Security for Expense Statutes: Easing Shareholder Hopelessness?

The quintessential derivative suit is a suit by a shareholder to force the corporation to sue a manager for fraud, which is admittedly an awkward and likely unpleasant endeavor and, according to the Supreme Court, a “remedy born of stockholder helplessness.” Where ownership and control of an enterprise are vested in the same population, the need for a corrective mechanism like a derivative suit is greatly lessened because the owner/managers’ self-interests will arguably guide managerial conduct. But where ownership and control are in separate hands, the incentives change, and managerial conduct may not conform to the owners’ views of the best course of action. This may lead to what the owners consider to be director misconduct. The existing corporate laws have not been effective in stopping this kind of director misconduct, so “stockholders, in face of gravest abuses, were singularly impotent in obtaining redress of abuses of trust.” In these situations, shareholders are arguably in need of legal strategies to protect themselves from abuses by management. Presumably in an effort to limit the abuse of strike suits that would take up managerial time, resources, and corporate dollars, several significant procedural hurdles for derivative plaintiffs have arisen, including the requirement of contemporaneous share ownership—a requirement that derivative plaintiffs make a “demand” on the corporation, in particular, to take requested action—the lack of access to the discovery process, and compliance with any relevant security for expense statutes. Balancing the right of shareholders to hold their directors accountable against the need for directors to have the freedom and autonomy to discharge their statutory and fiduciary duties is no easy feat. That said, these hurdles, when combined, may erode or even undermine the ultimate utility of the derivative litigation process

The Future of Death Futures: Why Viatical Settlements Must Be Classified as Securities

Viatical settlements are a form of asset-backed security where a terminally-ill policyholder, known as a viator, sells the right to receive the proceeds of his or her life insurance policy to an investor. During his or her lifetime, the policyholder is paid an estimation of the present value of the death benefits under the policy. Viatical settlements are legal and serve a benevolent purpose. However, beyond the altruism of providing funds to the terminally ill, and the legalities of simply selling the right to receive life insurance proceeds to someone other than the insured, viatical settlements pose other legal and ethical issues. Because viatical settlements have not yet been classified as investment contracts, and thus securities for purposes of the federal securities laws, investors in viatical settlements must gather information themselves on which to base their investment decisions. Furthermore, investors are denied the protections and remedies provided by the federal securities laws, and have only a common law fraud remedy to redress misleading statements or omissions by viatical settlement firms. The specter of conflicts of interest, confidentiality problems, and the serious threat of fraud looms over the viatical settlement industry, and in the absence of appropriate regulation, threatens the very stability of this compassionate and increasingly popular financial innovation. The sale of fractional interests in viatical settlements is currently not subject to meaningful regulation at either the state or federal level. The legislative intent of the federal securities laws was to prevent fraud through the disclosure of information necessary to make meaningful investment decisions. The potential for fraud in this developing industry is high, and there is no mandatory disclosure to investors. Because fractional interests in life insurance policies constitute investment contracts, investors therein should be granted the protection of the Securities Act of 1933, and the Securities Exchange Act of 1934. Part I of this Article presents an overview of the evolution of the viatical settlement industry. Part II of this Article raises the ethical issues imbedded in viatical settlement transactions, including conflicts of interest, confidentiality concerns, and fraud, all of which should be disclosed as risk factors to investors in viatical settlements. Part III of this Article considers the classification of viatical settlements as securities for purposes of the Securities Laws. Part III examines the legislative history and case law interpreting the Securities Laws, critiquing the holding in Life Partners that fractional interests in pools of viatical settlements do not constitute securities as defined in the Securities Act and its interpretive case law. Part III concludes that fractional interests in viatical settlements fall within both the spirit and the letter of the Securities Laws, and thus should be considered securities in order to further the legislative goals of the Securities Laws. Part IV of this Article explores the viatical settlement industry after Life Partners, focusing on the efforts of some states to classify certain forms of viatical settlements as securities, and the SEC\u27s continued efforts to achieve the investor protection denied by the court in Life Partners

The Howey Test Turns 64: Are the Courts Grading this Test on a Curve?

Sixty-four years ago, the Supreme Court decided SEC v. W.J. Howey, crafting a definition for one form of security, known as an investment contract. The Supreme Court’s definition of investment contract in Howey is flexible, consistent with the Congressional approach to defining the broader concept of what constitutes a security. This choice of adopting a flexible definition for investment contract is not without cost, and raises the specter of inconsistent interpretation and/or application by the lower courts that threatens to undermine the utility of the Howey test itself as a trigger for investor protection. The intentional breadth and adaptability of the definition of investment contract necessarily leads to complex and factintensive judicial inquiries in the application thereof, and allows for inconsistent results between and among the various courts engaging in such inquiries, creating the possibility of similarly-situated litigants winding up with dissimilar outcomes. Examples of these disparate outcomes are present in a number of industries, including the viatical settlement industry. Viatical settlements are a form of “asset-backed securities” under which purchasers buy the right to receive death benefits under life insurance policies from policyholders. These days, the very words “asset-backed security” may cause the public to recoil in horror, thinking of the sub-prime mortgage debacle and Bernard Madoff being led off in handcuffs while his devastated victims sobbed on the evening news. But not all asset-backed securities are problematic, and when undertaken legally and ethically, these interests can be solid investment vehicles, providing needed liquidity to the capital markets. As the financial markets continue to grow and innovate, new forms of asset-backed securities will likely be created, and the potential for inconsistent treatment of similarly-situated investors in these asset-backed securities arguably increases, prompting the question explored herein of whether the definition of investment contract in the Howey test is too flexible to further the underlying legislative intent of the federal securities laws to protect investors through mandatory disclosure and anti-fraud liability. At present, investors and issuers have no certainty as to the absolute parameters of the test or how any given court will articulate or interpret the definition of investment contract. The test has been burdened by judicially-imposed nuances, as judges try to give meaning to the Supreme Court’s words, and as a consequence, has triggered uneven applications. This Article challenges the Howey test in light of today’s increasingly complicated and volatile securities markets, focusing on whether the underlying legislative goals of the federal securities laws are still met by the Howey test, as currently construed by the courts. The Article provides an overview of the legislative history and current status of the U.S. law on the definition of investment contracts, with a brief examination of the component parts of the Howey test, followed by a discussion of the current regulation of the purchase of insurance policies from insurance policy holders in viatical settlement transactions, as background for the analysis highlighting the shortcomings of the Howey test discussed therein. The Article examines the resale of interests in life insurance policies purchased in viatical settlements, focusing on the inconsistent characterization of viatical settlements by the federal courts, specifically in the D.C. Circuit’s decision in SEC v. Life Partners, Inc. and the Eleventh Circuit’s decision in SEC v. Mutual Benefits Corp. and offers recommendations to further the underlying goals of the securities laws with respect to investor protection through disclosure and anti-fraud requirements in an effort to honor these goals without sacrificing consistency for the very investors these laws were enacted to protect. The Article ultimately concludes that the benefits of the flexibility of the Howey test outweigh the costs in terms of dissimilar results for similar investments and that the uneven applications of the Howey test by courts should be considered necessary collateral damage, acceptable in light of the significant protections still triggered by the Howey test

Company Registration In Its Historical Context: Evolution Not Revolution

The piece examines proposals for changing the current system for registering securities under the Securities Act of 1933. Under the current transaction-based system, issuers must register each non-exempt public offering of securities. Despite the SEC\u27s rule-making power, regulatory revision, at least with respect to the implementation of any major changes to the existing federal securities regulation landscape, has traditionally followed a somewhat cyclical model. First, there is discussion in the academic and professional literature, commenting on, criticizing or proposing changes to some facet of the existing regulatory system (“public debate”); then, either overlapping with or following this public debate, the SEC may informally float non-binding suggestions for changes, through presentations at conferences, or unofficial articles and publications written by SEC staff members (“agency debate”). Again, perhaps overlapping with the agency debate, the SEC may next issue a formal statement, such as a release, containing proposals to address, and even further shape the discourse, seeking comments on the statements (“agency proposal”). After renewed public debate, and taking into consideration, to varying extents, the comments made, the SEC then exercises its rule-making power and formalizes the revisions into rules (“agency action”). Because of the cyclical nature of the model, as new rules are enacted and put into effect, courts may have an opportunity to interpret them or to pass on their constitutionality, and commentators and the private bar have an opportunity to evaluate the success of the new rules and any deficiencies or other issues arising therefrom, generating additional public debate. Thus, in the aftermath of the agency action, the cycle starts all over again (“next public debate”). The agency action portion of the model has become much easier for the SEC to accomplish in recent years. The SEC is now authorized by statute to go beyond rule-making simply to carry out the provisions of securities laws. Agency action to adopt a company registration system is the next logical step in the progression from a transaction-based registration system to a company-based registration system. This progression includes the public debate and agency action that was the precursor of company registration - the adoption of the integrated disclosure system for the primary offering and secondary trading markets and the adoption of the shelf registration process. This was followed by the penultimate step towards a company-based registration system, the universal shelf. Arguably, the entire federal securities regulatory system fits into the cyclical model. This Article, however, is limited to an exploration of the company registration proposal put forth by the SEC in July 1996 in its historical context. Part II of this Article is an application of the cyclical model to the adoption of the integrated disclosure system and the shelf registration process. Part III is an application of the cyclical model to the SEC\u27s company registration proposal as a logical outflow of prior debates, including a discussion of possible issues left unresolved by or raised by the company registration proposal that may generate the next public debate, with a recommendation that the SEC adopt company registration

Security for Expense Statutes for LLCs and Limited Partnerships: Adding Value or Simply Adding to the Owners’ Hopelessness?

Every state authorizes shareholder derivative litigation, and the vast majority extend this remedy to LLCs and limited partnerships. As the availability and incidence of derivative litigation has expanded over time, a number of procedural hurdles have evolved in an effort to limit nuisance or strike suits. The theory is that these strike suits are brought by small shareholders, and the need to post a bond may deter these shareholders from bringing these suits. As part of this effort, some states have enacted “security for expense” provisions, requiring owners to post a bond to cover the defendants’ expenses before they can proceed with their suit. A few state have also enacted such provisions for derivative suit by LLC members and/or limited partners.In the context of whether and how to bring a derivative suit, the challenges facing shareholders, LLC members and limited partners can be quite similar, yet the states’ treatment of who and how to post a bond before filing a derivative suits is uneven and inconsistent. This Article focuses on security for expense provisions applicable to LLCs and limited partnerships, providing an analysis and evaluation of the rights of and requirements facing these owners who, like their shareholder brethren, seek to hold those who manage their entities accountable for managerial neglect or malfeasance through the mechanism of derivative litigation.This Article identifies the inconsistencies in states’ approaches to the rights of LLC owners and limited partners seeking to sue derivatively, specifically exploring whether such owners are required to post a bond as security for the litigation expenses, what effect this might have on the utility of derivative litigation generally, and whether the mechanism of security for expense provisions is adding value to the process writ large. The Article examines the existing corporate security for expense statutes requiring bond posting by shareholders, and then compares this corporate statutory landscape with the security for expense statutes applicable to LLC members and to limited partners as part of a broader evaluation of the usefulness of the bond posting statute as an effective gatekeeper in derivative litigation across the three forms of business generally

The natural history of primary sclerosing cholangitis in 781 children. A multicenter, international collaboration

There are limited data on the natural history of primary sclerosing cholangitis (PSC) in children. We aimed to describe the disease characteristics and long-term outcomes of pediatric PSC. We retrospectively collected all pediatric PSC cases from 36 participating institutions and conducted a survival analysis from the date of PSC diagnosis to dates of diagnosis of portal hypertensive or biliary complications, cholangiocarcinoma, liver transplantation, or death. We analyzed patients grouped by disease phenotype and laboratory studies at diagnosis to identify objective predictors of long-term outcome. We identified 781 patients, median age 12 years, with 4,277 person-years of follow-up; 33% with autoimmune hepatitis, 76% with inflammatory bowel disease, and 13% with small duct PSC. Portal hypertensive and biliary complications developed in 38% and 25%, respectively, after 10 years of disease. Once these complications developed, median survival with native liver was 2.8 and 3.5 years, respectively. Cholangiocarcinoma occurred in 1%. Overall event-free survival was 70% at 5 years and 53% at 10 years. Patient groups with the most elevated total bilirubin, gamma-glutamyltransferase, and aspartate aminotransferase-to-platelet ratio index at diagnosis had the worst outcomes. In multivariate analysis PSC-inflammatory bowel disease and small duct phenotypes were associated with favorable prognosis (hazard ratios 0.6, 95% confidence interval 0.5-0.9, and 0.7, 95% confidence interval 0.5-0.96, respectively). Age, gender, and autoimmune hepatitis overlap did not impact long-term outcome. CONCLUSION: PSC has a chronic, progressive course in children, and nearly half of patients develop an adverse liver outcome after 10 years of disease; elevations in bilirubin, gamma-glutamyltransferase, and aspartate aminotransferase-to-platelet ratio index at diagnosis can identify patients at highest risk; small duct PSC and PSC-inflammatory bowel disease are more favorable disease phenotypes

Patients' knowledge and perception on optic neuritis management before and after an information session

<p>Abstract</p> <p>Background</p> <p>Patients' understanding of their condition affect the choice of treatment. The aim of this study is to evaluate patients' understanding and treatment preferences before and after an information session on the treatment of acute optic neuritis.</p> <p>Methods</p> <p>Participants were asked to complete a questionnaire consisting of 14 questions before and after an information session presented by a neuro-ophthalmologist. The information session highlighted the treatment options and the treatment effects based on the Optic Neuritis Treatment Trial in plain patient language. The information session stressed the finding that high dose intravenous steroid therapy accelerated visual recovery but does not change final vision and that treatment with oral prednisone alone resulted in a higher incidence of recurrent optic neuritis.</p> <p>Results</p> <p>Before the information session, 23 (85%) participants knew that there was treatment available for ON and this increased to 27 (100%) after the information session. There were no significantly change in patients knowledge of symptoms of ON and purpose of treatment before and after the information session. Before the information session, 4 (14%) respondents reported they would like to be treated by oral steroid alone in the event of an optic neuritis and 5 (19%) did not respond. After the education session, only 1 patient (4%) indicated they would undergo treatment with oral steroid alone but 25 (92%) indicated they would undergo treatment with intravenous steroid treatment, alone or in combination with oral treatment. Results indicated that there were significant differences in the numbers of participants selecting that they would undergo treatment with a steroid injection (n = 22, p = 0.016).</p> <p>Conclusions</p> <p>In this study, patients have shown good understanding of the symptoms and signs of optic neuritis. The finding that significant increases in the likelihood of patients engaging in best practice can be achieved with an information session is very important. This suggests that patient knowledge of available treatments and outcomes can play an important role in implementing and adopting guideline recommendations.</p

A chemical survey of exoplanets with ARIEL

Thousands of exoplanets have now been discovered with a huge range of masses, sizes and orbits: from rocky Earth-like planets to large gas giants grazing the surface of their host star. However, the essential nature of these exoplanets remains largely mysterious: there is no known, discernible pattern linking the presence, size, or orbital parameters of a planet to the nature of its parent star. We have little idea whether the chemistry of a planet is linked to its formation environment, or whether the type of host star drives the physics and chemistry of the planet’s birth, and evolution. ARIEL was conceived to observe a large number (~1000) of transiting planets for statistical understanding, including gas giants, Neptunes, super-Earths and Earth-size planets around a range of host star types using transit spectroscopy in the 1.25–7.8 μm spectral range and multiple narrow-band photometry in the optical. ARIEL will focus on warm and hot planets to take advantage of their well-mixed atmospheres which should show minimal condensation and sequestration of high-Z materials compared to their colder Solar System siblings. Said warm and hot atmospheres are expected to be more representative of the planetary bulk composition. Observations of these warm/hot exoplanets, and in particular of their elemental composition (especially C, O, N, S, Si), will allow the understanding of the early stages of planetary and atmospheric formation during the nebular phase and the following few million years. ARIEL will thus provide a representative picture of the chemical nature of the exoplanets and relate this directly to the type and chemical environment of the host star. ARIEL is designed as a dedicated survey mission for combined-light spectroscopy, capable of observing a large and well-defined planet sample within its 4-year mission lifetime. Transit, eclipse and phase-curve spectroscopy methods, whereby the signal from the star and planet are differentiated using knowledge of the planetary ephemerides, allow us to measure atmospheric signals from the planet at levels of 10–100 part per million (ppm) relative to the star and, given the bright nature of targets, also allows more sophisticated techniques, such as eclipse mapping, to give a deeper insight into the nature of the atmosphere. These types of observations require a stable payload and satellite platform with broad, instantaneous wavelength coverage to detect many molecular species, probe the thermal structure, identify clouds and monitor the stellar activity. The wavelength range proposed covers all the expected major atmospheric gases from e.g. H2O, CO2, CH4 NH3, HCN, H2S through to the more exotic metallic compounds, such as TiO, VO, and condensed species. Simulations of ARIEL performance in conducting exoplanet surveys have been performed – using conservative estimates of mission performance and a full model of all significant noise sources in the measurement – using a list of potential ARIEL targets that incorporates the latest available exoplanet statistics. The conclusion at the end of the Phase A study, is that ARIEL – in line with the stated mission objectives – will be able to observe about 1000 exoplanets depending on the details of the adopted survey strategy, thus confirming the feasibility of the main science objectives.Peer reviewedFinal Published versio