Tag: Securities fraud


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:

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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.

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2015 FINRA Enforcement Actions

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.

Over the past several years, the Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organization responsible for regulating every brokerage firm and broker doing business with the U.S. public, brought between 1,300 and 1,600 disciplinary actions each year. In 2014, the most recent year for which full-year statistics are available, it ordered $134 million in fines and $32.2 million in restitution. During the same period, it barred or suspended nearly 1,200 individuals, and expelled or suspended 23 firms. It also referred over 700 fraud cases to other federal or state agencies for potential prosecution. FINRA orders also often trigger automatic “statutory disqualifications” under Section 3(a)(39) of the Securities Exchange Act and Article III, Section 4 of FINRA’s By-Laws. Absent relief, these disqualifications prohibit persons from associating with a broker-dealer or prohibit firms from acting as broker-dealers.

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United States v. Litvak: Materiality of Pricing Misstatements

This post is based on a Sullivan & Cromwell LLP publication by Adam S. ParisSteven R. PeikinMichael H. Steinberg and Alexander B. Gura. Mr. Paris and Mr. Steinberg are partners in the Litigation Group; Mr. Peikin is partner in the Criminal Defense and Investigations Group; and Mr. Gura is a firm associate.

On December 8, 2015, the Second Circuit issued its decision in United States v. Litvak, which reversed the defendant’s conviction and remanded the case for a new trial. Notwithstanding the reversal, the Court reaffirmed the “longstanding principle” that Section 10(b) of the Securities Exchange Act of 1934 is to be construed “flexibly,” and held that misstatements that might otherwise be considered “seller’s talk,” when viewed through the lens of the federal securities laws, may be material and can result in criminal liability.

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SEC Enforcement Actions Against Broker-Dealers

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 its 2015 Financial Report, the SEC repeated its view that one of the two principal purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 is to ensure that “people who sell and trade securities—brokers, dealers and exchanges—must treat investors fairly and honestly, putting investors’ interests first.” Broker-dealers have been and remain a critical focus of the Commission’s enforcement program. In the first 11 months of 2015, the SEC brought enforcement actions against broker-dealers in approximately two dozen distinct areas, with sanctions ranging from less than $100,000 to nearly $180 million.

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New Records in SEC Enforcement Actions

John C. Wander is a partner in the Shareholder Litigation & Enforcement practice at Vinson & Elkins LLP. This post is based on a Vinson & Elkins publication authored by Mr. Wander, Jeffrey S. JohnstonClifford Thau, and Olivia D. Howe.

In late October, the Securities and Exchange Commission announced that under the leadership of chair Mary Jo White and enforcement director Andrew Ceresney, the SEC has continued to ramp up enforcement activity. In its 2015 fiscal year, the SEC reported filing a total of 807 actions for the year—including 507 independent enforcement actions, 168 follow-on actions, and 132 actions for delinquent filings—resulting in $4.19 billion in monetary penalties and disgorgements.
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Enforcement Discretion at the SEC

David Zaring is an Associate Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania. This post is based on an article authored by Professor Zaring.

The Dodd Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all.

The SEC has vigorously—and, my article argues, correctly—defended its power to choose where it sues. Agencies have always enjoyed unfettered discretion to choose their enforcement targets and their policy making fora. Formal adjudication under the Administrative Procedure Act (APA), which is the process SEC ALJs offer, has been with us for decades, and has never before been thought to be unconstitutional in any way. It violates no rights, nor offends the separation of powers; if anything scholars have bemoaned the fact that it offers inefficiently large amounts of process to defendants, administered by insulated civil servants who in no way threaten the president’s control over the executive branch. Nonetheless, because defendants, advised by high profile lawyers, have raised appointments clause, due process, equal protection, and right to a jury trial claims against the agency, the article reviews the reasons why these claims will fail, and discusses the timing issues that have led the two appellate courts to address the claims to dismiss them as prematurely brought.

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Omnicare in Action: City of Westland Decision

Aric H. Wu is a partner at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Wu and Michael J. Kahn.

When the Supreme Court issued its decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), plaintiff and defense counsel had warring views on what its practical impact would be, particularly at the motion to dismiss stage of securities class actions brought under Section 10(b) of the Securities Exchange Act of 1934. A recent decision from the Southern District of New York, City of Westland Police and Fire Retirement System v. MetLife, Inc., 2015 WL 5311196 (S.D.N.Y Sept. 11, 2015) (Kaplan, J.), shows that Omnicare will serve as a meaningful bar to plaintiffs who seek to base federal securities law claims on statements of opinion, but cannot plead sufficient underlying facts.

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Individual Accountability for Corporate Wrongdoing

Daniel P. Chung is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication authored by Mr. Chung, F. Joseph Warin, Charles J. Stevens, and Debra Wong Yang.

On September 9, 2015, the Department of Justice (“DOJ”) issued a new policy memorandum, signed by Deputy Attorney General Sally Yates, regarding the prosecution of individuals in corporate fraud cases—”Individual Accountability for Corporate Wrongdoing” (“the Yates Memorandum”).

The Yates Memorandum has been heralded as a sign of a new resolve at DOJ, and follows a series of public statements made by DOJ officials indicating that they intend to adopt a more severe posture towards “flesh-and-blood” corporate criminals, not just corporate entities. Furthermore, the Yates Memorandum formalizes six guidelines that are intended “to strengthen [DOJ’s] pursuit of corporate wrongdoing.”

Though much of the Yates Memorandum is not entirely novel, corporations and their executives should take close note of DOJ’s increasing and public focus on individual prosecutions. Additionally, both corporations and DOJ should take note of how the Yates Memorandum may carry a number of consequences—intended and unintended—with respect to cooperation with DOJ investigations.

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Federal Court Dismisses Madoff Investors’ Claim

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, Stephen R. DiPrimaEmil A. Kleinhaus, and Noah B. Yavitz

In a significant decision addressing claims arising out of Bernard Madoff’s Ponzi scheme, the U.S. District Court for the Middle District of Florida has dismissed federal securities and other claims asserted by Madoff investors. Dusek v. JPMorgan Chase & Co., No. 2:14-cv-184 (M.D. Fla. Sept. 17, 2015). The decision applies and enforces key principles of federal securities law that, taken together, limit the scope of liability for financial institutions sued in connection with frauds perpetrated by their customers, especially Ponzi schemes.

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