Tag: Securities litigation


Do Women Stay Out of Trouble?

Anup Agrawal is Professor of Finance at the University of Alabama. This post is based on an article authored by Professor Agrawal; Binay Adhikari, Visiting Assistant Professor of Finance at Miami University; and James Malm, Assistant Professor of Finance at the College of Charleston.

Does the presence of women in a firm’s top management team affect the risk of the firm being sued? A large literature in economics and psychology finds that women tend be more risk-averse, less overconfident, and more law-abiding than men. As more women reach top management positions, these gender differences have implications for firms’ policies and performance. As Neelie Kroes, then European Competition Commissioner provocatively asked in a speech at the World Economic Forum, “If Lehman Brothers had been Lehman Sisters, would the financial crisis have happened like it did?” (see New York Times, February 1, 2009).

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Securities Class Action Filings—2015 Midyear Assessment

John Gould is senior vice president at Cornerstone Research. This post is based on a report from the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research; the full publication is available here.

Plaintiffs brought 85 new federal class action securities cases in the first half of 2015, according to Securities Class Action Filings—2015 Midyear Assessment, a report compiled by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. This represents a decrease from the second half of 2014, when plaintiffs filed 92 securities class actions. The number of filings in the first six months of 2015 remains 10 percent below the semiannual average of 94 observed between 1997 and 2014—the seventh consecutive semiannual period below the historical average.

Despite this period of little overall change in filing activity, securities class actions against companies headquartered outside the United States increased in the first half of 2015. Twenty filings, or 24 percent of the total, targeted foreign firms. Asian firms were named in more than half of these cases.

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Court Rules on Halliburton II

Jonathan C. Dickey is partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication. Related research from the Program on Corporate Governance includes Rethinking Basic by Lucian Bebchuk and Allen Ferrell (discussed on the Forum here).

On July 27, 2015, the U.S. District Court for the Northern District of Texas issued its anticipated decision on remand from Halliburton, Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II“), where the United States Supreme Court held that a defendant in a securities fraud class action could introduce evidence of a lack of price impact at the class certification stage to show the absence of predominance. Although the case involved facts that arguably are unique to Halliburton’s particular public disclosures, the plaintiffs’ bar may look to the decision as a roadmap for how to meet the Supreme Court’s price impact test in future cases.

Based on the expert evidence presented on remand, the District Court granted the Plaintiffs’ motion for class certification as to one alleged corrective disclosure but denied the motion as to the other five alleged corrective disclosures. Erica P. John Fund, Inc. v. Halliburton Co., No. 3:02-CV-1152-M, slip op. at 1 (N.D. Tex. July 25, 2015). And as to that one disclosure, the court declined to entertain at the class certification stage Halliburton’s argument that the disclosure was not corrective of the alleged misrepresentation. While there may be continued debate regarding certain of the court’s legal conclusions—including whether a court may properly consider at class certification whether a disclosure was even corrective—the opinion demonstrates what most defendants argue Halliburton II requires: a careful and thorough analysis of defendant’s evidence of a lack of price impact. Beyond that, the court’s ruling may raise more questions than it answered.

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DC Circuit Vacates SEC’s Application of Dodd-Frank Provision

Darrell S. Cafasso is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Cafasso, Stephen H. Meyer, and Jennifer L. Sutton. The complete publication, including footnotes, is available here.

On July 14, 2015, the U.S. Court of Appeals for the District of Columbia Circuit (the “DC Circuit”) held that the Securities and Exchange Commission (the “SEC” or “Commission”) could not employ certain remedial provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”) to retroactively punish an investment adviser for conduct that occurred prior to enactment of the Act. The court’s decision not only casts doubt on numerous similar punishments previously levied by the SEC based on pre-enactment misconduct, but could provide a basis for institutions to object to certain sanctions sought by the Consumer Financial Protection Bureau (the “CFPB”).

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Binding Spincos to Parent Obligations Requires Specificity

Matt Salerno is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Salerno, Christopher Condlin, and Christina Prassas. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In Miramar Police Officers’ Retirement Plan v. Murdoch [1] the Delaware Court of Chancery dismissed plaintiff’s claims, refusing to hold that an “unambiguous” boilerplate successors and assigns clause operated to bind a spun-off company to the terms of a contract entered into by its former parent company. The contract at issue generally restricted the former parent company from adopting a poison pill with a term of longer than one year without obtaining shareholder approval. The decision will serve as a reminder to practitioners to carefully consider the impact that significant corporate transactions could have on their clients’ contractual rights and obligations.

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Third Circuit Provides Guidance on Excluding Shareholder Proposals

Robert E. Buckholz and Marc Trevino are partners and Heather L. Coleman is an associate at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Buckholz, Mr. Trevino, and Ms. Coleman.

 

 

On Monday, the U.S. Court of Appeals for the Third Circuit released its opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. [1] The Court had issued an earlier order, without an opinion, that Wal-Mart could exclude Trinity’s Rule 14a-8 shareholder proposal relating to the sale of firearms with high-capacity magazines from Wal-Mart’s proxy materials because it related to “ordinary business operations.” At the time, the Court stated it would subsequently issue a more detailed opinion explaining its rationale.

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NY Court: RMBS Statute of Limitations Runs from Time of Securitization

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, George T. Conway III, Elaine P. Golin, Graham W. Meli, and Justin V. Rodriguez.

In an important decision for financial institutions and investors in residential mortgage-backed securities (RMBS), the New York Court of Appeals unanimously ruled yesterday (June 11, 2015) that claims for breach of representations and warranties made in an RMBS securitization accrue when the representations and warranties are made, which typically occurs when the securitization closes. ACE Securities Corp. v. DB Structured Products, Inc., No. 85 (June 11, 2015) (see our prior memo). The court held that New York’s six-year statute of limitations for breach-of-contract claims thus begins to run at that time—and not when the securitization sponsor refuses, possibly years or decades later, to comply with a securitization trustee’s demand for the contractual remedy of cure or repurchase of non-compliant loans. Accordingly, claims arising out of most pre-financial crisis RMBS securitizations are now time-barred.

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In re Kingate

David Parker is a partner in the Litigation and Risk Management practice at Kaplan, Kleinberg, Kaplan, Wolff & Cohen, P.C. The following post is based on a Kleinberg Kaplan publication by Mr. Parker and David Schechter.

The U.S. Court of Appeals for the Second Circuit, in In re Kingate Management Limited Litigation, recently made it significantly easier for plaintiffs in the Second Circuit and New York, Connecticut and Vermont state courts to bring class actions alleging violations of state law in litigation involving certain types of securities. By allowing these claims to proceed under state law, the Second Circuit has signaled that plaintiffs may now be able to avoid the rigorous pleading standards of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which requires that pleadings contain robust fraud allegations pleaded with particularity. The PSLRA also requires that plaintiffs allege the defendant acted with scienter—in other words, that the defendant knew the alleged statement was false at the time it was made, or was reckless in not recognizing that the alleged statement was false.

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Increased Risk for Preferred Stockholders in Ensuring Mandatory Redemptions

Philip Richter is co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Richter, Abigail Pickering BombaJohn E. Sorkin, and Gail Weinstein. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Chancery Court’s holding in TCV v. TradingScreen (Feb. 26, 2015; redacted March 27, 2015) has increased the risk for preferred stockholders in their being able to exit their investments under mandatory redemption provisions. The decision is on interlocutory appeal to the Delaware Supreme Court.

The Chancery Court held that a corporation’s ability to redeem preferred stock upon the occurrence of an event triggering mandatory redemption is implicitly restricted by the common law limitation that a corporation may not take action that would result in its not having the ability to continue as a going concern or to pay its debts as they come due. Thus, based on TradingScreen, a company cannot legally redeem preferred stock if, in the board’s judgment, doing so would render it unable to continue as a going concern and to pay its debts as they come due—even if:

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How United States v. Newman Changes The Law

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg. The complete publication, including footnotes, is available here.

In unsuccessfully seeking rehearing in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), reh’g denied, Nos. 13-1837, 13-1917 (2d Cir. Apr. 3, 2015), the Government acknowledged that the Second Circuit’s recent decision in Newman “will dramatically limit the Government’s ability to prosecute some of the most common, culpable, and market-threatening forms of insider trading,” and “arguably represents one of the most significant developments in insider trading law in a generation.” As we discuss below, Newman is a well-deserved generational setback for the Government. It reflects the Second Circuit’s reasonable reaction to Government overreach, and it establishes brighter lines to cabin prosecutorial and SEC discretion in bringing future criminal and civil insider trading actions.

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