All items from Securities and Financial Sector Legal Review

Associate Matthew Zucker co-authored this article.
1) Former CFO Sues Walgreens for Defamation Over Earnings Forecast Error
In this Chicago Tribune article, it’s reported that a former Walgreens CFO has sued the company for blaming him for an earnings forecast error – a $1 billion error for which he was terminated.
2) Six Federal Agencies Jointly Approve Final Risk Retention Rule
On October 22, 2014, six federal agencies approved a final rule requiring sponsors of securitization transactions to retain risk in those transactions. The final rule implements the risk retention requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act.  A copy of the final rule can be accessed here.
3) SEC Approves PCAOB’s Related Party Transaction Changes
On October 21, 2014, the SEC issued an order approving the Public Company Accounting Oversight Board’s (“PCAOB”) new related-party transaction standards. Notably, the SEC retained the PCAOB’s proposed effective date – so the new standards will become effective for audits for fiscal years beginning on and after December 15, 2014.
4) SEC Statistics



Posted 5 weeks 4 days ago

Associate Michael A. Rueda co-authored this article.
1) SEC Launches Section 16 and Schedule 13D Enforcement Initiative
In early September, the SEC announced charges against 28 officers, directors, or major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock (Section 16(a) reports and Schedules 13D and 13G). Six publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies. Those companies settled allegations that they failed to disclose their insiders’ Section 16(a) violations as required by Item 405 of Regulation S-K.
2) World’s Leading Institutional Investors Managing $24 Trillion Call for Carbon Pricing, Ambitious Global Climate Deal



Posted 10 weeks 6 hours ago

Associate Michael A. Rueda co-authored this article.
SEC Fee Rate Advisory #1 for Fiscal Year 2015
The SEC announced that in fiscal year 2015 the fees that public companies and other issuers pay to register their securities will be set at $116.20 per million dollars, representing a 10% drop from the current filing fee rate of $128.80 per million dollars.  The SEC order can be reviewed here.
SEC Announces $300,000 Whistleblower Award to Audit and Compliance Professional Who Reported Company’s Wrongdoing
The SEC announced a whistleblower award of more than $300,000 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.  It’s the first award for a whistleblower with an audit or compliance function at a company.
SEC Adopts Asset-Backed Securities Reform Rules



Posted 14 weeks 3 days ago

Associate Raxak Mahat co-authored this article.
1. SEC Charges Company CEO and Former CFO With Hiding Internal Controls Deficiencies and Violating Sarbanes-Oxley Requirements
On July 30, 2014, the SEC announced charges against the CEO and former CFO of QSGI Inc., a Florida-based computer equipment company for misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting. The SEC’s Enforcement Division alleges that CEO Marc Sherman and former CFO Edward L. Cummings (i) misrepresented in a management’s report accompanying the fiscal year 2008 annual report for QSGI Inc. that Sherman participated in management’s assessment of the internal controls, (ii) improperly certified that they had disclosed all significant deficiencies in internal controls to the outside auditors, and (iii) withheld from auditors and investors that Sherman and Cummings participated in a series of maneuvers to accelerate the recognition of certain inventory and accounts receivables in QSGI’s books and records by up to a week at a time.
2. Chamber Releases Disclosure Effectiveness Recommendations



Posted 18 weeks 12 hours ago

One final development in the Citigroup-SEC settlement saga.  Today, Judge Rakoff approved the $285 million proposed settlement of the SEC’s charges against Citigroup in connection with certain mortgage-backed securities transactions.  This follows the Second Circuit’s decision on June 4th to vacate Judge Rakoff’s decision that rejected the settlement.  In that 2011 decision, Judge Rakoff criticized the Citigroup-SEC settlement on a number of grounds, including that it allowed Citigroup to avoid admitting guilt.  He was no less critical of the Second Circuit in his opinion approving the settlement, stating that the Court of Appeals “has now fixed the menu, leaving this Court with nothing but sour grapes.”



Posted 19 weeks 3 days ago

Associate Michael Rueda co-authored this article.
1. SIFMA Guidance on Accredited Investor Verification
Last week, the Securities Industry and Financial Markets Association (SIFMA) issued guidance to registered broker-dealers and investment advisers on some accredited investor verification methods. The guidance includes a form of a Rule 506(c) accredited investor questionnaire as well as a form of written confirmation.
2. SEC Announces Fraud Charges Against Three Former Regions Bank Executives in Accounting Scheme
The Securities & Exchange Commission announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes. The SEC also entered into a deferred prosecution agreement with Regions Financial Corp., which substantially cooperated with the agency’s investigation and undertook extensive remedial actions. Regions will pay a total of $51 million to resolve parallel actions by the SEC, Federal Reserve Board, and Alabama Department of Banking.
3. SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition



Posted 24 weeks 1 day ago

On June 23, 2014, the Supreme Court issued its Decision in Halliburton v. Erica P. John Fund (“Halliburton II”). The decision upholds the Court’s prior Basic v. Levinson decision allowing the fraud on the market theory that presumes reliance, however; the Court agreed with Halliburton that defendants could rebut the presumption pre-class certification with evidence that an alleged misrepresentation did not actually affect the stock price. According to Law360, the decision “will likely make it somewhat more difficult for plaintiffs to bring securities class actions, but it stopped short of closing a major door.”
Chief Justice Roberts delivered the opinion of the Court, joined by Justices Kennedy, Ginsburg, Breyer, Sotomayor and Kagan.  Justice Ginsburg filed a concurring opinion, in which Justices Breyer and Sotomayer joined.  Justice Thomas filed an opinion concurring in the judgment, which Justices Scalia and Alito joined.



Posted 25 weeks 1 day ago

Today, the Supreme Court issued its Decision in Halliburton v. Erica P. John Fund. The decision upholds the Court’s prior Basic v. Levinson holding allowing the fraud on the market theory that presumes reliance, however; the Court agreed with Halliburton that defendants could rebut the presumption pre-class certification with evidence that an alleged misrepresentation did not actually affect the stock price. According to Law360, the decision “will likely make it somewhat more difficult for plaintiffs to bring securities class actions, but it stopped short of closing a major door.”
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We will update this post with more analysis.
 



Posted 25 weeks 4 days ago

 
GENERAL UPDATES
1. CORPORATE SENSITIVITY TO ENVIRONMENTAL CONCERNS OF SHAREHOLDERS INCREASING
Recent studies indicate that over the past year companies have become more sensitive to environmental, social, and governance (ESG) concerns of shareholders. One article describes a study compiled by the Institutional Shareholder Services that relies on data from investor complaints lodged during recent proxy seasons and suggests that social responsibility investors (SRI) have been encouraged by company action.
Indeed, shareholder litigation after regulatory/enforcement action has increased and led to shareholder lawsuits in which directors have been named and claimants have sought damages for the environmental remediation costs the company incurred. Coupled with efforts this year by the United Nations Global Compact that encouraged investors to submit their sustainability desires to the World Federation of Exchanges, investors have been influencing companies’ attention to climate change and sustainability. Their actions may soon influence the ESG reporting standards required by the New York Stock Exchange.
2. SEC ISSUED PARTIAL STAY OF CONFLICT MINERALS RULES



Posted 26 weeks 3 days ago

Today, the Second Circuit Court of Appeals vacated Judge Rakoff’s November 28, 2011 Order, which rejected the Citigroup-SEC settlement on a number of grounds, including that it allowed Citigroup to avoid admitting guilt. We have covered this settlement extensively (see, here, here and here).
Circuit Judges Pooler, Lohier and Carney’s opinion found three specific errors by the District Court:
(i) the court found that the District Court had abused its discretion by requiring that the SEC “establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees.”



Posted 28 weeks 2 days ago