Archive for the ‘Securities Litigation & Enforcement’ Category

So Much for Bright-Line Tests on Extraterritorial Reach of US Securities Laws?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday September 2, 2014 at 9:24 am
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Editor’s Note: The following post comes to us from Jonathan E. Richman, Partner in the Litigation Department and a co-head of the Securities Litigation Group at Proskauer Rose LLP, and is based on a Proskauer publication authored by Mr. Richman, Ralph C. Ferrara, Ann M. Ashton, and Tanya J. Dmitronow.

In its landmark 2010 decision in Morrison v. National Australia Bank, the Supreme Court articulated what seemed to be a bright-line test for determining the extent to which the U.S. securities laws apply to transactions with international elements. In so doing, the Court harshly rejected the fact-intensive “conduct/effects” tests propounded several decades ago by the Second Circuit and followed by many other courts throughout the country.

Last week, the Second Circuit got its revenge. In a long-awaited decision in ParkCentral Global Hub Limited v. Porsche Automobile Holdings SE, the court declined “to proffer a test that will reliably determine when a particular invocation of [the Securities Exchange Act's anti-fraud provision] will be deemed appropriately domestic or impermissibly extraterritorial.” Instead, the Second Circuit held that courts must carefully consider the facts and circumstances of each case to avoid the very result that the Supreme Court had hoped to prevent in Morrison: promiscuous application of the U.S. securities laws to transactions that have little, if any, relationship to the United States.

…continue reading: So Much for Bright-Line Tests on Extraterritorial Reach of US Securities Laws?

The SEC Whistleblower Program Year in Review

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday August 30, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Jordan A. Thomas, partner at Labaton Sucharow LLP and former assistant director at the Securities and Exchange Commission, and is based on a Labaton Sucharow publication by Mr. Thomas and Vanessa De Simone.

Four years ago this month, with the country still reeling from financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act–the most sweeping financial reform effort since the Great Depression. The goal of Dodd-Frank was as ambitious as its scope; as President Barack Obama remarked, the legislation would “restore markets in which we reward hard work and responsibility and innovation, not recklessness and greed.”

…continue reading: The SEC Whistleblower Program Year in Review

Securities Class Action Filings—2014 Midyear Assessment

Posted by John Gould, Cornerstone Research, on Thursday August 28, 2014 at 9:09 am
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Editor’s Note: John Gould is senior vice president at Cornerstone Research. This post discusses a Cornerstone Research report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, titled “Securities Class Action Filings—2014 Midyear Assessment,” available here.

Number and Size of Filings

  • Plaintiffs filed 78 new federal class action securities cases (filings) in the first six months of 2014—13 fewer than in the second half of 2013, but slightly higher than the 75 filings in the first half of 2013. This number was 18 percent below the historical semiannual average of 95 filings observed between 1997 and 2013.
  • The total Disclosure Dollar Loss (DDL) of filings remained at low levels. Total DDL was $30 billion in the first half of 2014, 52 percent below the historical semiannual average of $62 billion.

…continue reading: Securities Class Action Filings—2014 Midyear Assessment

Securities Litigation in the Roberts Court: An Early Assessment

Posted by John Coates, Harvard Law School, on Wednesday August 27, 2014 at 9:02 am
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Editor’s Note: John Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School.

This article, Securities Litigation in the Roberts Court: An Early Assessment, provides a preliminary quantitative and qualitative appraisal of the Roberts Court’s securities law decisions. In the Roberts Court, decisions that “expand” or “restrict” the reach of securities law have occurred in roughly the same 50/50 proportion as in the Rehnquist Court after the departure of Justice Powell, and polarization (5-4 votes and dissents) has decreased. A simple political attitudinal model fails to account for these developments. The article proposes that Roberts Court’s securities law decisions are better understood in the context of Chief Roberts’ background as an appellate litigator and the Roberts Court’s broader “procedural revolution,” which has been more prominent in contract, commercial, and antitrust cases. This procedure-based analysis is then used to predict likely outcomes of securities law cases to be argued in the October 2014 term and to forecast the types of cases that are likely to gain the Court’s attention moving forward.

…continue reading: Securities Litigation in the Roberts Court: An Early Assessment

Back-to-Back Court of Appeals Decisions Apply Morrison

Posted by John F. Savarese and George T. Conway III, Wachtell, Lipton, Rosen & Katz, on Tuesday August 19, 2014 at 4:08 pm
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Editor’s Note: John F. Savarese and George Conway are partners in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton firm memorandum by Mr. Savarese and Mr. Conway.

In a one-two punch illustrating the continuing vigor of the presumption against extraterritoriality, the United States Court of Appeals for the Second Circuit, on consecutive days last week, issued important decisions applying Morrison v. National Australia Bank in two disparate but significant contexts under the federal securities laws. Last Thursday, in Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014), the court rejected the extraterritorial application of the whistleblower anti-retaliation provision of the Dodd-Frank Act. And on the very next day, in Parkcentral Global Hub Ltd. v. Porsche Automobil Holdings SE, No. 11-397-cv (2d Cir. Aug. 15, 2014), the court rejected the extraterritorial application of Rule 10b-5 to claims seeking recovery of losses on swap agreements that reference foreign securities.

…continue reading: Back-to-Back Court of Appeals Decisions Apply Morrison

The Corporate Value of (Corrupt) Lobbying

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday August 18, 2014 at 8:51 am
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Editor’s Note: The following post comes to us from Alexander Borisov of the Department of Finance at the University of Cincinnati, and Eitan Goldman and Nandini Gupta, both of the Department of Finance at Indiana University.

Despite the fact that corporations and interest groups spent about $30 billion lobbying policy makers over the last decade (Center for Responsive Politics, 2012), there is a lack of robust empirical evidence on whether firms’ lobbying expenditures create value for their shareholders. Moreover, while the public perception of the lobbying process is that it involves unethical behavior that may bias rather than inform politicians, this is difficult to show since unethical practices are not typically observable. In our recent ECGI working paper, The Corporate Value of (Corrupt) Lobbying, we identify events that exogenously affect the ability of firms to lobby, and find that firms that lobby more experience a significant decrease in market value around these events. Investigating the channels by which lobbying may add value, we find evidence suggesting that the value partly arises from potentially unethical arrangements between firms and politicians.

…continue reading: The Corporate Value of (Corrupt) Lobbying

SEC Charges Corporate Officers with Fraud

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday August 17, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from R. Daniel O’Connor, partner focusing on securities enforcement at Ropes & Gray LLP, and is based on a Ropes & Gray Alert authored by Mr. O’Connor, Marko S. Zatylny, Kait Michaud, and Michael J. Vito.

On July 30, 2014, the Securities and Exchange Commission (“SEC”) advanced a novel theory of fraud against the former CEO (Marc Sherman) and CFO (Edward Cummings) of Quality Services Group, Inc. (“QSGI”), a Florida-based computer equipment company that filed for bankruptcy in 2009. The SEC alleged that the CEO misrepresented the extent of his involvement in evaluating internal controls and that the CEO and CFO knew of significant internal controls issues with the company’s inventory practices that they failed to disclose to investors and internal auditors. This case did not involve any restatement of financial statements or allegations of accounting fraud, merely disclosure issues around internal controls and involvement in a review of the same by senior management. The SEC’s approach has the potential to broaden practical exposure to liability for corporate officers who sign financial statements and certifications required under Section 302 of the Sarbanes-Oxley Act (“SOX”). By advancing a theory of fraud premised on internal controls issues without establishing an actionable accounting misstatement, the SEC is continuing to demonstrate that it will extend the range of conduct for which it has historically pursued fraud claims against corporate officers.

…continue reading: SEC Charges Corporate Officers with Fraud

European Commission Imposes €20 Million Fine for Failing to Notify a Merger

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday August 10, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP and is based on a Sullivan & Cromwell publication by Juan Rodriguez, Axel Beckmerhagen, Patrick Gorman.

On 23 July 2014, the European Commission fined Marine Harvest ASA €20 million for failing to notify its acquisition of Morpol ASA in accordance with the EU Merger Regulation and closing the transaction prior to receiving the European Commission’s approval. This is the first time the European Commission has imposed a fine in relation to a two-step transaction comprising a sale of a block of shares followed by a mandatory public bid for the remainder of the target’s shares. The level of fine is a further reminder that failure to comply with the EU Merger Regulation can have significant financial and reputational consequences.

…continue reading: European Commission Imposes €20 Million Fine for Failing to Notify a Merger

2014 Mid-Year Securities Litigation Update

Editor’s Note: The following post comes to us from Jonathan C. Dickey, partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication.

It almost goes without saying that the first half of 2014 brought with it the most significant development in securities litigation in decades: the U.S. Supreme Court decided Halliburton Co. v. Erica P. John Fund, Inc.—Halliburton II. In Halliburton II, the Court declined to revisit its earlier decision in Basic v. Levinson, Inc.; plaintiffs may therefore continue to avail themselves of the legal presumption of reliance, a presumption necessary for many class action plaintiffs to achieve class certification. But the Court also reiterated what it said 20 years ago in Basic: the presumption of reliance is rebuttable. And the Court clarified that defendants may now rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not affect the security’s price, making “price impact” evidence essential to class certification.

…continue reading: 2014 Mid-Year Securities Litigation Update

Hedge Funds and Material Nonpublic Information

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday July 31, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Jon N. Eisenberg, partner in the Government Enforcement practice at K&L Gates LLP, and is based on a K&L Gates publication by Mr. Eisenberg; the complete publication, including footnotes, is available here.

The last thing hedge funds need is another wake up call about the risks of liability for trading on the basis of material nonpublic information. But if they did, a July 17 article in the Wall Street Journal would provide it. According to the article, the SEC is investigating nearly four dozen hedge funds, asset managers and other firms to determine whether they traded on material nonpublic information concerning a change in Medicare reimbursement rates. If so, it appears that the material nonpublic information, if any, may have originated from a staffer on the House Ways and Means Committee, was then communicated to a law firm lobbyist, was further communicated by the lobbyist to a political intelligence firm, and finally, was communicated to clients who traded. According to an April 3, 2013 Wall Street Journal article, the political intelligence firm issued a flash report to clients on April 1, 2013 at 3:42 p.m.—18 minutes before the market closed and 35 minutes before the government announced that the Centers for Medicare and Medicaid Services would increase reimbursements by 3.3%, rather than reduce them 2.3%, as initially proposed. Shares in several large insurance firms rose as much as 6% in the last 18 minutes of trading.

…continue reading: Hedge Funds and Material Nonpublic Information

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