TheCorporateCounsel.net

As you might have already guessed, I’m among those who are skeptical about claims that retail investors should be encouraged to become more involved in corporate governance, and that governance will be enhanced if they do. Some of the objections filed to AMC’s recent class action settlement filed by retail investors with the Chancery Court suggest that this skepticism may be well founded.

AMC was one of the companies to warmly embrace its meme stock “apes”, at least until it proved impossible for the company to get the quorum needed to approve a charter amendment to increase its authorized shares, which in turn inhibited its ability to raise additional capital. Since “meme stocks gotta meme”, AMC needed a fix for this problem. As Liz blogged earlier this year, the company found a solution through the creative use of blank check preferred stock. Of course, any solution to a corporate problem that’s labeled “creative” inevitably leads to class action litigation, and AMC’s fix was no exception. Last month, the company reached an agreement with the plaintiffs to settle that litigation, and that’s when the fun began.

AMC’s retail “apes” responded to the proposed settlement with an outpouring of outrage that was significant enough that the Chancery Court set up a procedure for them to submit their comments on the proposed settlement – which they did, in droves. However, while there were plenty of objections to the settlement, many didn’t inspire a lot of confidence. Here’s an excerpt from Tulane professor Ann Lipton’s recent blog on the objections:

While some of the letters inspire a lot of sympathy – many investors appear to have endured significant losses – a lot of the comments are, well, uninformed, to put it mildly. There are some fairly odd conspiracy theories floating around regarding AMC shares, and, in particular, something about an inflated share count and “synthetic” shares that are improperly voting. Many of the objecting shareholders buy into those theories. For example, in a report filed on May 17, the special master recommended against one shareholder’s attempt to intervene, which was predicated on the “synthetic share” theory.

Ann goes on to confront the fundamental question raised by the some of the more unhinged AMC objections:

So this is the elephant in the room: What does this tell us about the wisdom of encouraging greater retail involvement in corporate governance? While no doubt some retail shareholders are highly informed, many are not, and if AMC demonstrates anything, it’s that in some cases, the technological tools that enable retail shareholders to coordinate and share information may also cause the rapid spread of misinformation.

In other words, social media may have the same kind of implications for corporate governance that it has had for our political discourse. That’s a point that UCLA professor Stephen Bainbridge picks up on in this excerpt from his own blog on the AMC situation:

Many retail investors are deeply engaged with social media and increasingly exhibit the pathologies associated with social media. In the AMC Entertainment litigation, for example, one of the two lawsuits challenging the plan was filed by an individual Usbaldo Munoz. The AMC Apes have been viciously attacking Munoz. Things apparently got so bad that Munoz has now ghosted his own lawyers, leaving them without guidance as to how to proceed.

Oh, goodie! It’s nice to know that one possible outcome of the “rise of the retail investor” might be the establishment of a Q-Anon corporate governance division – “where we go one to a shareholders’ meeting, we go all.”

– John Jenkins