HBLR Online Volume 7 (2016-2017)

HBLR Online is a portal to timely pieces about recent developments in business law. As an important forum for opinion and scholarship, HBLR Online is designed to be a cutting edge guide to developments in the field of business law. HBLR Online also provides opportunities for student members to develop their own editing and writing skills. Accordingly, HBLR Online will contain pieces by students as well as outside contributors.

When the IRS Prefers Not to: Why Disparate Regulatory Approaches to Similar Derivative Transactions Hurts Tax Law
Leon Dalezman and Philip Lenertz (June 3, 2017)
This Article examines decisions made by the Internal Revenue Service on whether to promulgate regulations pursuant to three different but related provisions of the Internal Revenue Code: sections 1259, 1260, and 871(m). This Article concludes that when there is a statutory imperative to regulate, the use of softer methods—methods other than issuing new regulations, such as creating listed transactions—has a negative effect on tax law, slowing its evolution. While clear regulatory lines almost always invite new forms of tax planning, this Article argues that this is better than a regime where legitimate tax planners are unfairly faced with uncertainty and where enforcement against egregious abuse is often less than forthcoming.

Trading in Substitute Securities: Liability Under Rule 10b-5
Cody Donald (May 16, 2017)
A trade in a substitute security occurs when a trader with inside information, typically an employee, trades—not in the securities of the company that is the subject and source of the information—but in the securities of another company whose stock would be affected if such inside information were to become public. The main academic literature on this topic is Ian Ayres and Joe Bankman’s article, Substitutes for Insider Trading. This Article builds on that work by providing a more in-depth analysis of liability for insider trading on substitute securities under Rule 10b-5 promulgated under the Securities Exchange Act of 1934. In contrast to Ayres and Bankman, this Article concludes that trading in substitute securities is presumptively illegal under the misappropriation theory pursuant to Rule 10b-5.

Stuck with Steckman: Why Item 303 Cannot be a Surrogate for Section 11
Aaron Jedidiah Benjamin (May 2, 2017)
Item 303 of SEC Regulation S-K requires companies to disclose “known trends and uncertainties” in certain public filings. Item 303 provides no private right of action. However, Steckman v. Hart Brewing Co. held that an Item 303 violation automatically states a claim under section 11 of the 33 Act, short-circuiting any separate consideration under the statute. This Article examines the Steckman decision and contends that it was wrongly decided. Given that (i) an Item 303 violation cannot sufficiently establish Basic materiality, and (ii) Basic materiality is required under section 11, it follows that an Item 303 violation cannot be sufficient to state a claim under section 11.

Age Before Equity? Federal Regulatory Agency Disgorgement Actions and the Statute of Limitations
Michael Columbo and Allison Davis (April 4, 2017)
At what point may a person rest assured that the government will not confiscate her money due to a past alleged regulatory infraction? In Kokesh v. SEC, the Supreme Court is poised to resolve a three-way split among the federal circuit courts of appeals over whether the statute of limitations in 28 U.S.C. § 2462 applies to federal regulatory actions seeking disgorgement of a person’s funds for long-past alleged regulatory infractions. The Supreme Court should reverse the Tenth Circuit’s decision and hold that the statute of limitations categorically applies to actions seeking confiscation of funds for past regulatory infractions, regardless of whether the government seeks the funds through forfeiture or disgorgement.

A Federal Fiduciary Standard Under the Investment Advisers Act of 1940: A Refinement for the Protection of Private Funds
Tyler Kirk (December 6, 2016)
The appropriate role of the fiduciary standard in the financial industry has garnered a lot of attention of late. However, what has gotten lost in the debate is the astonishing fact that Article III courts have barely begun to interpret one of the oldest federally established fiduciary relationships, that of the investment adviser and its client. This Article argues that an investment adviser’s liability under section 206–when acting as the agent for a private fund–should be determined under a federally established uniform framework, and should not be contingent upon the application of state fiduciary law. 

Increased Antitrust Merger Enforcement: Considerations for Your Next Deal
Michael B. Bernstein, Justin P. Hedge, and Francesca Pisano (December 5, 2016)
Antitrust merger enforcement has become increasingly aggressive in recent years with the Federal Trade Commission and Antitrust Division of the Department of Justice demonstrating that they are ready to litigate to block deals they believe will harm competition. While an increasing number of mergers have been challenged and blocked in federal court, some are prevailing at trial or managing to find a path to clearance without litigation. This Article reviews the trends that have emerged in federal merger enforcement and discusses some key differences between deals that have been cleared and those that have faced government opposition.

Bitcoin and Virtual Currencies: Welcome to Your Regulator
Matthew Kluchenek (December 3, 2016)
Among all the U.S. regulators interested in regulating Bitcoin and virtual currencies, the Commodity Futures Trading Commission (CFTC) is determined to be at the forefront. Since the announcement by CFTC Chairman Timothy Massad in late 2014 that Bitcoin derivatives should fall within the scope of the CFTC’s jurisdiction, the CFTC has been aggressive in addressing not only wrongful conduct involving Bitcoin derivatives, but also wrongful conduct involving certain spot Bitcoin transactions. The CFTC’s actions are a clarion call for market participants to understand the broad breadth of the CFTC’s jurisdiction, and to take notice of the requirements that may apply both to derivatives and to certain physical transactions involving Bitcoin and other virtual currencies.