ProfessorBainbridge.com

Scalzi shorts

Just read two short stories by science fiction writer John Scalzi. An Election is an interesting, quirky story about an election campaign in a city where humans and aliens cohabit more or less peacefully. There's a fair bit of Scalzi's traemark style of humor, about which folks seem to be sharply divided. I get it and like it, but YMMV. Anyway, at $0.99, what do you have to lose?

In contrast to An Election, which is a stand-alone story, Questions for a Soldier is situated in Scalzi's Old Man's War universe. It'll appeal mainly to fans of those books, since it fills in a bit more of their back story. Having said that, however, Scalzi's ruminations on imperialism and soldiers are worth the $0.99 price of admission even for those who haven't read the series.

 

Buy a personally signed copy of Bainbridge on Insider Trading

Ever want a short introduction to insider trading signed by the author (namely, yours truly)? If so, I'm selling 20 of them on eBay. Other eBay sellers charging up to $20. I'm selling it at $4.99 plus S&H.

The interactive third edition of Klein, Ramseyer & Bainbridge's case book on Agency, Partnership, and Limited Liability Entities

I just got the author's copies of the new edition of our agency case book and I think it looks great. There are a lot of new features, including several new cases:

• Rash v. Intermediate, Ltd.
• Davis v. Loftus
• Sandvick v. LaCrosse
• Nemec v. Shrader
• RNR Investments Ltd. Partnership v. Peoples First Community Bank
• Fisk Ventures, LLC v. Segal
• Gottsacker v. Monnier
• Racing Investment Fund 2000 LLC v. Clay Ward Agency, Inc.
• R&R Capital v. Buck & Doe Run Valley Farms.

The book also contains many points for discussion, hypotheticals, and executive summaries.

I think the most exciting feature, however, is that this is our first interactive case book. Working with Foundation Press, we have created a learning resource we believe is more in tune with the ways that law students think and learn today. As we know, students are familiar with online legal research resources and accustomed to electronic materials. Accordingly, an electronic version of Agency, Partnerships and Limited Liability Entities accompanies the print version to provide students with interactive study and research tools that include:

• Hyperlinks to westlaw.com that provide full text of cases, statutes, Restatements, and articles
• A searchable text function that allows users to highlight and annotate selected text
• Live links to related websites and other online material

Each book includes a keycode that provides access to the online version of the book for 12 months. Students interested in purchasing only the online version may do so at store.westlaw.com. This should help make the case book both more user friendly and, at least in its digital form, less expensive.

Happy Boxing Day!

I got a lovely Christmas gift from Francis Pileggi, who wrote:

For those who want gift giving ideas that can be fulfilled online, I recommend the latest publication from one of the nation’s most respected corporate law experts and a favorite of the Delaware Courts (based on their frequent citations to his scholarship), Professor Stephen Bainbridge. Entitled: Corporate Governance after the Financial Crisis, and available for pre-order via Amazon.com here , this latest work from a prolific scholar has been described by Professor Steven Davidoff, as follows:

“Professor Bainbridge has written an important book for those seeking to understand the theoretical and practical implications of Dodd-Frank, Sarbanes-Oxley and the federal government’s foray into corporate regulation. It is a book that for years to come will influence the controversial debate over the federal regulation of corporate governance.” –Professor Steven Davidoff, N.Y. Times “Deal Professor”

Many thanks!

Why does the Wall Street Journal hate Science Fiction?

I just finished reading the Wall Street Journal review section's roundup of the "best" books of 2011. As usual, mysteries were the only genre of genre fiction to be deemed worthy of inclusion. Everything else fell into the "literary" category or its nonfiction equivalent.

As a lifelong fan of science fiction and fantasy, I'm the first to admit that the modern field has its problems. The ever increasing tendency of fantasy bookshelves to be dominated by paranormal romance, for example, strikes this reader as an appalling development.

Yet, as has been noted, "in today’s literary landscape, much of what is elevated as great literature achieves no more than mediocrity, while much genre fiction manages excellence." 

Moreover, as Walter Russell Mead argues:

Taken as a whole, the field of science fiction today is where most of the most interesting thought about human society can be found. ... Science fiction is the literary genre (OK, true, sometimes a subliterary genre) where the social imagination is being cultivated and developed.

But you'd never know that from reading the pages of the Wall Street Journal. Other than the odd review or two by Tom Shippey, the Journal pays no attention to science fiction or most other genre fiction. Why?

Insider Trading anthology

Edward Elgar has announced publication of a new anthology on insider trading edited by yours truly. From the publisher's website:

‘Insider trading, among all topics in securities regulation, has generated an extensive discourse with far greater heat than light. Steve Bainbridge has performed a valued public service by putting together the best in the legal literature with this volume. Hopefully, going forward, with this endeavor the heat/light quotient will be impacted, if not reversed.’ – Roberta Romano, Yale Law School, US

‘Insider Trading contains a superb collection of articles – providing an excellent overview of insider trading from both a theoretical and historical perspective. The book should prove quite useful for academicians and students desiring a collection of a variety of insightful sources in one volume.’ – Marc I. Steinberg, SMU Dedman School of Law, US

This timely collection, edited by a leading academic in the field, brings together seminal works of scholarship on insider trading over a 40 year period, with contributions from many prominent law professors and economists. Areas covered in the volume include the origins and development of insider trading law, insider trading statues and the policies surrounding insider trading. Along with an original introduction, Professor Bainbridge provides a comparative and international focus as well as coverage of important issues in the US law of insider trading. This volume will be of immense value to scholars and practitioners interested in this evolving and topical field of study.

Table of Contents

Acknowledgements

Introduction Stephen M. Bainbridge 

PART I ORIGINS AND DEVELOPMENT OF INSIDER TRADING LAW
1. Michael Conant (1960), ‘Duties of Disclosure of Corporate Insiders Who Purchase Shares’
2. Arthur Fleischer, Jr., Robert H. Mundheim and John C. Murphy, Jr. (1973), ‘An Initial Inquiry into the Responsibility to Disclose Market Information’

PART II THE SUPREME COURT’S DECISIONS IN CHIARELLA AND DIRKS
3. Donald C. Langevoort (1982), ‘Insider Trading and the Fiduciary Principle: A Post-Chiarella Restatement’
4. Jonathan R. Macey (1984-85), ‘From Fairness to Contract: The New Direction of the Rules Against Insider Trading’

PART III THE MISAPPROPRIATION THEORY EMERGES 
5. Richard W. Painter, Kimberly D. Krawiec and Cynthia A. Williams (1998), ‘Don’t Ask, Just Tell: Insider Trading after United States v. O’Hagan’
6. A.C. Pritchard (1998), ‘United States v. O’Hagan: Agency Law and Justice Powell’s Legacy for the Law of Insider Trading’ 

PART IV INSIDER TRADING STATUTES 
7. Donald C. Langevoort (1984), ‘The Insider Trading Sanctions Act of 1984 and Its Effect on Existing Law’
8. Lawrence E. Mitchell (1988), ‘The Jurisprudence of the Misappropriation Theory and the New Insider Trading Legislation: From Fairness to Efficiency and Back’ 

PART V INSIDER TRADING POLICY: THE MANNE DEBATE 
9. Henry G. Manne (1966), ‘In Defense of Insider Trading’
10. Roy A. Schotland (1967), ‘Unsafe At Any Price: A Reply to Manne, Insider Trading and the Stock Market’ 
11. Henry G. Manne (1970), ‘Insider Trading and the Law Professors’

PART VI INSIDER TRADING POLICY: THE POST-MANNE DEBATE 
12. Michael P. Dooley (1980), ‘Enforcement of Insider Trading Restrictions’
13. Dennis W. Carlton and Daniel R. Fischel (1983), ‘The Regulation of Insider Trading’
14. Larry E. Ribstein (1998), ‘Federalism and Insider Trading’
15. Stephen M. Bainbridge (2000), ‘Insider Trading’

FWIW, I didn't set the price.

The Politics Book You Must Read

Peter Schweizer's Throw Them All Out:

One of the biggest scandals in American politics is waiting to explode: the full story of the inside game in Washington shows how the permanent political class enriches itself at the expense of the rest of us. Insider trading is illegal on Wall Street, yet it is routine among members of Congress. Normal individuals cannot get in on IPOs at the asking price, but politicians do so routinely. The Obama administration has been able to funnel hundreds of millions of dollars to its supporters, ensuring yet more campaign donations. An entire class of investors now makes all of its profits based on influence and access in Washington. Peter Schweizer has doggedly researched through mountains of financial records, tracking complicated deals and stock trades back to the timing of briefings, votes on bills, and every other point of leverage for politicians in Washington. The result is a manifesto for revolution: the Permanent Political Class must go.

It's an incredibly appalling expose of the pervasive corruption on both sides of the aisle in Washington. If you don't come away from it both disheartened and furious, you were not paying attention.

The "Growing 'Civilian-Military' Gap" and America's Neo-Victorian Little Wars

Mary Dudziak posts on the growing concentration of military service within certain segments of the population:

"A smaller share of Americans currently serve in the U.S. Armed Forces than at any time since the peace-time era between World Wars I and II," according to a new report from the Pew Research Center (hat tip New York Times).

During the past decade, as the military has been engaged in the longest period of sustained conflict in the nation’s history, just one-half of one percent of American adults has served on active duty at any given time.1 As the size of the military shrinks, the connections between military personnel and the broader civilian population appear to be growing more distant.

 

 The data reveals is "a large generation gap." According to the report, "more than three-quarters (77%) of adults ages 50 and older said they had an immediate family member –a spouse, parent, sibling or child – who had served in the military."  In contrast, for people under 50, "57% of those ages 30-49 say they have an immediate family member who served. And among those ages 18-29, the share is only one-third."

Military service is now more concentrated in certain families:  "Veterans are more than twice as likely as members of the general public to say they have a son or daughter who has served (21% vs. 9%)."  And overall, what the report calls a "military-civilian gap" is more pronounced among younger people.

Dudziak worries about the political consequences of this growing gap:

The more distant and isolated Americans are from their nation's wars, the less they are politically engaged with American war policy.

Legal scholars argue on this blog and elsewhere that the tendency of presidents to initiate military action without congressional authorization can only be reined in if Congress insists on playing its constitutional role.  But Congress will never play a more meaningful role in American war politics if the people aren't engaged.  The Pew Report helps us to see what appears to be a growing distance from the costs of war, potentially reinforcing contemporary political disengagement. 

In my new book, War Time: An Idea, its History, its Consequences , ... I argue that keeping the war powers in check requires a politics of war, and that requires a citizenry attentive to the exercise of military power.  Our ideas about "wartime" play a role in the current disconnect, as a cultural framing of wartimes as discrete and temporary occasions, destined to give way to a state of normality, undermines democratic vigilance over on-going wars. 

As Americans become more isolated from the costs of war, military engagement no longer seems to require the support of the American people.  Their disengagement does not limit the reach of American military action, but enables its expansion.

As regular readers know, I'm an Army brat and have a life-long interest in military history. (One of these days I've got to figure out how to do military history in my day job. Suggestions?) As I read Dudziak's post, I was immediately reminded of Byron Farwell's wonderful book Queen Victoria's Little Wars. Farwell explains that:

From 1837 to 1901, in Asia, China, Canada, Africa, and elsewhere, military expedition were constantly being undertaken to protect resident Britons or British interests, to extend a frontier, to repel an attack, avenge an insult, or suppress a mutiny or rebellion. Continuous warfare became an accepted way of life in the Victorian era ....

Although Farwell is mainly concerned with military history and biography, there are some interesting historical lessons that echo Dudziak's concerns:

Victorian England "developed a sound military caste, a narrow, closed society with its own values and standards of conduct." (xviii) The Pew study data suggests we're headed in that direction.

The British public paid almost no attention to the pervasive little wars: "Even at the time, punitive excursions, field forces, and minor expeditions were so commonplace that most Britons never knew of them." (200) As Dudziak observes, public disengagement led to a lack of political oversight. It's instructive, for example, that there is no entry for Parliament or House of Commons in the very extensive index for Farwell's book. Even more striking, Farwell relates that "no one below the prime minister controlled the Empire's army, and even his ability to direct it was doubtful ...." (xviii) The latter half of that aspect of Victorian-era military-political relations may not (yet) hold true in the USA, but Obama's Libyan adventure forcefully illustrates -- as did many Bush and Clinton adventures before it -- the ability of a modern President to send our forces to war without much in the way of Congressional oversight.

Just as the Afghans frustrated the Soviets, they did the same to the Victorian British.

While always protesting friendship, the British repeatedly invaded [Afghanistan] and shot at its inhabitants. Always unable to subdue the proud, fiercely independent Afghans, [they kept trying for fear Russia or Persia would]. (4-5)

[The campaign of 1880] proved once more that the British could defeat the Afghans in open battle but they could not hold the country. (216)

... the Afghans had a disconcerting habit of not knowing when they were defeated... (201)

So it's not very surprising that we've struggled with the Afghans too.

In sum, history seems to be repeating itself. The USA increasingly wages continuous warfare with decreasing political checks on Presidential power. It's like we've become a country of neo-Victorians.

Finally, it's worth noting that Farwell closes with a quote from Lord Wolseley that seems to be drawing ever closer to coming true:

The Chinese, he said, “are the most remarkable race on earth and I have always thought, and still believe them to be,the coming rulers of the world. They only want a Chinese Peter The Great or Napoleon to make them so…..and in my idle speculation upon this world’s future I have long selected them as the combatants on one side of the great battle of Armageddon, the people of the United States of America being their opponents.

Whenever I read that quote, I can't help but recall that the era of Britain's little wars ended with the catastrophe of World War I. 

Books I've been Reading

The Arrogance Cycle: Think You Can't Lose, Think Again

What is the arrogance cycle? We’ve just lived through it. As market bubbles build, our confidence level rises (dis)proportionately. Everyone wants in on the action. We want to believe Wall Street, and once we do, the inevitable happens. Like Dr. Frankenstein breathing life into inanimate flesh, investment professionals sought ever more novel ways to create wealth. The only problem was that it was all artificial. In this book, Michael Farr examines the forces at work on individuals and markets and explains in clear, concise, layman’s terms how we got to where we are.

Farr focuses on individual factors—such as rampant consumerism, a sense of entitlement, narcissism, resentment toward the upper class—that combined to create the perfect economic storm. By consulting with leading psychologists and relaying first-hand experience with investment clients, he provides a case study of the arrogant investor. In reviewing failed enterprises like Enron, AIG, Lehman Brothers, and Bear Stearns, as well as the illegal activities of Bernie Madoff and others through the lens of arrogance, the book sheds light on those disasters and offers a means to detect the insidious presence of arrogance so that in the future we can contain the damage before it spreads.

Kraken: The Curious, Exciting, and Slightly Disturbing Science of Squid

Kraken is the traditional name for gigantic sea monsters, and this book introduces one of the most charismatic, enigmatic, and curious inhabitants of the sea: the squid. The pages take the reader on a wild narrative ride through the world of squid science and adventure, along the way addressing some riddles about what intelligence is, and what monsters lie in the deep. In addition to squid, both giant and otherwise, Kraken examines other equally enthralling cephalopods, including the octopus and the cuttlefish, and explores their otherworldly abilities, such as camouflage and bioluminescence. Accessible and entertaining, Kraken is also the first substantial volume on the subject in more than a decade and a must for fans of popular science.

Probably the best popular science book I've read in ages. I'm inexplicably fascinated by giant squid and this book held my attention me from start to finish. Highly recommended.

Congressional insider trading: "Congress is getting rich off Wall Street and Peter Schweizer won't stop until everyone knows it"

From The Daily Beast:

In the Spring of 2010, a bespectacled, middle-aged policy wonk named Peter Schweizer fired up his laptop and began a months-long odyssey into a forbidding maze of public databases, hunting for the financial secrets of Washington’s most powerful politicians. Schweizer had been struck by the fact that members of Congress are free to buy and sell stocks in companies whose fate can be profoundly influenced, or even determined, by Washington policy, and he wondered, do these ultimate insiders act on what they know? Yes, Schweizer found, they certainly seem to. Schweizer’s research revealed that some of Congress’s most prominent members are in a position to routinely engage in what amounts to a legal form of insider trading, profiting from investment activity that, he says, “would send the rest of us to prison.”

Walter Olson courteously rounds up the list of high profile cases identified by Schweizer:

Washington has been buzzing for the past 48 hours over revelations that some of Capitol Hill’s best-known lawmakers have been making fortunes speculating in the stocks of companies affected by official actions, typically while in possession of market-moving inside information. Rep. John Boehner (R-OH), Senatorial wife Teresa Kerry and others made bundles trading in health companies’ stocks shortly before Congressional or executive-branch action affecting the companies’ fortunes. After closed-door 2008 meetings in which Fed chairman Ben Bernanke briefed Congress on the gravity of the financial collapse, some lawmakers dumped their own stockholdings or even placed bets that the market would fall. Rep. Nancy Pelosi (D-CA) got access to highly desirable IPO (initial public offering) stock placements, some in companies with business before Congress. And so on. Studies have found that lawmakers as a group reap far above-average returns on their investments—suggesting either that these politicians are among the world’s cleverest investors, or else that they are profiting from inside information. All this has been turned into a front-page issue thanks to Throw Them All Out, a book by Hoover fellow Peter Schweizer, whose findings were showcased the other night on 60 Minutes.

Regular readers know that I believe Congressional insider trading is both wrong morally and ethically but also legal under current law. Hence, my support for the STOCK Act, which would ban it. See my article  Insider Trading Inside the Beltway. Very regular readers know I've been going back and forth with law professor Donna Nagy on this issue in the comments section of a prior post. FWIW, Olson agrees with me:

So the question is: is all this legal? While there’s some difference of opinion on the issue among law professors, the proper answer to that question is most likely going to be, “Yes, it’s legal.” As UCLA’s Stephen Bainbridge points out, existing insider trading law, developed by way of a long series of contested cases under the Securities and Exchange Commission’s Rule 10b-5, assigns liability to persons who are not corporate insiders if they are violating a recognized duty of loyalty to those for whom they work. As applied to the investment whizzes of the Hill, this implies that trading on inside information might be a violation if done by Congressional staffers (since they owe a duty of loyalty to higher-ups) but not when done by members of Congress themselves.

So, apparently, does Schweizer:

When Schweizer began his project, he consulted a former securities regulator, who happened to have an office down the hall from his in Florida. The adviser told him that investigators always look for two things in insider-trading cases: whether individuals had access to material information and whether they engaged in unusual trading. There is probably no group of people on earth with greater access to inside information than members of Congress; K Street lobbying firms get rich fees from hedge funds for ferreting out intelligence (such as whether some pending legislation has the votes to pass) that any member of the Senate or House routinely obtains in the cloak room.

But there have been no insider-trading cases brought against members of Congress, nor will there likely be. This is partly because, though insider-trading law is not settled, case law usually requires that an offending insider bear fiduciary responsibility at the company involved. But Congress’s relative immunity also owes to the fact that, in this regard, as in many others, Congress lives by its own rules. Schweizer notes that the Senate’s ethics manual devotes an entire chapter to the proper use of the mail and of Senate stationery, but is silent on the subject of insider trading. Ditto the rules of the House, which state that a member’s recusal from a vote affecting his or her stock portfolio “might be denying a voice” in the process. Neither the executive nor judicial branches allow such laxity.

Only one way to find out for use, of course. So I bought the book. As should you. It reams out the corruption on both sides of the aisle in Washington.

The Complete Cover for Corporate Governance After the Financial Crisis

The countdown to publication of Corporate Governance after the Financial Crisis continues to run rapidly. Today, we signed off on the final cover, reproduced below:

Be sure to check out the glowing blurbs!

And then go preorder your copy now:

Makes a great Christmas gift too.

Corporate Governance After the Financial Crisis gets a cover

My forthcoming book Corporate Governance after the Financial Crisis is rapidly approaching publication. The final proofs have been approved and the cover has been chosen.

As Oxford University Press' website explains,

The first decade of the new millennium was bookended by two major economic crises. The bursting of the dotcom bubble and the extended bear market of 2000 to 2002 prompted Congress to pass the Sarbanes-Oxley Act, which was directed at core aspects of corporate governance. At the end of the decade came the bursting of the housing bubble, followed by a severe credit crunch, and the worst economic downturn in decades. In response, Congress passed the Dodd-Frank Act, which changed vast swathes of financial regulation. Among these changes were a number of significant corporate governance reforms. 

Corporate Governance after the Financial Crisis asks two questions about these changes. First, are they a good idea that will improve corporate governance? Second, what do they tell us about the relative merits of the federal government and the states as sources of corporate governance regulation? Traditionally, corporate law was the province of the states. Today, however, the federal government is increasingly engaged in corporate governance regulation. The changes examined in this work provide a series of case studies in which to explore the question of whether federalization will lead to better outcomes. The author analyzes these changes in the context of corporate governance, executive compensation, corporate fraud and disclosure, shareholder activism, corporate democracy, and declining US capital market competitiveness.

You can order it here

Request for advice re third edition of Mergers and Acquisitions

I'm working up the third edition of my Mergers and Acquisitions text. If you've used it as an adopter, student, or practitioner, I would very much welcome suggestions as to features you'd like to see added (e.g., would questions and problem sets be useful?) and issues you'd like to see covered (e.g., do I really have to add materials on tax and accounting?). Thanks!

I'm adjudged to be "useful"

Delaware Chancellor Strine, in GRT, Inc. v. Marathon GTF Technology, Ltd., 2011 WL 2682898, at *12 n.64 (Del.Ch. 2011):

Examples of useful works that are helpful to M & A practitioners but that spend comparatively little time on contractual issues include: ... STEPHEN M. BAINBRIDGE, MERGERS AND ACQUISITIONS 72–73 (2d ed.2009) (considering only the general nature and purpose of representations and warranties in a typical merger agreement) ....

In my defense, Strine overlooked the discussion at pp. 76-85 of the contract law aspects of exclusivity provisions such as no shop and best efforts clauses.

Having said that, I'll take under advisement for the upcoming third edition Strine's suggestion that our books need to provide "learned consideration of the important contract issues that are often even more central to the parties to such transactions" and "delve into the admittedly obscure differences between covenants, representations, warranties, and conditions, and how they work together in an acquisition agreement."

What if Dr. Seuss wrote The Call of Cthulhu?

Brilliant. Priceless. I love it.