Section 929Y of the Dodd-Frank Act directs the SEC to solicit public comments and thereafter conduct a study to determine the extent to which private rights of action under the antifraud provisions of the federal securities laws should be extended to cover transnational securities fraud. In other words, to what extent is the Supreme Court’s National Australia Bank decision a problem and what, if anything, should Congress do about it?
The SEC solicited comments back in October and the results are now available on the SEC’s website. They make for interesting reading. The commentators include current litigants in cases with extraterritoriality issues, forty-two law professors, the U.S. Chamber of Commerce, the governments of Australia and France, and an individual foreign investor who states that he has “been duped of huge sum of my life long savings by so called private bankers who are affiliates outside USA of US banks.”
Quote of note (Comments by Forty-Two Law Professors): “We differ in our views of private rights of action: some of us have significant doubts about the efficacy of securities class actions, while others believe shareholder litigation rights should be strengthened. Nevertheless, as a group we believe reform efforts should be applied consistently and logically to both domestic and affected foreign issuers, and we therefore support extending the test set forth in Section 929P of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to private plaintiffs.”
A couple of items from around the web.
(1) Professor John Coffee has a New York Law Journal column (Jan. 20 – subscrip. req’d) on the upcoming year in securities litigation. The column discusses the Halliburton and Matrixx cases pending in the U.S. Supreme Court, as well as the New York AG’s suit against E&Y for “allegedly assisting Lehman to cosmetically redecorate its balance sheet.”
Quote of note: “[T]he [Matrixx] case poses the first opportunity in over 20 years for the Court to reconsider or rephrase its basic standard for materiality. Even a modest redefinition of that standard will destroy forests to print the law review articles and practitioner commentaries that will predictably follow. The road to Hell is paved with good intentions and law review articles.”
(2) Whether securities class actions benefit shareholders is a perennial debate. In a recent study published in the Financial Analysts Journal, two professors from Maastricht University (Netherlands) conclude that it is a mixed picture, depending on whether the case is based on a violation of the duty of loyalty (e.g., illegal insider trading) or the duty of care (e.g., known lack of internal controls). While in the short run “the filing of a class-action lawsuit is a materially adverse corporate event,” the authors conclude that cases based on violations of the duty of loyalty are more likely over the long run to lead to positive management and governance changes and a higher stock price.
Quote of note: [Perhaps predictably, commentators chose to read the study’s mixed results in different ways, which led to an amusing post from Bruce Carton.] “I saw the follow headlines about a week apart: 1. ‘Study Shows Benefits of Securities Class Actions’ (January 7, 2011); 2. ‘Securities Class Actions Mostly Punish Shareholders, Study Finds’ (November 30, 2010). Sure, different studies can reasonably reach different conclusions about the benefits or harm of securities class actions … but these articles are about the same study!!! As the fellas say on ESPN’s Monday Night Countdown, ‘C’Mon Man!'”
(1) If you are not willing to walk away, you are not negotiating effectively. Charles Schwab appears to have proven that adage correct in its settlement of the securities class action pending against the company in the N.D. of California. On November 8, Charles Schwab announced that it was terminating the deal because it would allow federal securities class members residing outside of California to bring certain state law claims against the company. On November 18, however, the parties informed the court that the deal was back on. Charles Schwab will continue to pay $235 million, as had been contemplated all along, but the federal securities class members residing outside of California will have to opt out of the settlement if they want to pursue related claims. The court reportedly is close to approving the new deal.
(2) San Diego State may want to issue a revised press release. As it turns out, the university did jump the gun when it announced that it would be the recipient of funds from a cy pres award in the Apple options backdating settlement. Ted Frank, at the Center for Class Action Fairness, has successfully pressured the parties into making those funds available, at least in the first instance, to class members. He is now pushing the court to refuse preliminary approval until the settlement guarantees that the class gets all of the settlement funds.
A couple of cases have taken an unexpected turn.
(1) Last April, Charles Schwab Corporation announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case relates to the marketing and sale of a bond fund. Just as the settlement was headed for final approval, however, Schwab has decided to invoke the termination provision in the settlement agreement and proceed to trial. The issue is whether the settlement, despite Schwab’s belief that it provided a global resolution, allows federal securities class members residing outside of California to bring certain state law claims against the company. The D&O Diary has a post with all the details.
(2) Last month, the U.S. Supreme Court asked the government for its views on the Omnicare cert petition. The question presented was whether the heightened pleading standard of FRCP 9(b) should be applied to ’33 Act claims (i.e., strict liability/negligence claims based on misstatements in a prospectus or registration statement) that “sound in fraud.” The plaintiffs, however, did not wait to find out the government’s position. They have dismissed the cert petition and evidently will pursue their remaining claims back in district court.
A few items from around the web.
(1) Section 929Y of the Dodd-Frank Act directs the SEC to solicit public comments and thereafter conduct a study to determine the extent to which private rights of action under the antifraud provisions of the federal securities laws should be extended to cover transnational securities fraud. In other words, to what extent is the Supreme Court’s National Australia Bank decision a problem and what, if anything, should Congress do about it? The SEC has issued its request for comments, which are due by February 18, 2011.
(2) The New York Law Journal has a column (Oct. 27 – subscrip. req’d) on a recent Second Circuit securities decision. In MF Global, the court evaluated the scope of the bespeaks caution and loss causation defenses. The 10b-5 Daily’s summary of the decision can be found here.
(3) Good news – the plaintiffs firms in the Gildan Activewear case are sufficiently diverse to settle the matter. Last month, the judge issued an unusual order (after a preliminary settlement had already been reached) requesting that the firms make every effort to assign a diverse team to the case. The WSJ Law Blog reports that the judge has issued a new order clarifying that he “did not mean to be critical of the firms’ diversity efforts or staffing of the case.”
A couple of items from around the web.
(1) Professor John Coffee has a New York Law Journal column (Sept. 17 – subscrip. req’d) on the impact of the National Australia Bank (NAB) decision on SEC and private actions. The column discusses a factual scenario in which a U.S.-based stock promoter defrauds U.S. investors in a transaction that is consummated overseas. Post-NAB, the U.S. investors cannot bring an action under Section 10(b)/Rule 10b-5, but “they could sue in the United States based on a cause of action under foreign law.”
(2) The American Lawyer has an article on an unusual order (to say the least) issued in the Gildan Activewear securities class action. Although lead counsel was appointed two years ago and the parties have entered into a preliminary settlement, the court instructs the two plaintiffs firms to “make every effort” to assign at least one minority and one woman to the case. The order states that this is warranted because the class has thousands of members “arguably from diverse backgrounds” and it is “therefore important to all concerned” that lead counsel also be diverse.
Do you have some availability on Tuesday, Sept. 21 in New York? It is not too late to sign up for PLI’s Securities Litigation & Enforcement Institute 2010. All of the details can be found here.
Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, including financial crisis litigation, the latest corporate governance litigation issues, case management and settlement techniques, SEC and DOJ trends, and practical advice on handling government investigations.
Hope to see you there.