Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

The last week has seen various developments in three FCPA cases that have been closely watched in the legal community this year. The Government has previously pledged a "new era" of FCPA enforcement and not surprisingly, the Government's aggressive tactics and theories that appear to be part of this new era have come under attack.

• On Monday in the Lindsey Manufacturing case (previously discussed here and here), the defendants filed a supplemental brief further detailing claimed prosecutorial misconduct, and again requesting that the convictions in that case be vacated.

• On Monday in the Carson case (previously discussed here), which is scheduled to go to trial in 2012, the parties filed objections to proposed jury instructions regarding the key issue of whether an employee of a state-owned company is a foreign official.

• Two recent developments occurred in the FCPA "Sting" Case (previously discussed here) which resulted in a July 2011 mistrial: a new motion attacking the Government's theory was filed last Thursday, and the Court held a hearing on Tuesday to discuss a new schedule for the trials in the 22-defendant case. 

Each of the cases merit close attention as they proceed.

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The Federal Securities Law Blog is pleased to share with you the launching of Porter Wright's latest blog – Employee Benefits Law Report – which we have created as a resource to help guide employers of all sizes through the complex administrative and legal challenges facing their employee benefit plans.

This blog – edited by my partners Ann Caresani and Rich Helmreich – will provide the latest information in a wide range of areas related to Employee Benefits including:

• ERISA and employee benefits litigation
• Health care reform
• Retirement plans
• Audits and correction
• Benefits issues related to mergers and acquisitions
• Employee Stock Ownership Plans (ESOPs)
• ERISA fiduciary compliance
• Health and Welfare Plans
• Nonqualified Deferred Compensation/Executive Compensation
• Tax-exempt/government employers

If you would like to subscribe to Employee Benefits Law Report and receive e-mails regarding blog updates, please visit the blog and enter your e-mail address. Alternatively, you may add www.employeebenefitslawreport.com to your RSS/XML feedreader.

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On Friday, July 22, 2011, the D.C. Circuit Court of Appeals issued an Opinion vacating Exchange Act Rule 14a-11. Business Roundtable v. SEC, No. 10-1305, slip op. (D.C. Cir. Jul. 22, 2011). The Rule, which was previously discussed here, allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors.

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On Thursday, July 21, 2011 (the first anniversary of the passage of the Dodd-Frank Act), SEC Chairman Mary Schapiro testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs regarding the Commission's efforts to fulfill its responsibilities under the Act. During her testimony, she advised the Committee that "the new responsibilities assigned to the agency under the Dodd-Frank Act are so significant that they cannot be achieved solely by wringing efficiencies out of the existing budget without also severely hampering our ability to meet our existing responsibilities." Her prepared remarks during the testimony are available here.

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The SEC's Commissioners have rejected a proposed settlement to "claw back" a portion of the bonuses and stock sale profits a former CEO received during a period of accounting fraud. The SEC had previously described the case as the first clawback case under the Sarbanes-Oxley Act against an individual who was not alleged to have otherwise violated the securities laws. The negotiations failed when, according to a report in the Washington Post (available here), the SEC rejected the settlement proposed by its own enforcement staff which would have recovered less than half of the amount sought in the Complaint.

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Enforcement of a relatively new rule of the Financial Industry Regulatory Authority (FINRA) has resulted in significant fees in 2011 for small issuers with securities traded over-the-counter. FINRA Rule 6490 requires issuers to provide notice to FINRA of certain company-related actions, such as dividends and stock splits, or face a $5,000 fee, which some might characterize as a fine.

FINRA’s ability to charge issuers is new as of 2010, and is a significant departure from FINRA’s historically ministerial role with respect to issuers. FINRA primarily oversees broker-dealer member firms, but it also performs certain functions for issuers of over-the-counter securities. For example, it reviews and processes requests to announce or publish certain actions by issuers of OTC securities and maintains the symbols database for OTC securities.

Many small issuers do not realize they may be subject to the jurisdiction of FINRA or SEC Rule 10b-17, which requires notification of certain corporate actions by issuers with securities that are “publicly-traded.” Presumably, FINRA views any securities that are quoted on the OTC markets as “publicly-traded” under Rule 10b-17. Unfortunately, many non-exchange listed issuers with no SEC reporting requirements and a small volume of shares traded over-the-counter have never heard of FINRA. It is understandable considering such corporations do not take any steps to have their shares listed or traded; rather, the shares are listed by market makers that apply to quote the issuer’s securities.

FINRA Rule 6490 requires advance notice to FINRA of the following corporate actions:

• dividends or other distributions in cash or kind;
• stock splits or reverse stock splits, or rights or other subscription offerings;
• any issuance or change to a symbol or name;
• mergers, acquisitions, dissolutions or other company control transactions; and
• bankruptcy or liquidations.

Issuers with securities traded over-the-counter should determine whether notice to FINRA is required before taking these corporate actions. Issuers that regularly pay dividends should take steps to ensure notice is provided to FINRA at least 10 days before the record date.
 

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On Tuesday, July 19, 2011, the Wall Street Journal ran an interesting article by Gina Chon entitled "Judges Making Lawyers Earn It," discussing trends in fee awards in lawsuits challenging mergers and acquisitions in the Delaware Court of Chancery, finding that:

In recent months … the court's judges have been more discerning, according to plaintiffs and defense lawyers as well as court officials. In several cases, they have been less willing to sign off on standard fees for lawyers who have done relatively little and more willing to grant high payouts when they think lawyers have worked to earn them. 

The article is available on line here.

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On Monday, July 18, 2011, a Federal Judge in Texas, Sidney Fitzwater, granted a Motion to Strike by the SEC in its case against Mark Cuban, the owner of the Dallas Mavericks, eliminating his affirmative defense of "unclean hands" in the Commission's case against him. Notably, although it did strike the defense in Mr. Cuban's case, the Court rejected the SEC's argument that the defense is barred in SEC enforcement actions as a matter of law, and held that it is available, but "only in strictly limited circumstances."

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On Monday, July 11, 2011, New York federal Judge Jed Rakoff denied the SEC's Motion to Dismiss in Gupta v. SEC, No. 11-cv-1900 (S.D.N.Y.). The Plaintiff, Rajat Gupta, a former director at Goldman Sachs, has been accused by the SEC of having provided material nonpublic information to Raj Rajaratnam of Galleon Management, who was recently convicted of insider trading (discussed here). Unlike the 28 other defendants named in lawsuits relating to Galleon, the SEC commenced an Administrative Proceeding against Mr. Gupta. Mr. Gupta's complaint in federal court (discussed here) alleged that the SEC unconstitutionally deprived him to a jury trial in federal court and that it was necessary to have the question of whether the Dodd-Frank Act provisions could be applied retroactively (which the SEC seeks to do in the Administrative Proceeding) decided in federal court. By denying the SEC's motion to dismiss, Judge Rakoff allowed Mr. Gupta's case to proceed, but ruled that "the theory of the Complaint is narrowed to one of equal protection."

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On Thursday, July 7, 2011, D.C. Federal Judge Richard Leon declared a mistrial in a criminal case against four defendants who were accused of conspiracy and FCPA violations when the jury was unable to reach an unanimous verdict on all charges. The case represented a setback for the Government, who had brought charges against 22 individuals based on a sting operation, the first of its kind to involve FCPA charges to be tried.

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