Results matching “ribstein”

Maybe that AIG case isn't so crazy? - PointOfLaw Forum

As Hester Peirce notes, AIG has rejected a shareholder demand to sue the government over the bailout that transferred ownership of AIG to taxpayers. But as John Carney notes (h/t Bainbridge), the shareholder, Hank Greenberg, no fan of frivolous litigation, may have a point:

A judge on the Federal Claims court ruled last summer that if what Greenberg argues is true, the government may really have acted illegally.

Greenberg's legal team, led by David Boies, argues that the government pushed away sovereign wealth-funds and other foreign investors who might have been willing to invest in the company before it was bailed out. This, they argue, prevented AIG from being able to raise capital and contributed to its downgrading by ratings agencies, which in turn put the company into even more dire straits. This forced AIG to accept the unfair terms the government offered in its loan agreement, the lawyers say.

Greenberg's lawyers also raise questions about the events around one of the oddest episodes of the AIG-Treasury relationship. You might recall that in the summer of 2009, the government converted its preferred shares into 79.9 percent of the common stock of AIG, something that it was entitled to do under the terms of the government's loan. This was accomplished by means of a reverse 20:1 stock split.

You might not recall precisely why the stock split occurred. At the time, then-chief executive Ed Liddy said it was necessary to prevent the stock from being delisted on the New York Stock Exchange. That might be true. But it is also true that the split was a necessary part of the conversion from preferred shares because AIG's charter didn't authorize enough common stock to allow the government to take 79.9 percent of the common stock. So when the government converted to common, it was issued unauthorized common stock.

When common shareholders were asked to authorize the additional common stock--which would have badly diluted their interest in the company--they voted no. Because the government's stake was in unauthorized shares, it didn't get a vote.

So another vote was held about the reverse split of all issued stock--including the government's unauthorized shares. This time, the government got to vote its 79.9 percent stake on this question because its unauthorized shares were also affected. And so the measure prevailed. After the split, the total number of shares outstanding no longer exceeded the number authorized in AIG's charter, so the government's shares were now officially authorized.

That's more than a little bit confusing, I'll admit. And it does sound more than a bit questionable, even to someone as jaded about shareholder rights as I am. But Greenberg's lawyers say it's even worse. They say that this procedure was engineered to circumvent a Delaware court order meant to protect the rights of the common shareholders when the government took over the company.

More from Professor Pirrong.

Now, of course, being allowed to proceed on a complaint means only that there is a legal cause of action if the facts alleged in the complaint are true; Greenberg still has to prove his case, and the allegations may not be true. But if they are, it wouldn't be the first time government officials shortchanged AIG shareholders and Hank Greenberg at the expense of the rule of law. Others have suggested that that earlier Spitzer action resulted in incompetent AIG management that led to its future financial problems. (Related: Manne; Ribstein in 2006; Ribstein in 2005.)

(By the way, the late Larry Ribstein's Ideoblog posts seem to have disappeared from the web. Perhaps Truth on the Market could find a way to archive them so that they remain Google-searchable? I hate to lose the wisdom of any posts I don't know to look for on

Overcriminalization and CEO pay - PointOfLaw Forum

An under-studied phenomenon: to what extent is higher CEO pay a result of the increased frequency with which prosecutors destroy the lives of CEOs by criminalizing unsuccessful business decisions or arbitrarily retroactively selectively criminalizing common business practices (compare Broadcom and Apple on question of options backdating)? Economic theory would predict that increased chances of having your wealth stripped and being sent to prison for years would require higher compensation ex ante. After Larry Ribstein's death, I'm not aware of anyone considering this at all. Today's DOJ has been surprisingly restrained in not prosecuting executives for foolish investments in the real estate bubble, and are largely being criticized, rather than praised, for their forebearance. Which academic is on the criminalization-of-risk beat these days?

What the frack? - PointOfLaw Forum

Hollywood was all ready to capitalize on the fracking controversy—until it turned out that most of the sensational anti-fracking claims were based on nonexistent evidence or, worse, entirely faked. Never you mind: just rewrite the script to blame the bogus environmental claims on an oil-industry false flag operation. Larry Ribstein would have had a field day.

Spoilers on "Prometheus" after the fold, as I discuss problems of corporate law in 2091.

The First Amendment and Corporate Governance - articles

An irreplaceable loss: RIP Larry Ribstein - PointOfLaw Forum

I cannot begin to say how devastated I am at the sudden death of Larry Ribstein this morning, just two days shy of his fortieth wedding anniversary. Larry was so creative and innovative in so many fields (this is just how many times we cited to him since February, including just this week), I often found myself wishing that there were several Larrys because everything he wrote had such opportunity cost for other things he didn't have time to write. I was always begging him to write for me when I was at AEI, and the time he said yes, he (with Henry Butler) turned out the important The Sarbanes-Oxley Debacle, a devastating and persuasive takedown of the new law. I'd end up plagiarizing Professor Bainbridge's summary of the rest of Ribstein's body of work to discuss the rest of it, so I'll refer you to his thorough post. In area after area—overcriminalization, overregulation, popular-culture portrayal of business, the cartelization of legal practice and education—he was often close to alone in taking important contrarian positions. If I found myself disagreeing with Larry, I knew it meant I'd better put some soul-searching and analysis into my own position; if I hadn't already thought about an issue of corporate law or federalism, I knew I could scan Ribstein's work on the subject to have a good starting point. So not only do we not have the three or five Larry Ribsteins we needed, we now don't even have the one, and we're poorer for it.

But beyond the loss to legal scholarship is the loss of a good person. Larry was also a friend, but an intellectually honest one who wouldn't hesitate to tell you when he thought you were wrong (which happened several times a year to me). But that made it all the more flattering when he demonstrated support, and he was an early supporter of mine when it was far from clear that my hare-brained quixotic scheme would accomplish anything. I'm going to miss him a lot. Condolences to his family and friends.

More: Lipshaw; Manne; Wright; Henderson; Solum; Leiter; and a long list of others at TaxProf.

Update: also Kirkendall.

Legal education: Debate shifts from content to competition - PointOfLaw Forum

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, discusses David Segal's recent article in the New York Times on the law school accreditation framework.

The article debunked the self-serving claim of the chairman of the ABA's legal education section that onerous accreditation standards are necessary to give students "what they have a right to receive in terms of education" and "protect the public." It examines the experiences of a start up law school in Tennessee, the Duncan School of Law, which is seeking ABA accreditation. The school must have an unnecessarily big library and professors with tenure and time to write law review articles. These requirements enrich law professors at the expense of their students and the public. So, as a couple of former law deans tell Segal, the professors exert their power through the accreditation process to maintain the status quo. In the end, the Duncan School of Law's advocates had to fly to a beachfront Ritz-Carlton in Puerto Rico to meet with the ABA to make a 15-minute argument for provisional accreditation. The ABA's questions showed they were interested in the lawyer market in east Tennessee, suggesting that lowering clients' costs mattered less to them than threatening lawyers' income -- an anti-competitive animus against new, low-cost law schools.

Larry Ribstein, Mildred Van Voorhis Jones Chair and Associate Dean for Research at the University of Illinois College of Law, also analyzes Segal's article in his entry on the Truth on the Market blog and then more substantively explores the problems facing legal education in his paper, Practicing Theory: Legal Education for the Twenty-First Century.

In his blog post, Professor Ribstein calls for a deeper analysis of U.S. legal market:

The NYT article typically fails to articulate the causes and cures of our over-priced legal system beyond the commonplace that the ABA somehow manages to restrict competition. Segal blames the law professors, finding comfort in the scam-bloggers' simple-minded denunciation of high-priced legal scholarship. But since Segal doesn't explain how a bunch of eggheads sitting around writing useless articles came to control the ABA, he sounds like he's blaming the mosquitoes for banning DDT. This narrow focus isn't surprising given Segal's mission, which not to analyze or educate, but to entertain with simplistic narratives and pithy quotes.

So what's really happening? The cause of the current situation, as I make clear in my Practicing Theory, is obviously the practicing bar, a powerful lawyer interest group with an incentive to keep the price of legal services high. Lawyers operate not only through the ABA but also local bar associations. Legal educators (law professors, law school and university administrators) come into the picture because they manage the key instrument for doing so -- the academic institutions that keep the price of entry high. If the lawyers really wanted to make law school cheaper and more "practical" they could do it in an instant.

Some follow-up - PointOfLaw Forum

Johnson & Johnson lawsuit thrown out - PointOfLaw Forum

Alison Frankel finds it problematic that a derivative shareholder suit against the Johnson & Johnson board was thrown out before it could incur millions of dollars of discovery costs and an extortionate settlement. I'm more sanguine.

Let's leave aside the fact that the underlying allegations are mere piling on: the lawsuit stemmed from the settlement of criminal allegations over Risperdal marketing and similar problems. Let's also leave aside the fact that every major pharmaceutical company is entirely at the mercy of prosecutors, and thus a criminal settlement is evidence of nothing other than ambitious prosecutors: given the fact that any criminal sanctions would cost the company tens of billions of dollars, no global pharmaceutical company is ever going to risk defending itself when prosecutors come after it, and the only question is the terms of surrender, given that even a risk-neutral set of executives would refuse to go to trial on criminal charges that they had a 95% chance of winning.

The issue is this: first, any corporate law is going to have to balance false negatives (valid suits against directors being thrown out prematurely) and false positives (invalid suits against directors costing tens of millions of dollars in time and money to resolve). Any opening up of the courtroom doors to challenge directors will reduce false negatives at the expense of more false positives; any increase in the burden to bring suit will reduce false positives at the expense of more false negatives.

Which brings us to my second point: the fact of the matter is that being a shareholder is a voluntary transaction. Different corporations can incorporate under different state laws that balance the interest of preventing false positives against the interest of false negatives. Shareholders can vote with their feet. If Frankel or other shareholders feel that New Jersey law is too protective of corrupt or incompetent directors, they can readily vote with their checkbooks to instead invest in companies incorporated in states that allow Bernstein Litowitz and Robbins Geller fishing expeditions. Such capital flows create premiums for incorporating in states that strike a good balance and penalties for incorporating in states that make it too easy or too hard to sue. Even if the legal standard here produced a false negative (and it's hard to say that it did if one believes that federal prosecutions of pharmaceutical companies are frequently just a lawless arbitrary expropriative tax that can strike good companies as easily as bad ones), it's good for New Jersey corporations in the systemic sense that the legal gatekeeping standard for such derivative suits is upheld.

See also Larry Ribstein and Erin O'Hara, The Law Market.

From today's WSJ ($) and Ribstein. Earlier.

Around the web, August 1 - PointOfLaw Forum

  • Even as left claims there is no such thing as voter fraud, honest Democratic prosecutors in Mississippi use DNA evidence to convict NAACP official stuffing absentee ballot boxes with dead voters. [Daily Caller; earlier on POL]
  • Montana Supreme Court: aluminum-bat manufacturer on hook for $850,000 for failure to warn—though the injured plaintiff wasn't the person who purchased the bat or would've seen the warning. [Wajert; Fisher @ Forbes; Patch v. Hillerich & Bradsby Co.; earlier on POL]
  • The problem of lack of demand-side regulation: Ribstein on Yockey on the FCPA: "The article paints a classic picture of over-criminalization in action and how a poorly designed and over-enforced law is crippling U.S. firms ability to compete internationally." [Ribstein; SSRN]
  • Related: ILR critical of WaPo denigration of FCPA reform efforts. [WaPo]
  • Government wants Internet providers to spy on your browsing history for them. [Sanchez @ NYPost]
  • Say what you will about Nancy Grace, but she's at least willing to file a Rule 11 motion; efforts in the House to return teeth to Rule 11 are probably doomed, though. [Frankel; OL]
  • Who's suing whom in the mobile phone market, graphically represented. [Lowering the Bar]
  • "Hilton guest makes federal case of 75-cent paper" [SF Chronicle (h/t N.M.); Gawker]
  • September 11 didn't create waves of PTSD; perhaps vindicating my 2008 testimony. [Bader; NYT]
  • Debt-ceiling bill not so much a "sugar-coated Satan sandwich" as a lot of sound and fury over nothing. [Barro; related: de Rugy]

More on Business Roundtable v. SEC - PointOfLaw Forum

Despite the D.C. Circuit's devastating slapdown of Rule 14a-11, the SEC continues to refuse to consider the costs of its regulations. More: Ribstein; Bainbridge; Bainbridge roundup.

Meanwhile, the extensive new Dodd-Frank regulation of hedge funds that passed with the help of various Soros organizations is causing George Soros to go Galt with his own hedge fund rather than comply. As Ira Stoll points out, Soros had his problems with French regulators.

Does this regulation really help investors? A recent empirical study (via Bainbridge) casts doubt:

This study of initial public offerings (IPOs) carried out on the Berlin and London stock exchanges between 1900 and 1913 casts doubt on the received "law and finance" wisdom that legally mandated investor protection is pivotal to the development of capital markets. IPOs that resulted in official quotations on the London Stock Exchange performed as well as Berlin IPOs despite the Berlin market being more extensively regulated than the laissez faire London market. Moreover, the IPO failure rate on these two stock markets was lower than it was with better regulated US IPOs later in the 20th century.

Around the web, July 27 - PointOfLaw Forum

  • Tort reform working in Mississippi. [LNL; Behrens @ Obstetrics & Gynecology]
  • Three cheers for the intellectual honesty of Larry Tribe in the debt ceiling debate. [McConnell via Volokh]
  • Relatedly, I'd rather have Michael McConnell on the Supreme Court instead of blogging, but Michael McConnell blogging is still worthwhile.
  • "Obama Administration Creates New Debts to Pay Off Trial Lawyers Even as it Demands Increase in Debt Ceiling" [Bader]
  • FDA proposes regulation of distribution of health information on mobile devices. Meanwhile, House committee looks at the issue of the costs of FDA false negatives. [Reason; earlier on POL]
  • The legal cartel skimps on regulating its members, but they push very hard against unlicensed competition. [Fisher @ Forbes; Ribstein; see also Lanctot @ SSRN via Ribstein]
  • Skilling's legal team turns out another legal brief that devastates a bad Fifth Circuit opinion. [Kirkendall]
  • Jurisdiction-shopping shenanigans. [Beck]
  • Remembering Amchem—a decision that demonstrates that the Supreme Court's insistence on adhering to procedural protections in class actions can work in favor of plaintiffs, as well as defendants. [Trask]
  • The union guide to intimidation for dummies, exposed. [Wash Times]
  • DOJ malpractice in the Fast & Furious scandal. [Weekly Standard]

"Scandal of the day: a businessman in Congress" - PointOfLaw Forum

Mike Thompson represents California's 1st District in Congress. The District has a healthy concentration of vineyards, so it is not surprising that Thompson supports deregulation that would benefit wineries, including ending restrictions on direct interstate sales of wine. But one of those vineyards is a 20-acre affair owned by Thompson (which made him all of $18,000 last year), and the New York Times is shocked, shocked at the conflict of interest. But why stop there, Larry Ribstein asks: "Are there any lawyers in the House who write laws that benefit lawyers? Even if the House members aren't practicing law now, might they be interested in doing so in the future?" Surprisingly, this hasn't drawn as much attention from the Times.

Wal-Mart bet post-mortem - PointOfLaw Forum

A post-mortem on my Wal-Mart bet, discussed June 5 and June 9.

For me to make money, a few things had to happen:

1. I had to be right that Wal-Mart v. Dukes would result in reversal. Check.

2. I had to be right that the marketplace would react as if this was a surprise, as had been my consistent experience. Even if the expected result was fully priced in, I expected a temporary surge in the price from day-traders irrationally responding to the opinion before the sharps traded the price back down. (I've seen this happen with other stocks just from getting favorable press coverage on CNBC.) Given the enormous market value of WMT, I expected a bounce between 1% and 4% in the stock price, which would correspond to a much larger bounce in the option price. Check: there was a 1.5% bounce after the Supreme Court announcement yesterday; that translated into an increase in the option prices of 20% to 50%. (Of course, post hoc ergo propter hoc doesn't fly: this isn't proof that I was right, rather than lucky, but I do think there was cause and effect.)

If I was right about those two things, my expected return was 15% to 60% depending on the size of the bump, minus the 4-5% transactions cost, plus or minus variance from other market factors.

Unfortunately, this variance issue meant I had to be lucky in two other factors:

First, there were eight or so possible days when the decision would be released; I had to hope the decision wasn't released on June 20, when I would be at a hearing in a courtroom, unable to act upon any rise in the stock price. Oops. By the time I learned of the decision at 1:30 PM, the day-trading bump from the news had disappeared.

Second, I needed the world to produce less bad economic news than good economic news. I was unlucky here: I purchased options June 1 to June 3, and there was bad economic news almost immediately; still, my break-even price was around $54, and I was ahead mid-day June 9. Then the Greek crisis hit, the stock dropped to $52.70 by the opening of June 20, and it was going to be hard for me to make my money back. And, indeed, the 1.5% bounce in the stock only went up to $53.50.

In the stock market, you can be wrong and make money, and right and lose money. It's better to be lucky than good. I'll liquidate today, and take a loss of over half my bet. C'est la guerre. I've made bigger financial mistakes in my life; I've had single trips to Las Vegas where I made more money than I lost on this three-week bet. (Heck, I'm an economist who understands opportunity cost. I lose more money than this every year I devote to the Center for Class Action Fairness instead of being a for-profit lawyer.)

Coverage: WSJ, proving that no publicity is bad publicity so long as they spell your name right; Frankel @ Reuters; Severino @ NRO; Ribstein; Blackman.

More on California overregulation - PointOfLaw Forum

Professors Ribstein and Bainbridge follow up on our earlier post on California overregulation; Bainbridge also notes the adverse effects of the California use tax. Separately, Walter Olson, like Bainbridge, points to an Economist story how California law makes an artisanal yogurt business untenable.

Someone looking for a long list of California eccentricities that make creating jobs difficult could do worse than to read the free e-book by Seyfarth Shaw's David Kadue, 2011 Cal-Peculiarities, which covers novel "employees' rights" laws involving, inter alia, mandatory time off for "good deed" service such as firefighting, banning trousers in the workplace, lactation accommodation, whistleblowing, English-only workplace rules, and compensation due employees for time spent undergoing security checks. Not clear how much good these rights do employees if the cost of administering the laws prevents them from getting a job in the first place.

Around the web, June 13 - PointOfLaw Forum

  • More on the overcriminalization issues in the GSK in-house counsel Lauren Stevens criminal case. The FDA Law Blog, in particular, singles out the problem of regulating off-label use through criminal prosecution; Judge Titus took a decidedly different view on the legalities of the practice than the government. [FDA Law blog; Olson @ Cato; Main Justice;; earlier on POL]

  • Engage review of Lester Brickman's must-read Lawyer Barons. [Little via OL]

  • Warms the cockles of my heart: layperson hipster successfully battles hedge-fund conflict of interest in bankruptcy hearing. Bondholders tried to "gerrymander" an impaired class of securities to approve a reorganization plan to freeze them (and other securities holders) out to the benefit of bondholders. [CCAF; WSJ (h/t L.O.); Thoma objection; In re Washington Mutual, Inc., 442 BR 314 (Bankr. D. Del. 2011)]
  • Dallas Fed chair touts role of tort reform in Texas job growth. [CNBC via CJAC]
  • Say what you will about Anthony Weiner for his hypocrisy, at least he's occasionally criticized overcriminalization. [NYDN (2008) via Sailer]
  • New Mexico court issues domestic-violence restraining order against celebrity on behalf of delusional woman who claimed he was harassing her through coded messages on his tv show—part of a long track record of judges in that state issuing inappropriate injunctions. [Bader @ CEI]
  • Wouldn't you know it, all that scapegoating of Goldman Sachs was based on a false premise. Will Senator Levin apologize? [Dealbook/NYT via Ribstein]

  • UK anti-racism advocates dismayed by "compensation culture" gone wild. [Telegraph via @walterolson]

Around the web, June 7 - PointOfLaw Forum

  • Contrary to claims that the Supreme Court is in big business's pocket, SCOTUS unanimously eliminates loss-causation prerequisite for securities litigation class certification, but that might not save the sketchy lawsuit against Halliburton. [Frankel; Trask; Erica John Fund v. Halliburton]
  • Plaintiff and defense bars work together in Texas Senate to water down loser pays legislation still further. [WLF]

  • Medicaid provision of PPACA has its own constitutional problems. [Epstein/Loyola @ WSJ]
  • SCOTUS lets stand Montana ruling expansively interpreting American Pipe tolling provisions. [Wajert; earlier on POL]
  • Congress considering expanding the already-overbroad Computer Fraud and Abuse Act. [Kerr @ Volokh; OL]
  • Seventh Circuit holds ADA permits suit by bridge worker who expressed fear of heights. [OL]

  • Driverless cars. [Tyler Cowen; earlier on POL]
  • Government engaging in unconstitutional searches of Web activity? [Titch @ Washington Times]
  • Obama relies on Bush administration OLC memo to argue that "signing" a bill includes authorized use of an autopen when president not physically present. [Volokh; OLC]

  • Liability fears keep first-aid kit away from Ed Helms on movie set. [Tonight Show (h/t Bob Dorigo Jones)]
  • Ted Frank puts his money where his mouth is. [Frankel; ABAJ; Blackman; Ribstein; the POL post they're all talking about]

Investment disclosure - PointOfLaw Forum

Over the years I've been surprised when the stock market strongly reacted to judicial decisions that seemed like obvious outcomes. This surprises me: I don't have inside information; institutional investors have the ability to process the same public information that I do; the efficient market hypothesis predicts that this public information should already be reflected in the stock price; thus, if I can predict a ruling, the market can, too, and shouldn't treat it as a surprise when, say, the Illinois Supreme Court reverses a multi-billion-dollar judgment against Philip Morris, which bounced over 5% that week in December 2005. But apparently, the trial lawyer strategy to artificially depress stock prices to pressure defendants into settlements has an effect of creating market inefficiencies.

I'm very confident that Wal-Mart v. Dukes will result in a reversal of the class certification in the enormous multi-billion dollar class action against it. But the things that make me confident in that result—the briefs, the tenor of the oral argument, the language in AT&T Mobility v. Concepcion about the importance of protecting the rights of unnamed class members—did not produce movement in the market price of Wal-Mart stock. This leads me to suspect that the market is undervaluing the probability of reversal, and will be surprised when the Supreme Court does reverse later this month.

It's always bothered me when economists make clever predictions but aren't willing to bet on them, Julian Simon a notable exception. Here's a hypothesis that won't take twenty years to resolve; if I'm right, aren't I stupid if I don't make a quick profit on this predicted market inefficiency. So I've put my money where my mouth is: with the dip in stock prices last week, I invested a bit over 10% of my net worth in a leveraged bet that WMT stock will bounce this month when the Supreme Court releases its decision through purchases of July and September out-of-the-money call contracts.

Now I don't recommend anyone follow my lead: there are lots of ways I can be wrong. I might be overestimating the probability of Wal-Mart success in the Court, or otherwise suffering from Dunning-Kruger Effect. I might have been lucky (or suffering from selective memory) in previous cases where I observed stock-price movement in response to decisions I predicted. The market might have already priced this result in years ago, or think that the suit is just a minor nuisance relative to Wal-Mart's giant market value. And we could get hit with a terrorist attack or some other economic shock that hurts the price of Wal-Mart stock entirely unrelated to the Supreme Court decision. Moreover, options are expensive: I'm paying something like a 4-5% transactions cost between brokerage fees and bid-ask spreads, and then there will be the short-term capital gains taxes that reduce any upside. So I could be feeling pretty sheepish come July 1.

But now my interest in this case is a bit more personal than whether the Supreme Court gets class action law right.

Update: Larry Ribstein comments.

Ribstein on the power of law and economics - PointOfLaw Forum

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