On March 5, the SEC brought an enforcement action charging a public company and three of its investor relations personnel with violations of Regulation FD, alleging that the company’s IR personnel had fed non-public information to sell-side research analysts in order to bring their consensus revenue views more into line with the company’s own internal estimates. The defendants are all contesting the charges, and the case will be litigated in federal court. While some commentators may see this as an instance of the SEC pushing the Regulation FD envelope, our view is this: if the SEC is ultimately able to … Read more
On June 21, in a much anticipated decision, the Supreme Court held that SEC Administrative Law Judges (“ALJs”), who have historically been appointed by SEC staff, are “Officers of the United States” and, hence, under the Appointments Clause, can be appointed only by the President or by the SEC itself. Lucia v. SEC. The Court further ruled that any litigant who has made a “timely challenge” to the validity of an ALJ’s appointment is entitled to a new hearing before a different, properly appointed ALJ or the SEC itself.
In addition to possibly reopening past cases, the Court’s opinion … Read more
In our memo last year, we acknowledged that it was close to impossible to predict the likely impact that the newly elected Trump administration would have on white-collar and regulatory enforcement. (White Collar and Regulatory Enforcement: What to Expect in 2017) Instead, we set out a list of initiatives we urged the new administration to consider, including clarifying standards for when cooperation credit would be given, reducing the use of monitors, and giving greater weight to a company’s pre-existing compliance program when exercising prosecutorial discretion, among other suggestions. While the DOJ under Attorney General Jeff Sessions has, for … Read more
[On December 10, 2014] the Second Circuit Court of Appeals issued an important decision overturning the insider trading convictions of two portfolio managers while clarifying what the government must prove to establish so-called “tippee liability.” United States v. Newman, et al., Nos. 13-1837-cr, 13-1917-cr (2d Cir. Dec. 10, 2014). The Court’s decision leaves undisturbed the well-established principles that a corporate insider is criminally liable when the government proves he breached fiduciary duties owed to the company’s shareholders by trading while in possession of material, non-public information, and that such a corporate insider can also be held liable if he … Read more
As we have described in our prior memos (here and here), in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317, the Supreme Court will decide whether or not to abandon the “fraud on the market” presumption of reliance that has facilitated class-action treatment of claims brought under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b–5. The case will be argued before the Court on March 5, and a decision will likely come by the end of June. As our earlier memos explained, Halliburton is potentially the most important securities case … Read more
In a recent speech, Andrew Ceresney, the co-director of the SEC’s Division of Enforcement, suggested that the monetary penalties imposed by the SEC should grow to reflect the size of the relevant companies and transactions. According to press reports, he observed that “Ten years ago we would not have been speaking about $10 billion transactions or billions in income in a quarter and now we are. . . . I sometimes worry that, given the profits of companies and banks, penalties cannot be at a level that would meaningfully impact their bottom line in a way that will deter misconduct.”… Read more
A divided Supreme Court ruled on February 27th that proof of materiality is not a prerequisite to certification of a Rule 10b-5 securities fraud class action. Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (Feb. 27, 2013).
The elements of a Rule 10b-5 claim include proof of a material misrepresentation or omission and reliance upon such misrepresentation or omission. Plaintiffs in securities fraud class actions typically seek to invoke the “fraud-on-the-market” presumption set out in Basic Inc. v. Levinson, 485 U.S. 224 (1988) to establish reliance. In Basic, a case in which only a … Read more