Swimming With Sharks: Unique New Course Teaches Legal Financial Arbitrage

Law and business students learn to combine legal expertise and financial trading skills—and face a Shark Tank-style final project. 

Students in front of a presentation in a classroom, addressing the shark tank judges in the Legal Financial Arbitrage class

The teams of student-entrepreneurs stood before a panel of celebrity judges, pitching their plans to make killer investments in airlines, mattress stores, satellite TV companies, and even Walmart. Dollars, percentages, contract terms, and other specifics flew back and forth between experts and tyros.

Any resemblance to Shark Tank, the reality TV show, was strictly intentional—minus, of course, the dramatic music, studio lighting, snappy editing, and real money.

But unlike the vast stream of seemingly similar reality shows, the new Columbia Law School course “Legal Financial Arbitrage: Merger Arbitrage and Beyond” had a unique pedagogical twist. 

Man in blazer standing at podium speaking and gesturing
Professor Eric Talley offers a lesson on legal financial arbitrage.

The seminar, offered jointly by Columbia Law School and Columbia Business School for the first time in fall 2024, is the brainchild of Eric Talley, Isidor and Seville Sulzbacher Professor of Law; Lecturer in Law Mark Lebovitch; and Kent Daniel, Jean-Marie Eveillard/First Eagle Investment Management Professor of Business at Columbia Business School. The instructors believe that the course, limited to 12 J.D. students from the Law School and 12 MBA students from the Business School, is the first of its kind, in part for bringing together business law and financial arbitrage concepts in a single class designed for both law and business students.

“We taught a little bit of law to the MBA students—just enough to make them dangerous—and a little bit of trading strategy to the law students—with the same caveat applying,” Talley says. “Because this field is so new, interesting, and multidisciplinary, I think the real magic comes when the class members can teach one another.”

“No school, to our knowledge, is really teaching the combination of those skill sets,” Lebovitch says. “Business students learn how to trade generally and financial arbitrage specifically. Law students learn how to know the law and assess legal uncertainties. But there’s not really any class that’s about handicapping a legal uncertainty that affects public companies and then trading on it.”

Legal financial arbitrage involves focusing on price differences that arise from uncertainty in financial transactions such as mergers, acquisitions, and bankruptcies. For example, if one company plans to acquire a second, publicly traded company, will the Federal Trade Commission forbid the deal for anticompetitive reasons? What will happen to the stock price while the case is being worked out? And, most important, how can savvy market traders buy, sell, and hedge to profit on those pricing dynamics?

The idea for the course came to Talley in 2022, during the protracted purchase of Twitter by billionaire Elon Musk. Over the course of six months, Musk made a deal to buy the social media platform, then tried to back out, sparking a lawsuit from Twitter. Meanwhile, Twitter’s stock price fell well below Musk’s purchase offer—evidently reflecting the view of many traders that Musk could walk away cheaply from having to close the deal. But for legally sophisticated observers, the Twitter-Musk kerfuffle created an opportunity to buy Twitter stock cheap and potentially sell it high if the deal closed, which it eventually did. 

“I could not for the life of me figure out why arbitrage traders hadn’t bid up the price of Twitter’s stock to somewhere close to the [Musk] deal price of $54.20, which is where it ended up,” Talley says. “Almost any moderately skilled lawyer could tell you [Musk’s purchase] was a seller-friendly deal, and there weren’t any good escape hatches. That led me to think that good lawyers should have more discussions with good arbitrage traders.”

In the course, students learn techniques for spotting “strategic situations,” evaluating potential outcomes, and researching possible financial trades to seize, exploit, and unwind bets on those outcomes. 

Two women and two men watching a presentation, seated in a classroom
Judges Sujeet Indap, Lisa Carnoy, Annette Nazareth ’81, and Carlos Brito

The culmination of the course is the Shark Tank session, when six teams (each composed of two Business School students and two Law School students) “dare to dream”—to use the TV show’s catchphrase—presenting their ideas for legal financial arbitrage investments to a panel of expert judges from Wall Street and financial media. Judges included: Carlos Brito, CEO of Belron Group; Lisa Carnoy CC ’89, former chief financial officer of AlixPartners and a Columbia University Trustee Emerita; Keith Goggin JRN ’91, a former Wall Street trader and current Columbia University trustee; Annette L. Nazareth ’81, former Securities and Exchange Commission commissioner and current senior counsel at Davis Polk & Wardwell; and financial journalists Liz Hoffman of Semafor, Sujeet Indap of the Financial Times, Matt Levine of Bloomberg, and David Marcus of The Deal.

But before that could happen, the teams had to identify and research several proposed trading ideas, then present them to the faculty for guidance before settling on a final project. Of the 20 ideas submitted, only three overlapped. The projects displayed “lots of creativity,” Talley says.

Three men seated in classroom
Judges David Marcus, Keith Goggin, and Matt Levine. Liz Hoffman attended via Zoom.

And lots of work, says Lebovitch. “No one just wakes up in the morning and says, ‘I have this brilliant arbitrage idea.’ You read, you think critically, you think out of the box, you get curious, you investigate. And then you investigate some more, and you put the pieces of the puzzle together. Through creativity and curiosity and diligence, you have educated yourself about a situation involving legal uncertainty. You come up with a thesis of how it’s going to play out. You put your finance hat on, and if you have conviction in your assessment of how the legal uncertainty will play out, you figure out how you could profit off of that by trading on different securities.

“This is a hard class,” he adds. “And I’ll tell you, I’ve been so impressed.” As were the judges, who had the challenging task of naming one team the winner at each of the two class sessions where the pitches took place. One winning team presented a plan to make bond trades around the proposed merger of Dish Network and DirecTV (which has since been called off), and the other pitched a trade related to the relative prices of Zillow’s voting and nonvoting stock in the period around the company’s earnings announcements.   

The skills learned in the class will be useful for these future lawyers when they are advising clients, Talley says. “It’s often important to help interpret what the arbitrage trading is doing, especially around big corporate events like activism and mergers and acquisition. But also, our students don’t have to be practicing lawyers forever.” They could become financial traders themselves, he says. 

Talley says that for business students, “traders in training need to understand where they can find an edge—something that other traders haven’t already seen and reacted to. Technical legal and regulatory questions are good places to look—and lawyers, who are not by and large active traders, are excellent sources of information as well as partners.” 

White-haired man in glasses wearing white shirt smiling in classroom
Professor Kent Daniel of Columbia Business School listened to students’ pitches during the presentations of final projects.

The course also helps build and augment concrete skills for business students—an increasingly recognized necessity for business school graduates navigating a tighter job market. “We want to give Business School students an understanding of legal concepts, an understanding how mispricing can arise in legal situations,” Daniel says. Students also learn “about structuring portfolios to take advantage of these mispricings as they arise and how knowledge of the law is embedded in security prices.” 

The cross-disciplinary training offered in the new “Legal Financial Arbitrage” seminar should become more common in academia—and likely will be, Talley says. “Many law and finance programs are beginning to circle in on it.” 

Understanding legal financial arbitrage will also become more important for lawyers as artificial intelligence begins to remake the legal services industry, Lebovitch says. “M&A practitioners have really accepted and grown attuned to the fact that they’re not just putting together a business deal. They are doing something that’s going to cause immediate trading upon announcement. And the more you appreciate how that’s going to play out, the better you will be at giving value-added advice within your firm to your senior partners and to your clients.”