Marketplace of Ideas: United States v. Newman

Today and tomorrow, we will run a number of posts related to the recent United States v. Newman decision in which the Second Circuit overturned the convictions for insider trading and conspiracy to commit insider trading of Todd Newman and Anthony Chiasson.  Messrs. Newman and Chiasson were hedge fund portfolio managers at Diamondback Capital Management, LLC and Level Global Investors, L.P., respectively.  The government alleged that a cohort of analysts at various hedge funds and investment firms obtained material, nonpublic information from employees of Dell and NVIDIA—two publicly traded technology companies—shared it amongst each other, and subsequently passed it on … Read more

Samuel Buell Headshot

Insider Trading Law in Deeper Waters

Everyone can thank Preet Bharara for one thing. His swath of insider trading prosecutions is forcing amplification of the law, especially the criminal law of insider trading. That body of law has been underdeveloped and at times stagnant. The Second Circuit’s important decision in United States v. Newman, however, shows that the common law process doesn’t necessarily lead to calmer waters.

Part of this is inevitable. The law of insider trading never had the intellectual heft to withstand sustained pressure in the form of large numbers of criminal prosecutions, which place special demands on the law because of their … Read more

John Coffee Headshot

IGNORANCE IS NOW BLISS: But What Can the Government Do?

United States. v. Newman[1] represents the most serious defeat for the DOJ and the SEC in their campaign against insider trading since Dirks v. SEC[2] in 1983. In both cases, mistakes were made, and the Government did not at the time appreciate the difficulty of its position. Indeed, in Dirks, the SEC sued the hero of the Equity Funding scandal (Ray Dirks), not the villain. In Newman, the U.S. Attorney was prosecuting far more remote tippees than those in any other Second Circuit case. If the Government were to seek certiorari and take this case to … Read more

Jim Cox Headshot

Giving Tippers a Pass: U.S. v. Newman

The Second Circuit, in U.S. v. Newman raises likely insurmountable burdens for prosecutors to pursue remote tippees. Newman causes even greater harm to the public interest in fair capital markets by making it impossible to pursue the true violator, the tipper. To understand this conclusion, consider the following hypothetical that is intended to illustrate the Supreme Court’s reasoning in Dirks v. Securities and Exchange Commission.

Kenneth Darke, a geologist with Texas Gulf Sulphur Company, rode into history as one of a large group of corporate insiders who purchased TGS shares on their advance knowledge of a unparalleled visual assay … Read more

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Federal Preemption and Fee-Shifting

All eyes are on Delaware, where soon the Delaware Bar Association will recommend to the state legislature whether or not to curb the Delaware Supreme Court’s decision last year to uphold the facial validity of a board-approved bylaw that shifted the attorneys’ fees of defendants to the unsuccessful (or less than completely successful) plaintiff. Much commentary has already focused on the merits of that decision, ATP Tours, Inc. v. Deutscher Tennis Bund,[1] and this column will not go there. That furrow has already been well plowed.[2]

Although this columnist agrees with the majority who believe the ATP Read more

Latham & Watkins discusses Pumping Up For Proxy Season: Supplemental and Amended Proxy Materials

In connection with a meeting of stockholders, many companies face the decision of whether and how to prepare and file supplemental or amended proxy materials.

The decision to supplement or amend, and how to deliver the message, is guided as much by developed practices over time as it is by the law. Since the proxy solicitation rules only permit discussions with stockholders and other attempts to influence the vote of stockholders based on what has been disclosed in filed proxy soliciting material, it is critical that such disclosure is correct and complete throughout the solicitation process. In light of the … Read more

Seth Oranburg Headshot

How Twitter Is Disrupting Shareholder Activism

Shareholders are organizing and mobilizing on new social media platforms like Twitter. This changes the dynamics of shareholder proxy contests to favor small shareholders over management. Disruptive technology may bring about a shareholder revolution, which may not be in all shareholders’ best interests, at least from the perspective of shareholder wealth maximization, and it also has powerful implications for the future of corporate social responsibility.

Twitter and other social media are platforms for global social interaction. A twitter user can send a “tweet,” which is a sort of 140-character text message, to the world. About 500 million tweets are sent … Read more

Gibson Dunn discusses Important New Guidance on Revlon Duties

On December 19, 2014, the Delaware Supreme Court issued a ruling reversing an order of the Court of Chancery granting a preliminary injunction that would have enjoined an agreed-to merger and required a mandatory post-signing 30-day go-shop period.  In C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, No. 655/657 (Del. Dec. 19, 2014), the Supreme Court held, among other things, that the Court of Chancery had imposed a non-existent requirement that a selling company must engage in an active market process as a matter of law.

The Transaction.  The transaction that … Read more


Reclaiming the General Counsel’s Role as Advisor on Organizational Ethics

This post comes from Michael W. Peregrine, a partner in McDermott Will & Emery.  Mr. Peregrine advises corporations, officers and directors on matters relating to corporate governance, fiduciary duties and officer/director liability issues. His views do not necessarily reflect the views of McDermott Will & Emery or its clients. Mr. Peregrine wishes to thank his colleague, Kelsey Leingang, for her assistance in the preparation of his post.

The general counsel should be proactive in reclaiming her traditional role as an adviser on organizational ethics, in addition to her accepted roles as legal counselor and business partner. Legal scholars, industry observers … Read more

Wendy Couture Photo

Burdens of Production and Persuasion on Price Impact After Halliburton II

The following post comes to us from Wendy Gerwick Couture, Associate Professor at the University of Idaho College of Law.  It is based on her recent paper entitled “Answering Halliburton II’s Unanswered Question: Burdens of Production and Persuasion on Price Impact,” which is forthcoming in the Securities Regulation Law Journal and is available here.

In Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398, 2407 (2014), the Supreme Court held that a defendant can rebut the fraud-on-the-market presumption of reliance at class certification by showing the absence of price impact.  As Professor … Read more

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Fried Frank discusses In re Zhongpin

In In re Zhongpin Inc. Stockholders Litigation (Nov. 26, 2014), the Delaware Chancery Court found that the plaintiffs had pled sufficient facts to raise an inference that Xianfu Zhu, who was the company’s founder, Chairman and CEO, was a controlling stockholder, even though he owned only 17% of the company’s stock and had not controlled the directors’ decision relating to his going-private bid. Vice Chancellor Noble’s decision appears to have been based on a conclusion that the unusual degree to which Zhu was indispensable to the company as a practical matter precluded the special committee from functioning effectively because—without Zhu’s … Read more

Arthur J. Gallagher & Co. discusses Incentive Trends in Executive Compensation

With Say on Pay (“SOP”) now entrenched in the psyche of compensation committees along with Institutional Shareholder Services’ (“ISS”) evolving standards, improving disclosure of short- and long-term incentive (“STIP” and “LTIP”, respectively) plans, including measures used, the values associated with those measures, and how they can be expected to drive performance, should continue to be a priority for all public companies.

In order to review incentive trends (particularly, the underlying incentive design), Arthur J. Gallagher & Co.’s Human Resources & Compensation Consulting Practice has conducted a study of 2013 compensation data as disclosed in 2014 annual proxy statements for 200 … Read more

Erica Gorga (Yale)

The Impact of the Financial Crisis on Nonfinancial Firms: The Case of Brazilian Corporations and the “Double Circularity” Problem in Transnational Securities Litigation

This Article discusses the impact of the international financial crisis on Brazilian capital markets. While the banking industry was not significantly affected, leading nonfinancial corporations experienced severe financial turmoil. Two Brazilian corporations cross-listed in the United States — Sadia S.A. and Aracruz Celulose S.A. — suffered billion-dollar losses when the Brazilian real unexpectedly plummeted in relation to the dollar. These great losses were found to be the result of their highly speculative trading in currency derivatives, despite earlier disclosure that these companies had engaged only in pure hedging activity. Consequently, several private lawsuits were filed both in the United States … Read more

Wachtell Lipton discusses 2015 Corporate Governance Trends

Some Thoughts for Boards of Directors in 2015

The challenges that directors of public companies face in carrying out their duties continue to grow. The end goal remains the same, to oversee the successful, profitable and sustainable operations of their companies. But the pressures that confront directors, from activism and short-termism, to ongoing shifts in governance, to global risks and competition, are many. A few weeks ago we issued an updated list of key issues that boards will be expected to deal with in the coming year (accessible at this link: The Spotlight on Boards). Highlighted below are a few … Read more

Skadden discusses U.S. v. Novartis as Reaffirming the Importance of Updating and Adhering to Corporate Policies

A recent decision in a false claims act case, United States ex rel. Bilotta v. Novartis Pharmaceuticals Corporation (Novartis),[1] underscores the importance of policing employee adherence to corporate policies and industry codes, and assessing strategic responses to allegations involving the violation of company policies when engaged in litigation with the federal government over whether the company broke the law.[2]

Although Novartis is a pharmaceutical company, the decision’s implications extend far beyond the health care industry and should be considered by corporations in all regulated industries. For such businesses, there typically are three interconnected worlds of governance: federal … Read more

Morrison & Foerster discusses 2015 ISS and Glass Lewis Proxy Voting Guidance Updates

Proxy research and advice entities Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co., LLC (“Glass Lewis”) recently updated the guidelines each service will use to inform their voting recommendations for the 2015 proxy season. The updates address topics such as amendments to governing documents, director and executive compensation, board leadership structures, and certain shareholder proposals included in proxy materials. We summarize the most notable updates to these guidelines, below.


The ISS voting policy updates are relevant to shareholder meetings taking place on or after February 1, 2015. The two principal updates highlighted by ISS relate to ISS’s … Read more


“Loser Pays”: Who Will Be The Biggest Loser?

About two months ago, this columnist was asked to prepare a short report to the SEC’s Investor Advisory Committee on the then still largely unnoticed trend toward bylaw and charter provisions that imposed some form of a “loser pays” rule on plaintiffs in intracorporate litigation. After a quick and dirty investigation, I reported three interesting facts:

First, between May 29, 2014 and September 29, 2014, some 24 companies had adopted such a provision (always applicable only to plaintiffs and always without the matter being put to a shareholder vote). This was obviously a rapid response to the Delaware Supreme Court’s … Read more

Gibson Dunn discusses Cybersecurity Regulation in the Financial Sector

In response to a string of publicly disclosed cyberattacks against financial institutions in recent months, New York and federal regulators are pushing the financial sector to better protect itself and, notably, are seeking additional information about banks’ cybersecurity efforts.  Benjamin Lawsky, the Superintendent of the New York State Department of Financial Services (“DFS”) has been at the forefront of this increased regulatory focus.

New York State

On October 21, 2014, Superintendent Lawsky reportedly sent a letter to dozens of banks that not only urges them to address the cybersecurity of their third-party service providers but also requests detailed information about … Read more


Nearing 30, Is Revlon Showing Its Age?

The following post comes to us from Mohsen Manesh, Assistant Professor at the University of Oregon School of Law. It is based on his recent paper, “Nearing 30, Is Revlon Showing Its Age?,” which has been published in the Washington and Lee Law Review Online and is available here.

Nearly 30 years ago, in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the Delaware Supreme Court famously dictated that in certain “sale or change in control” transactions, the fiduciary obligation of a target corporation’s board of directors is simply to “get[] the best price for the stockholders.” Much has … Read more


Too Big to Jail

The following post comes to us from Brandon L. Garrett, Professor of Law at the University of Virginia School of Law. It is based on his new book, Too Big to Jail: How Prosecutors Compromise with Corporations, which was published by the Harvard University Press this fall. The post originally appeared on the ACS Blog.

Prominent cries of “too big to jail” greeted the decision by federal prosecutors in 2012 not to convict HSBC, the international bank headquartered in London.  When HSBC was investigated for violations of international sanctions with countries like Cuba, Iran, Libya, Sudan and Burma, … Read more