The Minority Corporate Counsel Association recently released its annual report on law firm diversity, and the results aren’t terribly inspiring. Here’s an excerpt from the summary:
In assessing a decade of law firm employee demographics across more than 200 firms representing most of the AmLaw100 and the NLJ250, we found an increase in the overall share of working attorneys identifying as members of underrepresented racial and ethnic groups including multiracial, from 14% in 2010 to 20% in 2020. In 2020, 89% of partners across surveyed U.S. laws firms identified as White/Caucasian, down from over 93% in 2010. Meanwhile, representation of historically underrepresented racial and ethnic groups improved more noticeably among summer associates (from 28% in 2010 to 36% in 2020) and associates (from 21% in 2010 to 28% in 2020).
This minimal progress did not boost representation for all underrepresented racial and ethnic groups. While the share of Asian, Hispanic or Latinx, and multiracial attorneys at firms increased slightly between 2010 and 2020, there was no change in the share of associates and partners who are African American or Black. And surveyed firms reported having very few Indigenous and Native Hawaiian or Pacific Islander attorneys.
Gender disparities in representation also persist at law firms, as does low representation of other historically underrepresented groups. About 39% of all attorneys at surveyed firms are women, including 48% of associates but just 26% of partners. This year, MCCA collected data on attorneys who identify as non-binary and military veterans. In 2020, firms reported that attorneys who identified as follows: non-binary (0%), LGBTQ (4%), military veterans (less than 2%), or as having a disability (1%).
The survey notes that the problem isn’t just getting people in the door at law firms, it’s keeping them there. For instance, the survey reports that while 36% of summer associates who received full time offers were from underrepresented groups, 32% of departing associates came from those groups.
Despite the glacial rate of progress on the partnership front and the associate retention challenges that firms face, my own anecdotal experience suggests that there’s reason for optimism on law firm diversity – if for no other reason than clients have made it crystal clear that it matters to them. As a result, more and more firms are committing to initiatives like the Mansfield Rule certification process, which requires law firms to focus not just on diversity in hiring, but in ensuring that lawyers from underrepresented groups are provided advancement opportunities as well.
If you visit the litigation releases page on the SEC’s website, you’ll come away with the impression that the agency has a better record in the courts than the Harlem Globetrotters have on the court. The SEC has an impressive litigation track record, but it does lose one every now and again – including a recent high-profile defeat in an insider trading case.
You’re unlikely to find anything about this or any other SEC loss in an enforcement proceeding on its website, because the agency rarely makes a public statement about its losses. Former SEC Assistant Director of Enforcement Russ Ryan says that’s not right:
In this June 2013 Wall Street Journal op-ed titled “Mum’s the Word About SEC Defeats,” I called out the SEC for its troubling refusal to update its website when it loses or dismisses an enforcement case that it previously touted. After all, I argued, the agency routinely splashes its incendiary allegations of wrongdoing across its website and social media platforms upon filing a case – before it has proved anything – thereby instantaneously damaging the reputation and employability of the accused (and potentially tainting any future jury pool). And in cases it ultimately wins at trial, the agency typically posts a self-congratulatory announcement within hours of the verdict.
Is it too much to expect the SEC to do likewise when it loses or dismisses a case?
Of course not. It’s a matter of basic fairness and transparency. And given how infrequently the SEC loses a contested case, it’s not a heavy lift. The agency could simply post a short public statement acknowledging the outcome of the case and, better still, affix an electronic “sticker” to its previous postings about the case. Indeed, shortly after my “Mum’s the Word” op-ed appeared, the SEC actually started doing this type of thing, although the practice was inconsistently followed and the updates – when they appeared at all – sometimes weren’t posted until weeks or even months after the fact.
I think Russ Ryan makes a very solid point. We aren’t talking about the Globetrotters here, but a government agency charged with developing, implementing and overseeing disclosure standards for public companies and other market participants. They ask a lot of those they regulate, and it’s not too much to ask that they adhere to high standards of transparency when it comes to their own activities.
According to EY’s recent Global IPO Trends Report, 2021 turned out to be another terrific year for IPOs. The report says that 2021 was the most active year for US IPOs in the past 20 years, but this excerpt says that the IPO bonanza wasn’t limited to the US. Here are some of the year’s highlights, according to EY’s report:
– Year-over-year (YOY), global IPO activity was up 64% and 67% by deal numbers and proceeds, respectively. EMEIA exchanges recorded the highest growth in IPO activity among all regions (158% by number and 214% by proceeds), which reflects the pent-up demand held back as the European markets navigated Brexit and other geopolitical factors. The US continues to play a dominant role in driving this record global IPO year, while the contribution from Asia-Pacific has been steady but relatively modest as compared to 2020.
– Initial optimism on the COVID-19 vaccine rollout, rebound of global economies from their sharp declines in 2020, and ample liquidity in the financial system from government stimulus programs were among the key drivers of exceptional IPO activity in 2021. Technology-enabled, user-friendly trading platforms helped to attract new groups of retail investors. The buoyant stock markets in the US and parts of Europe, and companies wanting to take advantage of the open window, all contributed to the record IPO performance in 2021.
Despite all the good news, there are some storm clouds on the horizon. As the WSJ reported last week, there’s been a big selloff of new issues in recent weeks, and more than 2/3rds of last year’s IPOs now trading below their initial offering prices. The WSJ attributes the selloff to inflation concerns and a potential oversupply of new issues. EY’s report notes that 2022 IPOs will confront a “combination of geopolitical tensions, inflation risks, and new waves and variants of the ongoing COVID-19 pandemic that hamper full economic recovery.”
Still, EY says that despite these challenges, “relatively higher valuations and market liquidity are keeping the IPO window open” – at least for now. But it also says that companies considering an IPO are likely to face greater volatility, and that they need to be flexible and have financing alternatives available to them.
EY’s report notes that while SPAC IPOs contracted sharply during the second quarter of 2021, they rebounded toward the end of the year. Overall, the number of SPAC IPOs increased by 136% and the proceeds from those offerings increased by 97%. But SPACs face ever-increasing regulatory headwinds, and according to this Forbes article, they’re also having increasing trouble getting their de-SPAC mergers done:
In total, some 17 SPAC mergers, valued at a collective $37.2 billion, have been terminated during the final six months of 2021, compared to four worth $720 million during the six months prior, according to data provided to Forbes by financial data firm Dealogic. Just seven SPAC deals were terminated in 2020. A slew of others have been delayed into next year, a sign that they may fall through as well, says Jay Ritter, a professor at the University of Florida who specializes in IPOs.
SPACs have proven to be more resilient than I thought they’d be, but it’s hard to see how they aren’t in for some tough sledding during the upcoming year.
It turns out that 2021 wasn’t just a banner year for IPOs, but a banner year for IPOs with dual class capital structures. This analysis covering 1980-2021 dual class IPOs says that nearly 32% of last year’s issuers had at least two classes of stock. That’s a record, and represents a huge jump from 2020, where only 20% of deals had dual class structures. Not surprisingly, it’s the tech sector that’s leading the charge – over 46% of 2021’s tech IPOs had these capital structures.
One of Karl Marx’s most famous quotes comes fromThe 18th Brumaire of Louis Napoleon, in which the father of modern socialism & failed game show contestant wrote that historical entities appear twice, “first as tragedy, then as farce.” I thought of that quote when I read this article about the rebirth of former consumer tech & electronics retailer RadioShack as – I’m not kidding – a cryptocurrency company. This excerpt says that RadioShack’s bizarre reincarnation is based on the supposed continuing power of its brand:
Although the RadioShack electronics retail chain essentially crumbled following bankruptcy filings in 2015 and 2017, the name has survived for 100 years. In a bid to make RadioShack relevant for another 100 years, the brand’s new owner is making a play for one of the hottest, and most controversial, emerging business sectors in the world — cryptocurrency.
Seeking to capitalize on RadioShack’s global brand name, Miami-based owner Retail Ecommerce Ventures is propelling RadioShack (once based in Fort Worth) into the promising yet murky territory of cryptocurrency. Cryptocurrency is digital currency built on a technology platform known as blockchain; bitcoin is perhaps the best-known type of cryptocurrency. In November, the size of the global cryptocurrency market surpassed $3 trillion.
I wasn’t making the connection between RadioShack’s brand & cryptocurrency success, so I visited the website in search of some more information. I found plenty of it, but nothing that altered my first impression that the idea of leveraging RadioShack’s brand in the crypto space is a stretch. Here’s an excerpt from the RadioShack website’s explanation of the thinking behind this grand strategy:
Despite its pullback in the last 10 years, the brand is resolutely embedded in the global consciousness – ripe to be pivoted to lead the way for blockchain tech to mainstream adoption by other large brands. Remember, there is a real generational gap between the average crypto buyer (in some countries like India, it’s as low as age 24) and the average corporate, decision making, global CEO who averages age 68.
This demographic difference creates a substantial psychological barrier to crypto adoption. The older generation simply doesn’t trust the new-fangled ideas of the Bitcoin youth. Even worse, research finds that adults who are especially authoritarian, intelligent, and well-read (i.e. the CEO’s that RadioShack seeks to woo), have an even lower estimation of the younger age bracket.
The need for a bridge between the CEOs who control the world’s corporations and the new world of cryptocurrencies will most likely come in the form of a well-known, century-old brand.
RadioShack is perfect.
Perfect for what you ask? Well, the article explains that the concept is to get folks to exchange other cryptocurrencies for a new RADIO cryptocurrency token on RadioShack’s decentralized finance platform. The rest of the RadioShack’s new website tries to explain the business plan, but it does so by using the kind of now familiar crypto gibberish that just screams “run away!” to a Luddite like me. Here’s a representative sample:
The overall tokenomics philosophy follows the proprietary Nash-Equilibrium Token Defense (NETD) formula that was originally developed for the Atlas USV protocol by the common co-founders of Atlas USV and RadioShack DeFi
I suspect this kind of language may have the same off-putting effect on the company’s target audience – i.e., 68-year-old CEOs who run the world – that it had on me. Those old guys have nearly a decade on me, so if I can’t make heads or tails of why this is such a great idea, my guess is that they aren’t going to get it either.
According to a recent Audit Analytics report, 2020 saw the lowest percentage of financial restatement disclosures (Big R & Little r) in the 20 years that Audit Analytics has been monitoring those disclosures. The report says that restatements have been declining for each of the past six years. In 2020, just 4.9% of companies restated previous financial statements, compared to 6.8% in 2019 and 17.0% at the peak in 2006. This excerpt discusses the most common reasons for restatements last year:
Revenue recognition was the most frequently cited issue in financial restatements for the third year in a row. Coinciding with the new revenue recognition standard that became effective in 2018, revenue recognition supplanted debt and equity securities issues as the most frequently cited issue in financial restatements.
The second most frequently cited issue of 2019 – cash flow classification – fell outside the top five in 2020. Cash flow classification had been a top-five issue every year since 2008. This was replaced by general expense recognition, which returned to the top five for the first time since 2016.
Debt and equity securities, liability and accrual recognition, and tax matters round out the top five most frequently cited issues in 2020’s financial restatements. Debt and equity securities and tax matters have each been among the top five issues for at least the past decade. Liability and accrual recognition has been among the top five since 2017.
The report includes a bunch of other details about 2020 restatements, included the mix between reissuance (Big R) and revision (Little r) restatements, the average length of time required to restate financials and the average days restated. It’s pretty much a sure thing that next year’s report is going to look very different from this year’s – as a result of the multiple rounds of SPAC restatements occurring this year, Audit Analytics expects a record number of disclosed restatements in 2021.
Most of us can name a few folks whose influence, early in our career, affected the direction of our path. For me, one of those people was Bert Ranum. Bert was (and is) a wise counselor with a strong sense of business & interpersonal practicalities and a thorough knowledge of securities law. Bert’s clients – which included many smaller public companies in the life science space – were often dealing with unique legal issues, raising capital for R&D efforts, and doing whatever they could to get products to market and keep their business going. That was a whole lot more interesting to me than the churn of private equity acquisitions that many of my peers had been sucked into – although I know many people find those deals exciting for their own reasons.
In 2010, after nearly 30 years practicing in Minnesota, Bert picked up his practice and moved to Gainesville, Florida so that his wife – a scientist – could accept a long-awaited career opportunity with the university there. Bert stayed with our firm and wanted to start a Florida office to serve the local biotech community, as well as maintain his existing clients by traveling back to the Midwest on a monthly basis. It was just a few years later, when we weren’t seeing Bert as regularly, that my colleagues & I started to notice changes in his speech. In 2016, he was diagnosed with ALS.
Bert recently published a book called “Clinical Trial: An ALS Memoir of Science, Hope and Love” – which is an account of reestablishing his career in Florida in support of his wife, Laura, as well as his journey with ALS. By a miraculous coincidence, Laura is not just any scientist: she is one of the top in her field, worldwide, for studying neurological conditions – including, specifically, the genetic mutation that causes Bert’s ALS. Here’s Bert’s summary about that aspect of his book, from the Hennepin County Bar Association:
I may be the luckiest ALS patient alive, if you can call someone lucky with a disease that generally causes death three to five years after diagnosis. I’m lucky because my wife, Laura, is an internationally respected scientist who knows more about my particular disease than almost anyone in the world. Her connections resulted in my participation in a clinical trial at Johns Hopkins for a new drug targeting the specific genetic mutation that I have. That may be why I am doing well over five years from diagnosis, still walking, swimming, playing guitar badly, talking slowly and generally enjoying life. Or it may be the paleo diet that we started years ago, or the metformin that I’m taking based on Laura’s research, or the regular exercise we’re getting or the no stress lifestyle that I’ve adopted. I write about all this in the Memoir.
What also may be of interest to this crowd is that Bert’s book details:
– What it was like to take the Florida Bar Exam at age 51
– Overcoming the fear of “starting over”
– Putting your career goals second to support your spouse’s opportunity
– Negotiating a “package deal” with a spouse’s employer that includes introductions to the business community
– How to handle your ego when things don’t go as planned
Here’s one of the concluding passages from the book, and something I’m keeping in mind as we head into a new year:
When we first moved to Florida, I worked hard to be a successful lawyer and spent a fair amount of time worrying about billable hours, client relationships, and income. A significant part of my ego was based upon being a good and successful lawyer. ALS forced me to reevaluate that, and it crumbled quickly under examination.
As you often hear from people reflecting on a life well-lived, Bert notes that it’s the relationships – with his family most of all, but also with colleagues and friends – that have delivered a meaningful life.
That brings me back to the direction that my own path has taken so far. After a pretty enjoyable stint in private practice, I thought that what I’d enjoy most about joining TheCorporateCounsel.net would be sharing analysis of interesting securities & corporate governance issues (and I do enjoy that, because I’m a nerd). But I’ve learned over the past 5 years that it’s the ability to connect with all of the smart, funny and helpful people in our securities & corporate governance community that really make this gig enjoyable. It’s an honor to work with our fantastic CCRcorp team, and to gain insights from everyone who emails with comments, suggestions and – my favorite – personal anecdotes. Thank you to everyone who contributes to our sites and events, and thanks to Bert for alerting me to his book, the proceeds of which go to ALS research.
– Liz Dunshee
Programming note: This blog will be off tomorrow, returning in 2022. Happy New Year!
Last week, the SEC announced that electronic vehicle company Nikola had settled the Commission’s fraud proceedings against it for $125 million. The SEC is establishing a fund to distribute penalties to harmed investors. This is the company that is most well-known for its then-CEO tweeting a video of its truck prototype cruising at a high speed. Then, a short-seller published a report claiming that the truck was just rolling down a hill.
According to the 13-page order, the SEC is holding the company responsible for misleading statements by its founder and former CEO & Executive Chair, Trevor Milton. The company got some credit for its agreement to continuing to cooperate with the ongoing litigation against Milton. Here’s the company’s press release about the settlement – which emphasizes that the company neither admits nor denies the SEC’s findings and that it’s seeking reimbursement from Milton for costs & damages.
This “D&O Diary” blog from Kevin LaCroix recaps interesting takeaways from the settlement:
The most attention-grabbing aspect of this settlement is its size. This settlement involves some serious money, which obviously speaks to the seriousness of the allegations. There are several other interesting features of this settlement, as well.
The first is that the SEC alleged not only misrepresentations against Milton, but also alleged misrepresentations by Nikola itself, apart from those attributed to Milton. The second is that the SEC alleged that many of the misrepresentations were made in Tweets and in other social media communications. These allegations are a reminder that social media communications can be the source of securities law liability. In that regard, it is worth highlighting the fact that the among the allegations the SEC made was the allegation that Nikola had insufficient controls or procedures for monitoring Milton’s social media use, which underscores that, given the risk of securities law liability arising from social media use, companies have responsibility to control and manage their executives’ social media communications.
Another feature of this settlement that is interesting to me is that the settlement involves a company that became publicly traded during the same time frame as the alleged misconduct through a merger with a SPAC. The fact that the alleged misrepresentations were made both before and after the SPAC merger highlights the risks involved with communications by companies that are going to go public through a SPAC merger or that have just become public as a result of a SPAC merger. These risks draw attention to a misperception that may be widespread that the rules and best practices that apply in connection with traditional IPOs don’t apply to SPAC transactions; the allegations here underscore the danger with this misperception. The fact that the alleged misrepresentations continued after the merger highlight concerns that at least some companies that go public through a SPAC merger may not be ready for the burdens, responsibilities, and obligations that go with a public listing.
The statement in Nikola’s press release about its intent to try to seek recoupment from Milton for its costs and expenses is also interesting. This effort is a claim against a former director and officer of the company. Though it is a kind of D&O claim, it is not one that the typical D&O insurance policy would cover, as it would represent the prototypical “entity vs. insured” claim for which coverage is precluded under the policy.
By the same token, the $125 million that Nikola has agreed to pay in the settlement likely would not be covered under the company’s D&O insurance policy; most D&O insurance policies exclude from the definition of insured loss “fines, penalties, and matters deemed uninsurable under applicable law.” However, the company’s defense costs (as well those of Milton) potentially could be covered under the company’s D&O insurance program.
One final note about the settlement amount, and that is that the $125 million settlement is by far the largest amount the SEC has recovered in a SPAC-related enforcement action.
Kevin predicts that this may just be the beginning of the SEC flexing its enforcement power against companies that went public via a SPAC. This is in addition to the spate of private securities litigation against post-merger SPACs. In blogs here and here, Kevin wrote about complaints against two other post-SPAC EV manufacturers, just in the past week!
