In a recent post, “SEC Commissioner, Law Professor Wrongfully Accuse SRP of Securities Fraud” (available on the Forum here), I analyzed the claims that SEC Commissioner Gallagher and Professor Joseph Grundfest made in a recent paper (hereinafter “the Paper,” described on the Forum here). In their paper, Gallagher /Grundfest allege that the SRP proposals submitted by investors working with the Shareholder Rights Project (SRP) violated the securities laws by citing only one study opposing annual elections. My analysis showed that Grundfest/Gallagher’s allegations were inconsistent with the law and with the current policy and practice of SEC staff, and I concluded that the authors had wrongfully accused the SRP.
In a subsequent post titled “A Response to Professor Macey” (hereinafter “the Reply,” available on the Forum here), Professor Grundfest attempts to offer a “point by point” detailed response to my analysis. As I explain below, the Reply reverses field and drastically modifies and weakens the authors’ allegations. Furthermore, in conceding some key points that I made and in failing to address some others, the Reply itself demonstrates that Gallagher/Grundfest wrongfully accused the SRP and should withdraw their allegations.
There are many flaws in the Reply. I will discuss certain of them to show that the Gallagher/Grundfest’s accusations are spurious and no longer tenable:
(1) In a major retreat, Gallagher/Grundfest dramatically modify their allegations by:
(a) Dropping their allegations against the overwhelming majority of SRP proposals, reducing the number of challenged proposals from 129 to seven,
(b) Completely relinquishing the claim that companies can use the alleged deficiencies to invalidate declassifications that took place in approximately 100 companies, and
(c) Conceding that even the seven challenged proposals were not deficient when submitted and could at most be allegedly faulted for not being withdrawn prior to the vote;
(2) The Reply admits that Gallagher/Grundfest’s real quarrel is with the SEC, not with the SRP proposals, and that the SRP proposals would have not been viewed by SEC staff as “false and misleading” under the SEC’s current, long-held policy;
(3) The Reply concedes that the type of enforcement action or private suit the authors urge against the SRP is without a single past precedent;
(4) The Reply conspicuously fails to explain why not a single company raised a claim of material omission against SRP proposals;
(5) The Reply inconsistently endorses the non-inclusion of references to contrary studies by issuers such as Netflix while simultaneously claiming that it is impermissible for shareholders to do so; and
(6) The Reply wrongly states that I share the Paper’s “undisputed” view of the current state of the empirical evidence.
…continue reading: Professor Grundfest’s Reply Demonstrates that He and Commissioner Gallagher Wrongfully Accused the SRP