The Legal Status of “Dump & Sue”: Should Plaintiffs and their Attorneys be Prohibited from Trading the Stock of Companies they Sue? – a Law and Economics Approach

There is some evidence that plaintiffs and their attorneys are profitably short-selling the stock of the companies they intend to sue. The status of such short sales is undecided in the law. Lawsuits against companies can cause large drops in market value, and hence such an action by the plaintiff should cause concern. Plaintiffs, however, are not traditional insiders, and they do not owe the shareholders any fiduciary duties. They can therefore consent to their attorneys also short-selling the stock of the defendant corporation. The attorneys need to receive such permission to avoid misappropriating the information concerning their client’s decision to sue. A plaintiff’s decision to sue after short-selling does not constitute market manipulation in the traditional sense, since the decision to sue is a true fact that causes the drop in the share price as opposed to those who commit fraud by spreading false negative stories about the company. Plaintiffs need, therefore, to be legally deemed temporary insiders until they publicly reveal their intention to sue or actually sue. The reasons for deeming them insiders, and hence prohibiting them from short-selling, are threefold. First, allowing such activities would raise the same concerns regarding market integrity raised by those opposed to insider trading. Second, allowing such short-selling is a form of fraud by silence against those who purchase the shares. Third, allowing short-selling would give the plaintiffs double recovery for their lawsuit, as they could gain a large share of their claim against the company from the profitable short sales in addition to any verdict or settlement. Furthermore, proposals to extend Regulation FD to plaintiff’s attorneys would be ineffective in combating the harm from such short-selling. The law, therefore, through either developments by the courts, regulatory promulgations by the SEC, an act of Congress, or a combination of any of the preceding three mechanisms should be used to treat plaintiffs as insiders until they sue or announce their intention to sue

International Water Law and Fresh Water Dispute Resolution: A Cosean Perspective

International Water Law has developed a set of rules for resolving interstate fresh water disputes that govern both the substance of these disputes and the conduct of the disputing states. Equitable and reasonable utilization is commonly considered as the leading substantive rule, no significant harm as subsidiary to it, and the duty to cooperate as the central procedural rule. The purpose of this Article is to analyze the merits of these substantive and procedural rules under the lens of the celebrated Coase theorem. The normative part of the Coase theorem observes that if transaction costs are high, then the legal rule governing the resolution of a dispute between two parties should minimize these costs. Such a legal rule will ensure an optimal and efficient allocation of resources. International fresh water disputes usually involve high transaction costs such as unequal and asymmetric access to information, enforcement uncertainty, and unclear political goals of the parties. We argue that a legal rule such as equitable and reasonable utilization only increases uncertainty and transaction costs, whereas a rule such as no significant harm is better-suited to achieving efficient dispute resolution. Moreover, when a so-called procedural rule such as the duty to cooperate is imposed on the parties and gives rise to its own set of obligations, this ensures a better negotiation environment, which in turn leads to more efficient dispute resolution

Does a Judge\u27s Party of Appointment or Gender Matter to Case outcomes?: An Empirical Study of the Court of Appeal for Ontario

A recent study by Cass Sunstein identified ideological differences in the votes cast by judges on the United States Courts of Appeals in certain types of cases. He found that these patterns varied depending on the ideology of an appellate judge\u27s co-panelists. In this study, we undertake a similar examination of the busiest appellate court in Canada, the Court of Appeal for Ontario. This study collects data on the votes cast by individual judges in every reported decision between 1990 and 2003. Each case was cod6d by type, for example criminal law, constitutional law, or private law. In addition, the votes cast by individual judges in each category were tracked based on variables such as the type of litigant, the political party that appointed the judge, and the judge\u27s gender. This study reveals that at least in certain categories of cases, both party of appointment and gender are statistically significant in explaining case outcomes. Between these two variables, gender actually appears to be the stronger determinant of outcome in certain types of cases. While these findings are cause for concern, this study also points toward a simple solution. Diversity in the composition of appeal panels both from the standpoint of gender and party of appointment dampened the statistical influence of either variable. In other words, in the case of gender, a single judge on a panel who is of the opposite sex from the others, or in the case of political party, a single judge appointed by a different political party, is sufficient to eliminate the potential distorting influence of either variable. This finding suggests a need to reform how appeal panels are currently assembled in order to ensure political and gender diversity and minimize concerns about the potential for bias

Crypto-Litigation: An Empirical Overview for 2020–Present

This article is an empirical analysis of the past two years of litigation around cryptocurrencies and other crypto-assets. We collected data points, from nearly 300 cases, over the past two years and then classified them by the various litigated issues. This article provides a breakdown of these issues as well as the jurisdictions from where these cases come from. The discussion reviews a few notable cases to illustrate what kinds of disputes have been brought to the courts. As we move into a new round of litigation due to a recent drop in the prices of cryptocurrencies, we hope that past experiences will guide lawyers and the courts in navigating the next wave of cryptolitigation

Does a Judge\u27s Party of Appointment or Gender Matter to Case outcomes?: An Empirical Study of the Court of Appeal for Ontario

A recent study by Cass Sunstein identified ideological differences in the votes cast by judges on the United States Courts of Appeals in certain types of cases. He found that these patterns varied depending on the ideology of an appellate judge\u27s co-panelists. In this study, we undertake a similar examination of the busiest appellate court in Canada, the Court of Appeal for Ontario. This study collects data on the votes cast by individual judges in every reported decision between 1990 and 2003. Each case was cod6d by type, for example criminal law, constitutional law, or private law. In addition, the votes cast by individual judges in each category were tracked based on variables such as the type of litigant, the political party that appointed the judge, and the judge\u27s gender. This study reveals that at least in certain categories of cases, both party of appointment and gender are statistically significant in explaining case outcomes. Between these two variables, gender actually appears to be the stronger determinant of outcome in certain types of cases. While these findings are cause for concern, this study also points toward a simple solution. Diversity in the composition of appeal panels both from the standpoint of gender and party of appointment dampened the statistical influence of either variable. In other words, in the case of gender, a single judge on a panel who is of the opposite sex from the others, or in the case of political party, a single judge appointed by a different political party, is sufficient to eliminate the potential distorting influence of either variable. This finding suggests a need to reform how appeal panels are currently assembled in order to ensure political and gender diversity and minimize concerns about the potential for bias

In Defense of the Free-Banking Stablecoins

Stablecoins, a form of crypto-currencies, have come under increasing regulatory scrutiny. The justification for this arises by analogizing the stablecoins to banknotes issued in the early nineteenth century during a period known as the free-banking era. During that era, banks in many states were free to issue their own notes with little supervision. The results, according to the critics, were an unstable banking system that resulted in the federal government printing its own money. In this Article, we examine the history of that era looking at judicial decisions from that time. We conclude that the judiciary had no qualms about free-banking, and if anything, they had concerns about governments printing money. Using the lessons from that era we recommend a slow and steady approach to regulating stablecoins and suggest that any regulation should come at the state level. We speculate that the motivation for the regulatory scrutiny may have more to do with government revenues instead of the public interest

Shareholders, Creditors, and Directors’ Fiduciary Duties: A Law and Finance Approach

The debate surrounding fiduciary duties owed to creditors by directors, especially in the vicinity of insolvency, has resurfaced in light of two court decisions in Canada and the United States. In this paper, we contribute to the discussion by looking at the issue from a corporate finance perspective, where we utilize well-established theorems and results. We show that creditors are able to protect themselves by the use of covenants. While this idea has been reported extensively in previous discussions about fiduciary duties, we focus on studies that show the extent to which creditors use covenants to protect themselves against opportunistic behavior by managers and shareholders. Additionally, we show that debt can actually increase the value of the firm and the shares, and therefore, the idea that shareholders use debt for opportunistic behavior is misplaced. If anything, debt is used to align managerial incentives to maximize the value of the firm. The Fisher Separation theorem is also introduced and used to show that all stakeholders in a firm will want the firm to pursue projects with the maximum net present value. Hence, we propose that fiduciary duties should always be owed to the corporation as a whole, where the main focus of the managers is investing in those projects that have the highest expected net present value

Deterring Roper’s Juveniles: Why Immature Criminal Youth Require the Death Penalty more than Adults – a Law & Economics Approach

In Roper v. Simmons, the United States Supreme Court declared the death penalty for juveniles unconstitutional. It relied on three reasons, one of which concerns this article, namely the theory that juveniles are less culpable and deterrable than adults. The Court relied on the American Medical Association’s amicus brief which purported to show scientifically that juveniles had less developed brains than adults. The Court characterized juveniles as being risk-lovers who highly preferred the present over the future, who loved gains no matter how risky but did not care for losses, and who could not engage in proper cost-benefit analysis, because they underestimated the odds of being caught and convicted. For these three reasons, the Court held that they were not only less deterrable, but that they were also not as culpable as adults. This paper takes issue with this logic, especially the idea that juveniles cannot be deterred. If indeed juveniles are risk-lovers who cannot engage in cost-benefit analysis, because they prefer the present and misperceive the odds of being caught and punished, then the proper response is to increase the penalties that juveniles face. Using law and economics methodology, I use a simple numerical example to illustrate that juveniles can be deterred no matter how abnormal their preferences are. The deterrence, however, comes at a penalty much higher than what would be required to deter a normal risk-averse individual. Another way to think of juveniles is as demanders of crime who have a very inelastic demand for crime. Thinking of punishment as the price of crime necessitates a very high price to deter juveniles, a price much higher than what adults should face. The Supreme Court, by abolishing the death penalty for juveniles, deprived the States of a valuable tool that they could use to combat juvenile violence. In this paper I also introduce empirical evidence from a series of econometric studies that show that juveniles indeed can be deterred by punishment and to the same degree as adults. Given that juveniles can be deterred, it follows that if adults can be deterred by the death penalty, than so can juveniles. A plethora of econometric studies have emerged showing that the death penalty does reduce homicides and saves lives. The evidence of juveniles’ responsiveness to punishment belies the medical claims advanced by opponents of their execution. Furthermore, I argue that the only criteria for culpability is the ability to tell right from wrong, something that even the opponents of juvenile executions conceded juveniles have. I also show that many violent adult criminals suffer from the medical characterizations that typify Roper’s juveniles. Hence to rely on medical evidence to decide who should be spared from the death penalty is an absurd proposition, and medical characterizations should be reserved for what medicine does best, namely treatment