The 10b-5 Daily

In an op-ed in yesterday’s edition of the Financial Times, the director of the Committee on Capital Markets Regulation (a.k.a. the “Paulson Committee”) addresses a securities litigation reform that the SEC appears eager to avoid endorsing. Christopher Cox, the Chairman of the SEC, has told Congress that the SEC is not considering allowing companies to “mandate” arbitration for shareholder claims. The op-ed points out that the proposed reform actually puts the mandating power in the hands of the shareholders – who would vote on a charter amendment requiring arbitration and could always decide to reverse their decision later – not the company.

Quote of note: “The reform that the committee urges strengthens shareholder rights by broadening choice beyond the route of class action litigation. The SEC should not feel constrained to block or endorse alternatives to class actions. Indeed, after full and fair public discussion, the SEC should leave resolution of disputes between shareholders and their companies where it belongs, in the hands of shareholders and the courts.”

The Wall Street Journal has an online debate (subscrip. req’d) between two securities litigators on the merits of scheme liability, a topic that will be addressed by the U.S. Supreme Court next term in the Stoneridge (a.k.a. Charter Communications) case. For those who like their debates slightly heated and reasonably entertaining, this will not disappoint. The WSJ Law Blog also has a related post where they invite comments on the topic.

Quote of note:

“Well, Sean, there you go again. You pick a troubling fact pattern — a Wall Street bank’s alleged involvement in a phony sale of assets to prop up corporate cash flow — to argue for the rewriting of the securities laws.”

. . . .

“Thanks Bob for your concession that Bank A’s conduct in my hypothetical was ‘troubling.’ That had to hurt. The question that investors would like to have you (and the Chamber of Commerce) answer is: do you think Bank A should get a pass for what it did in the (not so) hypothetical? Or is Bank A an ‘innocent’ third party that should be beyond the reach of defrauded investors?”

Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released an interim report on federal securities class action filings in 2007. The findings include:

(1) There were 59 filings in the first half of 2007. This represents a slight uptick from the previous six-month period, but is significantly below the post-PSLRA average semi-annual filing rate of 101 (mid-year periods July 1996 through June 2005).

(2) The report suggests two hypotheses for the continued low filing rate: (i) increased government enforcement activity leading to lower incidence of fraud; and/or (ii) a strong stock market with low volatility.

(3) The communication and finance sectors had the most filings.

The New York Law Journal (July 9, 2007 edition) has a special section (subscrip. req’d) on securities litigation and regulation, including articles on merger & acquisition cases related to private equity deals, the recent Billing antitrust decision in the U.S. Supreme Court, and the “changing face” of securities class actions. Two prominent New York securities litigators also have a publicly available “point-counterpoint” on recent judicial developments.

(1) A column on Law.com provides an overview of the recent U.S. Supreme Court cases related to securities litigation.

Quote of note: “While Dura and Tellabs are significant in their own right, their impact may pale in comparison to the Supreme Court’s resolution, to be made in 2008, of Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., which squarely puts the theory of “scheme liability” to the test.”

(2) Professor Hannah L. Buxbaum has posted a forthcoming article on the jurisdictional issues raised by “foreign cubed” cases (defined as an action brought against a foreign issuer, on behalf of a class that includes not only investors who purchased the securities in question on a U.S. securities exchange, but also foreign investors who purchased the securities on a foreign securities exchange). The article – entitled “Multinational Class Actions Under Federal Securities Law: Toward a “Fraud on the Global Market” Theory?” – can be downloaded here.

Quote of note: “Multinational class actions invoke particularly strongly the concerns courts and commentators share regarding the over-expansive application of U.S. regulatory law in the global arena. (And, as I have argued, they are likely in the near future to attract the unfavorable notice of foreign governments as well.) Moreover, these claims illustrate particularly clearly the weaknesses of traditional jurisdictional rules.”

The author of The 10b-5 Daily, Lyle Roberts (LeBoeuf Lamb), will be co-moderating a Practicing Law Institute audio webcast on the U.S. Supreme Court’s recent Tellabs decision. The webcast will take place on Wednesday, July 11 at 1 p.m. ET. Bruce Vanyo (Katten Muchin) is the other co-moderator and the panelists are Jerome Congress (Milberg Weiss) and David Graham (Sidley Austin), who represented the parties in the case. CLE credit is available. Click here to register.

The Tellabs decision has been the subject of considerable media and blog commentary.

WSJ Law Blog: Tellabs – Securities Lawyers React

WSJ Law Blog: Supremes Deliver Another Blow to Plaintiffs Securities Bar

WSJ Law Blog: Scalia and Stevens Battle Over Statutory Interpretation

Washington Post: Pro-Business Decision Hews To Pattern of Roberts Court

NYT: Investors’ Suits Face Higher Bar, Justices Rule

Bloomberg: Top U.S. Court Tightens Limits on Shareholder Suits

SEC Actions Blog: The Supreme Court Strikes a Balance Regarding Requirements In Securities Damage Actions

The D&O Diary: Supreme Court Issues Tellabs Opinion

CFO.com: Shareholder Lawsuit Ruling a Boon?

Securities Law Prof Blog: Tellabs v. Makor Issues & Rights

Sixth Circuit Blog: Tellabs Defines “Strong Inference” for Pleading Securities Fraud Under the PSLRA — It Could Have Been Much Worse!