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73(1): 1-34 (Winter 2017/2018)
In October 2011, the SEC issued new guidelines for disclosure of cybersecurity risks. Some firms responded to these guidelines by issuing new risk factor disclosures. This article examines the guidelines and cybersecurity disclosures in the context of existing laws governing securities regulation. It then examines empirical results from firm disclosures following the new guidelines. Evidence shows a relatively small proportion of firms chose to modify their risk factor disclosures, with most firms choosing not to disclose any specific cybersecurity risk. Moreover, disclosing firms generally experienced significant negative stock market price effects on account of making new disclosures. Rather than viewing disclosure as a positive signal of management attentiveness, investors apparently viewed it as a cautionary sign.
73(1): 35-52 (Winter 2017/2018)
Public companies traditionally hold annual shareholder meetings using a formal in-person format. Some companies have more recently supplemented the meeting with audio or video streaming and are now adding an electronic component to a physical meeting to allow for remote participation, commonly referred to as a “hybrid meeting.” A relatively small but fast-growing number of companies are holding their annual shareholder meetings on an electronic-only basis with no physical meeting, known as a “virtual-only meeting.” This article discusses the legal landscape for virtual-only meetings, briefl y reviews the history of the practice, and explores the controversy they present with certain institutional investors and activists. Its objective is to provide an initial roadmap of legal and practical considerations for companies considering virtualonly shareholders meetings.
73(1): 53-84 (Winter 2017/2018)
The purpose of a business divorce is to sever the business relationship between or among the owners of the business. The most common judicial means of achieving this goal is a state dissolution statute. Most state dissolution statutes empower courts to sever the business relationship through various means. Some states even permit the entity or the other equity interests to avoid dissolution by exercising a statutory right to buy out the plaintiff’s interests. Delaware has eschewed this approach, instead providing few statutory directions or options and trusting its Court of Chancery to exercise its equitable discretion appropriately. Delaware courts historically were reluctant to dissolve operating, profi table entities, but in recent years Delaware courts have come to recognize the fallacy of forcing people to continue a business relationship that has fallen apart, and judicial dissolution is no longer the rarity it once was. A continuing problem, however, is that there is little common law guidance on how dissolution should be accomplished in a manner that is consistent with principles of Delaware law and that also recognizes the unique nature of these kinds of business divorces. In the absence of such guidance, Delaware courts default to what they know: an auction or sale process designed to attract the most number of bidders to maximize the entity’s value. This article suggests that the Court of Chancery should not consider an auction or other public sale process to be the default solution, that general principles of equity permit the Court of Chancery to grant many of the statutory remedies available in other states, and that a forced public sale should be the remedy of last resort.
73(1): 85-108 (Winter 2017/2018)
This article initially provides a high-level description of blockchain technology intended to be accessible to those without a technical background, and illustratively describes an existing blockchain system that already evidences securities issued and being traded. The article then sets forth and analyzes how Article 8 of the Uniform Commercial Code covers blockchain securities as “uncertificated securities.” Finally, the article provides guidance to corporate lawyers faced with giving a legal opinion relating to the issuance and sale of securities on a blockchain.
73(1): 109-152 (Winter 2017/2018)
The rapid evolution of anonymous, autonomous, and distributed blockchain-based smart contracting creates friction and enforceability issues with existing legal and jurisdictional principles, calling the future governance of blockchain technology into question. The effective governance of blockchain technology and smart contracting is essential to ensuring its continuing evolution. Based on the mathematical principles underlying the disposition of blockchains, we propose and evaluate an alternative approach to the existing legal exercise of jurisdiction that is inherent in blockchain technology itself. We call this “distributed jurisdiction.”
This contribution is not merely theoretical. Several Ethereum smart contracting crypto start-ups have demonstrated that anonymity can be perpetuated in blockchain technology, despite blockchains’ eternal storage of information and their growing size working against anonymity. Start-up applications highlight that the technology itself offers means of internal controls that help ensure effective governance in the continuing evolution of the technology.
Based on the concept of distributed jurisdiction, we suggest an opensource platform ecosystem for smart contracting dispute resolution that allows users to opt in to a conflict resolution mechanism that enables more nuanced crypto solutions and produces greater certainty in the process. Anonymized arbiter expertise via rankings in combination with a representation option for crypto disputes provide a resolution mechanism for legacy businesses that desire to participate in the growth of crypto business opportunities and hope to avoid legacy system intermediation and the associated transaction costs but require legal legacy system assurances and crypto dispute resolution equivalence.
73(1): 153-172 (Winter 2017/2018)
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73(1): 295-303 (Winter 2017/2018)