Currency on a blockchain was the logical first step, and while it may well disrupt the way our financial systems operate, it was just that – the first step. Public and private industry adoption of blockchain and smart contracts is not dependent on the price or market capitalization of cryptocurrencies. Just this year blockchain popularity increased by 11% among large enterprises, while the cryptocurrency market capitalization, from early January to today, has decreased by an estimated $600 billion. Let’s talk emerging uses. Continue reading “Bitcoin, Blockchain, and Smart Contracts – Part 2”
Over the past year and a half Bitcoin and other cryptocurrencies have been taken a place under the mainstream spotlight, meaning the public at large has witnessed the speculative behavior in the cryptocurrency market. In December 2017 the price of one Bitcoin surpassed $20,000, only to encounter a bear market where the market price today is around $6,500. This volatility is not new to Bitcoin. For example, on December 4, 2013, Bitcoin was $1,175 and shortly after, on February 10, 2014, the price hit a low $100. I point out price volatility to show that the cryptocurrency market is a unique speculative market. With that being said, let’s put money to the side and focus on the technology on which the Bitcoin network runs – blockchain technology. As we will see, using blockchain to create and maintain a currency is only the beginning.
At its essence blockchain technology is linked data between computers. It is defined as a digital, decentralized, append-only, distributed ledger that allows unrelated individuals to transact with each other without the need for a third-party or controlling authority. Because no third-party transaction confirmation is needed, the network becomes trustless. I want to make a note on the ‘append-only’ characteristic because it is crucial to the high security value blockchain provides. Append only means that data can only be added to the blockchain, it cannot be removed. Blocks that are already on the chain cannot be altered in any way. You can only make a change by noting it on a future block that is not on the chain yet, and every participant of the blockchain can see this change. At very technical levels advanced cryptography is what allows blockchain to exist, but diving into a discussion of these technicalities requires a scientific discussion, which, while interesting, would not serve a legal purpose. However, something of high-relevance to the legal community is a discussion of smart contracts. Working closely with coders and blockchain experts, attorneys can draft smart contracts that provide a more efficient, secure, and cost-effective way of facilitating transactions between individuals. Continue reading “Bitcoin, Blockchain, and Smart Contracts – Part 1”
This semester in Professor Lisa Mazzie’s Advanced Legal Writing: Writing for Law Practice seminar, students are required to write one blog post on a law- or law school-related topic of their choice. Writing blog posts as a lawyer is a great way to practice writing skills, and to do so in a way that allows the writer a little more freedom to showcase his or her own voice, and—eventually for these students—a great way to maintain visibility as a legal professional. Here is one of those blog posts, this one written by 3L Nikki Paterson.
As a student associate in Marquette’s Law and Entrepreneurship Clinic, I see many start-up companies struggle with entity selection. It can be a difficult decision because founders have to consider liability, management structure, employee compensation, formation formalities, future investments, and tax implications, among other things.
As of February 26, 2018, the decision-making process got even harder. That is when 2017 Wisconsin Act 77 took effect, which recognized a new type of entity: benefit corporations. Far from being a trailblazer, Wisconsin was the 34th state to adopt such legislation.
So what is a benefit corporation? A benefit corporation is a type of corporation that places social and environmental values on equal footing with profits; in other words, a corporation with a “triple bottom line.” Chapter 204 of the Wisconsin Statutes specifies the process and requirements of incorporating a benefit corporation. Continue reading “Will a Wisconsin Benefit Corporation Benefit Your Start-Up?”
The following opinion piece appears in the Milwaukee Journal Sentinel:
Our system of justice rests upon two pillars: equal treatment and independent judgment. Every person who appears before our state courts expects to be treated equally to every other litigant. In addition, every party to a lawsuit expects to have his case heard by a judge who is free to exercise their own independent judgment. Recently, the state legislature in Madison and Governor Walker approved legislation – a $3 billion package luring Foxconn Technology Group to build a flat-screen TV factory in Racine County — that seriously undermines these two fundamental principles.
The principle of equal treatment commands that the same rules should apply to all parties appearing before the court. No one should receive special status. It is true that the two sides in a case might not be evenly matched, and that one might have more financial resources or a more skilled legal team. But, even then, both parties in the case should be subject to the same set of laws and procedures, and have the same opportunity to argue that the law supports their claim.
The Foxconn legislation creates special treatment for Foxconn whenever that corporation is sued in Wisconsin courts. The law forces the Wisconsin Supreme Court to directly take appeals involving “Electronics and Information Technology Manufacturing Zones” (EITM) from the circuit courts. By law there is only one such zone, and that zone is home to Foxconn. Typically, the high court would hear appeals at their discretion, and then only after the case was heard by an intermediate court. The reason for placing cases involving Foxconn on a “fast-track” to the Wisconsin Supreme Court should be obvious. That Court currently boasts a majority of Justices who were elected with the financial support of Wisconsin’s largest trade and manufacturing lobbyists. The drafters of the legislation expect these Justices to be sympathetic to the concerns of manufacturers like Foxconn.
We expect our state court judges to be free to exercise their independent judgment when deciding the merits of a case. It is the trial judge that hears the facts and the evidence, and who determines the appropriate remedy should the plaintiff prevail. It is not the state legislature’s job to decide which party in a case should win, or what remedy should be imposed in an individual case. Continue reading “Foxconn Deal Tips the Scales of Justice”
Prof. David Strifling rightly draws our attention to what he terms “the quiet revolution” taking place in Wisconsin administrative law. As deputy legal counsel for the governor several years ago, I was privileged to be a foot soldier in that revolution, which sought to reinvigorate core constitutional principles around the separation of powers, government transparency, and executive responsibility. Thus far, the revolution has primarily been fought in the legislature (primarily through 2011 Act 21 and 2017 Act 57) and the executive branch (especially the Governor’s Executive Order 50 and the Attorney General’s opinion 01-16).
The Wisconsin Supreme Court will soon have its opportunity to join and accelerate the revolution when it hears and decides Tetra Tech v. DOR (Court of Appeals decision) and LIRC v. DWD (Court of Appeals decision) (scheduled for argument Friday, December 1). These cases both present core questions of agency deference, institutional competence, and judicial power – in short, the opportunity for the Court to supplant its current doctrine with a new approach. As evidence of the sea change that these cases could mark, consider that the Wisconsin Institute for Law & Liberty, Wisconsin Manufacturers & Commerce (leading 10 other business groups), and the Wisconsin Utilities Association all have filed amicus briefs in Tetra Tech making thoughtful arguments as to the value and validity of agency deference.
I have recently posted to SSRN a paper that delves into the past and future of deference in Wisconsin’s jurisprudence. Originally intended to complete my trilogy of Marquette Law Review articles on interpretation of the Wisconsin Constitution and Wisconsin statutes, the timeliness of these cases has instead prompted a shorter essay which tackles the important questions raised in Tetra Tech with an eye toward the fundamental principles which should guide the Court’s decision. Ultimately I conclude that the current scheme conflicts with constitutional first principles, the statutes, and common sense. I believe the Court should deep-six its doctrine and start anew with the standards set forth in Wisconsin’s administrative procedures act (Ch. 227). Please read the essay to see why. And we’ll all be watching closely as these cases move forward. Just because the revolution won’t be televised (I’ve never seen an episode of Law & Order or Suits concerning administrative law) doesn’t mean it won’t have significant implications for law in our state.
Daniel Suhr is a 2008 graduate of the Marquette University Law School.
The “Benefit Corporation” is a new corporation class and it may be coming to a state near you (if it hasn’t already). A benefit corporation (colloquially referred to as B-corp) is an entity type that seeks to blend profit and purpose.
In 2010, Maryland was the first state to adopt a benefit corporation law. Since then, about 30 other states have followed suit. As of October 2017, the Wisconsin legislature had a bill under consideration to create a benefit corporation statute.
What Exactly Is a Benefit Corporation?
Benefit corporations seek to create a material positive impact on society and the environment. These companies focus beyond the entrenched corporate purpose of profit maximization. Most states with benefit corporation statutes base these laws on the Model Benefits Corporation Legislation. Benefit corporations are required to (a) espouse a general/specific public benefit, (b) be accountable, and (c) be transparent.
This pursuit of public benefit could take various forms, such as: providing low-income communities with beneficial services; preserving the environment; improving human health; promoting the arts; or any other nonpecuniary purpose that could be of benefit to society or the environment.
For example, Better World Books, a benefit corporation, is an online book retailer that sells used and new books. For every book sold, it gives a percentage of its funds and unsold books to literacy foundations across the globe. Some other famous companies who have decided to go the benefit corporation route include Kickstarter, Etsy, and Ben and Jerry’s.
Benefit corporations are usually required to have some measure of accountability. This often entails measuring the provision of the corporation’s stated public benefit goal against an independent third-party standard.
Most benefit corporation statutes also require specific disclosures. Corporations are required to provide an annual benefit report to their shareholders regarding the corporation’s success or failures in delivering the espoused public benefit. Continue reading “The Rise of Benefit Corporations: Show me the Money…and the Good”
The Department of Labor passed a new Fiduciary rule on June 9, 2017, that has shaken up the investment and retirement-advice market. The new rule holds financial advisers who provide investment advice and recommendations in retirement accounts to a fiduciary standard. This fiduciary standard, the on-going duty of care and loyalty, is higher than the previous suitability standard which only required that the investment advice or product was suitable at the time of recommendation. Therefore, when advisers are providing investment advice, they must act in the best interest of their clients in retirement accounts.
The Good: For investors, this new DOL rule should have been passed years ago because as clients, no one wants to be deceived or oversold on unnecessary products. With this new rule’s soft implementation on June 9, an investor can sue an advisor for breaching the fiduciary standard and will have a better chance of winning in court because of that contractual obligation. The obligation instilled in the DOL’s standards “are formal obligations to serve clients’ best interests, to charge only reasonable compensation and to avoid misleading statements,” according to InvestmentNews’ Fiduciary Corner blog by Blaine Akin.
The Bad: For many companies, the DOL rule comes with risks of lawsuits and legal complaints by investors who believe that they have been harmed by a financial adviser’s advice or recommendation of investment. For some companies, the DOL rule has instilled a fear of class-action lawsuits that has caused them to go as far as eliminating certain types of products that their advisers can sell to investors, thus removing the slight risk of conflict of interest which potentially reduces the amount of revenue.
The Ugly: The answer that remains unknown is whether the DOL rule is here to stay. Currently, under the Trump Administration, the DOL rule is undergoing review which could lead to repeal or modification. One argument is that the DOL rule is too complex and costly, and is dangerously close to entering the regulatory space that is traditionally governed by the Securities Exchange Commission. SEC Chair Jay Clayton submitted a six-page comment request asserting that the SEC should govern this regulatory space as provided by the Dodd-Frank financial reform law. On June 1, Clayton reached out to DOL Secretary Alexander Acosta to “engage constructively as the Commission moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers.”
With many opinions and speculations surrounding the DOL rule, there are only three possibilities ahead: (a) nothing will be changed and the hard implementation will begin next year, (b) there will be changes made to the proposed rule, or (c) the rule will be entirely rescinded. As of now, there are signs that indicate that the final effective date of January 1, 2018, will likely be pushed back with expected changes to the rule. One of those signs is that the House Committee on Education and the Workforce approved legislation that would replace the DOL rule and the House Appropriations Committee approved a DOL spending bill that would prevent funding that enforces the fiduciary rule. Although this indicates that the House plans to kill the DOL rule, there is still no telling what the outcome will be.
Whenever a new president transitions into the White House, there is almost always a level of uncertainty around how the new administration will handle certain hot button issues now in their purview. As logic dictates, we often look to the newly minted president’s campaign promises to ascertain their stance on these issues. But with the election of President Donald Trump, many of us looked to Twitter and old interviews from the then-businessman turned reality TV maven to determine what would come of a myriad of laws and loose ends. One of the laws that many speculated could come under attack is rooted in preventing corporate corruption, and geared towards the promotion of respectable business practices, both domestically and internationally – the Foreign Corrupt Practices Act of 1977 [“FCPA”].
What is the FCPA?
The FCPA ascended from a cauldron of toil and trouble – or more aptly stated, came into existence as a result of corruption, scandal, and an unveiling of the pervasive bribery of foreign officials perpetuated by U.S. companies. The botched break in of the Democratic National Committee (DNC) Headquarters at the Watergate office complex ultimately led to the discovery of slush funds used to bribe domestic political parties and certain foreign government officials. In order to conceal these payments, companies misrepresented their corporate financial statements, allowing the cycle of corruption to continue domestically and internationally. These findings not only tainted the view of U.S. businesses, but revealed just how awful corruption is for business. Recognizing the need to restore confidence in U.S. businesses and mitigate future corruption, Congress enacted the FCPA.
Although by no means a new question regarding retirement, the noteworthy growth of gig companies in the sharing economy has renewed concerns that even more American workers will lack access to employment-based retirement plans. Although some argue that the gig economy offers workers advantages including more independence and flexibility, company-sponsored retirement saving is not one of them. This is a dangerous state of affairs, as employment-based retirement plans make up a critical part of an individual’s strategy for retirement security.
Such retirement plans, like the nearly-ubiquitous 401(k) plans, provide a necessary bulwark against destitution in old age, especially given that Social Security provides only partial income replacement and few Americans have put away much in private savings. Yet, independent contractors, which is how most gig companies classify their workers, are approximately two-thirds less likely than standard employees to have access to an employer-provided retirement plan.
Much academic and judicial ink has already been spilt over whether Uber drivers and other members of the sharing economy are members of the so-called “contingent” workforce or “precariat” (part-time, leased, temporary, and per diem workers), not entitled to receive retirement benefits as part of their employment. Whether these employees are statutory employees is of utmost importance because it largely determines whether gig workers are covered by employment laws, as most such laws center on the employer-employment relationship.
What all these jobs have in common is that the work activity is happening outside of the traditional safety net of employment and are highly unstable. Whereas statutory employees are covered in the United States by numerous labor and employment law statues that provide security and protection in the workplace, workers in these alternative work arrangements are not. Once stable employment relationships have given way to relationships that are much more arms-length, regardless of whether it is a contractor situation, temporary employment, or a one-time encounter. Continue reading “Uber Retirement”
Most of us are familiar with wellness programs—programs sponsored by our employer or health plan that try to incentivize us to eat healthier, sleep well, and get more exercise. If you’re anything like me, it helps to have that extra push or incentive, especially around the holidays when sweets abound, to stay on track—or at least, to not stray too far from health goals. Most of these programs have the added advantage of lowering health care costs, both by providing financial incentives to reduce immediate costs to the individual employees and by boosting the overall health of the employees as a whole, which could reduce future health care costs. However, extensive technical regulations and recent litigation by the AARP make implementing health and wellness programs increasingly tricky for employers.
Title II of the Genetic Information Nondiscrimination Act of 2008 (“GINA”) and the regulations promulgated by the U.S. Equal Employment Opportunity Commission (the “EEOC”) thereunder, generally prohibit “an employer [from] request[ing], require[ing], or purchas[ing] genetic information [which includes an individual’s family medical history] with respect to an employee or a family member of the employee.” 42 U.S.C. § 2000ff–1(b). However, there is an exception for wellness programs, as long as employers jump through a set of hoops. 29 CFR § 1635.8(b)(2). While not without its own problems and excesses, the exception in the EEOC regulations at least allows employers to provide incentives to those employees willing to participate in employer-sponsored wellness programs.
The AARP doesn’t like this whole “incentive” idea to begin with. It recently filed a lawsuit against the EEOC in an attempt to vacate the regulations entirely. AARP v. U.S. Equal Employment Opportunity Commission, No. 1:16-cv-02113 (D. D.C. 2016) (hereafter the “AARP Complaint”). This actually might not be a bad idea, except for the fact that the AARP thinks that the regulations do not have enough hoops. In fact, the AARP would prefer that the regulations abolish any permission for any incentives or penalties to induce participation in employer-sponsored wellness programs. The AARP alleges in its complaint that all employer incentives or penalties to induce participation in employer-sponsored wellness programs violate Title I of the ADA and Title II of GINA. AARP Complaint at 3. Continue reading “That Extra Incentive”
The Model Business Corporation Act, potentially following suit with the rest of ever-changing 2016, has acquired proposed notable changes through provisional amendments by its Official Committee. Some of these changes model company-friendly Delaware’s legal structure, which can only help to attract companies to incorporate within states that choose to adopt such changes. Although Wisconsin has modeled its own state corporation statutes based on the Act under Chapter 180 of the state legislature, the addition of these new amendments could help attract local companies to incorporate within the state.
First, the Committee has proposed adoption of the addition of subchapter E to chapter one of the Act, mirroring the Delaware General Corporations Law’s 2014 amendments. The subchapter permits the ratification of defective corporate actions, including actions in connection with the issuance of shares. It also provides for retroactive validity of subsequent actions taken in reliance on the validity of the defective action upon its ratification. If Wisconsin adopts this subchapter, actions taken by local corporations won’t be hindered and found void based on, for example, a greater issuance of shares than allowed by the articles of incorporation. This malleability gives companies assurance that certain vote-based corporate actions have a safety net from being deemed void instantly, ensuring a remedy for defective corporate actions.
Next the Committee has proposed changes to sections 2.02 and 8.70 of the Act, allowing corporations to include a provision within its articles limiting or eliminating the duty of a director or officer to become involved with a corporate opportunity without informing the corporation, which typically falls under a director’s or officer’s duty of loyalty. These provisions would give the corporation control over the liability imposed upon its directors and/or officers upon involvement in corporate opportunities, shielding them from said liability. It would also allow directors and officers to engage in such opportunities against the wishes of the company. These provisions have their strengths and weaknesses, but the advantage surrounds the control given to the corporation. Continue reading “Proposed Changes to the Model Business Corporation Act: Future Changes to Chapter 180?”
Author’s Note: This post is taking an economic and investor approach to The Securities Act of 1933. This is not to ignore the time and monetary cost of information. It is merely a critique of one portion of a larger regulatory scheme and its effects.
The purpose of the 1933 Securities Act was to protect investors by providing them with information in order to make a sound investment decision. Albeit not articulated at the time of The Securities Act’s inception, the modern application of the Securities Act reflects the Capital Asset Pricing Model and the Efficient Capital Market Hypothesis. Roughly, the efficient capital market hypothesis assumes that the market and the stock prices are a reflection of information available about that security.(1) As the original standards for reporting requirements and disclosure requirements of the Securities Act have loosened in recent years, have we cheated investors? Are investors not being fairly compensated or informed for the risks they have assumed?
When a security becomes available to the public for the first time, the SEC requires certain disclosures through its registration statement. The registration statement provides basic information about the company and basic financial information. During this process, there are underwriters who analyze and then provide the first price for the security. They will consider the projections of the company, the segment in which it operates, as well as general global and national market conditions. Their ultimate goal, however, is to sell the securities. The underwriters receive a percentage of the final sales price, which incentivizes them to have a higher price than potential fair market value. The SEC helps to regulate this process and civil liabilities and administrative action can provide a disincentive to be overly optimistic about the security’s prospects.
Since 2005, there has been a movement towards reducing the information required from issuers prior to offering securities to the public. Continue reading “The Securities Act: Does It Permit Companies To Cheat Investors?”