HBLR Online Volume 8 (2017-2018)

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.

Blurring the Edges of Corporate Law: Insider Trading and the Martoma Decision
Azfer A. Khan (June 1, 2018)
In its recent decision, the Second Circuit in United States v. Martoma overturned key aspects of its decision in United States v. Newman. Justifying this departure based on the Supreme Court’s ruling in Salman v. United States, the majority in Martoma held that there is no requirement to prove a meaningfully close personal relationship in order to find liability for insider trading under Rule 10b-5. While Martoma ostensibly changed the test for tippee liability, this Article argues that the substantive outcome for most insider trading cases is likely to remain unaffected. However, because Martoma expanded the scope of tippee liability, more claims can now get into court. This expansion should be resisted under the traditional Santa Fe doctrine because it threatens to blur the distinction between corporate law and securities law. This Article first provides a quick roadmap to insider trading law, then dives into an analysis of Martoma and the decisions immediately preceding it, and concludes by offering perspectives on what the likely impact of the decision will be.

Sidestepping the Rat Holes: Investment Risk and Securities Laws
Thomas M. Selman (April 21, 2018)
This Article presents a novel understanding of the purpose of federal securities laws as the management of investment risk. Those laws should be treated as a whole. When two rules, even under different statutes, address the same risk, they should be applied concomitantly. For example, broker-dealer regulation under the Securities Exchange Act of 1934 might justify relaxation of prospectus delivery requirements in the Securities Act of 1933.

How Do I Sell My Crowdfunded Shares? Developing Exchanges and Markets to Trade Securities Issued by Start-ups and Small Companies
Janet Austin (January 28, 2018)
Governments worldwide are increasingly recognizing that assisting the development of start-ups and small to medium enterprises may be critical to fostering job creation and economic growth. As such, there is a concerted effort to rework securities regulation to encourage the funding of these businesses through innovative approaches such as crowdfunding. However, one major problem with investing in securities issued through crowdfunding is that investors typically have limited-to-no ability to sell the securities. There are a number of over-the-counter, venture and small company markets trying to bridge that gap and proposals in some countries to develop new markets for these types of securities. However, such markets present significant regulatory challenges, as they have historically been plagued by fraud and “pump and dump” manipulation schemes. This Article considers these regulatory challenges and explores how regulators can work to improve the integrity of these markets as a way of encouraging their development.

Bullish on Blockchain: Examining Delaware’s Approach to Distributed Ledger Technology in Corporate Governance Law and Beyond
Wonnie Song (January 3, 2018)
The buzz around blockchain is getting ever louder. Mergers & Acquisitions (M&A) activity in the blockchain technology sector rose 33.3% between Q2 2016 and Q2 2017. Increased legislative response is perhaps the clearest signal yet that blockchain technology may be more than a passing fad. As of September 2017, several jurisdictions in the United States have amended their state laws to explicitly legitimize the use of blockchain technology in both commerce and corporate governance. With a focus on Delaware’s embrace of blockchain technology, this Article examines the potential role of distributed ledgers in corporate governance and capital market transactions. The Article then considers the solutions such technology offers, as well as some barriers its advocates might face in pursuing its wide-scale adoption.

The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up
Matthew Schoenfeld (January 2, 2018)
This Article considers the preliminary results of an ongoing effort to discourage appraisal litigation. Since the August 2016 reforms to the Delaware appraisal statute, Chancery has issued a slew of at-or-below merger price appraisal opinions in cases such as Clearwire and PetSmart, while simultaneously pinioning fiduciary litigation by reiterating the principles of Corwin. The result—as one would expect when costs are raised and benefits are reduced—has been that fewer deals are being challenged via appraisal: In 1H 2017, the number of deals challenged fell by 33%. Those who successfully advocated for curbs on the practice had argued that appraisal claims lowered deal premia by incenting buyers to withhold top dollar, thereby hurting nonappraising shareholders. On their view, curtailment of appraisal should have sent premia upwards. But year-to-date the average U.S. target premium of 22.4% is the lowest of any year in recent history. The average target premium in 2Q 2017 of 19.3% was the single-lowest of the fifty prior quarterly observations; thus far, 3Q 2017, at 19.6%, is tracking as the second-lowest. Amid the pronounced decline in merger premia, change-in-control payouts have expanded as a percentage of transaction value. When analyzed in concert with other measures indicative of agent rent-seeking—such as target premium to 52-week high over varying periods—the evidence points to a substantial transfer of value from target shareholders to selling chief executive officers (CEOs), who have adapted to an environment rendered more permissive by the weakening of the shareholder litigation “check” that had formerly restrained such behavior.