The real estate website company Zillow, Inc. announced it would use Twitter and Facebook to field questions on its first quarter earnings call. The company claims that it is the first to take questions in this manner, but will continue to take questions in the traditional way - from those dialed into the call. This announcement comes in the wake of the SEC relaxing the rules related to the use of social media to comply with Regulation FD.Continue Reading...
New Jersey Judge Sentences Lawyer Who Pled Guilty to a Record-Length Twelve Years For Insider Trading - Longer Than Raj Rajaratnam
On Monday, June 4, 2012, New Jersey Federal Judge Katharine Hayden sentenced Matthew Kluger (a former associate at several prominent law firms) to twelve years in prison for his role in a insider trading scheme. One of his co-conspirators, Garrett Bauer (a Wall Street trader), received a nine-year sentence. On Tuesday, June 5, 2012, Judge Hayden sentenced Kenneth Robinson, another co-conspirator (who cooperated and wore a wire to obtain evidence against Messrs. Kluger and Bauer) to 27 months in prison. As U.S. Attorney Paul Fishman pointed out, Mr. Kluger's sentence "is the longest handed out for" insider trading. Remarkably, the prison term for Mr. Kluger (who pled guilty and apparently recovered less than $1 million in the scheme) eclipsed the eleven year sentence received by Raj Rajaratnam (who did not plead guilty and earned tens of millions of dollars in his scheme).Continue Reading...
An article by Ben Protess and Azam Ahmed of the New York Times examined the new techniques by used by the SEC to catch those engaging in insider trading. As the article explained, the Commission "is taking its cue from criminal authorities, studying statistical formulas to trace connections, creating a powerful unit to cull tips and assign cases and even striking a deal with the Federal Bureau of Investigation to have agents embedded with the regulator." As discussed here, last month, Devin Leonard of BusinessWeek profiled Sanjay Wadhwa, a deputy chief of the SEC's market abuse group, and took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). That article and the Times piece reflect what the SEC is doing to aggressively pursue insider trading defendants.Continue Reading...
A March 2, 2012 article by Joshua Gallu on Bloomberg.com states that the SEC's claim that there has been an increase in the number of enforcement actions "isn’t supported by a detailed examination of the statistics." Mr. Gallu's article states that 31% of actions filed in fiscal year 2011 were not new, but "were so-called follow-on administrative proceedings that institute penalties in cases that already had been brought." The article calls into question the SEC's claim that its recent reorganization of the Division of Enforcement was yielding the 2011 record results.Continue Reading...
FBI Releases Its Financial Fraud Report Highlighting Corporate Fraud Cases, As Well As An Increase In Securities And Commodities Fraud Cases
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.Continue Reading...
New York Times Article Finds Hundreds of Instances When the SEC Waives Certain Sanctions For Big Wall Street Institutions
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."Continue Reading...
Today, the Federal Securities Litigation Blog continues its with its larger-than-usual blog entry examining the Top 10 securities litigation stories that were the most intriguing in 2011. As mentioned yesterday, like any sort of Top 10 list, not everyone will agree. Other bloggers will have their own lists with different stories. But on a personal basis, these stories that fascinated me – like a good book, I look forward to the next "chapter" in these stories in 2012.
Here's a quick headline look at the Top 5:
5. The SEC's Inspector General Reports on the Conduct of the Commission Staff.
4. Insider Trading at Galleon Management: Record-Setting Results.
3. The New Whistleblower Rules: Do I Tell Management Before I Tell The SEC?
2. The Lindsey Manufacturing Saga: The Verdict DOJ was "Fiercely Committed" to Obtaining is Vacated.
1. The Citigroup Case: Judge Rakoff's Decision and the Potential Impact on How SEC Cases Proceed.
These five stories are discussed in greater detail after the jump.Continue Reading...
Today and tomorrow, the Federal Securities Litigation Blog will take a break from discussing the most recent events and, with a larger-than-usual entry, examine the Top 10 securities litigation stories that were the most intriguing in 2011. Undoubtedly, others will be preparing similar lists and this is not intended to be a definitive or complete version. Instead, these are the stories that piqued my interest. Half of the list will be discussed today and the other half tomorrow.
Here's a quick headline look at the bottom half of the Top 10:
10. The D.C. Circuit Vacates SEC Exchange Rule 14a-11 Regarding Shareholders' Rights to Include Board Nominee on Proxy Materials.
9. The Jenkins Litigation: Settlement Negotiations in Clawback Case Collapse, But Are Ultimately Resolved.
8. The SEC's Director of the Division of Enforcement Now Has Authority To Issue Witness Immunity Orders.
7. Where is That File? The SEC Addresses Issues Related to the Destruction of Documents and Discovery Issues Relating to their Notes.
6. The FCPA Sting Case: One Hung Jury, One On-Going Trial, A Conspiracy Count Dismissed and More to Come.
These five stories are discussed in greater detail after the jump.Continue Reading...
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).Continue Reading...
SEC Announces Division of Enforcement Statistics For the Fiscal Year: A Record Number of Actions Were Filed
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."Continue Reading...
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.
Recent Articles Discuss Two Trends in Securities Enforcement: Increasing Sentences in Insider Trading Cases and the Possible End of An Era in Backdated Options Cases
A pair of articles appeared this week that traced trends in particular areas of securities enforcement. The Wall Street Journal presented data showing an increase in the length of sentences in insider trading cases over the last eighteen years. A second article which appeared in Corporate Counsel suggested that the SEC's settlement of a case involving back-dated options "may have symbolized the end of an era."Continue Reading...
The Federal Securities Law Blog is pleased to announce its first e-Book: The "New Era" of FCPA Enforcement and How Defendants Are Fighting Back.
The e-Book discusses recent developments in three FCPA cases being litigated: the Lindsey Manufacturing case, the Carson case (both pending in California) and the "Shot Show" or FCPA Sting case (tried in federal court in D.C.). The e-Book focuses on the tactics and arguments being used by both the prosecution and the defense team in those cases.
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.Continue Reading...
Negotiations in SEC Clawback Case Collapse When Commission Rejects Settlement Proposal From Its Own Staff
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.Continue Reading...
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.
SEC Delegates Authority To The Director of the Division of Enforcement To Issue Witness Immunity Orders
On Monday June 13, 2011, the SEC announced that it was amending its rules to delegate authority to the Director of the Division of Enforcement to issue witness immunity orders to compel individuals to give testimony or provide other information. This rule will go into effect for an 18-month period once it is published in the Federal Register.Continue Reading...
In January 2010, the SEC announced "a series of measures to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency's investigations and enforcement actions." One of those measures included the use of Deferred Prosecution Agreements ("DPA"). On Tuesday May 17, the SEC announced that it has entered into its first such agreement, settling an FCPA matter with Tenaris S.A., a global manufacturer of steel pipes. In announcing the settlement, the Commission provided some guidance as to what cooperation was provided by Tenaris in order to earn such the first DPA.Continue Reading...
SEC Completes Its Study Regarding Reducing the Costs to Smaller Issuers For Complying with §404(b) of the Sarbanes-Oxley Act
On Friday, April 22, 2011, the SEC released its study and recommendations regarding how the Commission could reduce the burden of complying with Section 404(b) of the Sarbanes-Oxley Act for companies whose market capitalization is between $75 and $250 million, while maintaining investor protections for such companies. The SEC recommended leaving the Section 404 requirements in place, but stated that further guidance regarding compliance should be provided. The 113-page Study, which was mandated by Section 989G(b) of the Dodd-Frank Act, was prepared by the Staff of the Office of the Chief Accountant of the SEC. A copy of it is available here.Continue Reading...
In Report to Congress, Independent Consultant Recommends Improvements For SEC, But Warns More Funding Will Be Needed, Too
On March 10, 2011, the Boston Consulting Group ("BCG") submitted a Report to Congress examining the internal operations, structure and need for reform at the SEC. As part of its work, BCG reviewed extensive documentation and conducted over 425 interviews. The Report (available here) recommended a series of initiatives designed to optimize the SEC's resources, but also recommended that Congress consider whether such improvements allow the Commission to meet congressional expectations. If not, Congress will either need to adjust the SEC's funding or change its role to fit available funding, the Report concluded.
The Report, mandated by the Dodd-Frank Act, recommended that the SEC:
• reprioritize its regulatory activity, which would include focusing on activities that the Commission deems critical to commerce or to strengthen the SEC itself, scaling back or stopping activities, or delegating them to self-regulatory organizations ("SROs");
• reshape its organization by, among other things, taking into account the reprioritization described above and seeking flexibility on certain offices mandated by the Dodd-Frank Act;
• invest in enabling infrastructure, particularly in the area of information technology and human resources; and
• enhance its role as an overseer and co-regulator with SROs by strengthening its oversight of them and centralizing its contacts with them.
BCG noted however, that its recommendations would only take the Commission "so far," due to constraints its faces: notably civil service laws limit the ability of the agency to attract, retain and manage personnel. The Report noted that, even with these changes, the SEC may not be able execute upon all activities necessary. If so, Congress will need to either relax funding constraints or alter the SEC's role to fit its existing funding and rely more heavily upon the SROs to fill regulatory needs.
In recent congressional testimony, the SEC sought additional funding to be able to fulfill its role. SEC Chairman Mary Schapiro testified on Thursday (March 10) before a Senate Committee and today (March 15) before a House Subcommittee in support of the Administration's proposed budget for Fiscal Year 2012, which seeks $1.4 billion for the SEC (an increase over the $1.2 billion sought Fiscal Year 2011). In a separate statement, she welcomed the BCG report and was pleased that it recognized "the many initiatives we have taken over the past two years to increase the agency's efficiency and effectiveness." However, she acknowledged that "there is more work to be done."
New Study Shows Number of Securities Class Action Settlements Decreased in 2010, While The Median Settlement Amount Increased
On March 10, 2011, Cornerstone Research announced the results of its latest study: "Securities Class Action Settlements – 2010 Review and Analysis." The Annual Report, which provides detail on settlement summary statistics and an analysis of case characteristics, reviewed the 86 court-approved settlements in 2010, finding that the number of settlements fell to its lowest in ten years and that the total dollar value of settlements fell 17%. However, the median settlement amount increased over 40% in 2010.
One of the co-authors of the report, Professor Laura Simmons of the College of William & Mary, stated in the Press Release: "I don’t expect the sharp drop in the number of settlements to reoccur in the near future; however, the broad-based shift toward higher settlement amounts may persist in upcoming years."
Additional findings announced by Cornerstone include:
• settled cases where there was a corresponding SEC action prior to the class action settlement increased to 30% in 2010 (compared to 20% in 2009), and those cases tend to result in higher settlement amounts;
• the number of class actions involving companion derivative actions fell slightly in 2010 when compared to 2009, but still remain higher than the average number of cases since the passage of the Private Securities Litigation Reform Act; and
• approximately 70% of the settlements announced in 2010 were related to violations of generally accepted accounting principals (a 5% increase over 2009) and those cases "continued to be resolved with statistically significant larger settlement amounts" than cases that did not involve GAAP violations or accounting issues.