Article

Firms Gone Dark

Jesse M. Fried

Professor of Law, UC Berkeley; Director, Berkeley Center for Law, Business and the Economy

Thanks to Robert Bartlett, Lucian Bebchuk, Richard Epstein, Larry Ribstein, Amanda Rose, and other participants in the Symposium, The Going-private Phenomenon: Causes and Implications at The University of Chicago Law School. Ching-Tang Chen, Joey Hipolito, Alex Jadin, Amad Judeh, Thomas King, I-Jung Lee, and Tal Niv provided extremely valuable research assistance. I am also thankful to Larry Goldstein of Santa Monica Partners for helpful conversations on the challenges faced by investors in firms that have gone dark. Financial support from the Boalt Hall Fund is gratefully acknowledged.

The securities laws have permitted hundreds of firms to exit the mandatory disclosure system even though these firms’ shares continue to be publicly traded and may be held by thousands of investors. Such exiting firms are said to “go dark” because they subsequently tend to provide little information to public investors. This Article describes the going-dark phenomenon and considers its implications for the longstanding debate over the desirability of mandatory disclosure. The Article also puts forward a new approach to regulating firms seeking to go dark: giving public shareholders a veto right over exit from mandatory disclosure.

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