High Court To Consider Time Limit For Derivative Claims

The U.S. Supreme Court on Monday agreed to hear a group of investment banks’ challenge to a Ninth Circuit ruling in a case involving initial public offerings with broader implications for shareholder derivative suits brought after the statute of limitations codified in federal securities laws.

US Supreme Court Declines to Expand Liability to Secondary Actors in Securities Cases

In December 2010, the U.S. Supreme Court heard oral arguments in Janus Capital Group, Inc. v. First Derivative Traders. The Court considered whether Janus Capital Group (“JCG”), as an investment adviser to Janus Investment Fund, may be sued as a primary violator of Section 10(b) and Rule 10b-5. Last week, the Court issued a 5-4 decision and declined to expand 10b-5 liability to JCG. The Court held that JCG could not be sued as a primary violator of federal securities laws because it did not have the “ultimate authority” to make the allegedly misleading statement issued by the Janus Investment Fund. The Court’s decision rejects a significant expansion of potential federal securities law liability for a broad range of secondary actors and advisers who do not control the content of the issuer’s allegedly misleading statement, including attorneys, accountants and others.

Halliburton: US Supreme Court Resolves Circuit Split on Loss Causation

In Erica P. John Fund, Inc. v. Halliburton Co. (No. 09-1403), the U.S. Supreme Court reversed the Fifth Circuit Court of Appeals and held that a securities fraud plaintiff need not establish “loss causation,” i.e., that the defendant’s alleged misrepresentation caused the plaintiff an economic loss, in order to obtain class certification. In so ruling, the Court resolved a split among the Fifth Circuit and the precedents of other Circuits, several of which had already declined to require securities fraud plaintiffs to prove loss causation at the class certification stage. This decision removes a major hurdle for class action plaintiffs in the Fifth Circuit. In Circuits other than the Fifth Circuit, the Halliburton decision should have little impact on securities fraud class action cases.

Supreme Court Rejects Bright-Line Test for Determining Materiality in Securities Fraud Cases

On March 22, 2011, the Supreme Court issued a unanimous opinion in Matrixx Initiatives v. Siracusano, that reaffirmed its long-standing test for determining materiality with respect to securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and rejected a “bright-line” materiality rule based on whether or not there was a “statistically significant number” of adverse events.

Broker-dealers Could Be Given A Higher Fiduciary Standard

Less than a week after President Obama signed the Dodd-Frank financial reform law, the U.S. securities and Exchange Commission began soliciting comments from the public on one of the bill’s more controversial topics: Whether securities brokers and dealers should be held to the same fiduciary standard that applies to registered investment advisers.

Partial Settlements Under Oregon Securities Law

The civil liability provisions of the Oregon Securities Law, ORS 59.115 and ORS 59.137, provide for joint and several liability among the various potentially liable parties — sellers; control persons; persons who “participate and materially aid” in the sale; and others — coupled with a right of contribution among those parties. So, in theory, successful plaintiffs can collect their entire judgment from one of these jointly and severally liable parties — likely the one with the deepest pockets, not necessarily the primary violator — and that party can then seek contribution of some share of that judgment from the other liable parties.

The SEC and CFTC Recommend Significant Changes to the Regulatory Landscape Governing Securities Derivatives and Futures Products

The Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) issued a joint report on Friday, October 16, 2009, recommending a series of proposals to strengthen the agencies’ oversight and enforcement capabilities of new securities and futures products. The “Joint Report of the SEC and the CFTC on Harmonization of Regulations” provides 20 recommendations to both Congress and the agencies themselves that, if implemented, would significantly align SEC and CFTC rules regarding markets, financial intermediaries, enforcement operations and operational coordination between the two agencies.

Executive Compensation and the Economy — Can We Learn From Our Mistakes?

Even Warren Buffett didn’t see this one coming.  In this difficult economy, arming yourself with an MBA and business acumen may no longer be enough if you’re a senior executive.  You still need to know what it takes to make or sell a widget if you’re president of a widget company.  (If not, perhaps you need to find another line of work.) But the way you approach the widget business is probably changing in many ways.  Quicker market responses and fully-integrated information systems may be just the start.  You also need to rethink the way to meet responsibilities to shareholders or to compensate executives.   View full article (PDF).

This article appeared in Seattle Business magazine.

Simmonds Short-Swing Profits Cases Dismissed with Prejudice

Lane Powell teamed with national law firms in successfully defending eight investment bank clients in 54 derivative shareholder actions, brought in federal court in Seattle late in 2007. These dismissals will eliminate exposure to untold millions of dollars in damage claims. In an order filed on March 12, The Honorable James Robart, United States District Court for the Western District of Washington, granted issuer Motions to Dismiss in the 30 cases in which the issuers had filed the motions. That dismissal was based on an inadequate demand made by Plaintiff to the issuers and is without prejudice. In the remaining 24 cases, Judge Robart granted our eight underwriter defendants’ omnibus Motion to Dismiss the complaints with prejudice. View full article (PDF).

Reaching the Bottom of the Barrel – How the Securitization of Subprime Mortgages Ultimately Backfired

In the last decade, Wall Street used the process of securitization to revolutionize the financing of home mortgages, making credit available to millions of borrowers with less-than-stellar credit. But the failure to properly assess the credit risk associated with these loans led to well over $100 billion in losses at Wall Street firms. Who will be held responsible? View full article (PDF).

Supreme Court Rejects “Scheme Liability” in Section 10(b) Securities Cases

In a widely-anticipated decision, the Supreme Court yesterday refused to expand the implied private right of action for securities fraud under Section 10(b) to include investor claims for so-called “scheme” liability against those who advise or do business with securities issuers. In Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., No. 06-43 (U.S. January 15, 2008), the Court held that Section 10(b) does not permit investors to recover from a “secondary” party that allegedly participates in a fraudulent scheme with an issuer, unless that party violates a duty to disclose in doing so, or the investors relied on that party’s public misstatements or acts. View full article (PDF).

U.S. Supreme Court Construes “Strong Inference” of Scienter Requirement Under PSLRA in Favor of Defendants

The Private Securities Litigation Reform Act (“PSLRA”) was enacted in 1995 as a check against abusive private federal securities fraud lawsuits, and requires plaintiffs bringing such suits to meet exacting pleading requirements. On June 21, 2007, the United States Supreme Court decided Tellabs, Inc. v. Makor Issues & Rights Ltd., ___ S.Ct. ___, 2007 WL 1773208, a class action alleging that defendants engaged in securities fraud in violation of Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. In Tellabs, the Court resolved a disagreement among the federal Courts of Appeals whether, and to what extent, a court must consider competing inferences in determining whether a plaintiff’s securities fraud complaint gives rise to a “strong inference” that the defendants acted with “scienter,” meaning that they intended to “deceive, manipulate or defraud,” as required under the PLSRA’s heightened pleading requirements, 15 U.S.C. § 78u-4(b)(2). View full article (PDF).

Executive Pay Comes Under Renewed Scrutiny

What a life to be the CEO of a public company – the private jets, exclusive golf clubs and hefty compensation packages. In recent months, the public has shown an almost voyeuristic obsession with executive pay. With its new disclosure rules on executive compensation, the Securities and Exchange Commission let everyone know that it has been watching as well. View full article (PDF).

This article first appeared in the Puget Sound Business Journal.

Sarbanes-Oxley: Smaller Companies Bear the Brunt of Compliance Costs

In 2002, Congress passed the Sarbanes-Oxley Act, sweeping legislation to reform federal securities laws in response to Enron, Worldcom and other corporate scandals. Since then, many of the notable culprits have been successfully prosecuted and are either serving hard time in prison or have passed away. Yet the legislation (commonly called SOX) remains, along with the spate of related Securities and Exchange Commission rules. And so do the compliance costs facing Oregon’s public companies. View full article (PDF).

This article first appeared in Oregon Business Magazine.

SEC Reforms Impact Securities Offerings

The Securities and Exchange Commission (“SEC”) recently adopted new rules that will have a significant impact on public offerings of securities in the United States. This article will summarize some of the more important aspects of the new rules that affect the communication, registration, and offering processes under the Securities Act of 1933. View full article (PDF).

Summary of Significant Provisions for the Sarbanes-Oxley Act of 2002

Section 906 of the Sarbanes-Oxley Act of 2002 (the “Act”) requires public company CEOs and CFOs to certify that periodic financial reports filed with the SEC fairly present the company’s financial condition and fully comply with the Securities Exchange Act of 1934. This requirement includes specific criminal penalties for making a false certification. View full article (PDF).

Sources of Securities Broker Liability and Defenses Utilized by the Broker

Federal securities laws spawned the ubiquitous Rule 10b-5, which makes it unlawful in connection with the purchase or sale of a security to (a) make an untrue statement of material fact; (b) make a statement that is misleading because of the omission of a material fact; (c) employ any device, scheme, or artifice to efraud; or (d) engage in any practice that operates as a fraud or deceit. View full article (PDF).