Category Archives: Securities Litigation & Enforcement

In re Lions Gate: Corporate Disclosure of Securities Enforcement

David M.J. Rein is a partner in the Litigation Group at Sullivan & Cromwell LLP . This post is based on a Sullivan & Cromwell memorandum by Mr. Rein and Jacob E. Cohen. The complete publication, including footnotes, is available here.

On January 22, 2016, the United States District Court for the Southern District of New York (Judge John Koeltl) dismissed In re Lions Gate Entertainment Corp. Securities Litigation, a putative securities fraud class action lawsuit, brought under Section 10(b) of the Securities Exchange Act of 1934. The complaint alleged that the company should have disclosed publicly the pendency of a Securities and Exchange Commission (“SEC”) investigation, the company’s intention to settle with the SEC and the company’s receipt of a so-called “Wells Notice”—i.e., a letter from the SEC Enforcement Division staff informing the company that it “has decided to recommend that the Commission bring an enforcement proceeding.”

READ MORE »

2015 Year-End Securities Litigation Update

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.

The year was yet another eventful one in securities litigation, from the Supreme Court’s game-changing opinion in Omnicare regarding liability for opinion statements, to several significant opinions out of the Delaware courts regarding, among other things, financial advisor liability and the apparent end to disclosure-only settlements. This post highlights what you most need to know in securities litigation developments and trends for the last half of 2015:

READ MORE »

Chancery Court on Disclosure-Only Settlements

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Peter J. Rooney, and Gregory Beaman. This post is part of the Delaware law series; links to other posts in the series are available here.

It’s a familiar story in M&A transactions. A merger is announced and, within days, the plaintiffs’ bar scrambles to file suits on behalf of the selling company’s stockholders, alleging that the seller’s board agreed to an inadequate price and made misleading disclosures about the deal. After going through “the motions”—the plaintiffs file a motion for preliminary injunction and the defendants produce certain agreed-upon documents—a settlement is reached whereby the plaintiffs give defendants a broad release in exchange for (often immaterial and unhelpful) supplemental disclosures and the defendants’ agreement to pay (and not to oppose court approval of) a “six-figure” fee award to plaintiffs’ counsel. According to the Trulia Court, the result is tantamount to a deal “tax” on M&A transactions.

READ MORE »

White Collar and Regulatory Enforcement: What to Expect In 2016

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum.

One way in which we expect the white-collar/regulatory enforcement regime in 2016 to continue last year’s pattern is that the government’s appetite for extracting enormous fines and penalties from settling companies will likely continue unabated. However, as we discuss below, the manner in which well-advised companies facing criminal or serious regulatory investigations will seek to mitigate such fines and sanctions will likely change in some important respects in 2016. The reason for this expected change is that U.S. Deputy Attorney General Sally Yates announced late in 2015 that DOJ was formalizing a requirement that, in order to get “any” cooperation credit, companies must come forward with all available evidence identifying individuals responsible for the underlying misconduct subject to investigation.

READ MORE »

2015 Securities Law Developments

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Paul F. RuganiKatherine L. Maco, Katie Lieberg Stowe, and Suzette Pringle.

On balance, the securities litigation landscape in 2015 offered a glass half-full/glass half-empty perspective for issuers and their officers, directors and advisors. Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), the major securities law decision of the 2015 Supreme Court term, afforded defendants relatively greater protection from liability based on public statements of opinion, as long as those opinions are honestly held and have a reasonable factual basis. The SEC suffered several notable setbacks, with some federal courts striking as unconstitutional the highly debated conflict minerals rule and the SEC’s method of appointing administrative law judges. The Second Circuit significantly restricted federal prosecutors’ ability to pursue downstream recipients of non-public information, resulting in a spate of overturned convictions and withdrawn guilty pleas. And although decisions from lower courts within the Second Circuit dismissing derivative lawsuits will be subject to less deferential review, both the Second Circuit and the Delaware Supreme Court reaffirmed that decisions of independent and disinterested boards to reject stockholder demands are entitled to business judgment rule protection, thereby precluding minority shareholder second guessing in private lawsuits. Yet the results were not uniformly favorable to the defense. The SEC took an expansive view of Dodd-Frank’s whistleblower anti-retaliation provision, formalizing its view that such protections apply to whistleblowers who allege retaliation for reporting internally (as opposed to reporting to the SEC). The Second Circuit endorsed the SEC’s view shortly thereafter. And, the early returns from last year’s second Supreme Court decision in Halliburton suggest that rebutting the Basic presumption of reliance through price impact evidence will be a lofty hurdle for defendants at the class certification stage. Below is a roundup of key securities law developments in 2015 and trends for 2016.

READ MORE »

Calculating SEC Civil Money Penalties

Jonathan 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.

In addition to going to court to seek sanctions, the Securities and Exchange Commission may impose civil money penalties in its own administrative proceedings on any person who violates or causes a violation of the securities laws. [1] Unlike district courts, administrative law judges do not have authority to base penalties on respondents’ pecuniary gains resulting from violations. [2] Instead, under the various penalty statutes, maximum penalties in administrative proceedings are based on “each act or omission” violating or causing a violation of the securities laws. Currently, the maximum penalties for each act or omission violating the securities laws are:
READ MORE »

Scope of Insider-Trading “Tippee” Liability

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Savarese and George T. Conway III.

In an insider-trading case that will be closely watched until it is decided before the end of June, the U.S. Supreme Court granted certiorari yesterday to decide critical open questions about what is required to establish insider trading by a remote “tippee”—specifically, what kind of personal benefit must a “tipper” receive, and what knowledge of that benefit must the “tippee” have, for a conviction or sanction to stand.

READ MORE »

Political Values, Culture, and Corporate Litigation

Danling Jiang is Associate Professor of Finance at Florida State University. This post is based on an article authored by Professor Jiang; Irena Hutton, Associate Professor of Finance at Florida State University; and Alok Kumar, Professor of Finance at the University of Miami.

In our paper, Political Values, Culture, and Corporate Litigation, published in the latest issue of Management Science, we examine whether the political culture of a firm defines its ethical and legal boundaries as observed by the propensity for corporate misconduct. Using one of the largest samples of litigation data to date, we show that firms with Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than Republican firms whose Party ideology stresses self-reliance, property rights, market discipline, and limited government regulation.

READ MORE »

PECO v. Walnut: Firm Valuation

Steven J. Steinman is partner and co-head of the Private Equity Transactions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Mr. Steinman, Aviva F. Diamant, Christopher Ewan, and Gail Weinstein. This post is part of the Delaware law series; links to other posts in the series are available here.

In PECO v. Walnut (Dec. 30, 2015), the Delaware Court of Chancery refused to review a valuation firm’s determination of the value of an LLC’s preferred units when the LLC agreement provided that the value as determined by an independent valuation firm would be binding on the parties. While PECO related to the valuation of LLC units in connection with the exercise of a put right, the decision presumably would apply more broadly—including to post-closing adjustments and other valuations.

READ MORE »

Failure-of-Oversight Claims Against Directors

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, Emil A. Kleinhaus, C. Lee Wilson, and Noah B. Yavitz. This post is part of the Delaware law series; links to other posts in the series are available here.

Last week, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of purported shareholder derivative claims alleging that directors of JPMorgan Chase, a Delaware corporation, failed to institute internal controls sufficient to detect Bernard Madoff’s Ponzi scheme. Central Laborers v. Dimon, No. 14-4516 (2d Cir. Jan. 6, 2016) (summary order). The decision represents a forceful application of Delaware law holding that, when directors are protected by standard exculpation provisions in the corporate charter, they will not be liable for alleged oversight failures absent a particularized showing of bad-faith misconduct.

READ MORE »

  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Brand
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    David Fox
    Stephen Fraidin
    Byron Georgiou
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Rodman Ward