The 10b-5 Daily

A few items of interest:

(1) With Vigour and Zeal has a post, including a link to a related article in Legal Week, on the filing of derivative actions in U.S. courts against non-U.S. companies.

(2) WSJ Law Blog has coverage of a humorous D. of Minn. decision denying the motion to dismiss in the UnitedHealth securities class action. As noted in the comments to the post, however, the defendants presumably were not amused by the court’s heavy reliance on a pleading standard repudiated by the U.S. Supreme Court two weeks ago.

(3) And just in case you cannot get enough of the Stoneridge case, Best In Class has a post on some chatter that appears to have arrived a bit late.

Addition: Regarding the D. of Minn. decision, an alert reader points out that the court subsequently issued an amended opinion reflecting the change in the law (but reaching the same result).

According to an article in the Washington Post this weekend (which has been picked up by a number of other media outlets), the suspense is over. The SEC reportedly has asked the Solicitor General to file an amicus brief in support of the investor plaintiffs in the Stoneridge (a.k.a. Charter Communications) case on scheme liability that will be heard by the U.S. Supreme Court next term.

Two notes:

(1) Although some reports have suggested that the amicus brief will be filed in support of Enron’s investors (and the original Washington Post article is not very clear on this point), that appears unlikely unless, as advocated by the attorneys for Enron’s investors, the Supreme Court decides to hear the Enron and Stoneridge appeals together.

(2) Presuming the amicus brief is filed, it will be interesting to see if the SEC/Solicitor General deviates in any way from the earlier position on scheme liability taken by the SEC in a 9th Circuit case.

Just when you thought it was safe to read about something else on this blog, here are a few more pieces on the Stoneridge (a.k.a. Charter Communications) case pending before the U.S. Supreme Court.

(1) The Harvard Law School Corporate Governance Blog has a post with further speculation (see here) about whether Justice Alito could be the deciding vote. The post also discusses how the granting of cert in the related Enron’s banks case might alter the outcome.

Quote of note: “[I]f the Court grants review in Credit Suisse [the Enron’s banks case], it could well mean that Chief Justice Roberts and Justice Alito are inclined to take a narrow view of primary liability, and that The Chief Justice will be in a position to assign the opinion to a wavering Justice Alito. If Credit Suisse is granted, look for the case to be a 5-4 decision, with liability under Section 10(b) not extended to vendors and investment bankers, even where they know the transaction is a sham and will be used to effect a financial fraud.”

(2) The Los Angeles Times ran an editorial on Wednesday urging the SEC to support the investor plaintiffs in the Stoneridge and Enron’s banks cases.

Quote of note: “So far, the SEC has remained silent. But with its mandate to ‘maintain fair, orderly and efficient markets and facilitate capital formation,’ the SEC is uniquely suited to speak out when legal interpretations undermine confidence in the stock market’s fairness.”

(3) Meanwhile, the Washington Examiner has an op-ed urging the SEC to take the opposite position.

Quote of note: “The SEC’s support, expressed through a U.S. government friend-of-the-court brief in Stoneridge, would well tip the balance in the Supreme Court. For the sake of our capital markets and American shareholders, let’s hope the commission does the right thing. The SEC’s mission of ‘investor protection’ cannot be achieved by further empowering plaintiffs’ lawyers.”

The battle to win the hearts and minds of the American people (or at least the SEC) on the issue of scheme liability, which is currently before the U.S. Supreme Court in the Stoneridge (a.k.a. Charter Communications) case, shows no signs of slowing down. This week has seen three publications of note:

(1) In its Tuesday edition, the Wall Street Journal had a feature article (subscrip. req’d) on the pressure being put on the SEC to side with the plaintiff investors.

Quote of note: “[A plaintiffs attorney] won the support of aspiring Democratic presidential candidate and former plaintiffs lawyer John Edwards, who said: ‘I urge the SEC to fulfill its historic mission of protecting investors. Silence, or even worse, siding with fraud participants, would be a betrayal of that mission.'”

(2) The Wall Street Journal also has an op-ed (subscrip. req’d) in today’s edition urging the SEC to support the defendant corporations.

Quote of note: “Unfortunately, we cannot be certain why the Supreme Court has taken the case, or if it will do the right thing. While Chief Justice John Roberts and Justice Stephen Breyer have spoken of the need for judicial modesty, both have recused themselves from the case. All the more reason for Treasury and the SEC to stand firm and ask the solicitor general to urge the Supreme Court to keep liability circumscribed.”

(3) Finally, the Legal Times has an op-ed, written by attorneys who represent investors in a scheme liability case against Enron’s banks, urging the Supreme Court to adopt a broad interpretation of the relevant statutes.

Quote of note: “At bottom, Section 10(b) and Rule 10b-5 have long proscribed any scheme or artifice to defraud, as well as any conduct that operates as a fraud on investors. Enron’s banks worked hand-in-hand with Enron to design and implement sham transactions with the sole purpose of hiding debt and generating fake revenue. If that’s not participating in a scheme to defraud, what else can we call it?”

Bloomberg has a feature article discussing the recent criticisms of the SEC’s investor protection efforts. Of particular note for readers of this blog, the article states that Chris Cox, Chairman of the SEC, has denied that the SEC is considering a proposal or rule to allow corporations to mandate arbitration of shareholder claims. (Just last month, the Wall Street Journal reported that the SEC was exploring this proposal.)

The American Lawyer has an article on the possible emergence of U.S.-style securities class actions in Europe. The article notes, based on numbers from the recent issued PwC 2006 Securities Litigation Study, that the number of filings against European companies in U.S. courts has actually fallen over the past few years. On the other hand, more European countries are adopting some form of group litigation.