August 20, 2016

Sneak Preview – The Business Lawyer Fall Issue

Contents 

Articles 

Securing Our Nation’s Economic Future: A Sensible, Nonpartisan Agenda to Increase Long-Term Investment and Job Creation in the United States
Leo E. Strine, Jr. 

These days it has become fashionable to talk about whether the incentive system for the governance of American corporations optimally encourages long-term investment, sustainable policies, and therefore creates the most long-term economic and social benefit for American workers and investors. Many have come to the conclusion that the answer to that question is no. As these commentators note, the investment horizon of the ultimate source of most equity capital—human beings who must give their money to institutional investors to save for retirement and college for their kids—is long. That horizon is much more aligned with what it takes to run a real business than that of the direct stockholders, who are money managers and are under strong pressure to deliver immediate returns at all times. Americans want corporations that are focused on sustainable wealth and job creation. But there is too little talk accompanied by a specific policy agenda to address that incentive system.

This Article proposes a genuine, realistic agenda that would better promote a sustainable, long-term commitment to economic growth in the United States. This agenda should not divide Americans along party lines. Indeed, most of the elements have substantial bipartisan support. Nor does this agenda involve freeing corporate managers from accountability to investors for delivering profitable returns. Rather, it makes all those who represent human investors more accountable, but for delivering on what most counts for ordinary investors, which is the creation of durable wealth by socially responsible means.

The fundamental elements of this strategy to promote long-term American competitiveness include: (i) tax policy that discourages counterproductive behavior and encourages investment and work; (ii) investment policies to revitalize our infrastructure, address climate change, create jobs, and close our deficit; (iii) reforming the incentives of and enhancing the fiduciary accountability of institutional investors; (iv) reducing the focus on quarterly earnings estimates and improving the quality of information provided to investors; and (v) an American commitment to an international level playing field to reduce incentives to offshore jobs, erode the social safety net, and pollute the planet. 

The Legality of Opportunistically Timing Public Company Disclosures in the Context of SEC Rule 10b5-1
Allan Horwich 

Commentators have discovered that executives who engage in securities transactions purportedly under the shield of a Rule 10b5-1 Plan, so that their trades do not constitute unlawful insider trading, achieve abnormal returns. There is speculation that these returns may be achieved by influencing the timing of corporate disclosures, so that, for example, bad news is withheld at the corporate level until after a Plan sale occurs.

This Article concludes that so long as this delay in disclosure does not violate an SEC mandated disclosure requirement, Rule 10b-5 is not violated, and the SEC could not expand Rule 10b-5 to reach disclosure timing of this type. The Article also addresses the application of the common law to disclosure timing. The use of corporate information to time corporate disclosure for a personal benefit, to achieve a more favorable outcome in personal securities trading pursuant to a Plan, may be a breach of duty under the corporate common law of some states, including Delaware, applying established principles of the common law of insider trading. It is unlikely, if not impossible, however, that state regulatory authorities could or would pursue such conduct.

If remedial action is needed to discourage, and effectively preclude, disclosure timing, it should be in the nature of SEC mandated disclosures of information regarding Rule 10b5-1 Plans, something the SEC proposed more than ten years ago and then abandoned without explanation, and the exclusion of those who engage in disclosure timing from the benefits of Rule 10b5-1 by amending that rule itself. 

The Post Dodd-Frank-Act Evolution of the Private Fund Industry: Comparative Evidence from 2012 and 2015
Wulf A. Kaal 

This comparative survey study examines the private fund industry’s reactions and adjustments to a rapidly evolving regulatory framework, three years after the first application of mandatory registration and disclosure rules for private fund advisers under the Dodd-Frank Act. Using two datasets (2012: N = 94; 2015: N = 69) for a population of 1267 registered investment advisers to add an historical time series perspective, the author analyzes and compares survey respondents’ short- and long-term estimations of industry effects. The data suggest that immediate and short-term concerns have given way to adaptation to the changes. 

The Medicare Provider Agreement: Is It a Contract or Not? And Why Does Anyone Care?
Samuel R. Maizel and Jody A. Bedenbaugh 

The article first considers the conflicting positions taken by the federal government regarding whether the Medicare Provider Agreement is an executory contract in and outside of bankruptcy court.  It examines whether the government’s positions can be reconciled, and if the government should be barred by preclusion and estoppel principles from asserting in bankruptcy court that a Provider Agreement is an executory contract.  The Article then discusses whether the Provider Agreement should be treated as an executory contract in bankruptcy, and the implications of such treatment on a bankrupt provider's ability to transfer its Provider Agreement to a purchaser under the Bankruptcy Code and related issues such as the government's setoff and recoupment rights and successor liability. 

Report

Changes in the Model Business Corporation Act
Corporate Laws Committee, ABA Business Law Section 

Survey—Uniform Commercial Code

The Uniform Commercial Code Survey: Introduction
Jennifer S. Martin, Colin P. Marks, and Wayne Barnes 

Sales
Jennifer S. Martin 

Leases
Edward K. Gross, Dominic A. Liberatore, and Stephen T. Whelan 

Payments
Stephen C. Veltri and Greg Cavanagh 

Letters of Credit
James G. Barnes and James E. Byrne 

Article 7: Documents of Title
Anthony B. Schutz 

Investment Securities
Carl S. Bjerre

Personal Property Secured Transactions
Steve Weise and Stephen Sepinuck 

International Sale of Goods
Candace M. Zierdt and Kristen Adams