Category: Corporate Law


The Law and Economics of the Doping Scandals

428px-Depo-testosterone_200_mg_ml.jpgPeter Singer has written a usefully provocative essay, “Why Not Let Doping Close the Gene Gap,” in which he questions the conventional wisdom on steroids’ moral harmfulness. Singer points out that prohibiting doping puts those with inferior genes at a disadvantage, and that the current line between that which sports leagues prohibit and that which they do not is hard to defend. Thus, why not permit athletes to take drugs, whether or not those drugs harm them.

Singer’s arguments are (as they often are) hard to cabin. If steroids, why not artificial legs, lungs, hands, eyes. Though, if not steroids, why caffeine, IVs, Gatorade, and pickle juice. I was left feeling kind of stuck in a swamp, and so I thought, as I often try to do when confronted by a vexing legal problem, WWPD? What would Posner do?

We could ask him, but he’s a busy guy. So, let’s see if we can gin up a back-of-the-envelope look at the law and economics of sports doping.

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From First Amendment Absolutism to Financial Meltdown?

There is a very interesting post by William Birdthistle on potential rating agency responsibility for the subprime mortgage meltdown contagion. As the WSJ reported,

In 2000, Standard & Poor’s made a decision about an arcane corner of the mortgage market. It said a type of mortgage that involves a “piggyback,” where borrowers simultaneously take out a second loan for the down payment, was no more likely to default than a standard mortgage. While its pronouncement went unnoticed outside the mortgage world, piggybacks soon were part of a movement that transformed America’s home-loan industry: a boom in “subprime” mortgages taken out by buyers with weak credit.

Here come the regulators. Some economists are quick to criticize the ratings agencies:

[T]the real-estate bubble of recent years, like the stock bubble of the late 1990s, both caused and was fed by widespread malfeasance. Rating agencies like Moody’s Investors Service, which get paid a lot of money for rating mortgage-backed securities, seem to have played a similar role to that played by complaisant accountants in the corporate scandals of a few years ago. In the ’90s, accountants certified dubious earning statements; in this decade, rating agencies declared dubious mortgage-backed securities to be highest-quality, AAA assets.

But there’s a big difference between accountants and raters: the latter get first amendment protection for their assessments. Is this a wise extension of the first amendment? It’s a difficult question, but I think the new scandals will lead to increasing calls for regulation, if not liability, of the ratings agencies.

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Jim Cramer, Containing Multitudes

Jim Cramer went on CNBC last week and got a little hot under the collar demanding that the Fed rescue banks from their bad decisions, a demand it has since sort of given into. The clip is “destined to become a classic Wall Street legend,” and may be a good teaching tool when you need to illustrate the mechanism of interest group capture.

But just two weeks ago, on the, Jim had a different view. Check it out, after the jump.

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Wall Street Journal Welcomes Murdoch

Today’s WSJ has an editorial welcoming its takeover by Murdoch’s News Corporation. Granted, there are some subtle warnings to Murdoch buried in the gushing words about the inevitability of change, and the powers of “creative destruction”. Thus:

Editorial independence enhances the prospects for business success. The more credible a publication is, especially one that specializes in financial and economic reporting, the more readers and advertisers it is likely to have. We like to think our readers buy the Journal because of the credibility built over a century, and we believe this is the heart of the “value proposition” that Mr. Murdoch is willing to pay $5 billion to purchase. No sane businessman pays a premium of 67% over the market price for an asset he intends to ruin.

But overall, the entire piece had a tone that reminded me of a classic scene from the Simpsons. And, thanks to Youtube, I can now share it with you.


Court Citation of Blogs: Updated 2007 Study

blogstickies.jpgOur terrific intern, Sam Yospe has put together an update of Ian Best’s very useful 2006 study on Courts’ citation of blogs.

Sam ran a search for court citation of law blogs in the last twelve months. I asked him to lump citations into three categories: sources of legal argument, sources of facts, and sources of documents. Here’s what he came up with.

Legal Sources

• Trenwick America Litigation Trust v. Ernst & Young, et. al., 2006 906 A.2d 168; 2006 Del. Ch. LEXIS 139

o Citation to and in depth discussion of a post appearing on Professor Bainbridge’s blog.

• U.S. v. Presley, 2006 U.S. Dist. LEXIS 95063 *

o Citation to a post on Sentencing Law and Policy Blog.

• U.S. v. Kandirakis, 2006 441 F. Supp. 2d 282; 2006 U.S. Dist. LEXIS 53243

o Cites Prawfs Blawg, discussing a post by Dan Markel.

• Boxer X, a/k/a Stanley Farley v. Harris, 2007 U.S. Dist. LEXIS 45149

o Cites a legal argument in Crime and Federalism

• Desimone v. Barrows, et. al 2007 Del. Ch. LEXIS 75

o Cites argument from Professor Bainbridge’s blog post .

o Cites argument from Larry Ribstein’s blog post at Ideoblog.

o Cites argument from a post on Eric Chiappinelli’s blog.

• In Re Tyson Foods, Inc. Consolidated Shareholder Litigation, 2007 919 A.2d 563; 2007 Del. Ch. LEXIS 19

o Cites argument fro Professor Bainbridge’s blog post.

o Cites argument from Larry Ribstein’s blog post at Ideoblog:

Factual Sources

• U.S. v. Kandirakis, 2006 441 F. Supp. 2d 282; 2006 U.S. Dist. LEXIS 53243

o Cites Sentencing Law and Policy (generally and an entry of July 31, 2006) as a factual authority (regarding how many criminal cases in which the sentences were within the Guideline were reversed as unreasonable).

• Ohio v. Foster, 206 109 Ohio St. 3d 1; 2006 Ohio 856; 845 N.E.2d 470; 2006 Ohio LEXIS 516

o Cites Sentencing Law and Policy generally for updates on Blakely and general material on sentencing.

Sources of Documents

• U.S. v. Grier, 2006 475 F.3d 556; 2007 U.S. App. LEXIS 2483

o Citation to memorandum on

• U.S. v. Alvarado, 2007 U.S. Dist. LEXIS 24816

• U.S. v Martinez, 2007 U.S. Dist. LEXIS 23601

• U.S. v. Sorto, 2007 U.S. Dist. LEXIS 7937

o Citation to memorandum on Law and Sentencing Policy.

• U.S. v. Willis, 2007 479 F. Supp. 2d 927; 2007 U.S. Dist. LEXIS 23290

o Citation to legislative briefing on Law and Sentencing Policy.

Total Citations

Sentencing Law 7

Bainbridge 3

Ribstein 2

Prawfs 1

Chiappinelli 1

Federal Defenders 1

Crime and Federalism 1

Overall, if these data are accurate, this seems like a bit of a slowdown in the citation rate of blogs by Courts, maybe due to a slight lowering of the boil on the sentencing revolution. It is also worth noting that the federal and state courts have not yet felt a need to cite this Blog, which has to signal something (good) about the continuing acuity and judgment of our hard-working judges.

[Update: We missed (at least) one cite, and have made a change above.]


An Angel (Investor) in Devil’s Clothing

angeldevil.jpgToday, the Conglomerate’s Junior Scholars Workshop is discussing Darian Ibrahim’s The (Not So) Puzzling Behavior of Angel Investors. I’ve offered some comments to the paper here; Larry Ribstein’s comments are here; Barbara Black’s here; and George Dent’s here.

The gist of my comment notes that Darian does a terrific job of showing that so-called angel investors’ seemingly philanthropic behavior can be explained using traditional wealth-maximizing incentive theory. For example, angels may not seek to control start-ups with formal contract mechanisms because to do so would reduce those start-ups’ abilities to find later VC investments and thus repay the angel investment. If this is a good model of angel behavior, the question I had was whether the law (or society more generally) ought to treat angels differently from other investors. I look forward to Darian’s response to this comment, and the other really thoughtful critiques. If you at all interested in the law of entrepreneurs, this is a can’t miss paper and workshop. Indeed, it has already inspired a really thoughtful comment by Jeff Lipshaw. Come on by!


Self-Handicapping and Managers’ Duty of Care

I have recently posted my symposium essay Self-Handicapping and Managers’ Duty of Care on SSRN and Selected Works. You can read the abstract when you click through, so to convince you to download the essay, I’ll give you a taste of the introduction:

Authors commonly introduce their works in symposium issues with a few disclaiming words. They identify their scholarship as a “symposium essay,” not an “Article”; a “sketch” of an answer, not a fully-fleshed out argument. Casual readers might conclude that law professors are unusually humble and resist trumpeting the novelty and sophistication of their scholarship.

Social psychologists might instead believe that symposium authors seek to avoid reputational sanctions for publicizing arguments they have not fully dressed. Scholars try to signal an excuse for underdeveloped pieces: “I haven’t worked as hard on this paper as I would have if it were a ‘real’ article.” The goal of this excuse-making is simple: disappointed readers will attribute blame away from the author’s perceived acuity and professional reputation.

This is a symposium essay about the psychology of creating such pre-excuses for failure. Rather than focus on academics, I will examine the failings of overconfident corporate managers . . .

The piece grew out of a post I wrote here over a year ago, and will appear in the Wake Forest Law Review’s Business Law Symposium Issue.


Raising cash through detailed explanations of past financial foolishness

Suppose you’re an entrepreneur, trying to find new investors for a new dot-com project. What do you do to build interest and confidence?

I’ve got an idea! Why don’t you give interviews for a lengthy NYTimes piece that explains how you managed to lose $200 million of your own fortune in just a few years, because you didn’t bother to learn simple financial concepts. And then, at the end of the article, note that you’re hoping to raise some money from investors for your newest project.

“Here’s how I lost $200 million of my own through negligent management . . . would you like to give me some of your money?” It’s really hard to imagine a more effective sales pitch than that, isn’t it?


Fiduciary Duty and Financial Aid


The financial aid scandal, sparked by NY Attorney General Andrew Cuomo’s investigation (and possibly a shut-out competitor) has already led to some settlements with lenders and universities. The basic thrust of Cuomo’s investigation is that if lenders pay administrators referral fees (whether direct or indirect) to steer students to take certain loans, that conduct is a deceptive trade practice, “in violation of New York Executive Law ‘ 63(12) and General Business Law 349 and 350 and other relevant state law.”

Universities are falling over themselves to settle with NY, as is the lending industry, in light of some bad facts: the companies have sought to influence financial aid administrators with stock, Broadway tickets, and other goodies. So this question is, literally, academic: is the alleged conduct by the university employees a violation of a fiduciary duty (loyalty) owed to students?

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The Most Academic Court

court2004.jpgLast weekend, I attended Wake Forest Law Review’s 20th Annual Symposium on Business Law. The topic was “The Duties of the Modern Corporate Executive,” and in a few weeks, I’ll no doubt shamelessly promote the symposium essay on self-handicapping and managers’ care that I presented. I’ll also be highlighting others’ contributions as well, especially former Conglomerate blogger Joan Heminway (Tennessee Law), who wrote about the disclosure duties of officers dealing with personal problems, a topic I once briefly mentioned here.

But enough pre-puffing. The topic of this post concerns the participation at the symposium by Delaware Supreme Court Justice Randy Holland and Vice Chancellor Stephen Lamb (New Castle County Court of Chancery). Both jurists offered terrific substantive content (Justice Holland summarizing the conference’s themes, and V.C. Lamb on DE’s perspective on managers’ duty of care and loyalty). Listening to them, I was struck at the counterexample offered by Delaware judges to the divide between academics and judges that was the topic of the blogosphere a few weeks back. At the time, it struck me that Liptak’s story was (at best) over-hyped: citation by judges in published opinions of law reviews is a really bad metric for law review influence. Opinions are a biased sample. Even were they not, judges may be avoiding citation of articles they read to protect themselves from charges of activism. Even were they not, the residual of the trend is almost certainly due to harried clerks writing opinions instead of judges.

But whatever we might make of these claims and counterclaims, I think that we’d see a different result in Delaware. The state’s judges are increasingly engaging with the academy, they often claim that they followlaw review debates, and important DE decisions cite multiple articles. At 2007’s AALS, Justice Jacobs clearly explained how and why the Delaware Supreme Court reached the result it did in Disney, and how that result reflected/pushed back against/engaged with academic literature on good faith. It is almost impossible to imagine such frank talk from a federal jurist.

So, I decided to run a quick WL search in the Delaware database, to see if I could find support for the Liptak “declining trend” hypothesis, or my “engagement” hypothesis. Predictably with such noisy data, the results were mixed.

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