Posts Tagged ‘Securities fraud’

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

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

2014 Mid-Year Securities Enforcement Update

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 20, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

Our mid-year report one year ago presented an exciting opportunity to discuss a time of great change at the SEC. A new Chair and a new Director of Enforcement had recently assumed the reins and begun making bold policy pronouncements. One year later, things have stabilized somewhat. The hot-button issues identified early in the new SEC administration—admissions for settling parties, a growing number of trials (and, for the agency, trial losses), and a renewed focus on public company accounting—remain the leading issues a year later, albeit with some interesting developments.

…continue reading: 2014 Mid-Year Securities Enforcement Update

The Credit Suisse Guilty Plea: Implications for Companies in the Crosshairs

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday June 9, 2014 at 9:23 am
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Editor’s Note: The following post comes to us from Christopher Garcia, partner in the Securities Litigation and White Collar Defense & Investigations practices at Weil, Gotshal & Manges LLP, and is based on a Weil Gotshal alert by Mr. Garcia and Raqel Kellert. The complete publication, including footnotes, is available here.

The announcement of the Credit Suisse guilty plea on May 19, 2014 marks the first time in more than a decade that a large financial institution has been convicted of a financial crime in the United States. For this reason alone, some will herald it a watershed moment in the history of corporate criminal liability. But the government’s well-publicized efforts to mitigate the collateral consequences resulting from the plea will likely limit the plea’s practical significance for companies that find themselves in the unenviable position of negotiating a resolution of criminal allegations with the government. This post will explore the potential implications of the Credit Suisse guilty plea for corporate criminal liability.

…continue reading: The Credit Suisse Guilty Plea: Implications for Companies in the Crosshairs

Automated Detection in SEC Enforcement

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday May 31, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Jerry Arnold, Affiliated Academic at NERA Economic Consulting, and is based on a NERA publication by Dr. Arnold and Raymund Wong.

Although US Securities and Exchange Commission (SEC) enforcement actions related to financial fraud and issuer disclosures have been on a decline since 2007, recent statements and actions suggest that the SEC is likely to re-focus its efforts on detecting, pursuing, and preventing accounting fraud. [1] Since her confirmation as Chair of the SEC, Mary Jo White has made it clear that her administration will focus on identifying and investigating accounting abuses at publicly-traded companies. [2] Among the recent initiatives announced by the SEC are the increased focus on the whistle blower program and the establishment of the Financial Reporting and Audit Task Force, the Microcap Fraud Task Force, and the Center for Risk and Quantitative Analytics. [3]

…continue reading: Automated Detection in SEC Enforcement

Accounting Class Action Filings and Settlements—2013 Review

Posted by John Gould, Cornerstone Research, on Saturday May 24, 2014 at 9:00 am
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Editor’s Note: John Gould is senior vice president at Cornerstone Research. This post discusses a Cornerstone Research report, titled “Accounting Class Action Filings and Settlements—2013 Review and Analysis,” available here.

The number of accounting case settlements in 2013 increased for the second year in a row, but remained low compared with the previous 10 years, according to Cornerstone Research’s latest report, Accounting Class Action Filings and Settlements—2013 Review and Analysis. While the number of securities class action filings that included accounting allegations (47) remained relatively constant in 2013 compared with 2012, the market capitalization losses associated with these filings more than doubled.

…continue reading: Accounting Class Action Filings and Settlements—2013 Review

Public Compensation for Private Harm: SEC’s Fair Fund Distribution

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday April 30, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Urska Velikonja of Emory University School of Law.

The SEC’s success is conventionally measured by the number of enforcement actions it brings, the multimillion-dollar fines it secures, and the high-impact trials it wins. But the SEC does more than punish wrongdoing. Over the last twelve years, the SEC has quietly become an important source of compensation for defrauded investors. Since 2002, the SEC has distributed $14.33 billion [1] to defrauded investors via 236 distribution funds, usually called “fair funds” after the statute that authorizes them. [2]

…continue reading: Public Compensation for Private Harm: SEC’s Fair Fund Distribution

The Informational Role of Internet-Based Short Sellers

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday April 23, 2014 at 9:32 am
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Editor’s Note: The following post comes to us from Lei Chen of the Department of Accounting at the London School of Economics and Political Science.

Despite serious concerns about the quality of auditing and financial reporting of U.S.-listed Chinese firms, the SEC and the PCAOB have been unable to provide sufficient or timely information to U.S. investors due to resource constraints, the confidentiality rules underlying the PCAOB disciplinary proceedings, and no access to relevant work papers of Chinese auditors. In the paper, The Informational Role of Internet-Based Short Sellers, which was recently made publicly available on SSRN, I focus on a new breed of information intermediary, i.e. Internet-based short sellers that have emerged in response to such regulatory loopholes and severe information asymmetry. Based on hand-collected Internet reports released during the 2009-2012 period by short sellers that target U.S.-listed Chinese firms, I find that these short sellers provide substantial information both directly and indirectly to investors.

…continue reading: The Informational Role of Internet-Based Short Sellers

The Robust Use of Civil and Criminal Actions to Police the Markets

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Friday April 18, 2014 at 9:04 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Securities Industry and Financial Markets Association (SIFMA) 2014 Compliance & Legal Society Annual Seminar; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I have participated in this event for many years and have always considered this conference to be all about the compliance and legal issues that are most important to the integrity of our securities markets. Now, as Chair of the SEC, I would like to thank you for the work you do day in and day out to protect investors and keep our markets robust and safe.

In about a week, I will have completed my first year at the SEC. It has been quite a year. We have made very good progress in accomplishing the initial goals I set to achieve significant traction on our rulemaking agenda arising from the Dodd Frank and JOBS Acts, intensify our review of the structure of our equity markets, and enhance our already strong enforcement program.

…continue reading: The Robust Use of Civil and Criminal Actions to Police the Markets

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