Today, the Federal Securities Law Blog takes a look back at the last 30 days in the world of securities-related litigation in a new regular feature, which will appear on approximately the 15th of each month.
DC Circuit Strikes Down SEC Proxy Rule.
As previously discussed here, last month, 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 allowed 3% shareholders (or larger) to use the company proxy statement to nominate directors. As described by the Court, the Rule required "under certain circumstances, a company’s proxy materials to provide shareholders with information about, and the ability to vote for, a shareholder’s, or group of shareholder’s, nominees for director. The Court struck down the Rule, holding that "the Commission acted arbitrarily and capriciously for having failed once again … adequately to assess the economic effects of a new rule."
Settlement Talks in Claw Back Case Collapse.
As previously mentioned here, in an usual development, the SEC’s Commissioners rejected a proposed settlement proposed by its own enforcement staff 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. SEC v. Jenkins, No. 09-cv-01510 (D. Ariz. filed Jul. 22, 2009).
Whistleblower Rules Become Effective.
As described here, on Friday, August 12, 2011, the SEC’s new Whistleblower Rules, adopted in May, became effective. The Commission launched its new web page for that particular office (which "includes information on eligibility requirements, directions on how to submit a tip or complaint, instructions on how to apply for an award, and answers to frequently asked questions"). In addition, the Chief of the Office of the Whistleblower, Sean McKessey gave a speech defending the Commission’s position on certain hotly debated issues relating to the whistleblower program.
Insider Trading Cases.
As described here, on Monday, July 18, 2011, a Federal Judge Sidney Fitzwater in Texas 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."
As discussed here, the SEC and Rajat Gupta have agreed to settle their dispute regarding the forum in which they should litigate the allegations of insider trading. Specifically, the SEC dismissed its Administrative Proceeding against Mr. Gupta alleging insider trading and the parties advised Judge Jed Rakoff (who was presiding over the lawsuit filed in federal court in New York by Mr. Gupta against the Commission and previously denied the SEC’s motion to dismiss) that they will file a Joint Stipulation of Dismissal. In doing so, the parties agreed that, if the SEC elects to bring action against Mr. Gupta, it will do so in federal court in New York and designate it as related to the other Galleon cases pending before Judge Rakoff.
Also, as mentioned here, on Monday, August 1, 2011, the SEC filed suit against eight defendants for making false statements in public filings regarding the status of the human clinical trials for the drug SF-1019 by Argyll Biotechnologies LLC (specifically, failing to disclose that the Food and Drug Administration had issued clinical holds on testing for the drug). Three executives were charged with insider trading for selling shares of Immunosyn Corporation (the company which made the false filings) for $20 million during the same period. SEC v. Ferrone, No. 11-cv-05223 (N.D. Ill. Filed Aug. 1, 2011).
A Busy Period in FCPA Cases.
Last November, the Assistant Attorney General Lanny Breuer promised a "new era" of FCPA enforcement, which has led to a busy FCPA docket.
• As discussed here, on Friday, August 5, 2011, a Florida jury convicted Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corporation, for their roles in a conspiracy to violate the FCPA and commit money laundering. U.S. v. Esquenazi, Case No. 09-CR-21010 (S.D. Fla. Filed Dec. 4, 2009), The convictions were the latest event in Government’s aggressive prosecution of FCPA violations for bribes paid to Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), a state-owned telecommunications company in Haiti.
• As discussed here, Judge Leon of the U.S. District Court in D.C. announced that the Department of Justice will have four new trials between September 22, 2011 now and mid-May 2012 in the FCPA Sting Case, U.S. v. Goncalves, No. 09-cr-00335 (D.D.C.), including a second chance at four of the 22 defendants whose first case resulted in a July 2011 mistrial.
• As discussed here, the parties in the Lindsey Manufacturing continued to submit briefs regarding whether the May 2011 jury verdict should stand. The defendants seek to have the guilty verdicts vacated, accusing the Government of prosecutorial misconduct. According to one source, the Court has vacated the September 16, 2011 sentencing date for the defendants and will hear arguments on their motion to dismiss on September 8, 2011.
• As also discussed here, the defendants in U.S. v. Carson, No. 09-cr-00077 (C.D. Cal.), submitted proposed jury instructions on the question of whether state-owned companies qualify as instrumentalities under the FCPA, which the Court has ruled is a question of fact to be presented to the jury. In addition, as described in Professor Koehler’s FCPA Professor Blog today (here), it appears that Judge Selna is going to deny defendants’ motion to dismiss the counts relating to the Travel Act, rejecting the argument that the Travel Act does not apply extraterritorially.