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

In an Opinion and Order dated February 23, 2012, Judge Michael Mosman adopted the January 11, 2012 Findings and Recommendations of Magistrate Judge John Acosta to dismiss the derivative lawsuit against the Board of Directors of Umpqua Holdings Corporation ("Umpqua") for breach of fiduciary duty. Magistrate Judge Acosta recommendation to dismiss the say-on-pay" lawsuit was the first of its kind. Judge Mosman agreed that plaintiffs' failure to make a presuit demand was not excused under the arguments they raised regarding the Board members' exercise of the business judgment rule or their lack of independence or disinterest. Plaintiffs have until March 26, 2012 to amend their complaint.

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On Monday, February 27, 2012, the FBI released its latest Financial Crimes Report to the Public, which provides a snapshot of the issues on which it has focused. The Bureau stated that in fiscal year 2011, corporate fraud cases resulted in 242 indictments or informations and 241 convictions. During the same period, the FBI's securities/commodities fraud cases resulted in 520 indictments or informations and 394 convictions.  According to the Bureau's Blog entry (available on DOJ's website here), the report covers the period from October 1, 2009 to September 30, 2011. It discusses the various fraud schemes, outlines emerging trends, and describes what the FBI has accomplished in these cases.

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At an in Chambers hearing on February 16, 2012, Judge James Selna issued an Order in U.S. v. Carson, addressing the jury instructions regarding the terms "foreign official" and "instrumentality." In doing so, Judge Selna rejected a number of the proposed instructions submitted by the defendants, sticking closing to the list of non-exclusive factors he identified in his prior decision on this issue.

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Another chapter ended in the series of FCPA criminal prosecutions arising out of the TSKJ Joint Venture this week, when Texas federal Judge Keith P. Ellison sentenced three men for their role in the portion of the case involving Kellogg Brown & Root. On Thursday, February 23, 2012, former KBR executive, Albert "Jack" Stanley was sentenced to 30 months in jail, while Jeffrey Tesler, who controlled an entity through which payments were funneled, was sentenced to 21 months in prison. On Wednesday, February 22, 2012, Wojciech Chodan, the former Vice President of M.W. Kellogg, Ltd., received a sentence of one year unsupervised probation.

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On February 17, 2012, both the U.S. Attorney for the Southern District of New York and the SEC announced that they had brought charges against John Kinnucan, the President of Broadband Research Corporation, for insider trading. The criminal charges allege that he tipped clients regarding three companies, while the SEC's civil case, which also named Broadband as a defendant, alleged that that he provided clients with non-public, material inside information that he obtained from insiders at one of those companies. According to CNBC, Mr. Kinnucan had been approached in November 2010 by federal agents and asked to cooperate with their investigation by wearing a wire, but refused to do so.

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In a Motion filed this morning, the Government moved to dismiss with prejudice the Superseding Indictment against the remaining defendants in the FCPA Sting Case. In doing so, the Government cited the two mistrials, as well as the acquittal of three defendants, and other rulings in the case.

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In a February 10, 2012 Memorandum Opinion and Order, Chief Judge Sidney Fitzwater ruled on the motions to compel pending in the SEC's lawsuit against Mark Cuban. Although these disputes in the insider trading case are largely procedural, they are significant in that the Court considered whether the SEC would be required to produce certain materials from its investigative files. Judge Fitzwater ruled that the SEC would be required to produce non-privileged documents from a related investigation into Mamma.com and documents relating to the relationship between the Mamma.com and Mark Cuban investigations. The Court denied Mr. Cuban's request for documents relating to the involvement of another group of witnesses, as well as the request for the SEC's notes and summaries of witness interviews. Finally, the Court ordered both sides to produce certain privilege logs.

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Today (a day early), 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. In the last month, there were dramatic results in two FCPA trials. Also, while the Citigroup matter remains pending before the Second Circuit, a second settlement where the Court asked the SEC to address certain questions reached a conclusion. A record-setting insider trading scheme was brought, while one of the informants from the Raj Rajaratnam case reappeared in a new matter. These cases and other matters from the last month are discussed in greater detail after the jump.

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On Friday, February 10, 2012, the U.S. Attorney for the Southern District of New York and the SEC announced charges against Douglas F. Whitman, the head portfolio manager at Whitman Capital, LLC, related to alleged insider trading. It is claimed that Mr. Whitman's friend and neighbor, Roomy Khan, provided Mr. Whitman with the same information that she provided Raj Rajaratnam of Galleon Management, who was convicted of insider trading in May 2011, sentenced to twelve years in prison and had a $92 million civil judgment imposed upon him.

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On Wednesday, February 8, 2012, the Public Company Accounting Oversight Board ("PCAOB") announced that it had settled a proceeding with Ernst & Young LLP ("E&Y"). PCAOB censured the accounting firm and imposed a $2 million penalty upon it, which was the largest civil money penalty ever imposed by the agency. In addition, four of its current and former partners were sanctioned for violating PCAOB rules and standards.

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On Thursday, February 9 2012, prosecutors filed a motion in federal court in Texas requesting that the remaining charges against John O'Shea be dismissed. On January 16, 2012, the Court dismissed the FCPA charges against Mr. O'Shea, leaving one count of conspiring to violate the FCPA, four counts of money laundering and one count of creating a false document to obstruct the Government's investigation. Thursday's motion stated:

In light of the Court’s prior statements and rulings, as well as the resulting collateral estoppels issues associated with the Court’s judgment of acquittal, the government hereby moves pursuant to Rule 48(a) of the Federal Rules of Criminal Procedure to dismiss the remaining counts of the criminal Indictment against Mr. O’Shea with prejudice.

The motion was filed two days after the Government revealed that it was considering dropping charges in another FCPA case – the FCPA Sting case in Washington, DC.

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A story from the Blog of the Legal Times states that prosecutors "are considering whether to abandon" the charges in the FCPA Sting Case in federal court in Washington, DC. Mike Scarcella's blog entry (available here) states that prosecutor Joey Lipton reported to Judge Richard Leon at a February 7, 2012 status conference that "Assistant Attorney General Lanny Breuer and U.S. Attorney Ronald Machen Jr. are examining the continued viability of the case," and a decision on whether the cases will continue will be made by February 21, 2012.

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In a February 3, 2012 Opinion, the First Circuit Court of Appeals reversed a Massachusetts federal court decision and held that, while the whistleblower protections of the Sarbanes-Oxley Act apply to employees of "public companies" (i.e., a company with registered securities or one that files reports under Section 15(d) of the Exchange Act), they do not apply to an employee of a contractor or subcontractor of such a public company.

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On Monday, February 6, 2012, the SEC and DOJ resolved their respective investigations with a medical device company and its subsidiary by entering into settlements stemming from alleged bribes paid to doctors in Greece for more than a decade. The U.S. subsidiary, Smith & Nephew Inc., agreed to pay a $16.8 million fine as part of a deferred prosecution agreement with the DOJ, while the English parent company, Smith & Nephew plc, agreed to settle the SEC’s charges by paying more than $5.4 million in disgorgement and prejudgment interest.

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For those readers of the blog who are litigators or follow litigation issues, today's post from Professor Mike Koehler's FCPA Professor Blog has a real treat: a guest post from the foreman of the recently concluded trial in the FCPA Sting Case. The foreman provides a detailed description of the issues considered by the jurors during their lengthy deliberations in which they (1) reached a partial verdict as to two defendants; and (2) remained deadlocked as to three defendants, resulting in a mistrial. The post provides a rare insight into the deliberations of a jury during a FCPA criminal trial.

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An article in today's New York Times reports that over the last decade a number of large Wall Street companies, including JPMorganChase, Goldman Sachs and Bank of America, have avoided certain punishments specifically aimed at fraud cases and continued to have certain advantages reserved for the most dependable companies. According to Edward Wyatt's article, there have been "nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions."

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In a letter dated February 1, 2012 to the parties, Judge Rudolph Randa stated that the SEC's Brief responding to certain questions the Court had raised regarding the language of the proposed settlement with Koss Corporation ("Koss") and Michael Koss "largely satisfies the Court’s concerns." As a result, the SEC will avoid the issues it has faced in the Citigroup litigation, where Judge Jed Rakoff rejected the proposed settlement between the parties and the SEC has appealed. Judge Randa Court accepted the SEC's offer to revise the judgments to specifically include language from the consent order, and said that, while he continued to question whether the judgments will be final judgments, he "will not withhold … approval based on that concern."

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In the on-going dispute as to whether the SEC can enforce an investigative subpoena on an accounting firm in China, Magistrate Judge Deborah Robinson issued a Minute Order on Wednesday February 1, 2012 which reiterated that the SEC can serve the Order to Show Cause on counsel for Deloitte Touche Tohmatsu CPA Ltd. ("D&T Shanghai") by e-mail. The accounting firm has argued that service should have been done through the Hague Convention. Although the dispute is largely procedural, the matter has the potential to establish precedent in future cases when entities located abroad receive SEC investigative subpoenas.

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