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Federal Securities Law Blog Information on federal securities laws, news and developments

Monthly Archives: November 2011

Judge Matz To Dismiss Convictions in Lindsey Manufacturing FCPA Case For Prosecutorial Misconduct

Posted in Criminal Charges in Securities Cases, Foreign Corrupt Practices Act

At a hearing on November 29, 2011, Judge A. Howard Matz stated that he would be granting the motion to dismiss for prosecutorial misconduct filed by Lindsey Manufacturing Company (a privately-held company), its President Keith Lindsey, and its Vice President Steve Lee in the criminal FCPA case against them. Judge Matz prepared a tentative order which he shared with the parties and plans to issue a formal order on Wednesday, November 30, 2011. According to Edward Pettersson’s article on Bloomberg.com, "[t]he judge cited government misconduct including providing false information to get a search warrant, making unauthorized searches and giving incorrect testimony to a grand jury." As a result, the May 2011 convictions of conspiracy and FCPA charges against the company and Messrs. Lindsey and Lee will be dismissed.…

SEC Issues Statement Defending The Citigroup Settlement Rejected by the Court

Posted in Market Crisis Cases, SEC Enforcement Cases, SEC News, SEC Settlements: Policy, Issues and Disputes

Following yesterday’s sharply worded Opinion from Judge Rakoff rejecting the $285 million settlement with Citigroup Global Markets (discussed here), Robert Khuzami, the SEC Director of the Division of Enforcement, issued a statement (available here) claiming that Court "ignore[d] decades of established practice throughout federal agencies and decisions of the federal courts." Mr. Khuzami stated that the SEC respected the opinion, but it would "continue to review the court’s ruling and take those steps that best serve the interests of investors."…

Irving R. Kaufman Memorial Securities Law Moot Court Competition

Posted in Porter Wright News

Each spring, Fordham University School of Law hosts the Irving R. Kaufman Memorial Securities Law Moot Court Competition. Held in honor of Chief Judge Kaufman, a Fordham Alumnus who served on the United States Court of Appeals for the Second Circuit, the Kaufman Competition has a rich tradition of bringing together complex securities law issues, talented student advocates, and top legal minds.

The Kaufman Competition will take place March 23-25, 2012. The esteemed final round panel includes Judge Paul J. Kelly, Jr., of the Tenth Circuit; Chief Judge Alex Kozinski, of the Ninth Circuit; Judge Boyce F. Martin, Jr., of the Sixth Circuit; Judge Richard A. Posner, of the Seventh Circuit; Judge Jane Richards Roth, of the Third Circuit; and Commissioner Troy A. Paredes, of the United States Securities and Exchange Commission.

The Kaufman Competition is currently soliciting practitioners and academics to judge oral argument rounds and grade competition briefs. No securities law experience is required to participate and CLE credit is available.

Information about the Kaufman Competition and an online Judge Registration Form is available on its website, www.law.fordham.edu/kaufman. Please contact Michael A. Kitson, Kaufman Editor, at KaufmanMC@law.fordham.edu or (212) 636-6882 with any questions.

Judge Rakoff Rejects Settlement in SEC v. Citigroup Global Markets as “neither fair, nor reasonable, nor adequate, nor in the public interest” and Sets Trial For Summer 2012

Posted in Market Crisis Cases, SEC Enforcement Cases, SEC News, SEC Settlements: Policy, Issues and Disputes

In a scathing Opinion and Order issued on Monday, November 28, 2011, Judge Jed Rakoff rejected the SEC proposed settlement with Citigroup Global Markets for $285 million, suggesting the SEC was hoping for "a quick headline" and finding "that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest." Instead, the Judge consolidated the Citigroup case with a related matter, SEC v. Stoker , No. 11-civ-7388 (S.D.N.Y. Filed Oct. 19, 2011), and set a trial date of July 16, 2012. The decision could have a significant impact on how the SEC will approach and settle cases and what defendants who want to settle will be forced to consider.…

Bloomberg Article Hints That Judge Rakoff May Reject the Settlement Between the SEC and Citigroup and the Parties Will Have to Renegotiate

Posted in Market Crisis Cases, SEC Enforcement Cases, SEC News, SEC Settlements: Policy, Issues and Disputes

A Thursday, November 24, 2011 article from Bob Van Voris on Bloomerg.com states that Citigroup Global Markets, Inc. may have to pay more than the proposed $285 million settlement with the SEC to satisfy Judge Jed Rakoff that the accord is fair. The article hints that Judge Rakoff may be displeased with the settlement because Citigroup is not admitting or denying liability and quotes several attorneys as saying that Citigroup may have to pay more to avoid such an omission.…

SEC v. Mark Cuban: The Discovery Fight Continues – This Time the SEC Moves to Compel Information From Mr. Cuban Regarding Events During the Investigation

Posted in Insider Trading, SEC Enforcement Cases, SEC News

On Tuesday, November 22, 2011, the SEC struck the latest blow in its long-standing dispute with Mark Cuban by filing a Motion to Compel, asking the Court to order Mr. Cuban to produce a privilege log of documents (from the period the SEC was investigating him) which were withheld on privilege grounds. According to the Commission, he has refused to do so because it "it would be burdensome to log a large number of plainly privileged communications." Mr. Cuban has previously filed a Motion to Compel against the SEC seeking, among other things a voluminous log of what the Commission also calls "plainly privileged documents." As previously noted, Mr. Cuban is one of the rare individual defendants who has the financial ability to mount a defense in such litigation against the SEC, making the developments in this case worth watching. Moreover, one of the central issues in the SEC’s motion and Mr. Cuban’s prior motion focus on the events and information from the period of the SEC’s investigation and the now on-going litigation – not during the events in dispute.…

SEC Division Directors Testify Before Congress About Management and Structural Reforms

Posted in SEC Enforcement Cases, SEC News

On Tuesday, November 16, 2011, six SEC Directors appeared before the Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance, and Investment to provide a progress report on Management and Structural Reforms at each of their respective divisions at the SEC (their testimony is available here). The witnesses acknowledged the comments made in a report by the Boston Consulting Group (previously discussed here) who examined internal operations, structure and need for reform at the SEC (which has also resulted in a report from the SEC’s Chief Operating Officer, described here). The testimony discussed "a number of significant steps that [the SEC has] taken over the past few years in our divisions and offices to reform and improve [its] operations."…

SEC Whistleblower’s Office Releases First Annual Report Including a Snapshot of the Types of Tips Received Thus Far

Posted in SEC News, Whistleblower Issues

The SEC’s Office of Whistleblower has released its first Annual Report on the Dodd-Frank Whistleblower Program for Fiscal Year 2011. The Report (available here) points out that because the Final Rules became effective August 12, 2011 (discussed here), there were only seven weeks of whistleblower tip data available for fiscal year 2011. The Report includes an Appendix, which list by subject matter and month, the 334 whistleblower tips received from August 12, 2011 through September 30, 2011. The most common complaint categories were market manipulation (16.2%), corporate disclosures and financial statements (15.3%), and offering fraud (15.6%).…

SEC Settles Clawback Case Against Former CSK Auto Executive at the Second Attempt

Posted in Compensation Matters, Executive Officer Matters, Sarbanes-Oxley Act, SEC Enforcement Cases, SEC Settlements: Policy, Issues and Disputes, Trends

On Tuesday, November 15, 2011, the SEC announced that it had reached a settlement with Maynard L. Jenkins, the former chief executive officer of CSK Auto Corporation, who agreed to re-pay approximately $2.8 million of the over $4 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. This settlement, which still most be approved by the Court, comes almost four months after the SEC rejected a previous settlement proposed by its own enforcement staff which would have recovered less than half of the amount sought in the Complaint (as previously discussed here).…

Federal Securities Law Blog’s Monthly Litigation Review (November 15, 2011 Edition)

Posted in Monthly Review

Today, the Federal Securities Law Blog takes a look back at the last 30 days in the world of securities-related litigation in a regular feature which appears on approximately the 15th of each month. Recent issues which have appeared in the news include the SEC’s case against Citigroup Global Markets, Inc. and Judge Rakoff’s probing questions about the proposed settlement (which has not yet been approved), as well as several events regarding the SEC’s investigative techniques. These issues, and others, are discussed in greater detail after the jump.…

SEC Announces Division of Enforcement Statistics For the Fiscal Year: A Record Number of Actions Were Filed

Posted in SEC Enforcement Cases, SEC News, Trends

On Wednesday, November 9, 2011, the SEC issued a Press Release announcing that it had filed 735 enforcement actions in the fiscal year ending September 30, 2011, touting it as the "most enforcement actions filed in a single year." The Commission also highlighted the fact that "more than $2.8 billion in penalties and disgorgement [was] ordered in FY 2011 SEC enforcement actions."…

Judge Rakoff Continues His Busy Week By Entering a $92 Million Judgment Against Raj Rajaratnam in Civil Case

Posted in Insider Trading, SEC Enforcement Cases

On Tuesday, November 8, 2011, Judge Jed Rakoff issued an Opinion and Order and entered a final Judgment against Raj Rajaratnam, bringing a close to the SEC’s first civil case against the former head of Galleon Management. Mr. Rajaratnam, who was previously convicted of insider trading charges (as discussed here) and sentenced to twelve years in prison (as discussed here), now has a $92 million civil judgment against him.…

SEC v. Citigroup: The Commission Responds to Judge Rakoff’s Questions and Gives Some Insight Into the Settlement Process

Posted in Market Crisis Cases, SEC Enforcement Cases, SEC News, SEC Settlements: Policy, Issues and Disputes

On Monday, November 7, 2011, the SEC filed its Brief in response to questions posed by the Court regarding the proposed settlement in SEC v. Citigroup, No. 11-cv-7387 (S.D.N.Y.). In answering the Court’s questions, the Commission emphasized that "[t]he proposed consent judgment embodying this settlement is fair, adequate, and reasonable, and should be entered by this Court." The brief submitted by the Commission provided a broader-than-normal look at the Commission’s approach to settling cases (although the SEC did argue that the Court was not entitled to consider some of the issues it had raised). Judge Jed Rakoff has scheduled a hearing for Wednesday, November 9, 2011 to consider the proposed settlement.…

DOJ Elects Not to Investigate SEC’s Former General Counsel For Conflict of Interest in Madoff Matter

Posted in SEC News

According to an article by Lisa Uhlman on the Law360 website, the Department of Justice will not investigate whether David Becker, the SEC’s former General Counsel, violated ethics laws during the SEC’s handling of issues related to Bernie Madoff’s Ponzi scheme. As described here, the SEC’s Office of the Inspector General had previously referred the results of an investigation to DOJ after finding that former General Counsel "participated personally and substantially in particular matters in which he had a personal financial interest by virtue of his inheritance of the proceeds of his mother’s estate’s Madoff account and that the matters on which he advised could have directly impacted his financial position." The Law360 article quoted Mr. Becker’s counsel as stating he was "gratified by the decision" by DOJ not to take the matter any further.…

Settlement in Chesapeake Energy Derivative Action: CEO Keeps $75 Million Bonus, But Agrees to Buys Back $12 Million Art Collection

Posted in Compensation Matters, Executive Officer Matters, Private Securities Litigation, Shareholder News

On Wednesday November 2, 2011, several media outlets reported on the details of the settlement in the shareholders derivative action filed against executives of Chesapeake Energy Corporation. The case, which was filed in state court in Oklahoma in April 2009, was on appeal after the claims were dismissed in February 2010. Under the terms of the settlement, CEO Aubrey McClendon, whose compensation in 2008 included a $75 million bonus (following a six-month period where the company’s share price fell from $74 to $16.17 a share), will buy back an art collection which he sold to the company for approximately $12 million in 2008.…

SEC Inspector General Releases Report Regarding the Commission’s Destruction of Documents From Pre-Investigation Inquiries

Posted in SEC News

On Tuesday, November 1, 2011, the SEC’s Inspector General ("Inspector General or "OIG") released its report regarding the investigation into the SEC’s policy of destroying documents gathered in pre-investigation inquiries known as Matters Under Inquiry ("MUI"), as well as statements made by the Commission to the National Archives and Records Administration ("NARA") regarding that policy. The Inspector General found that the SEC had a policy in place for nearly 30 years which called for the destruction of such documents and that certain documents that should have been preserved were destroyed. The Inspector General also found that, when asked about NARA about the destruction of documents, the SEC did not disclose the existence of the policy and stated it did not know if such documents had been destroyed. The Inspector General made a series of recommendations for the SEC to address these issues.…

Porter Wright E-Book on Insider Trading Issues Now Available

Posted in Criminal Charges in Securities Cases, e-Books, Insider Trading, Porter Wright News, SEC Enforcement Cases, Trends

The Federal Securities Law Blog is pleased to announce its second e-Book: "Insider Trading: A Look At Some Of The Key Civil And Criminal Cases In 2011."

The last few years have seen a remarkable number of insider trading cases brought by both the SEC and federal prosecutors. In the criminal cases, many Wall Street professionals and lawyers who have been very successful will now spend years in prison. On the civil side, the SEC has pursued defendants very aggressively, although in some cases, where the defendants have had the ability to fight back, they have vigorously defended themselves. This eBook will focus on several of these cases, the events in 2011 and discuss some of the trends that have developed.

First, we will look at the criminal cases by focusing on some of the Galleon Management and the "Expert Network" cases as examples where the prosecutors pursued, tried and convicted significant Wall Street players. We also will consider the cases involving Rajat Gupta (who was also part of the Galleon Management circle) including the administrative case against him, his suit against the SEC in federal court, the dismissal of both of those actions and the subsequent indictment and civil suit against him. Finally, we will examine the recent events in the SEC’s case against Mark Cuban, which is worth watching closely because he has fought the SEC every step of the way, raising a number of theories and utilizing different tactics.

The e-book is available here.…

SEC’s Case Against Two Executives From State Street Bank Is Dismissed

Posted in SEC Enforcement Cases

On Friday, October 28, 2011, Chief Administrative Law Judge Brenda Murray dismissed the administrative proceeding against John Flannery and James Hopkins of State Street Bank and Trust. The SEC had alleged that Messrs. Flannery and Hopkins "engaged in a course of business and made material misrepresentations and omissions that misled investors about the extent of subprime mortgage-backed securities held in certain unregistered funds under State Street’s management," which caused investors to continue to purchase or continue to hold their investments in these funds and lose hundreds of millions of dollars during the subprime market meltdown in mid-2007. In her 58-page opinion (available here), Judge Murray found that "that neither Flannery nor Hopkins was responsible for, or had ultimate authority over, the allegedly false and materially misleading documents at issue in this proceeding."…