and his monster pals try multiple funny ways to get the vampire to emerge from Dennis before his fifth birthday.  These efforts conclude at the birthday party with Drac's dad, a very mean-spirited, human-hating vampire, arriving to show his disgust for Drac's new found inclusive hotel and extended family.  Drac will have to find the courage to stand up to his intimidating dad and not lose Mavis to California at the same time.

The movie has its funny moments, and the overall theme of inclusion and tolerance is well-received in our house.  To me, the best part of Hotel Transylvania was the ensemble cast of funny monsters -- Frankenstein (Kevin James) and his wife (Fran Drescher), the werewolf (David Spade), etc.  Here, there is a lot going on, and the monster pack seems a little lost in the shuffle.  The sequel has to make room for Johnny's equally goofy family, including his parents played by real-life couple Megan Mullally and Nick Offerman.  Ninety minutes just didn't seem enough time to get attached or re-attached to all these characters.  The friendship between Dennis and the werewolf daughter, Winnie, was pretty cute, though.  All in all, we enjoyed it and would recommend it. 

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icon Business Law At Carleton
Posted by David Zaring

The announcement is after the jump.

more ...

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October 23, 2015
icon Congrats to Northwestern Pritzker School of Law
Posted by Matt Bodie

The newly-renamed school announced a $100 million gift yesterday from J.B. and M.K. Pritzker.  The funds will be put to a variety of purposes.  A major purpose of the gift is to provide scholarships for students to attend Northwestern Pritzker.  The funds will also support several social justice centers at the school and will permanently endow Northwestern's entrepreneurship law center, which was renamed in honor of J.B.'s father Donald Pritzker.  Finally, the gift also will go towards endeavors to develop students’ entrepreneurial skills and to advance law-business-technology initiatives, including the Master of Science in Law program.  Dean Dan Rodriguez said, "Not a cent of this gift goes to bricks or mortar or buildings. The point of this gift is that all of it goes to the efforts to enhance our educational opportunities for our students."

Members of the Pritzker family are noted philanthropists, both in Chicago and nationally.  Students of Business Organizations (past and present) are familiar with the efforts of J.B.'s uncle Jay to purchase TransUnion, which led to Smith v. Van Gorkom and then DGCL § 102(b)(7).  Congrats to Northwestern for this very generous donation.

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October 20, 2015
icon Lisa Fairfax to the SEC
Posted by Gordon Smith

Our own Lisa Fairfax has been nominated to fill an opening on the Securities and Exchange Commission. Congratulations, Lisa! Well done, President Obama! Now Senate, do your part.

See the story here.

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October 19, 2015
icon Enforcement Discretion At The SEC, Over At The HarvCorpGovFor
Posted by David Zaring

I blogged a little more about the SEC and its ALJs at the Harvard Corporate Governance Forum.  Do check it out!

Permalink | Administrative Law, Securities | Comments (View) | Bookmark

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