Professor Bainbridge...on law, politics, religion, culture & food

Hedge Funds and Empty Voting

My latest op-ed for the Examiner is Sunlight the best disinfectant for hedge fund empty voting:

As Texas law professors Henry Hu and Bernard Black have demonstrated, this so-called “empty voting” phenomenon is potentially subject to serious abuses. Because the hedge fund has “more votes than economic ownership,” Hu and Black explain, the fund could end up with “a negative economic interest and, thus, an incentive to vote in ways that reduce the company’s share price.” Suppose, for example, that the hedge fund is selling Ajax stock short. It now has an incentive to drive down Ajax’s stock price and, accordingly, an incentive to cast its “empty votes” in value-reducing ways. ...

The U.S. Securities and Exchange Commission and its global counterparts in other major markets, such as the UK’s Financial Services Authority and Hong Kong’s Securities and Futures Commission, are well aware of the potentials for abuse and are now considering regulatory responses. The problem is that the simplest regulatory solutions all are fraught with the risk of serious unintended consequences.