Law Commons^™

Risk-Seeking Governance, Brian J. Broughman -- Professor Of Law, Matthew T. Wansley -- Assoc. Professor Of Law

Vanderbilt Law Review

Venture capitalists (“VCs”) are increasingly abandoning their traditional role as monitors of their portfolio companies. They are giving startup founders more equity and control and promising not to replace them with outside executives. At the same time, startups are taking unprecedented risks—defying regulators, scaling in unsustainable ways, and racking up billion-dollar losses. These trends raise doubts about the dominant model of VC behavior, which claims that VCs actively monitor startups to reduce the risk of moral hazard and adverse selection. We propose a new theory in which VCs use their role in corporate governance to persuade risk-averse founders to pursue …

Deterring Algorithmic Manipulation, Gina-Gail S. Fletcher

Vanderbilt Law Review

Does the existing anti-manipulation framework effectively deter algorithmic manipulation? With the dual increase of algorithmic trading and the occurrence of “mini-flash crashes” in the market linked to manipulation, this question has become more pressing in recent years. In the past thirty years, the financial markets have undergone a sea change as technological advancements and innovations have fundamentally altered the structure and operation of the markets. Key to this change is the introduction and dominance of trading algorithms. Whereas initial algorithmic trading relied on preset electronic instructions to execute trading strategies, new technology is introducing artificially intelligent (“AI”) trading algorithms that …

How Algorithmic Trading Undermines Efficiency In Capital Markets, Yesha Yadav

Vanderbilt Law Review

This Article argues that the rise of algorithmic trading undermines efficient capital allocation in securities markets. It is a bedrock assumption in theory that securities prices reveal how effectively public companies utilize capital. This conventional wisdom rests on the straightforward premise that prices reflect available information about a security and that investors look to prices to decide where to invest and whether their capital is being productively used. Unsurprisingly, regulation relies pervasively on prices as a proxy for the allocative efficiency of investor capital. Algorithmic trading weakens the ability of prices to function as a window into allocative efficiency.

This …

The Fraud-On-The-Market Tort, John C.P. Goldberg, Benjamin C. Zipursky

Vanderbilt Law Review

It is commonplace to observe that there are differences between private 10b-5 actions and common-law actions for deceit, notwithstanding that both travel under the name of "fraud."' It is equally commonplace to suppose that these differences primarily reflect the need to adapt law that was first developed in a world of face-to-face transactions to the modern reality of large-scale, impersonal markets. The poster children for the transition from common-law fraud to securities fraud are, first, the Supreme Court's adoption in Basic, Inc. v. Levinson of the fraud-on-the-market doctrine and, second, the related emergence of securities fraud class actions. Amidst this …

Franchising And The Collective Rights Of Franchisees, Robert W. Emerson

Vanderbilt Law Review

Assume that you are the franchisee of a nationwide restaurant chain. Your franchisor has acted contrary to what you believe to be in your best interest. For the franchisor, bigger is better: more outlets and discount programs mean higher sales volume and consequently additional franchise fees and royalties, with royalties typically being based on gross sales-not franchisee net profits. You are concerned that the franchisor is oriented more toward expansion than the well-being of existing franchisees. Franchisor assistance is less than you expected, but royalties and other charges seem steep.Facing a strong franchisor that appears not to worry about an …

Industry Self-Regulation And The Useless Concept "Group Boycott", Robert Heidt

Vanderbilt Law Review

A doctor is denied staff privileges at a private hospital after a negative recommendation from the hospital's medical staff. A real estate agent is denied membership in a multiple. listing service by a vote of the current members. A golfer is deemed ineligible to compete in a professional golf tournament by a committee of the Professional Golf Association. A college is refused accreditation by a private accrediting association. Plywood of type three ply one half inch is found not to meet the commercial standard for douglas fir plywood established by the Douglas Fir Plywood Association. A fuel cutoff device is …

The Resale Price Maintenance Compromise:A Presumption Of Illegality, Michael D. Mckibben

Vanderbilt Law Review

This Note explores several problems with recent RPM decisions: (1) the effect of the per se rule on producers' rights to control their marketing strategies; (2) inconsistent use of the plural action requirement as a foil for avoiding or invoking the per se rule; (3) the suppression of benign or pro-competitive activities because of the rule; (4) the difficulties with free rider marketing; and (5) the obstacles to advice and planning that recent decisions have created. This Note contends that a new standard, a rebuttable presumption against legality, would alleviate most, if not all, problems that the inflexible per se …

The Insider Trading Sanctions Act Of 1984 And Its Effect On Existing Law, Donald C. Langevoort

Vanderbilt Law Review

The legislative history of the Act shows that its principal drafters regarded those who trade on material confidential information as "thieves," deserving substantial penalties. The adoption of the Act is an expression that the existing laws should be used aggressively to curb the misuse of information. Unfortunately, such a result-oriented direction fits uncomfortably within the confining conceptual structure for rule 10b-5 built in recent years by the Supreme Court. Lower courts therefore must flesh out the law of insider trading based on inconsistent mandates, which will make the future path of the law both unpredictable and interesting.

Damages For Insider Trading In The Open Market: A New Limitation On Recovery Under Rule 10b-5, John B. Grenier

Vanderbilt Law Review

The Elkind court's adoption of a "disgorgement measure" of damages for insider trading on undisclosed misrepresented material information in the open market is basically sound. In allowing compensation to the extent practicable, the Second Circuit chose the best solution among the available alternatives. The decision's paramount problems arise in its shifted emphasis to deterrence; the court has neither provided plaintiffs with a sufficient incentive to sue nor created the level of deterrence that some cases might require. Future courts, however, can remedy this situation if they follow Elkind and also award punitive damages in cases in which plaintiffs' losses exceed …

The Role Of Warranties And Product Standards In Solar Energy Development, William H. Lawrence, John H. Minan

Vanderbilt Law Review

This Article examines the use of warranties and product standards in solar marketing as ways to bring about the needed confidence in and acceptance of solar equipment. The first part of the Article analyzes relevant warranty law from the perspectives of solar sellers and buyers. Some government and private groups have argued that warranties can provide the needed impetus for solar development, and there is thus a great tendency today to view warranties as the means to encourage solar usage. The premise advanced in this part of the Article, however, is that warranty law, operating independently, is unlikely to instill …

State Trading Monopolies In The European Economic Community, Ernst-Joachim Mestmacker

Vanderbilt Law Review

Governments have long recognized state trading monopolies as convenient devices to achieve political and commercial objectives concurrently, using the leverage of their economic power to political ends and vice versa. The effectiveness of the Boston Tea Party, and its aftermath, in adjusting state trading monopolies to the requirements of free trade settled the problem for the United States only. Thus, when the parties to the Treaty of Rome' agreed to divest themselves of their control over intra-Community trade by the establishment of a customs union, they were faced with the problems posed by their trading monopolies as well. The state …

Managerial Problems Of The Enterprise, Douglas C. Basil

Vanderbilt Law Review

The small firm, particularly the newly formed one, is confronted with problems ranging from the shortage of capital to the legal intricacies of organizational form. The technical obstacle of raising capital, obtaining sales outlets, and purchasing equipment must be surmounted. In the final analysis, however, the success of a small business depends upon the managerial ability of its owner.' The purpose of this article is to identify a few of the major management problems of the small enterprise and suggest appropriate solutions. One continuous difficulty is the structuring of the organization. At what point should staff specialization occur? What are …

Contracts -- 1960 Tennessee Survey, Paul J. Hartman

Vanderbilt Law Review

During the period covered by this survey, the Tennessee courts have had occasion to decide some rather basic questions in the law of contracts. These cases are the subject of comment. Other cases involving only questions of burden of proof regarding contracts questions have not be commented on.

Evidence In Motor Carrier Application Cases, Everett Hutchinson, George M. Chandler

Vanderbilt Law Review

The Motor Carrier Act of 19351 brought under regulation by the Interstate Commerce Commission the operation of for-hire motor carriers. The act, which is now part II of the Interstate Commerce Act, requires all such motor carriers, with certain exceptions, to obtain operating authority from the Commission. Carriers operating prior to the passage of the act were granted authority under "grand-father" provisions by a mere showing of past operations, but carriers entering the field since that date or desiring to extend their operations are required to prove that there is a public need for the service which they propose. A …

Stockholders' Derivative Suits In Southern Jurisdictions, W. Jack Williams

Vanderbilt Law Review

The stockholders' derivative suit has been of increasing prominence during the past several decades. As an action in equity instituted by individual stockholders, the suit is representative in nature in that the stockholder prosecutes the action for all stockholders who are similarly situated. Yet, as the suit is in behalf of the corporate entity and not the stockholders personally, it is derivative.'

As in most other areas of corporate law in southern jurisdictions,there exists no comprehensive body of statutory or case law dealing with all facets of stockholders' derivative suits. The greater part of the body of law in this …

Trading Stamps, Josiah Baker

Vanderbilt Law Review

It is as hard to define the trading stamp as it is to count the points on the circumference of a circle, for a trading stamp is what it appears to be and that, of course, depends upon point of view. To the housewife,it is a coupon--in some instances free, in others expensive--for which a redemption value may be claimed. To the stamp-issuing merchant,it is a method of advertising taking the form of a promotional device or operating as a discount to cash customers. To the nonissuing merchant, it is an instrumentality of unfair competition. To the trading stamp company, …

Refusal To Sell, Vernon A. Mund

Vanderbilt Law Review

Today, the business practice of refusal to sell is one of the principal antitrust complaints. However, paradoxically, it is a complaint which receives practically the least amount of attention and relief. Typically, the antitrust agencies treat reports on refusal to sell with the generalized reply that "the seller has the right to choose his own customers." The very number of complaints, however, as well as an economic analysis of the practice itself, points to the need for a reevaluation of this business practice and for a reappraisal of the currently applicable judicial decisions.

As we shall see in the present …

Du Pont General Motors Case, James A. Hart

Vanderbilt Law Review

On June 3, 1957, the United States Supreme Court, in a four to two decision, held that the du Pont Company's ownership of twenty-three per cent of the voting stock of General Motors had tended to create a monopoly in a line of commerce and thus violated section 71 of the Clayton Act. Justice Brennan wrote the majority opinion and Justice Burton, joined by Justice Frankfurter filed a vigorous dissent. Three of the Justices, Clark, Harlan and Whittaker took no part in the consideration or decision of the case. Hence, a possibility remains that the present Court, with all nine …

The Right Of A Businessman To Lower The Price Of His Goods, Stanley D. Rose

Vanderbilt Law Review

The present actions being taken to mark the transition from cold to hot war are settling a number of problems and creating a host of others. The direction of our national effort within the economy will shift to production; our normal interest would be in distribution. This shift will not mean that the antitrust laws will be entirely suspended. There remain certain vital functions of protecting whole classes of citizens during the coming years of stress and for that day when once again we return to our new two-cars-for-every-family ideal.

'But it cannot be denied that a discussion of lowering …