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Litigation provisions v. arbitration provisions in business contracts

Arbitration is an increasingly popular method of resolving disputes, but drafters of business contracts need to be aware that arbitration may not be suitable for every dispute. The question of whether or not to arbitrate often comes down to when you want to decide arbitration is right – before or after a dispute.

Many people decide to include an arbitration clause during the negotiation of the business contract. The parties may decide to include an arbitration clause in their business contract that applies to future disputes. The decision to arbitrate after a dispute has occurred is clearer at this point because the matters in dispute are known. It can be difficult to reach an agreement to arbitrate at this stage if one of the parties has an interest in delaying matters or believes litigation provides a strategic advantage.…

Data breaches and due diligence

Chances are that you or someone you know has been the victim of a data breach. The high number of cyberattacks and data breaches, now reported almost daily, calls attention to the importance of addressing these areas in the due diligence process in M&A deals.

Whether a target company has had issues with cybersecurity breaches in the past is a question that should be on the top of all acquirer’s minds, especially if that target has an online presence. If the target is a consumer facing business who regularly collects personal information, acquirers should focus its due diligence requests on the security practices of the target. Has the target implemented credit card tokenization? Have they updated their point-of-sale systems? How long do they retain customer information? If a target does not have a consumer base, the due diligence may instead focus on other areas, including how the target protects its trade secrets or confidential information. …

Delaware Courts continue scrutiny of “disclosure only” settlements in M&A litigation

On Jan. 22, 2016, the Delaware Court of Chancery released its opinion in In re Trulia Stockholder Litigation in which it rejected a “disclosure only” settlement of a shareholders’ suit challenging an M&A transaction. This decision confirms the trend of increasing hostility of the Delaware courts towards “disclosure only” settlements and serves as a warning to plaintiffs firms that they will find it increasingly difficult to extract attorneys’ fees from companies in these types of settlements.…

Article sheds light on practice of private equity sponsored borrowers selecting lenders’ counsel

Andrew Ross Sorkin wrote an interesting article in Tuesday’s New York Times regarding the practice of private equity firms designating the legal counsel to be used by its lenders in a leveraged buyout financing. In other words, the private equity firms engaging in this practice are hand selecting, and paying the fees of, the lawyers that will be on the other side of the transaction negotiating on behalf of the banks against the private equity sponsored borrowers. This practice constitutes a clear conflict of interest that tilts the negotiations of the financing in favor of the private equity sponsored borrowers.…

Corruption and conspiracy charges hit sports world: DOJ indicts additional FIFA officials in corruption conspiracy

While the latest happenings in the governing world of soccer are not a typical blog topic for us, the legal issues and impacts are worth considering in a broader context. Soccer fan or not, certainly interesting times.

Late Thursday Attorney General Loretta Lynch announced that 16 additional defendants have been indicted in the on-going probe of FIFA, soccer’s world governing body. The superseding indictment names several high-ranking FIFA officials and charges corruption involving two generations of soccer officials in South and Central America over a 24 year period. The corruption scheme involves more than $200 million in bribes to win media and marketing rights for major tournaments.…

New DOJ policies target corporate executives over companies

The U.S. Department of Justice (DOJ) issued new policies Sept. 9. One requires that companies disclose all facts relating to individual misconduct discovered during internal investigations or be considered uncooperative. This places pressure on corporations to turn over evidence against their own executives. The policy comes after ongoing criticism of the DOJ’s failure to prosecute individuals in the wake of the 2008 financial crisis.

The memorandum, issued by Deputy Attorney General Sally Q. Yates, marked the first major policy announcement of Attorney General Loretta Lynch since she took office in April. The Yates memorandum enumerates six key steps to strengthen prosecutions against individual defendants:…

A compliance problem truly “Made in the USA”

Following the expiration of a public comment period last week, the ink is now dry on the Federal Trade Commission’s consent decree against Made in USA Brand, LLC, settling charges that the Columbus, Ohio-based company sold its “Made in USA” certification label to product-sellers without making any attempt to verify whether the companies’ products were actually made in the USA.

The FTC’s case against Made in USA Brand, LLC seems to present a pretty bright line for what not to do when labeling a product as “Made in USA.” According to the FTC, the company’s certification would have been just as easily obtainable by a computer chip factory in Shenzhen, China as it would have been by a furniture maker in Pennsylvania Dutch country. But determining whether a product is truly “Made in USA” is rarely as obvious as in these extreme examples. In our increasingly globalized economy, even the most seemingly simple products may be assembled in one country from parts manufactured in another country using components made in yet another country. Can any one of these countries really claim to have “made” the product?

Fortunately, the FTC has attempted to bring a pragmatic approach to this conundrum by allowing use of a “Made in USA” label as long as “all or virtually all” of a product is made domestically. Problem solved, right? Wrong. Enter California.…

Beware of antitrust laws’ extraterritorial reach

In an increasingly global economy, it is becoming more and more common for a product to be sold outside of the U.S., yet find its way back into the states, either as a resale product or as part of a finished downstream product. The question then becomes, does U.S. antitrust law apply to that foreign sale? The answer largely depends on the scope of the Foreign Trade Antitrust Improvements Act (FTAIA), the law that governs such conduct. Not surprisingly, the U.S. Department of Justice (DOJ) and plaintiffs’ bar have been pushing for an expansive reading of the law, so more such sales would be governed by American antitrust law. The 2nd U.S. Circuit Court of Appeals just gave them a boost in a case recently decided — Lotes Co., Ltd. v. Hon Hai Precision Industry, Co., Ltd. A quick background on FTAIA and the Lotes case will help you understand why all of this matters to you.


The FTAIA governs the extraterritorial reach of U.S. antitrust laws. Its original, ostensible purpose was to limit the extraterritorial reach, so the U.S. did not play the role of a global antitrust cop. According to the FTAIA, any non-domestic commerce that is not a direct import to the U.S. is outside the scope of U.S. antitrust laws — unless the foreign sale:

(a) has a “direct, substantial, and reasonably foreseeable effect” on the U.S. domestic market or the U.S. export market and

(b) “gives rise to” an antitrust claim by the plaintiff.…

Zillow, Inc. To Use Twitter For Earnings Call

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. …

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).…

New York Times Reports on SEC Database and Other Tactics Used To Help Detect Insider Trading

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.…

Bloomberg.com Article Questions SEC’s Claim of Record-Breaking Enforcement Statistics

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.…

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.…

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."…

The Top 10 Most Intriguing Federal Securities Litigation Stories in 2011 (Part 2 of 2)

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.…

The Top 10 Most Intriguing Federal Securities Litigation Stories in 2011 (Part 1 of 2)

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.…

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

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).…

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."…

Porter Wright E-Book on Insider Trading Issues Now Available

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."…

Porter Wright E-Book on FCPA Developments Now Available

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 e-book is available here.…

Busy Times in Three Key FCPA Cases: Lindsey Manufacturing, Carson and the “Sting” Case

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.…

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.…

Wall Street Journal: Judges in Delaware Taking a Hard Look At Fee Awards in M & A Derivative Cases

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.…