Tell me about yourself and most importantly how you got involved in business law:

I never intended to get involved in business law when I started law school. When I was in law school I was interested in other things like Civil Rights Law & Critical Race Theory, but I did like Corporations class. I didn’t feel like I understood it very well, but I knew it was really interesting. Then after law school, I worked for a big law firm on Wall Street, in order to repay my loans for law school and I always had the plan to become a professor. So, when it became time to look for a teaching job, I was most credible as a candidate if I used the experience I had working for a big law firm. So, I pitched myself as a person who could teach Corporations.

Also, Contracts was one of my favorite first year classes—and I wanted to teach first year classes, so I wanted to teach Contracts and it worked as a good package with Corporations. Interestingly enough that when I came to Davis they told me basically they needed someone to teach Contracts and Corporations. My offer was to teach Contracts and Corporations and then whatever else I wanted as a seminar. So I taught Contracts, Corporations—BA—and a seminar on Critical Race Theory. Then I really got more interested in the contracts and corporations stuff, so that’s where my primary research area is. So, I think the big lesson here is that everything in law is potentially interesting. Just by exposure to business law I got more and more interested in it and it became my specialty. But it wasn’t my original plan.

That’s great, I noticed here that aside from contracts you teach a class on White Collar Crime. How has the prosecution on white collar crime changed over the years?

I think It’s gone up and down. So, it goes—like a lot of things—in cycles and when the economy is going well enforcement seems to drop off. There’s less political pressure to enforce white collar crime because people are happy with wall street, the stock market is doing well and there’s lots of jobs. Then when things go bad and the inevitable recessions happen in the business cycle, then everyone tries to blame somebody so they look for bad conduct. And, of course, they find it because it’s always there because whether or not it caused the last crisis or not – if you look you’ll find some bad conduct.

So, the prosecutions are associated with downturns in the business cycle. Sometimes they’re closely related – like in the Enron crisis, but this time around there was a lot of White Collar Prosecution that had absolutely nothing to do with the most recent financial crisis in 2008. After 2008, the businesses that were directly involved in the subprime mortgage crisis – there were very few criminal prosecutions there, but there were enormous number of criminal prosecutions on insider trading—which had nothing to do directly with the crisis, but there was a lot of anger towards wall street and it was a politically opportune time to go after inside traders. To me it seems – not that those people didn’t deserve to get in trouble – but that it wasn’t the best use of resources when we should’ve been tracking down the people who caused the crises, rather than the people who had been committing the same kind of crimes that happen all the time.

With all of the technology and everything that’s changed, has it become easier to uncover instances of crime at this level?

That’s a really hard question – I don’t know. The technology doesn’t necessarily help because most of the relevant information is proprietary with the companies. Things like accounting fraud, the SEC doesn’t do forensic accounting—they don’t examine whether the numbers are correct or not. They don’t have the personnel to do that. So, I’m not sure technology helps to uncover accounting fraud. Insider trading, I actually don’t know specifically – they do use technology by watching trading behavior and looking for unusual trading behavior in certain important market events. I don’t know. I can only imagine the technology has gotten better and it might help explain the increase in prosecution. I have to say I don’t really know that much about how new technology has helped with detection.

What legislation, has been put into place, if any to help combat White Collar Crime specifically?

One of the most well-known reforms dates back 15 years in Sarbanes Oxley when they required the CEOs and CFOs sign off on the financials, but I think there’s maybe been one prosecution under that. Though arguably it may be –here’s one of the things you can’t test—is that the threat of criminal penalties has made management more careful that the financials are up to par, but that’s the thing that would be very, very difficult to test whether it’s true or not. That’s one things that’s true to criminal law. You make the deterrence argument then the law is never used. Is that because the law was pointless or is it because the law worked and deterred the law so well that there were no violations? I don’t know.

What measures can business take to decrease their risk of having someone higher up commit a crime?

That’s a good and tough question. There are established industries about how to prevent people lower down from committing crime – people higher up have monitoring systems. But the people higher up, they really are the company. When you ask what can the business do to prevent higher ups. Well who makes those decisions? It’s the higher ups that make those decisions, so it’s really people policing themselves or policing their own level. If you think of the business as being the owners, the shareholders—the shareholders have very little ability to do that. The shareholders get to vote for directors, but they can’t nominate the directors – its really just a rubber stamp on who the incumbent directors have nominated, so they don’t have a lot of control over that. Then it’s the directors who appoint the CEOs—again the shareholders don’t have control over that. I guess, the standard answer to the question is that you assume the directors are clean and expect the directors to monitor the CEO and have good transparent communication between directors and the board.

Again, of course that requires that you have diligent and honest directors. And it’s very difficult for directors to verify that the CEO is giving them all of the relevant information and giving them truthful information. It is quite difficult. If you look at the question another way. If you think of it in point of view from the investor and how can the investor protect herself from getting ripped off by management, then I would give a very different answer. You treat the dishonesty of management as any other investment risk like any other investment risk and diversify around it. Most higher ups are not corrupt or criminal so if you invest in a lot of different companies then your likelihood of exposure to [and significant harm from] corrupt CEOs is going to be decreased.

Now over the years you’ve probably seen a lot of changes in business law – what else has changed – aside from white collar crime?

I guess I would say there are two things. One it’s not strictly a legal thing, but culturally people care more about it. It used to be thought of as very esoteric and now people realize it’s really front and center part of daily life and our politics and our economy. Which can only be a good thing – I think.

The other big change in, I think in, business law and roughly coincided with my career is an increase in federalization of Corporations law – like Sarbanes Oxley and Dodd Frank. It’s just a lot more than the minimal – relatively minimal disclosure requirements of federal securities law, a lot more substantive governance regulation at the federal level than it used to be. I’m not sure that’s a bad thing – it has probably increased compliance expenses, which may be a little too much in that regard, but I think it’s probably on balance, useful.