Casino Elections and Textile Mills

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Wynn v. Wynn.

Wynn Resorts shareholders will vote later this month to elect two directors. Three people are running for the job, all of whom are currently directors; the board voted to eliminate one of their jobs. The two directors whom the company re-nominated are John Hagenbuch and J. Edward Virtue; the one it didn't is Elaine Wynn, whose name is on the door insofar as she is a co-founder with, and ex-wife of, chief executive officer Stephen Wynn. Elaine Wynn and the board are waging a pretty acrimonious fight over who gets to stay on the board. Whoever gets the fewest votes, among the three candidates, is off.

So shareholders have a choice: They can vote for Hagenbuch and Virtue (as the company wants), or for Elaine Wynn and Virtue (as Elaine Wynn wants), or I guess for Elaine Wynn and Hagenbuch if that's what they want. Those are the three choices. Writing in Ron Paul or Bugsy Siegel or Kermit the Frog or "none of the above" aren't choices.

So the fact that Institutional Shareholder Services "suggested all board nominees be rejected and denounced the company's 'manifest failures of governance'" in a 31-page report on Sunday is just sort of a nothing. ISS dislikes both the company's candidates and Elaine Wynn, and perhaps big shareholders share its dislike, but that's as far as they can go. You can denounce anything you want, but you can't reject all the board nominees. The two nominees who get the most votes -- even if that's, like, five votes, which it won't be because Elaine Wynn by herself owns 9.4 percent of the stock and has voting agreements for more -- will be elected. So the ISS recommendation is pure posturing: It's telling shareholders to throw an ineffectual tantrum over governance failures at Wynn. "They’re saying, 'All you can do is embarrass them, and that’s what we’re telling you to do,'" is how Nell Minow puts it to the Times. 

Wynn, though, is unembarrassable. The ISS recommendation is that shareholders return the company's white proxy card (as opposed to Elaine Wynn's gold one) marked with votes against the company's directors. This Wynn press release blithely says: "We are pleased that ISS recognizes that stockholders should vote on the Company's WHITE proxy card, and that ISS recommends stockholders do not vote for Elaine Wynn on the gold card." I believe that is called chutzpah. Of course if all the institutional shareholders really do take ISS's advice then Elaine Wynn should get re-elected, just because she controls a sizable minority of the shares and if no one else gets any votes then she wins.

Some insider trading.

I sort of thought that Michael Steinberg's insider trading conviction would have just poofed into nothingness at some point over the last few months: It had the same problems as Todd Newman and Anthony Chiasson's convictions, and pretty much no one thinks it's going to be upheld. But I guess he still needs to actually do the appeal, which was delayed while the appeals court considered Newman's and Chiasson's cases; now it's back on.

Meanwhile Peter Henning surveys the insider-trading landscape and concludes that prosecutors' and the SEC's best bet is to just let Newman go, not put too much stock in Congress rewriting insider-trading law, and focus on bringing cases they can win, even though now "golfing buddies will be largely immune from insider trading charges."

Some activism. 

Here is lawyer Joseph Bartlett on shareholder activism, and here is his perhaps biased recollection of Carl Icahn's testimony in an activism trial:

Question: Mr. Icahn what makes you think that you could do a better job of running the textile company than the current management?

Answer: Well, I believe I have the skill sets to enhance the business significantly.

Question: Mr. Icahn. Have you ever been inside a textile mill?

Answer: No.

Question: Have you ever seen a textile mill?

Answer: (somewhat haltingly) Well, I must have seen one, you know, driving by on the highway.

Stands to reason! Elsewhere, DuPont told shareholders that Trian Fund Management's proposal to break it up into agriculture/nutrition and industrial materials companies would cost $4 billion.

Some taxes.

Here is a story about how Starbucks pays effective tax rates in Europe that are lower than you might expect due to stuff like this:

All the coffee Starbucks uses world-wide is bought by the company’s Swiss unit, even though the coffee never actually transits through Switzerland. It is then sold to Starbucks operations around the world at a 20% markup.

Also of course the Netherlands is involved. Meanwhile in America, "The IRS Wants to Convince Millennials It's Cool to Work There," and just pretend that this sentence continues with a bunch of feeble jokes about doing audits via Snapchat and filling out Form 1040 with emojis.

Some miscellaneous intrigue.

Here is a New Yorker article about an American Oxford graduate who found his way to Bahrain, where he allegedly helped run a company with named "the International Banking Corporation (T.I.B.C.)," which right there is your first mistake, that name sounds obviously fake. Anyway TIBC "issued a series of fake loans, and in 2009 it imploded in spectacular fashion, triggering the largest corporate default in the history of the Middle East."

Here is Roddy Boyd of the Southern Investigative Reporting Foundation on OvaScience, which is "making quite a splash peddling a pair of seemingly revolutionary procedures to assist women struggling with conception"; he has some doubts.

And here is a Department of Justice antitrust case against a guy who conspired to fix the price of posters on Amazon Marketplace using algorithms; I bet it's a doozy, but he pleaded guilty and agreed to cooperate in an ongoing investigation, so the criminal information is a little thin -- not even four pages, with a chunk devoted to explaining what a poster is. ("Posters are pieces of paper depicting printed images that are designed to be hung, mounted on, or affixed to a wall or other vertical surface.")

Elsewhere, former prosecutors are taking jobs as regulators, because the job of regulation is to Be Tough, and prosecutors are good at Being Tough, etc. And prosecutors in Brazil have discovered new tools, like the plea bargain, to crack the Petrobras bribery scandal.

Reasonable investors.

We talked on Thursday about how U.S. securities law speaks in terms of materiality and reasonable investors, while actual U.S. securities markets are mostly run by algorithms that do dumb things like jump on joke press releases. Here's a blog post about a paper by law professor Tom C. W. Lin called "Reasonable Investor(s)," which "argues that policymakers should formally recognize a new typology of algorithmic investors as an early step towards better acknowledging contemporary investor diversity, so as to forge more effective rules and regulations in a fundamentally changed marketplace."

Things happen.

"A lot of economic theories about asymmetric information, while logically correct, have been rendered empirically obsolete." FedEx has agreed to buy TNT Express for 4.4 billion euros, and Informatica Corp. "is nearing a deal to be taken private by Permira Advisers LLC and the Canada Pension Plan Investment Board." 2015 IPO Study, and Are "Private IPOs" Already Underwater? If you work at Royal Bank of Scotland in the U.S., soon you might work at Mizuho. Tyler Cowen interviews Peter Thiel. Buffalo Wild Wings. BlackRock is shutting down some money market funds. "We find that mutual funds that follow tax-efficient asset management strategies generate superior after-tax returns." Apparently all paintings used to be orange? This story about the best public restroom in America is even better than you'd expect. "Here, one writer who has struggled with recruiting staff for his stately home, offers the Duke and Duchess of Cambridge advice based on his bitter experience." "'Bees are good,' Obama says as children scream." The entire French legal code dating back to Napoleon is now on GitHub. Judge rules NYC woman can file for divorce via Facebook. "Disband with reality! It does you no service here."

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Matt Levine at

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