General/Miscellaneous

Should You Pay New York Attorneys’ Higher Rates?

September 30, 2015 / 2 minutes of reading / By Andrew Abramowitz

When selecting legal counsel for your transactional matter, one of the basic threshold questions is whether to hire a large or small firm, which I’ve addressed previously. The topic for today is also important: whether you should hire an attorney based in New York, or other large city, or one in a market with much lower average billing rates. Of course, with my office smack in the middle of midtown Manhattan, I bring some biases to this inquiry, but I will attempt to address it as dispassionately as possible.

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Should You Pay New York Attorneys’ Higher Rates? Read More »

Avoiding the “Brilliant” Attorney

March 25, 2015 / 2 minutes of reading / By Andrew Abramowitz

Last week, I detailed a few specific behaviors for transactional attorneys to avoid. Now, I want to identify and describe a particular general type of attorney to avoid becoming (or to avoid hiring, depending on who you are). Needless to say, there are lots of obvious types you don’t want to be – the kind of attorney who steals client funds, the kind who doesn’t return calls, etc. – but what I have in mind here is a type that is thought of, by many, as the best kind of attorney of all: the “brilliant” attorney.

How to avoid the Brilliant Attorney — The right kind of lawyer

Let me explain, since I know that sounds anti-intellectual. I’m not opposed to being thoughtful and creative. What I have in mind is the attorney who always seems to come up with convoluted provisions, with long formulas and layers of defined terms. And when asked to explain the provisions, the explanation itself is jargon-laden and impenetrable. Some clients who have done many deals and have self-confidence will see through the B.S., but far more will be intimidated by the attorney’s seeming expertise and be forced to take comfort in the fact that they have a genius attorney working on their behalf. But if the client can’t understand what is being agreed to, that’s a failure on the part of the attorney.

This problem is, of course, not unique to corporate law. Think of a surgeon who can’t explain in an understandable fashion the nature and risks of a proposed procedure and possible alternatives; or a fund manager who prefers complex and opaque investments, and can’t adequately explain why that’s an improvement over something simpler. There is a style among professional service-providers generally that, wittingly or not, takes advantage of the insecure and unknowledgeable, and unfortunately, the practitioners of that style are often successful.

Since I’ve managed to attract and retain many clients over my years of independent practice, I figure they must like what I’m doing (or at least tolerate it). If I were to survey my clients to ask what exactly it is they like, my hope would be it’s not that I can bring more brainpower to bear than most of my peers. Rather, the traits I take pride in, and that I hope are the source of my success, are more mundane, such as the use of good judgment in identifying which risks are more important than others, and being responsive and cognizant of the client’s timeline for getting transactions completed. I’ll take “someone you can count on” over “brilliant” any day.

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A Productivity Tip for Attorneys

February 27, 2015 / 3 minutes of reading / By Andrew Abramowitz

Law is a service business. Whether we like it or not, our clients tend to assess our performance based on our reliability in returning calls and emails and keeping tabs on how a project is proceeding, and less so on the actual quality of our work. Many highly intelligent and skilled attorneys are tripped up by, for example, failing to keep up with the barrage of incoming emails.

The popular professor and non-fiction writer Dan Ariely (Predictably Irrational) has devoted much of his professional attention to work productivity issues. He has helped to develop a time management app called Timeful, which I haven’t tried, but to the extent it implements his ideas, it’s surely helpful. I wanted to focus here on just one of his tips, described in this Reddit thread, which is to try to get important tasks done in the morning, pretty soon after getting up, which is when most people are by far the most productive.

I’ve tried to implement this idea in a manner that works with the demands of my practice. Here’s the basic challenge: corporate attorneys have a mix of tasks that can be done in a couple of minutes or so, e.g., responding to a straightforward email, and ones that take longer, e.g., reviewing or drafting a long agreement. If you try to do one of the longer tasks while monitoring incoming email, each time you interrupt what you’re doing to attend to the email, you’re taken out of the flow of the longer task. And before you know it, you’ve been in email-responding mode for three hours, and you haven’t made discernable progress on the big item.

I deal with this by setting attainable goals for the time-consuming tasks in advance for a particular day, and then seek to get them done before lunch. So when I start work at 8am, I just take a few minutes to scan emails received overnight to make sure nothing is urgent, but then I get right down to the big tasks (like this post, which I’m writing at 11am). I keep my email screen off most of the time, and while I do check periodically to make sure nothing urgent has come in, I try to avoid responding to them while I’m focusing on what I planned to do. Then, if all goes well, I can spend the rest of the day in “reactive” mode, responding to emails that are in my inbox and that continue to come in during the afternoon, with the satisfying feeling that I’ve plowed through my to do list.

Needless to say, I can’t impose complete control over client demands. Sometimes there are meetings or calls that take up the productive morning hours, sometimes I can’t get everything done in the morning that needs to get done, and sometimes things come up in the afternoon that need to get done that day or night. However, I’ve found that at least trying to organize my day in this manner has helped me both with productivity and my job satisfaction.

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SEC Advisory Committee Report on Accredited Investor Definition

November 12, 2014 / 2 minutes of reading / By Andrew Abramowitz

An advisory committee set up by the SEC, as directed by the Dodd-Frank law, has issued a report with recommendations for changing the “accredited investor” definition used for purposes of determining investor qualifications to participate in Regulation D private offerings. The report correctly identifies the flaws with a system that uses income and net worth as proxies for investment sophistication. It goes on to make a series of recommendations for changes to the system that, in my view, are on the right track.

I wanted to focus for this post on a few specific recommendations that I found particularly noteworthy.

In Recommendation 2, the report advocates relying on more direct measures of financial literacy, such as having securities or financial planning credentials or passing a basic test. There could be challenges in implementing something like this, but clearly we’d rather have a financial planner with a relatively modest income participating in private investments ahead of a 21-year old musician (not that there’s anything wrong with music) who just inherited a $1 million estate.

Recommendation 3 gets into possible limitations on amounts to be invested in private offerings if someone’s income or net worth barely meets the applicable thresholds. This is akin to the limits on investments in the not-yet-enacted Title III crowdfunding rules. This addresses one of the main goals of the securities laws, which is to try to prevent investors from losing a big chunk of their nest egg. If someone who makes $200,000 per year wants to plunk $5,000 in a private investment with a lottery-like risk-reward profile, it may not be the most prudent thing to do, but it’s not going to ruin the investor, so it’s appropriate to regulate it lightly.

Finally, Recommendation 4 promotes third party verification of accredited investor status, which is a somewhat overlooked part of the new rules permitting general solicitation for all-accredited investor offerings. Having trusted third parties in this role helps keep issuers out of the business of sifting through sensitive private financial information of their investors.

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SEC Crackdown on Undisclosed Unregistered Offerings

November 7, 2014 / 2 minutes of reading / By Andrew Abramowitz

I blogged recently about an SEC crackdown on failure to make required filings under Sections 13 and 16 of the Exchange Act, and continuing with that theme, the SEC recently announced a enforcement program against several public companies for failure to disclose unregistered offerings of securities.

First, some background: Any sale of securities by a company must either be registered under the Securities Act, or it must be sold under some exemption, such as a Regulation D private placement under Section 4(2) of the Securities Act. The SEC’s concern is that all sales of any kind be effectively disclosed to the public, so investors are aware of dilution that may have recently occurred when making their investment decisions. The public is aware of registered sales because the registration statement and prospectus filings are made via Edgar. When the sales are unregistered, public companies are required to make a filing on a Form 8-K if the sale exceeds a certain threshold (5% of the outstanding common stock for smaller public companies), and otherwise on the next Form 10-Q or 10-K.

In the cases brought by the SEC, ten companies failed to report transactions on Form 8-K as required by these rules, and three of them also had faulty disclosure when they disclosed the transactions in a later report. None of these companies is a household name. The issue of disclosure of unregistered offerings is more likely to come up in the context of smaller public companies, since larger ones tend to have more flexibility to conduct registered offerings (takedowns from shelf registration statements, etc.), while their smaller counterparts rely on PIPEs and similar transactions, which trigger the disclosure requirement. Often, these microcap public companies don’t rely on experienced or competent securities counsel in preparing their filings. (Yes, that is a not-so-subtle pitch for my services.)

The broader point is that the SEC is well aware that certain of its disclosure requirements are not complied with religiously, and while the agency doesn’t have the budget to police each failure individually, it is attempting to send a message with these coordinated multi-company enforcement efforts that the rules shouldn’t be ignored.

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Thoughts on Legalese

October 1, 2014 / 3 minutes of reading / By Andrew Abramowitz

The noted linguist Steven Pinker, in an interview with Slate.com, has some good thoughts about convoluted legal prose, or legalese:

[L]egalese can…be made less impenetrable. In fact, there’s a movement in the legal profession to reduce legalese to the minimum necessary, because a lot of legalese doesn’t serve that purpose of anticipating an uncooperative reader. For example, “the party of the first part” actually serves no purpose whatsoever. It could be removed from every single legal document, and replaced it with “Jones” or whatever, and it would not have any bearing on the legal interpretation but it would make the document a heck of a lot easier to read. A lot of legalese is just professional bad bits carried over from one generation of lawyers to another with no good reason.

Improving legalese is actually a high priority because there’s so much waste and suffering that results from impenetrable legalese: People don’t understand what their rights are because they don’t understand a contract or they waste money hiring expensive lawyers to decipher contracts for them. I think there’s a high moral value in reducing legalese to the bare minimum.

As an aside, I’d quibble with the point about hiring expensive lawyers to decipher contracts. While I decipher for my clients when needed, the primary reason to hire me is to help the client think through the implications of what’s on the page, even if it’s easily understandable, and to consider alternative provisions that aren’t on the page. To the extent Pinker is implying that calling parties by their real names obviates the need for legal guidance before entering into contracts, that’s overstating things.

But I wholly endorse the goal of making legal writing easier to understand and support initiatives, like the SEC’s Plain English rules, that mandate clearer disclosure. Still, many contracts drafted today are quite difficult to parse for the layperson, and it’s only partially because of antiquated language, such as “party of the first part,” that appeared in contracts 100 years ago. I think that some attorneys affirmatively seek to use difficult language and convoluted provisions that only they can understand and explain, cultivating an oracle-genius image of themselves for their clients. This style isn’t limited to attorneys – think of investment gurus (Bernie Madoff used it to convince investors of his wizardry, though it’s not just limited to fraudsters) and doctors who use jargon and resent it when their patients try to self-educate with WebMD.

Hopefully, over time, society’s understanding of what it means to be an expert will become more nuanced, with a recognition that communication via jargon is not indicative of true proficiency in a field.

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Get that Form 4 Filed!

September 17, 2014 / 2 minutes of reading / By Andrew Abramowitz

The SEC recently announced civil charges against 28 officers, directors or shareholders and six publicly-traded companies for failure to publicly report information about stock holding and transactions, as required under Sections 13 and 16 of the Securities Exchange Act of 1934. The forms required by these provisions (Schedules 13D and 13G and Forms 3, 4 and 5) are triggered by the accumulation of threshold percentages of publicly-traded stock (5% or 10%, depending on the form), or just being an insider (officer or director). These filers are thereafter required to report most transactions in the stock.

In the past, the SEC would generally bring these enforcement actions only in cases where the failure to file was part of a larger scheme, for example, a shareholder accumulating a large position in a company and not wanting to disclose it publicly. In these new cases, however, the SEC identified the filing failures via quantitative analysis and made clear that even an inadvertent violation is still a violation.

Although the filing obligations are imposed on the shareholder or insider, not the company, the SEC has always used the proxy rules (which are imposed on the company) to cause the company to ensure that its insiders are making the filings. These rules require that annual proxy statements contain specific disclosure of the insiders’ filing delinquencies over the past year. The six companies charged by the SEC failed to include those disclosures in their proxies. The policy behind this requirement is that companies will be so embarrassed by disclosure of delinquencies that they will ensure that the insiders comply. In the real world, however, among the small percentage of investors who actually read proxy statements, an even smaller proportion focus on this delinquency disclosure, buried near the end, or would even know what it meant if forced to read it. This enforcement action by the SEC can be read as an acknowledgement that the company embarrassment factor isn’t doing the trick.

The message to insiders is to pay attention to the obligations and get it done. For companies, even though they’re essentially not at risk if they make the proper disclosure in the proxy, as a practical matter the system works best when they put into place internal protocols to assist their insiders in making prompt filings.

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The SEC’s Guide to Avoiding Investor Scams

September 5, 2014 / 2 minutes of reading / By Andrew Abramowitz

Last month, the SEC issued a user-friendly guide for potential investors in avoiding fraudulent unregistered offerings. I highly recommend the advice given here, but I have a few specific clarifications:

In point 1, the SEC identifies promises of high returns with little risk as a red flag. This is of course true, but one shouldn’t necessarily be concerned if a PPM contains projections of future financial results that look rosy, as long as there is appropriate risk disclosure included. Particularly if the company is a startup without meaningful historical financials to disclose, you’re likely to see projections in the PPM, and even the most scrupulous and honest companies are not going to have projections that make the investment opportunity look like a sure-bad thing.
Point 4 implies that you should be concerned if the offering doesn’t have a PPM, but as I’ve noted before, it’s not uncommon for private placements to go without a PPM for all-accredited investor offerings. The other point made here about sloppy documentation is well-taken.
Point 5 notes correctly that many exempt transactions rely on the accredited investor definition. In such cases, as noted, it would be a red flag if the documentation did not ask about the investor’s accredited investor status. However, the heading of this point could be interpreted to mean that you can’t participate in these offerings without the requisite net worth or income, but of course several of the exemptions permit a certain amount of non-accredited investors.
Point 8 says it’s a red flag if the entity isn’t in good standing in its state of incorporation/organization. It’s pretty common for smaller companies to be delinquent in franchise tax payments and therefore not in good standing pending the payment, and in the great majority of these cases, it’s probably more about inattention to detail than a scam. A reasonable investor could deem such sloppiness to be a red flag, but not necessarily as an indicator that the promoter will abscond with the investor’s funds.

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Regulation FD

May 29, 2014 / 2 minutes of reading / By Andrew Abramowitz

Steven M. Davidoff, the New York Times DealBook’s Deal Professor, has a good outline of the various unforeseen consequences of Regulation FD that have unfolded since its adoption by the SEC in 2000. Reg FD was intended to combat the practice by public companies of providing material information selectively to favored contacts, such as investment bank analysts, which provided a trading edge to the clients of the banks over small investors who didn’t have access to such information. Much like the laws against insider trading, which some argue is a victimless crime, Reg FD is intended to create a level playing field for all investors, because if the general sense among the public is that the equity markets are rigged against the little guy, the small investors will stay away from investing and thereby lose out on its long term gains.

Davidoff’s litany of problems with Reg FD, including decreased analyst coverage of public companies and the difficulties in controlling what is said on social media, are real and need to be addressed. He ultimately questions whether we even need the rule and speaks of the old days, where information was filtered through the analysts, with nostalgia. However, in so many other areas of life, the advent of improved communications technology has served to eliminate middlemen, saving costs for everyone. Are we really advocating, in an era of unprecedented amounts of available information about public companies, that investors need to pay a third party for their expertise, or otherwise not participate?

I would argue that the basic concept behind Reg FD – that companies need to avoid selective disclosure to preserve a general sense among investors that they have equal access to information – is worth preserving. The goal of the SEC should be to adapt and tailor its rule for the new realities. For example, instead of using the Netflix CEO’s Facebook post as a teachable moment showing that Reg FD applies to social media posts (as described in the Davidoff piece), instead acknowledge that it’s tough for companies to monitor this kind of thing and apply a more lenient standard to insider social media posts than the harsh disclose-immediately-or-else standard applied to company statements. Under a more relaxed standard, there would be a violation only if the social media posts were part of a coordinated effort to evade Reg FD, not an innocent bit of bragging as appeared to be the case with Netflix.

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Can Employee Autonomy Initiatives Be Implemented in Big Law?

May 19, 2014 / 2 minutes of reading / By Andrew Abramowitz

This Slate.com article profiles an experiment undertaken at the electronics retailer Best Buy, where “knowledge workers” (i.e., not the sales associates that deal directly with the public) were managed under a Results-Only Work Environment, or ROWE. There are details in the article, but essentially the workers were granted complete autonomy on how they did their jobs – whether they worked in the office or from home, whether or not they attended meetings, etc. – and they were judged purely on results, such as an increase of sales, or whatever metric is appropriate for the particular worker.

Although there are good and bad ways to implement such a plan, I broadly agree with the proposition that improving employees’ sense of autonomy will maximize performance (as well as happiness). However, I don’t believe that most of my former large law firm colleagues share that view. Unless there has been a sea change in attitudes over the four years since I left that world, that particular workplace is likely to be highly resistant to ROWE-like initiatives.

Even though the majority of work that a typical large firm attorney does (even the litigators) can be done anywhere – emails, phone calls and drafting/writing – there is a culture of judging attorneys based on their physical presence at the office at particular times, i.e., an emphasis on face time. And this has remained the case long after technology has made it possible to work remotely. An oddity of the New York law firm version of face time is that far more attention is paid to the hour at which an attorney leaves than when he or she arrives, so whether you arrive at 7am or 10am is far less important than whether you leave at 7pm or 10pm. I recall many interviews at firms in which the interviewer would say things like “Oh, there’s no face time here. People can leave at 7pm.” Contrary to the interviewer’s statement, there is very much face time judgment involved at such a firm: if you left the office at 4pm to get home for your kid’s little league game, and then caught up on work at home from 7pm to 10pm, you’re a slacker. Again, I hope for the sake of those currently working at large firms that there has been some change along with how society has evolved generally, but it wouldn’t surprise me if big law remains a big holdout on these issues.

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