Saturday, November 29, 2008

Program Video: "From the Courtroom to the Boardroom: Using Your Law Degree in the Business World"

In case you missed it, here is the video from the CLS event on October 21, 2008. Thank you to all 72 of you who attended! Make sure to monitor our website or Facebook group for CLS events coming up.

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Monday, November 24, 2008

Too Easy to Prosecute Corporations? – by David Franklin

This may be a bad time to say that Corporate America needs even more help. Nevertheless, a former federal prosecutor argued on Friday that the standard for bringing criminal charges against corporations is too low.

Specifically, Andrew Weissmann wrote in an amicus brief to the 2nd Circuit that the “federal courts’ erroneous approach to vicarious liability [should] be revisited.” Weismann, who once prosecuted Arthur Anderson during the famous Enron scandal, is now taking the side of corporations. Currently, Weismann is representing Iona Management S.A. – a shipping company that was recently convicted after one of its employees dumped oil at sea.

The doctrine of respondeat superior provides that in many cases, an employer can be held liable for the acts of its employees. This doctrine is commonly applied in civil law, but do the principles of respondeat superior align with the goals of our criminal justice system? When considering the main goals of criminal law – deterrence and punishment – it seems that generally, a corporation should not be liable for its employees’ acts when the corporation is not morally culpable. However, Weismann argues that the district court’s standard makes corporations accountable for “almost all criminal acts of any low level employees – even those acting against explicit instructions.” Additionally, Weismann points out that this standard, combined with the fact that corporations are pressured to avoid stigmatizing criminal prosecutions, could actually make it easier to find companies liable through vicarious liability in criminal cases than in civil ones.

It seems that the former head of the Enron Task Force has a point. But who wants to give corporations any more help at this point?
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Countries as Investors - by Nick Holland

Markets and exchanges are filled with individual and institutional investors, but what happens when countries want to get involved?

One possibility is that they are just another participant, and nothing is wrong. They are looking for profits just like the next investor. But is that always the case? What if a country is using investing as a tool for foreign policy? What if a country is investing heavily in a different country in order to gain political influence?

Sovereign Wealth Funds (SWFs) are raising these questions. Essentially, they are a country’s investment portfolio of foreign assets. Some SWFs have been for decades, but many have popped up in recent years. They typically earn the funds they invest from natural resources, predominantly oil. Soaring gas prices partially account for the recent increase in the numbers of these funds.

Even though there have not been any SWF abuses as contemplated in the questions above, domestic and European politicians are still worried. The uncertainty of whether SWFs are investing for economic or political reasons bothers them. The Committee on Foreign Investment in the United States, commonly referred to as CFIUS, already evaluates some foreign investment within this country. But some may think that more legislation is necessary. To help allay these fears, the International Monetary Fund (IMF) and a SWF international working group brokered a set of guiding principles for SWFs and published them last October. These principles are called the Generally Accepted Principles and Practices (GAPP) or the Santiago Principles (the IMF negotiated and adopted them in Santiago, Chile). GAPP advocates disclosure and transparency in the SWF, but they are entirely voluntary.

SWFs represent trillions of dollars of wealth, but politicians and others are skeptical of the SWFs’ motivations because there is much uncertainty about them. Hopefully, GAPP will close this information gap, and allay people’s fears. Only time will tell.
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Thursday, November 20, 2008

Big 3 Automakers and Executive Compensation

Have they lost their minds? Well, at least their sense of propriety ...

In a move reminiscent of AIG’s post-bailout bacchanalian (or, as the Smoking Gun crudely puts it, “Rock out with your Bailout”), representatives of the big three automakers admitted to having taken private jets on their groveling crusade to Washington.

Under questioning by Rep. Gary Ackerman (D-Queens), the CEOs assured Congress they had tightened their belts, cutting hundreds of workers and closing dozens of plants. “Obviously we're all slashing back every expense that's not critical to the business,” said GM CEO Rick Wagoner.

Right. On the same afternoon, Wagoner and Ford CEO Alan Mulally refused to consider taking a paycut from their respective $15.7 million and $22 million salaries to $1, a symbolic gesture suggestive of Lee Iacocca in the 1980s. Keep in mind that CEO compensation generally includes perks other than salary, such as bonuses, stock options, and . . . use of private jets.

Just another sign of the times – perhaps a change in the collective corporate mindset is just coming surely, but slowly?

NB – Chicago-Kent is offering a class on Executive Compensation in Spring 2009.

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Making Lemonade out of a Financial Crisis - by Drew Kelly

The current financial crisis may be contracting legal job prospects, but looming regulatory changes may allow law students and new attorneys to squeeze some opportunities out of this lemon of a job market.

The current U.S. financial regulatory system is a collection of various regulatory codes enforced by an acronym-laden list of administrative agencies. The securities markets have the Securities Exchange Commission (SEC). The futures and options markets have the Commodity Futures Trading Commission (CFTC). The banking industry has numerous entities like the Treasury’s Office of the Comptroller of Currency (OCC) and Office of Thrift Supervision (OTS). These agencies often have jurisdictional overlap problems with each other and other agencies, and duplicative rules and enforcement efforts often cause headaches for the financial industry. The current regulatory arrangement is a patchwork creation put into effect at different times across multiple generations, and, in light of current events, many critics are calling for a modernized system.

This summer, Treasury Secretary Hank Paulson recommended a complete overhaul of the financial regulatory system. His plan would include short term steps like merging the SEC with CFTC and the OCC with the OTS, but the long-term goal would be scrapping everything in favor of a group of regulators that base jurisdiction not on market type as is the case right now, but instead based upon the purpose of the regulator. CFTC Acting Chairman Walter Lukken, while not supporting the short-term mergers, recently voiced his support for a similar overhaul. Lukken’s plan would create three new objectives-based regulatory agencies: a market integrity regulator, a systematic risk regulator, and an investor protection regulator. Each new regulator would have regulatory authority over all types of markets, providing flexibility and (hopefully) less duplicative regulation and fewer jurisdictional disputes.

Whether you believe that such an overhaul is a good plan or not, major regulatory overhaul could provide a huge opportunity for law students and new attorneys. Industries that have operated for years under the current regulatory scheme will need attorneys who understand the modified (and, potentially, entirely new) regulations. Additionally, industries that have traditionally been able to avoid regulatory scrutiny—the private investment fund industry as a major example—will have a huge need for attorneys who can help restructure operations and provide oversight in order to comply with new regulation. Finally, if new multi-industry financial regulators are created, these massive agencies will require huge staffs that comprehend a new system of regulation. All of these opportunities could be a boon for those that aren’t married to the old system of financial regulation and are willing to put in the effort to understand the complex new regulatory landscape. Law students and new attorneys are in a great position to do just this; they just have to stay informed and get ready to do some squeezing.
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Wednesday, November 19, 2008

DLA Piper Overhauls Partnership Structure

DLA Piper is taking a dramatically different approach to the recent economic downturn than most other large firms.

Rather than continuing with the current trend of laying off associates en masse, DLA Piper has decided to convert its two-tier partnership into a single tier of equity partners. Traditionally, DLA has had two levels within its partnership ranks - income partners, who do not have an ownership stake in the firm, and equity partners, who buy into the partnership with a capital contribution.

While the initial upside comes from an influx of cash from the potential 275 capital contributions, DLA should see continued savings by not having to pay the salaries of non-equity partners. Another direct consequence of this shift will be added pressure on partners to bring in clients; generating business is an enormously significant factor in partner compensation. John Cashman of Major Lindsey & Africa LLC, a legal industry recruiter, says that "it’s very clear to their (junior-level lawyers), it’s either up or out: We want business generators or worker bees. They want to send that message." And in this economy, that message is all the more crucial, especially to all of us future "worker bees" still in school.

One commentator has taken a positive approach to the restructuring, praising DLA Piper for purusing what appears to be a more pragmatic than reactive solution: "Instead of scapegoating associates, it looks like DLA Piper has taken a hard look at the underlying business model." I would have to agree.
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Monday, November 17, 2008

Mark Cuban Charged With Insider Trading - by Anne Szkatulski

The SEC today charged controversial entrepreneur and Dallas Mavericks' owner Mark Cuban with insider trading.

The complaint alleges that in June 2004, Cuban sold 600,000 shares in after being invited to participate in a stock offering of the company; knowing that the offering would be conducted at a discount, Cuban allegedly sold his shares within four hours of the invitation.

"Insider trading cases are a high priority for the Commission. This case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

The SEC has charged Cuban with violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The Commission's complaint seeks to permanently enjoin Cuban from future violations of the federal securities laws, disgorgement (with prejudgment interest), and a financial penalty.

Cuban released a statement early this afternoon: "I am disappointed that the (SEC) chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions. The staff's process was result-oriented, facts be damned. The government's claims are false and they will be proven to be so."
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Thursday, November 13, 2008

Economic Crisis: Opportunity for Corporate Law Students? By Ethan Samson

Now that the economic crisis is no longer developing and seems to have come to full fruition (no more, please!), many in the legal world are contemplating the changes that will come about in corporate law. No, I am not talking about the lost business that will occur due to cut-backs in legal spending from corporations. Developments in the law will create new responsibilities for lawyers to make sure clients are both compliant and aware of liability for their actions.

Earlier posts have referred to Alan Greenspan’s “affection for deregulation” during his tenure as Federal Reserve Chairman. However, he has recently come around, acknowledging that he was “partially wrong” in opposing regulation of derivatives in an article from, and others have called for much heavier regulation. Regulation reform is coming, whether Greenspan likes it or not, but it is not the only change that will be meaningful for corporate attorneys.

The Conglomerate Blog has recently posted about the effect of the economic crisis on corporate boards of directors. The post refers to the shift that occurs in a board’s fiduciary duties when a corporation becomes insolvent. The Business Judgment Rule makes it difficult for a board to be found liable for excessive risk taking; however, this is going to be the prime allegation in upcoming litigation where shareholders are upset over a board’s decision to invest in the poorly collateralized securities that helped spark this crisis (and likely lead to the demise of the corporation in the lawsuit). The Conglomerate post discusses how corporate insolvency shifts the fiduciary duty owed by the board to creditors instead of to shareholders. When someone accepts a position on the board of a corporation, they do not do so with the vision of the corporation going insolvent; likely they assume some level of success.

It is important for corporate attorneys to keep their clients aware of how their roles in the corporation may shift with the potential or actual insolvency. Furthermore, law students should be looking at the impact this economic crisis will have on corporate law; there may be opportunities coming where firms are looking for attorneys who are up to date on these current developments.
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Wednesday, November 12, 2008

The Corporate Law Society Recommends...

Chicago-Kent Corporate Law Professor Batlan and student William Allen have put together a website that brings together some of the best and most accessible materials related to the current financial crisis. It provides resources such as articles on the failure of regulation, the Congressional testimony of key players, editorials on the government's bailout of banks, books on previous financial debacles, and the voices of people who have lost homes in foreclosures.

You can access the website at: Read More......