ProfessorBainbridge.com

Ribstein Rising

Larry Ribstein's The Rise of the Uncorporation is now available at Amazon, where we are told that:

The Rise of the Uncorporation covers the history, law, and finance of unincorporated firms. These "uncorporations" including general and limited partnerships and limited liability companies, are now the dominant business form of non-publicly-traded firms. Through private equity and publicly traded partnerships, uncorporations have emerged as a significant force in the governance of a wide range of the biggest firms. This is the first general theoretical and practical overview of alternatives to incorporation, including ancillary concepts connected with the evolution of these firms, and analysis of likely future trends in business organization. The Rise of the Uncorporation provides a clear and easily understandable theoretical and practical background to this important subject.

I'm looking forward to reading it, as Larry's many articles on this topic are canonical foundations of our understanding of the uncorporation (BTW, I hate that word...it reminds me of 7-Up's stupid Uncola ads).

Protecting the trial lawyers

God knows how health care "reform" will pan out. But are we surprised to learn that trial lawyers already got a handout? BigGovernment:

The health care bill recently unveiled by Speaker Nancy Pelosi is over 1,900 pages for a reason. It is much easier to dispense goodies to favored interest groups if they are surrounded by a lot of legislative legalese. For example, check out this juicy morsel to the trial lawyers (page 1431-1433 of the bill):

Section 2531, entitled “Medical Liability Alternatives,” establishes an incentive program for states to adopt and implement alternatives to medical liability litigation. [But]…… a state is not eligible for the incentive payments if that state puts a law on the books that limits attorneys’ fees or imposes caps on damages.

So, you can’t try to seek alternatives to lawsuits if you’ve actually done something to implement alternatives to lawsuits. Brilliant! The trial lawyers must be very happy today!

As Ted Frank explains: "In other words, Congress is providing a financial incentive [for states] to uncap damages. Marvelous."

Obama's war on Capitalism

Peggy Noonan sees a John Galt moment coming:

This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.' " He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

Speaking of the Chamber, Jeb Bush told it that ""I think President Obama has used the bully pulpit as a way to attack capitalism."

There are days it sure seems that way.

Obama's Thin Skin

Has there been a President in recent memory with a thinner skin than Barack Obama? Business Insider relates:

But in addition to Fox News, now The White House is going after highly-respected and influential car site Edmunds.com.

They're actually using The White House blog to dispute the site's analysis of Cash-For-Clunkers (via Detroit News).

The post is snarkily titled: "Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers"

The blog post goes on to accuse Edmunds of seeking "to grab headlines and get coverage on cable TV."

This administration is locked in a permanent campaign mode, in which every critic must not only be answered but delegitimated.

All we need now is for Joe Biden to start talking about nattering nabobs of negativism, and the Nixon analogy will really start to have traction.

"Lieberman Marching Further Right in 2010"

In an article carrying the above title, ABC journalist Jonathan Karl writes:

Sounding more like an independent than a Democrat, Sen. Joe Lieberman, I-Conn., tells ABC News he will campaign for some Republican candidates during the 2010 midterm elections and may not seek the Democratic Senate nomination when he runs for re-election in 2012. ...

Asked if he would go so far as to "join a Republican filibuster against the entire health bill" if the public option is included, Lieberman said, "Yes, that's right."

The aphorism that springs to mind, of course, is: "If you aren't a liberal when you're young, you have no heart. If you aren't a conservative when you are old, you have no brain."

Interim Dean and Search Committee

UCLA press release: 

Scott L. Waugh, UCLA Executive Vice Chancellor and Provost, sent this message today to administrative officers, deans, department chairs, directors, vice chancellors and the School of Law faculty:

Dear Colleagues:

I am writing to inform you that Chancellor Block and I have proposed for UC Regents’ approval the appointment of Stephen C. Yeazell as interim dean of the School of Law, effective November 23, 2009.

Professor Yeazell, David G. Price and Dallas P. Price Distinguished Professor of Law, has taught at UCLA since 1975, bringing to his new role many years of academic leadership, service and an outstanding research and teaching career in the areas of civil procedure, civil litigation and structure of the legal profession. Among his publications are a definitive history of the class action, the most widely used course book in civil procedure, and a recently published book exploring contemporary civil litigation and the legal profession.

Professor Yeazell has earned UCLA’s highest honors both for his teaching and research, receiving the UCLA Distinguished Teaching Award in 1979 and the designation of Faculty Research Lecturer in 2007. He served as associate dean of the School of Law from 1995 to 1998 and as chair of UCLA’s Academic Senate in 2000-01.

Professor Yeazell brings a wealth of experience to the position, and I appreciate very much his willingness to take on this important role. I also am deeply grateful to Michael Schill for his dedicated service as dean since 2004.

Please join me in congratulating Professor Yeazell and in welcoming him to this new and important role.

Steve was the associate dean when I was hired and I was (and remain) tremendously impressed. It's a great choice. Congratulations to Steve and thanks to him for stepping up to the plate during this important period in the law school's history.

The search committee for a permanent new dean was also announced. I'm not on it, for which I am deeply grateful (as, I suspect, are my colleagues, students, and alumni!).

I'm a Law Professor, not a Smoking Cop

Unbelievable:

Faculty members at Widener University School of Law will have a new role to play next academic year: smoking police. 

They won't have matching uniforms or extensive training. They will be armed with small cards that detail the school's impending ban on smoking or using tobacco products anywhere on campus, indoors and outdoors. If that's not enough to keep people from lighting up on campus, repeat offenders might be fined, said Linda L. Ammons, the law school's dean. 

I, for one, didn't join the legal academy to police other people's lifestyle choices. There are enough health and safety kill-joys in the world already.

I think I'll find a nice, sunny spot on campus and light up a cigar this afternoon.

Kudos to Henderson

Our friend Todd Henderson has just received the Federalist Society's 2010 Paul M. Bator Award:

The Federalist Society for Law and Public Policy Studies established the Bator Award in memory of Paul M. Bator, who had been a professor at the University of Chicago Law School and Harvard Law School. Each year, the award is given to a young academic (under 40) who embodies Bator’s excellence in legal scholarship, commitment to teaching and concern for students, and who has made a significant public impact.

“He fits all the criteria well. He already is a first-rate scholar,” said Eugene Meyer, President of the Federalist Society. “We have senior and highly talented academics on the selection committee and they were impressed with his scholarship, and he has been very helpful to students in a variety of ways.” It also was well-noted that Henderson served in the military, Meyer added.

It's great to see the award go to a business law scholar and, especially, to one as fine as Todd. Congratulations!

Is the Pay Czar Unconstitutional?

We corporate and securities law types rarely get to play in the rarified air of The Constitution, so we are awaiting eagerly the Supreme Court's decision in Free Enterprise Fund v PCAOB, in which the argument is whether the provisions of Sarbanes-Oxley governing the selection of members of the Public Company Accounting Oversight Board violate the Appointments Clause of the US Constitution. (I have argued that it does.) 

Law professor (and former federal judge) Michael McConnell argues in today's WSJ that Kenneth Feinberg's position as TARP "pay czar" likewise violates the Appointments Clause:

The Appointments clause of the Constitution, Article II, section 2, provides that all "Officers of the United States" must be appointed by the president "by and with the Advice and Consent of the Senate." This means subject to confirmation, except that "the Congress may by Law vest the Appointment" of "inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments."

There is no doubt that Mr. Feinberg is an "officer" of the United States. The Supreme Court has defined this term (Buckley v. Valeo, 1976) as "any appointee exercising significant authority pursuant to the laws of the United States." Mr. Feinberg signed last week's orders setting pay levels for executives at Bank of America, AIG, Chrysler Financial, Citigroup, GMAC, General Motors and Chrysler. They have the force of law and are surely an exercise of "significant authority" pursuant to an Act of Congress. He is not a mere "employee," acting at the direction of a superior. That means his office is subject to the requirements of the Appointments Clause.

While somewhat more disputable, Mr. Feinberg's is probably an "inferior" officer, defined as one subject to supervision and removal by a member of the cabinet. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.

But Congress has not done so. On the contrary, it vested the authority to implement TARP's compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an "officer" properly appointed "by and with the advice and consent of the Senate."

The Supreme Court observed in Buckley v. Valeo that the provisions governing appointments under the Constitution reflect more than "etiquette or protocol." They embody the Founders' conviction that all power under U.S. laws must be exercised by officers with constitutional authority.

The Founders understood that the president and heads of the executive departments could not single-handedly carry out the law, so they required Senate confirmation as what the Federalist Papers call "an excellent check" on abuse or favoritism by the president. Yes, there are some offices so inferior that this check may be eliminated—but it is for Congress to judge which ones these may be. Congress and Congress alone has power to dispense with the safeguard of the confirmation process.

The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation. It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg's executive compensation decisions were unconstitutional.

The Coming Flood of Regulation

Larry Cunningham offers a roundup of the coming flood of financial services regulation.

Week 7

It was almost a perfect fantasy football weekend. Almost....

Steve's Skins (in Yahoo Pb.com league) won for the second week in a row, with every starter scoring in douible figures for a total of 190 points. Second place went to Aardvark Apocalypse at 147 and Bulldog Bruins at 145. The 43 point victory margin vaults me from fifth to first place. Steve Slaton and Ryan Grant both really broke out, giving me 22 and 21 points each. Owen Daniels added a whopping 25 points. Aaron Rodgers did a great job (29) and the Colts DST was a major contributor (21). 

Cowboys Drool (Cowboys Rule Yahoo league spanked Wide Right 96.25 to 65.45, to improve to 5-2. I'm now tied with 4 other managers for second place (8 teams make the playoffs). Big games from Peyton Manning, Marques Colston, Devin Hester, and the Saints DST drove the scoring. Brent Celek's mere 1.90 points were a real disappointment, but thankfully I had benched Chris Cooley. I didn't need Ricky Williams 23.60 points, but I'm still mad at myself for leaving him on the bench. I know conventional wisdom says you don't start both members of a RBBC, but I'm increasingly convinced that this year's Miami Dolphins are an exception to the rule. To explore that hypothesis, I've collected the data for my RBs and the flex RB/WR/TE position (starting RB marked by *):

Week	R. Brown	Williams	Hightower	D. Brown	Flex RB/WR/TE
1	4.15*	9.90	12.80*	3.45	3.40 (J Morgan)
2	18.80*	4.10	11.70*	9.00	3.33 (D Hester)
3	7.25*	12.20	3.55*	6.25	3.40(C Cooley)
4	17.75*	11.30	BYE	8.80*	11.30 (R Williams)
5	18.32*	8.40	10.85*	2.75	0.00 (C Cooley)
6	BYE	BYE	10.90*	BYE	5.35 (C Cooley)
7	8.40*	23.60	6.00*	2.90	13.05 (D Hester)

In weeks where Cooley started at the flex, Brent Celek was the starting TE. In 4 of the 5 weeks where all 5 players played, I would have been better off starting Williams and R Brown at RB and Hightower at flex. In the fifth (week 7), I would have been better off starting Wiiliams and R Brown and benching Hightower. Going forward, moreover, Beanie Wells looks to cut even more into Hightower's touches. Because this is a PPR league, Hightower will still have value. But I think I'm better off starting R Brown and Williams  (unless Miami is facing a really top run defense) and choosing between Hightower, Hester, and Eddie Royal for the flex slot. (With Chris Cooley out for the season, the days of starting 2 TEs are over. And Donald Brown hasn't done enough to work into the rotation other than as a bye week replacement. BTW, I picked up Fred Davis to fill Cooley's slot on the roster, but I'm not expecting much from him.)

Bruinskins II (CBS Platinum standard scoring) smacked it opponent 134 to 77 to improve to 5-2. I'm tied for 1st place in my division and tied with two other managers for second place overall (just 4 teams make the playoffs). Big games from Phillip Rivers (29), DeSean Jackson (24), and the Chargers DST (26), along with a decent day from Adrian Peterson (18) and a solid performance by Darren Sproles as a bye week fill in for Knoshown Moreno, drove the scoring. Chester Taylor (1) was a bust as a bye week fill in at the RB/WR flex spot, but next week I'll have the luxury of selecting between Sproles, Percy Harvin, and Mike Sims-Walker for that slot.

Lastly, however, we come to the problem child--Bruinskins I (CBS Free standard scoring). Pathetic performances on Sunday by Jay Cutler (10), Matt "sophomore slump" Forte (4), and Mario "how many TDs did I drop this week?" Manningham (4) left me trailing 88 to 89 going into MNF. Since my opponent had no Redskins or Eagles on his starting roster and I had emergent TE1 Brent Celek starting, surely I would pick up at least 1 point to tie. Right? Wrong. McNabb failed to target Celek with any regularity and he ended up with 0 points on a lousy 8 yards. Bring back Kevin Kolb, who leaned on Celek big time. So we dropped to 1-5-1, half a game out of last place. I don't believe in either team dumping or going dead, but it's sure not going to be any fun playing this team the rest of the way. What's really annoyong is that, on paper, this team should have been highly competitive. Matt Forte, Clinton Portis (whom I mistakenly traded), Roddy White, Jay Cutler, and Chad Ochocinco were decent picks for the first 5 rounds. Knownshon Moreno was a logical sleeper choice in round 6. Forte and to a lesser extent Cutler, however, have killed this team's chances week after week. Roddy White's slow start didn't help much. My team management hasn't been all the great, however. Trading Portis, Kelvin Winslow, and Ricky Williams, and Steve Smith (NYG) for an assortment that includes Mario Manningham, Reggie Bush, and others even more embarrassing to name were some of my worst deals ever. Oh well.

Barney Frank: "We Are Trying On Every Front To Increase The Role Of Government"

If it is true that the nine most terrifying words in the English language are, "I'm from the government and I'm here to help," as I believe to be the case, this Barney Frank quote is a close second:

The Need to Define Insider Trading

Gordon Crovitz in the WSJ argues:

Rather than the end of the story, however, the Galleon case is just the latest chapter in a drama about the proper role of information in driving markets. In a world where accurate information is usually considered an unambiguously good thing, the U.S. regulatory view has become that too much information is a bad thing. ...

Information flows these days are increasingly about networks, including information about markets shared by members of various communities. Traders use Web sites to compare notes on companies and use social media like Facebook to share information, looking for an edge. Sophisticated traders such as hedge funds draw on more selected networks such as their investors. As these networks expand, including online, it will become harder to know whether market-moving information originated improperly through an insider's breach or properly through gathering of information in other ways.

Or as one banker put it last week, "The hedge fund guys all have their windows open and one leg over the ledge," wondering if they also violated the insider-trading laws, even unintentionally. This uncertainty has its costs. In one of the few insider-trading cases decided by the Supreme Court, the focus was on the need for aggressive research. In Dirks v. Securities and Exchange Commission (1983), Justice Lewis Powell wrote that imposing insider-trading liability "solely because a person knowingly receives material nonpublic information from an insider and trades on it could have an inhibiting influence on the role of market analysts."

Stephen Bainbridge, a UCLA law professor, described on his blog this growing conflict between the need for more information to make markets more efficient and prices more accurate versus a regulatory focus on equal access to information. "The SEC has always wanted a rule of equality of access: If you have more information than anybody else, you can't trade." The issue: "Can the SEC prove not just that Rajaratnam had better access to information than the market generally, but that he got that information by being a participant after the fact in the tipper's breach of fiduciary duty?"

Until recently, the vagueness of the insider-trading laws were more of an academic topic than a core issue for how markets operate day to day. In today's world of immediate, global flows of information, markets need greater clarity about how information can be gathered and used. The lesson so far is that knowing when insiders violate their duty is easier than knowing when outsiders go too far in bringing accurate information to markets.

Today is Called the Feast of Crispin

Sloppy Reporting at The Economist

In a piece on the Galleon hedge fund insider trading case, The Economist's lead begins:

MILTON FRIEDMAN argued for legalising insider trading on the grounds that it benefited all investors by quickly disseminating new information. These days such leave-it-to-the-market views are unfashionable.

In those two short sentences, there are three serious errors. First, As I explain in my book Securities Law: Insider Trading (Turning Point Series), it was Henry Manne who pioneered the information-related argument for legalizing insider trading. Friedman came along much later. So while it's true that Friedman eventually "argued for legalising insider trading," priority should go to Manne.

Second, the argument is not that insider trading promoted market efficiency "quickly disseminat[es] new information." As I explain in my book, the argument is that "insider trading acts as a replacement for public disclosure of the information, preserving market gains of correct pricing while permitting the corporation to retain the benefits of nondisclosure." In other words, insider trading does not disseminate information. Instead, it's impact on the market makes prices more efficient by causing the market to impound the value of information that nevertheless remains nonpublic. (The argument is wrong, but that's beside the point.)

Third, the point is not to "leave it to the market." The argument is not that the market can regulate insider trading. (Although some have made that argument on other grounds.) The argument is that insider trading makes markets more efficient.

Pretty sloppy.