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“Fine Distinctions” In The Contemporary Law Of Insider Trading, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

William Cary’s opinion for the SEC in In re Cady, Roberts & Co. built the foundation on which the modern law of insider trading rests. This paper—a contribution to Columbia Law School’s recent celebration of Cary’s Cady Roberts opinion, explores some of these—particularly the emergence of a doctrine of “reckless” insider trading. Historically, the crucial question is this: how or why did the insider trading prohibition survive the retrenchment that happened to so many other elements of Rule 10b-5? It argues that the Supreme Court embraced the continuing existence of the “abstain or disclose” rule, and tolerated constructive fraud notwithstanding …

Social Enterprise: Who Needs It?, Brian Galle

Georgetown Law Faculty Publications and Other Works

State statutes authorizing firms to pursue mixtures of profitable and socially-beneficial goals have proliferated in the past five years. In this invited response essay, I argue that for one large class of charitable goals the so-called “social enterprise” firm is often privately wasteful. While the hybrid form is a bit more sensible for firms that combine profit with simple, easily monitored social benefits, existing laws fail to protect stakeholders against opportunistic conversion of the firm to pure profit-seeking. Given these failings, I suggest that social enterprise’s legislative popularity can best be traced to a race to the bottom among states …

Representing Social Enterprise, Alicia E. Plerhoples

Georgetown Law Faculty Publications and Other Works

This article explores the representation of social enterprises—i.e., nonprofit and for-profit organizations whose managersstrategically and purposefully work to create social, environmental, and economic value or achieve a social good through the use of business techniques—in the Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center. Representation of social enterprises helps create a dynamic curriculum through which law students learn to merge corporate legal theory with transactional law practice. Through service to social enterprises, law students (i) learn about corporate governance and corporate legal theory as well as business models and mechanisms that support social and environmental value creation …

“Publicness” In Contemporary Securities Regulation After The Jobs Act, Donald C. Langevoort, Robert B. Thompson

Georgetown Law Faculty Publications and Other Works

The JOBS Act of 2012 reflects the largest deregulatory change to the Securities Exchange Act of 1934 over its more than 75 year history. It contracts the coverage of those companies subject to the obligations of ‘publicness” and it introduces an “on ramp” that will permit most newly-public companies to meet a lesser set of disclosure, internal control and governance obligations for up to five years. We set these changes against a larger discussion of when a private enterprise should be forced to take on public status in securities regulation, a topic that has been entirely under theorized. We conclude …

Can An Old Dog Learn New Tricks? Applying Traditional Corporate Law Principles To New Social Enterprise Legislation, Alicia E. Plerhoples

Georgetown Law Faculty Publications and Other Works

Seven U.S. states have recently adopted the benefit corporation or the flexible purpose corporation—two novel corporate forms intended to house social enterprises, i.e., those ventures that pursue social and environmental missions along with profits. And yet, these corporate forms are not viable or sustainable if they do not attract social entrepreneurs or social investors due to the lack of understanding and inquiry into how traditional corporate law principles will be applied to them. This article begins this necessary examination. As a first approach, this article assesses shareholder primacy and the shareholder wealth maximization norm in the context of the sale …

Behavioral Approaches To Corporate Law, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This chapter reviews the challenges associated with developing a plausible theory of why psychological "heuristics and biases" might persist in high-stakes business settings. Specific attention is given to issues of loyalty on corporate boards, behavioral finance, and corporate cultures.

What Were They Thinking? Insider Trading And The Scienter Requirement, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

On its face, the connection between insider trading regulation and the state of mind of the trader or tipper seems intuitive. Insider trading is a form of market abuse: taking advantage of a secret to which one is not entitled, generally in breach of some kind of fiduciary-like duty. This chapter examines both the legal doctrine and the psychology associated with this pursuit. There is much conceptual confusion in how we define unlawful insider trading—the quixotic effort to build a coherent theory of insider trading by reference to the law of fraud, rather than a more expansive market abuse standard—which …

Alien Tort Claims And The Status Of Customary International Law, Carlos Manuel Vázquez

Georgetown Law Faculty Publications and Other Works

Much of the recent debate about the status of customary international law in the U.S. legal system has revolved around the alien tort provision of the Judiciary Act of 1789, currently section 1350 of Title 28. In Filártiga v. Peńa-Irala, the decision that launched modern human rights litigation in the United States, the Court of Appeals for the Second Circuit relied on the view that customary international law has the status of federal common law in upholding section 1350’s grant of federal jurisdiction over a suit between aliens. The court’s position that customary international law was federal law was …

The Post-Citizens United Fantasy-Land, Roy A. Schotland

Georgetown Law Faculty Publications and Other Works

First, a bouquet for the illuminating facts presented by Professors Wert, Gaddie, and Bullock. They make dramatically clear how minuscule independent spending by corporate PACs has been (that is, those PACs’ direct spending as distinct from support by those PACs or their corporate sponsors for spending by intermediaries like the Chamber of Commerce). Their showing is borne out by experience this year: corporate support for campaigns is almost all hidden, flowing through intermediaries, which is why getting effective disclosure is more important than ever, as the Court clearly recognizes (We probably owe much to Justice Kennedy for the fact that …

Chasing The Greased Pig Down Wall Street: A Gatekeeper’S Guide To The Psychology, Culture And Ethics Of Financial Risk-Taking, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The current financial crisis has once again focused attention on lawyers, corporate directors and auditors as gatekeepers, who are expected to introduce some degree of cognitive independence to the task of risk assessment and risk management in public companies, including financial services firms. This essay examines the psychological and cultural forces that may distort risk perception and risk motivation in hyper-competitive firms, beyond the standard economic incentives associated with agency costs and moral hazards, warning gatekeepers against too easily assuming that all is well when insiders display high levels of intensity, focus and devotion to hard-to-achieve goals. In fact, these …

The Behavioral Economics Of Mergers And Acquisitions, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The world of mergers and acquisitions seems like a setting in which rationality necessarily dominates. There are high stakes, focused and sustained attention, and expert advisers who are repeat players. In the economics and management literature, however, there has been a great deal of research on what might be called “behavioral M&A”—using insights from psychology to explain observed patterns of behavior in the acquisitions marketplace. To date, the law has largely been uninterested in the psychological dynamics of corporate acquisitions. This essay looks at recent research on such issues as the role of overconfidence, hubris, anchoring, etc. in explaining buy-side …

Supply Chains And Porous Boundaries: The Disaggregation Of Legal Services, Milton C. Regan, Palmer T. Heenan

Georgetown Law Faculty Publications and Other Works

The economic downturn has had significant effects on law firms, and is causing many of them to rethink some basic assumptions about how they operate. In important respects, however, the downturn has simply intensified the effects of some deeper trends that preceded it, which are likely to continue after any recovery that may occur.

This paper explores one of these trends, which is corporate client insistence that law firms “disaggregate” their services into discrete tasks that can be delegated to the least costly providers who can perform them. With advances in communications technology, there is increasing likelihood that some of …

Corporate Environmental Social Responsibility: Corporate "Greenwashing" Or A Corporate Culture Game Changer?, Hope M. Babcock

Georgetown Law Faculty Publications and Other Works

This article focuses on the extent to which unenforceable voluntary initiatives undertaken by corporations can change corporate behavior to make businesses more environmentally responsible, i.e. not only comply with the law, but to do more than the law actually requires of them. These initiatives, loosely gathered under the umbrella of a movement called corporate social responsibility (CSR), are often proposed by the government as a way to fill regulatory and enforcement gaps or by industry, often as an alternative to regulatory requirements. In each case, their goal is to improve the compliance record of businesses and, in some cases, to …

Reading Stoneridge Carefully: A Duty-Based Approach To Reliance And Third Party Liability Under Rule 10b-5, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The Supreme Court's decision in the Stoneridge case has largely been interpreted as a imposing a strict, pro-defendant reliance requirement. This article offers an alternative reading that takes the Court's analysis more seriously than its overheated dicta, one that makes "remoteness" a serious and meaningful inquiry that can produce balanced and fair responses to the concern that seemed to motivate the search for restraint: fear of disproportionate liability. It explores the nature of the dispropotion, and suggests ways--using the Court's own explanatory tools--for deciding when third party involvement is close enough to the fraud so that fear of disproportion lessens. …

Fighting Freestyle: The First Amendment, Fairness, And Corporate Reputation, Rebecca Tushnet

Georgetown Law Faculty Publications and Other Works

There are three distinct groups who might want to engage in speech about commercial entities or to constrain those commercial entities from making particular claims of their own. Competitors may sue each other for false advertising, consumers may sue businesses, and government regulators may impose requirements on what businesses must and may not say. In this context, this Article will evaluate a facially persuasive but ultimately misguided claim about corporate speech: that because consumers regularly get to say nasty things about corporations under the lax standards governing defamation of public figures, corporations must be free to make factual claims subject …

The Sec And The Madoff Scandal: Three Narratives In Search Of A Story, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This essay, part of a symposium on narrative in corporate law, considers various portrayals of the complicity of the SEC in the Bernard Madoff scandal--including the Commission's own Inspector General's report issued in September 2009. It considers possible explanations (revolving door problems, incompetence and sloth, etc.) but suggests that the story is deeper and more frustrating, arising out of the relative poverty in which the SEC operates, which in turn leads to habits of thought and action that leave too much unnoticed and undone. The interesting question, then: why the poverty? The essay concludes with a political explanation. While by …

The Doj Risks Killing The Golden Goose Through Computer Associates/Singleton Theories Of Obstruction, Julie R. O'Sullivan

Georgetown Law Faculty Publications and Other Works

The DOJ, through its corporate criminal charging policy, puts a premium on corporate cooperation with prosecutors. The "partnership" that the DOJ's cooperation policy demands of corporations is extremely valuable. But the DOJ threatens to kill its own golden goose by bringing a spate of high-profile prosecutions of corporate executives (Sanjay Kumar, Stephen Richards, and Greg Singleton) for obstruction of an "official proceeding" premised on their lies to the corporation's own counsel.

The Last Straw: The Department Of Justice's Privilege Waiver Policy And The Death Of Adversarial Justice In Criminal Investigations Of Corporations, Julie R. O'Sullivan

Georgetown Law Faculty Publications and Other Works

The white-collar criminal defense bar has never been reticent to complain about U.S. Department of Justice (DOJ) policies that threaten its clients or the viability of its practice. But nothing--at least in the author's twenty-plus years of involvement in white-collar issues--has consumed the bar as much as the threats posed to the corporate attorney-client privilege and work-product doctrine. While commentators have identified a variety of assaults on these protections, the bar is most vocally outraged by the DOJ policy, pursuant to which, it charges, federal prosecutors regularly insist that corporations waive these protections to secure cooperation credit, declination of criminal …

The Impact On Director And Officer Behavior: Reflective Essays, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

I fall on the side of the skeptics about whether criminal liability in financial reporting cases is a healthy tool because I have doubts about whether judgments are likely to be proportionate. And proportionality is a very important measure in criminal law for two reasons. First, we expect the punishment to fit the crime as a matter of justice. Secondly, if we have disproportionately harsh treatment, then the behavior of officers and directors in response to over-deterrence is that they will pay too much attention to matters that are precautionary as opposed to profit-generating. And the point of a business …

The Social Construction Of Sarbanes-Oxley, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The closer one looks at SOX and its origins in the financial scandals of the early 2000s, the blurrier the picture, which lets commentators see what they want to see and draw inferences accordingly. That is why social construction is so crucial. My aim in this paper is to illuminate the social nature of SOX's diffusion into practice. I will leave to the reader the judgment about whether this has been or will be good or bad, and for whom. If I seem to challenge SOX's critics more than its supporters, it is because the critics have been more venomous …

On Leaving Corporate Executives "Naked, Homeless And Without Wheels": Corporate Fraud, Equitable Remedies, And The Debate Over Entity Versus Individual Liability, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

There is a lively debate about the relative merits of entity versus individual liability in cases involving securities fraud. After reviewing this debate in the context of both private securities litigation and SEC enforcement, this paper considers whether the legal tools available against individual executives are adequate, and if not, what changes might be made. The main focus is on equitable remedies, especially rescission and restitution, under both state and federal law. As to the former, Vice Chancellor Strine’s opinion in In re Healthsouth offers an interesting template, although there are limits on the usefulness of derivative suits to police …

New Hope For Corporate Governance In China?, James V. Feinerman

Georgetown Law Faculty Publications and Other Works

China's recent revisions to its Company Law and Securities Law have brought new attention to issues of corporate governance in Chinese companies and financial markets. Among the chief criticisms of the earlier laws - in both their provisions and application - were the lack of protection for minority shareholders, the paucity of independent directors, the absence of transparency and inadequate financial disclosure. The acknowledged need for greater congruence between Chinese law and practice and that of countries with more developed capital markets led to the proposal of amendments to China's legislation during the first half of this decade. This article …

Internal Controls After Sarbanes-Oxley: Revisiting Corporate Law's "Duty Of Care As Responsibility For Systems", Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

Revisiting section 3.4.2 of Clark's Corporate Law ('Duty of Care as Responsibility for Systems") reminds us, however, that the internal controls story actually goes back many decades, and that many of the strategic issues that are at the heart of section 404 have long been contentious. My Article will briefly update Clark's account through the late 1980s and 1990s before returning to Sarbanes-Oxley and rulemaking thereunder by the SEC and the newly created Public Company Accounting Oversight Board ("PCAOB"). My main point builds on one of Clark's but digs deeper. Internal controls requirements, whether federal or state, are incoherent unless …

The Story Of Upjohn Co. V. United States: One Man's Journey To Extend Lawyer-Client Confidentiality, And The Social Forces That Affected It, Paul F. Rothstein

Georgetown Law Faculty Publications and Other Works

The attorney-client privilege protects information a client provides an attorney in confidence for the purpose of securing legal advice. But suppose the client is not a person but a corporation and can only speak through its agents and employees. What then are the contours of the privilege? If the corporation's attorney asks an employee for information relating to pending litigation or other legal matters, is the conversation privileged? Some courts said that no communications to a corporate attorney were privileged unless they came from members of the corporate control group, loosely those people who had authority to direct the attorney's …

Beyond Unconscionability: Class Action Waivers And Mandatory Arbitration Agreements, J. Maria Glover

Georgetown Law Faculty Publications and Other Works

We live in an age of convenience. From financial transactions to electronic correspondence, we frequently deal with large corporations that provide services in our daily lives. One of the prices we pay for the convenience of these transactions, however, is that our commercial relationships increasingly are based on standard form contracts written by large corporations. While these standard form contracts are necessary to an economically efficient society, the growing use of mandatory arbitration provisions and clauses that prohibit class actions in these contracts raises the spectre of corporate abuse.

Sosa V. Alvarez-Machain And Human Rights Claims Against Corporations Under The Alien Tort Statute, Carlos Manuel Vázquez

Georgetown Law Faculty Publications and Other Works

Contrary to the claims of some observers, the Supreme Court's decision in Sosa v. Alvarez-Machain does not sound the death knell for the use of the Alien Tort Statute to maintain human rights claims against private corporations in the U.S. courts. The decision clarifies the nature of claims under the Alien Tort Statue to some extent, and places some limits on the theories available in actions against private corporations, but for the most part such suits remain as viable after Sosa as they were before. That is not to say, however, that victims of corporate human rights violations in developing …

Federalism In Corporate/Securities Law: Reflections On Delaware, California, And State Regulation Of Insider Trading, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

In this brief Essay, I offer some thoughts on both the theory and the politics underlying the federalism question. My comments will touch on some of the controversies and also look at a somewhat quieter question, the state regulation of insider trading. Over the course of the last few years, judges in California and Delaware have traveled markedly different routes on questions involving the states' role in regulating insider trading. A California court of appeal has recently expanded the reach of the state insider trading statute to cover a claim alleging misconduct in California by an executive of a Delaware …

Bond Covenants And Creditor Protection: Economics And Law, Theory And Practice, Substance And Process, William W. Bratton

Georgetown Law Faculty Publications and Other Works

This article examines contractual protection of unsecured financial creditors in US credit markets. Borrowers and lenders in the United States contract against a minimal legal background that imposes the burden of protection on the lender. A working, constantly updated, set of contractual protections has emerged in response. But actual use of available contractual technology varies widely, depending on the level of risk and the institutional context. The credit markets sort borrowers according to the degree of the risk of financial distress, imposing substantial constraints only on the borrowers with the most dangerous incentives. At the same time, the contracting practice …

Private Litigation To Enforce Fiduciary Duties In Mutual Funds: Derivative Suits, Disinterested Directors And The Ideology Of Investor Sovereignty, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

This article focuses on independent directors and the processes of mutual fund corporate governance. To be clear, I believe (and research shows) that disinterested directors do add value as a form of shareholder protection, and this fact justifies the SEC's efforts to strengthen their role. But they are far from a panacea. While that point alone is almost trite, exploring some of the unique features of mutual fund governance shows why judges and policymakers should not even try to reason by analogy to governance in other kinds of corporations. Yet that is exactly what Burks and its progeny have done. …

Direct Vs. Indirect Obligations Of Corporations Under International Law, Carlos Manuel Vázquez

Georgetown Law Faculty Publications and Other Works

International law today addresses the conduct of private corporations in a variety of areas. With very few exceptions, however, international law regulates corporate conduct indirectly--that is, by requiring states to enact and enforce regulations applicable to corporations and other non-state actors. Only a small number of international legal norms--primarily those relating to war crimes, crimes against humanity, and forced labor--apply directly to non-state actors. Scholars have argued forcefully that international law should move in the direction of directly imposing obligations on corporations. These arguments overlook important aspects of the problem. If international legal norms were extended to corporations and backed …