Thursday, December 28, 2006

Holiday break

Things are slow in securities litigation land this time of year, so I'll take the opportunity to wish all of my readers great health and happiness in the New Year!

Thursday, December 21, 2006

Checkmate for Check Point

Today, Check Point Software Technologies Ltd. (NASDAQ: CHKP) announced that it has reached an agreement-in-principle to settle the securities class action lawsuits pending against the company and certain of it's officers and directors for $13 million.

According to the release, the entire settlement will be paid by Check Point's insurance carrier.

The litigation is pending in the United States District Court for the Southern District of New York before Judge Richard M. Berman.

Jay Stegmann is the lead plaintiff in the Check Point litigation, and Schiffrin & Barroway LLP and Milberg Weiss Bershad & Schulman LLP are lead and liaison counsel, respectively.

Philadelphia Stock Exchange Sale Challenged

According to a press release issued last week, Chancellor William B. Chandler III of the Delaware Court of Chancery has denied the defendants' motions to dismiss in a class action brought on behalf of shareholders of the Philadelphia Stock Exchange to challenge a proposed sale of 90% of the equity of the stock exchange from the Class A shareholders to a group of Wall Street firms and members of the Exchange's Board of Governors.

A copy of Chancellor Chandler's opinion is available here and a copy of the class action complaint can be found here.

The Wall Street firms named in the complaint are UBS Securities, LLC, Morgan Stanley & Co., Inc., Citigroup Financial Products, Inc., Credit Suisse First Boston, Citadel Derivatives Group, LLC, and Merrill Lynch, Pierce Fenner & Smith.

Berger & Montague, P.C. and Rosenthal, Monhait & Goddess, P.A. are counsel for the plaintiff.

Daily Trivia: The Philadelphia Stock Exchange was the first securities exchange in the United States. The exchange was officially established in 1790, and initially mainly government obligations were traded. Among the securities listed in the early days of the Exchange were shares of The Philadelphia and Lancaster Turnpike Company, the first turnpike in the United States. The route that formed the turnpike is now known as Route 30, or Lancaster Avenue.

Wednesday, December 20, 2006

Yet Another Options Backdating Study

A new study by Harvard Law School's Program on Corporate Governance released this week suggests that options grants to outside directors "have been favorably timed to an extent that cannot be explained by mere luck."

The study, entitled Lucky Directors, was written by Prof. Lucian Bebchuk (Harvard Law School), Prof. Yaniv Grinsten (Cornell University - Samuel Curtis Johnson Graduate School of Management) and Prof. Urs Peyer (INSEAD).

The authors found that, out of all director options grant events during 1996-2005, 9% were so called "lucky grant events" - falling on days with a stock price equal to a monthly low.

The study estimates that about 800 "lucky grant events" were timed opportunistically, and that approximately 460 different companies and more than 1400 outside directors were associated with grant events involving such timing.

Additionally, the study found that 3.8% of all options grant events were "super-lucky," defined as taking place at the lowest price of a calendar quarter.

Daily Trivia: Harvard's Program on Corporate Governance is part of the John M. Olin Center for Law, Economics, and Business. The Center was founded in 1985, but in 2003 received a $10 million grant from the John M. Olin Foundation. The gift was the largest foundation grant in the history of Harvard's Law School. The foundation was started by John Merrill Olin, the late founder of Olin Corporation (NYSE: OLN), a major manufacturer of copper alloys, ammunition, and chlorine and sodium hydroxide.

Tuesday, December 19, 2006

Help Wanted - Apply by Lead Plaintiff Motion

The current lead plaintiffs in the Cyberonics, Inc. securities litigation are looking for some help.

According to a press release issued on Monday, the lead plaintiff process in the case has been reopened, nearly 15 months after the original lead plaintiffs were appointed.

Curiously, the announcement comes after a prior consolidated amended complaint was dismissed, and four months after the first amended complaint was filed. A copy of the first amended complaint is available from Stanford, here.

The new complaint substantially expands the class period and adds allegations related to options backdating.

The Cyberonics litigation is pending in the United States District Court Southern District Of Texas before Judge Gray H. Miller.

EFCAT, Inc., John E. and Cecilia Catogas, Blanca Rodriguez and Mohamed Bakry are the current lead plaintiffs in the Cyberonics litigation and Finkelstein & Krinsk LLP and Scott + Scott LLC are currently serving as co-lead counsel.

Daily Trivia: Cyberonic's only product is an implantable medical device for the long-term treatment of epilepsy, depression, and other chronic disorders using vagus nerve stimulation therapy.

The vagus nerve is the only nerve that starts in the brainstem and extends down below the head, to the abdomen. It is also known as the "pneumogastric nerve since it innervates both the lungs and the stomach." The name is derived from the Latin word vagus, literally meaning "wandering."

Monday, December 18, 2006

Securities Class Action Filed Down Under

An article in The West Australian today notes that shareholders of Multiplex Group (ASX: MXG) have filed a class action against the Australian property developer in The Federal Court of Australia in Melbourne.

According to the article, the litigation stems from the alleged failure of Multiplex to:
keep the market properly informed about problems it was having with the [redevelopment of London's Wembley Stadium] and the likely impact those problems would have on the company's profits.
Specifically, the complaint alleges:
Multiplex was behind schedule and had incurred cost overruns by August 2004, but did not announce the project would be making a loss until May 2005.
The complaint was filed on behalf of 45 investors by the Australian firm Maurice Blackburn Cashman Lawyers. The firm has a specific page devoted to the litigation, here.

Daily Trivia: For non-soccer fans, Wembley Stadium is perhaps best remembered as one of the two concert sites for Live Aid, the 1985 concert that sought to raise awareness of famine in Africa. According to this VH1 article, "an estimated 1.4 billion of the planet's five billion" tuned in to the concert that day, and more stunning still, "95 percent of the world's television sets were tuned in to" the concert at one point.

Thursday, December 14, 2006

Vigorous Defense, With a Twist

Today, AtriCure, Inc. (NASDAQ: ATRC) issued a press release regarding the securities class action lawsuits that were recently filed in the United States District Court for the Southern District of New York against the company and certain of its officers that adds yet another wrinkle to the Securities Litigation Universe of [Press] Release Permutations (a/k/a SLURP).

The SLURP collection was previously discussed here and here.

In the release, David Drachman, the president and CEO of the West Chester, Ohio based medical device company stated:
We believe that these allegations are without merit and we intend to vigorously defend the Company. As a public company, the Company has maintained insurance coverage to address such matters. Management is and will remain focused on the growth and development of our Company.
Mr. Drachman has the party line down with his "vigorous defense" proclamation, but it is a bit unusual to publicly discuss reliance on insurance coverage to pay for costs associated with a securities class action when there has been no adjudication of the claims, and thus the insurer may still deny coverage.

NASDAQ (where AtriCure is listed) has "A Guide for North American Companies Listing on the U.S. Securities Markets," which explains many of the issues surrounding public offerings and D&O policies. Latham & Watkins LLP also has an excellent Client Alert discussing D&O insurance issues in the context of options-backdating cases.

So this new version of the vigorous defense press release will be called the, "We didn't do it, we're going to come out swinging, and, hey, somebody else is going to pay for it" press release.

I wonder if The D&O Diary has anything to say about this?

Daily Trivia: Latham's web page for the firm's "Securities Litigation and Professional Liability" practice group indicates that the attorneys with the firm have handled "more than 200 securities class actions" in the past decade. According to Stanford's Securities Class Action Clearinghouse, that is about 8% of all securities class actions filed since the passage of the PSLRA.

Wednesday, December 13, 2006

Preemptive Vigorous Defense or Buried Notice?

Today, Technical Olympic USA, Inc. (NYSE: TOA) announced that the securities class action complaint filed against the company and certain executive officers of the company:
is without merit and that it intends to defend the lawsuit vigorously.
The complaint was filed in the United States District Court for the Southern District of Florida.

Here's the rub - a quick search of Yahoo! Finance, MarketWatch,, and The Motley Fool, reveals that no press release has yet been issued by the firm(s) that filed the complaint.

It appears that we have another "preemptive vigorous defense" press release.

Or we may have a case of so-called "buried notice," as previously discussed by Bruce Carton over at Securities Litigation Watch, here.

UPDATE: Lerach Coughlin Stoia Geller Rudman & Robbins LLP issued a PSLRA notice today, available here.

Daily Trivia: Konstantinos A. Stengos, Technical Olympic's chairman of the board and the founder of the Technical Olympic Group of Companies is among the "50 Wealthiest Greeks in America." Among his diverse holdings are the Greek Porto Carras vineyards.

Tuesday, December 12, 2006

Company Bites Auditor

Ok, it's not quite man bites dog, but today Fannie Mae (NYSE: FNM) announced that it has filed suit against KPMG LLP, the company's former outside auditor, for negligence and breach of contract in the Superior Court of the District of Columbia.

The 17-count complaint seeks:
[c]ompensatory damages to be determined at trial in an amount not less than $2,000,000,000 (Two Billion Dollars)
A copy of the complaint is available from Fannie Mae, here.

Articles on the litigation can be found here (The Wall Street Journal - sub. req'd), here (, and here (Reuters).

The Journal article quotes a KPMG spokesman, who indicated that the accounting firm "is likely to file a countersuit," and that KPMG "will remove this suit to [the United States District Court for the District of Columbia], where we intend to pursue our own claims."

Disclosure: The author and his law firm are counsel for certain plaintiffs in the currently pending Fannie Mae derivative litigation.

Securities Litigation Settlements May Be Tax-Deductible

An article today from WebCPA notes that the Internal Revenue Service has agreed, in a letter ruling, that a publicly-traded acquiring corporation can deduct the amount it paid to settle class action securities litigation against the target corporation that was triggered by misstatements in the target corporation’s reported earnings.

Generally, as noted in the letter,
amounts paid in settlement of lawsuits are currently deductible if the acts which gave rise to the litigation were performed in the ordinary conduct of the taxpayer's business. See, e.g., Federation Bank & Trust Co. v. Commissioner, 27 T.C. 960 (1957).
But, if the litigation arises from a capital transaction,
then the settlement costs and legal fees associated with such litigation are characterized as acquisition costs and must be capitalized under § 263(a). See Woodward v. Commissioner, 397 U.S. 572, 575 (1970) (holding litigation costs incurred by corporation in appraisal proceedings mandated by state law to determine the value of dissenter’s shares were part of the cost of acquiring those shares); United States v. Hilton Hotels Corp., 397 U.S. 580, 583 (1970); (similarly, deciding that litigation costs incurred in appraisal action to determine fair purchase price were costs to acquire property); Berry Petroleum Co. v. Commissioner, 143 F.3d 442 (9th Cir. 1998)(concluding that legal expenses to defend class action lawsuit alleging breach of fiduciary duty in accomplishing merger were nondeductible acquisition costs).
Certain business expenses are not converted into capital expenditures even though they have some connection to a capital transaction. In determining whether litigation costs are deductible expenses or capital expenditures, the courts and the IRS have looked to the "origin of the claim" test.

The acquiring corporation:
claimed that the settlement costs were deductible as ordinary and necessary business expenses because the complaints were the product of an ongoing dispute between target's shareholders and the taxpayer, as controlling shareholder of target, for withholding dividends, issuing fraudulent and incomplete financial statements, and artificially depressing its stock price.
As a result, the acquiring corporation argued these claims were related to ordinary course business activities, and did not originate in the merger of the two companies or any other capital acquisition.

The IRS agreed, holding that:
Under these circumstances, we believe that the origin of these claims was in the ordinary conduct of [the target company's] trade or business.
The ruling, as with most letter rulings by the IRS, is directed only to the taxpayer requesting it and is not precedential in other cases.

Daily Trivia: The origin of the IRS can be traced back to the Civil War, when President Lincoln and Congress created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. In 1872, the income tax was repealed, but in 1894 Congress revived the income tax in 1894, only to have the Supreme Court rule it unconstitutional the following year. The country remained without a federal income tax until 1913, when Wyoming ratified the 16th Amendment, which gave Congress the authority to enact an income tax.

Monday, December 11, 2006

Options Backdating, Eh?

According to a recent Chicago Tribune article, a forthcoming study by economics professors at the University of Manitoba suggests that options backdating could might be as much of an issue for Canadian companies as it has turned out to be for US companies.

The study, Remuneration and Incentives of Managers: Executive Stock Options and Backdating in Canada, examined stock options granted to executive by 66 of Canada's largest publicly traded companies from June 2003 through October 2006.

The authors found trading patterns that may be consistent with options backdating and that many options grants were not being reported as quickly as required.

A preliminary draft of the study notes:
While it is impossible to determine unequivocally that companies are engaging in backdating. . .the aggregate evidence certainly supports such a story.

The study found that unscheduled grants had a higher rate than scheduled grants of abnormally high returns.

The authors also found that reporting requirements regarding stock options were not being properly followed. Toronto Stock Exchange rules (See Toronto Stock Exchange Company Manual Sec. 613(h)(i), here) require that:
the exercise price for any stock options granted under a security based compensation arrangement or otherwise must not be lower than the market price of the securities at the time the option is granted.
In other words, options must not be granted 'in the money.'

Moreover, Canadian securities regulations require that a company report all stock-option grants within 10 days of the grant. As a result of this long reporting period, companies may be setting the exercise price at the lowest point during a particular time period, giving the option recipients an immediate boost in the options' value.

The study analyzed more than 5,600 instances of stock-options granting. It found that 17% of reports for grants were filed after the 10-day window had expired, with 9% of those reports filed more than 50 days after the grant date.

The article was authored by Prof. Ryan A. Compton, Jonathon N. Giller, and Prof. Lindsay M. Tedds.

The D&O Diary also has a post on the study, here.

Daily Trivia: Of the 66 Canadian companies discussed in the study eight have been the subject of federal securities class actions since the passage of the PSLRA.

They are:
  1. ATI Technologies Inc. (twice)
  2. Barrick Gold Corp.
  3. Biovail Corp.
  4. Bombardier Inc.
  5. Cognos Inc.
  6. Inco Limited
  7. Kinross Gold Corp.
  8. Nortel Networks Corp. (twice)
  9. Cott Corp. (pre-PSLRA)

Sunday, December 10, 2006

Cigna Settles Securities Class Actions

According to an article in the Philadelphia Inquirer, CIGNA Corp. (NYSE: CI) has settled the consolidated securities class action pending against the company and certain of its officers for $93 million.

The Pennsylvania State Employees' Retirement System is the lead plaintiff and Berger & Montague, P.C. and Bernstein Liebhard & Lifshitz LLP are co-lead counsel in the CIGNA litigation.

Both the company (here) and the lead plaintiff (here) issued press releases regarding the settlement. The release issued by the lead plaintiff notes that the settlement:
is in the top 8% of all securities class action settlements from 1996 through 2004.
And that the settlement:
is one of the 60 largest securities class action settlements ever achieved.
The case is pending in the United States District Court for the Eastern District of Pennsylvania before Judge Michael M. Baylson.

The Legal Intelligencer (via has an article regarding an earlier ruling by Judge Baylson regarding the identification of confidential informants in securities fraud litigation, an increasingly common practice. In that decision, Judge Baylson ruled that:
Requiring specific identification of confidential sources from among the universe of individuals with relevant knowledge in a securities fraud case would chill informants from providing critical information which may end up being in the public eye.
Judge Baylson concluded that:
fairness compels only that if an individual who is a confidential informant does have relevant information, that person's identity should be disclosed as a discoverable matter, but without disclosing that he or she is a confidential informant.
Daily Trivia: Judge Baylson is an adjunct professor at the University of Pennsylvania's Law School. For several years earlier in his career, Judge Baylson served as an assistant district attorney under then Philadelphia District Attorney (now Senator) Arlen Specter.

Thursday, December 07, 2006

AOL Time Warner Opt-Out Cases Starting to Settle

An article in today's New York Sun details the success garnered by one of the so called "opt-out" cases filed by institutional investors in the AOL Time Warner litigation.

The litigation was filed by the Alaska Department of Revenue, Alaska State Pension Investment Board, and the Alaska Permanent Fund Corporation on behalf of various Alaska state investment funds in the Superior Court of the State of Alaska - First Judicial District (Juneau).

According to the article:
Time Warner agreed this week to pay Alaska $50 million to compensate it for investment losses alleged to total about $60 million...That result, amounting to about 83 cents a dollar allegedly lost, appears to be far superior to the payout in the nationwide settlement, which has not been calculated officially but is likely to be a few cents on the dollar, according to lawyers involved in the litigation.
According to Richard M. Heimann, one of the attorneys for the Alaska pension funds:
Our settlement is far and away more than what we would have received - 50 times more than what we would have received if we had remained in the class.
A Reuters (via Forbes) article from the day the complaint was filed placed the losses of the Alaska pension funds at $70 million, but that still works out to 71 cents on the dollar.

The Alaska pension funds are represented by Lieff Cabraser Heimann & Bernstein, LLP and the Alaska Attorney General's office, and a copy of Alaska's complaint can be found here.

The article also notes that more than 100 institutional investors have opted out of the AOL Time Warner settlement and signed up with Lerach Coughlin Stoia Geller Rudman & Robbins LLP to pursue individual or group actions.

When "[a]sked if his clients will fare better than those who joined the national settlement, Mr. Lerach said, 'There's no question we're getting tons more dollars.'"

The Lerach firm has information on their website regarding a wave of opt-out cases they filed back in February 2006, here, including a list of plaintiffs (here) and a recording of Bill Lerach's conference call announcing the litigation (here).

The pension fund covered by the Alaska settlement include:

Alaska Department of Revenue funds:
  1. The Constitutional Budget Reserve Fund;
  2. The Public School Trust Fund;
  3. The Power Cost Equalization Endowment Fund:
  4. The Exxon Valdez Oil Spill Investment Fund;
  5. The Retiree Health Insurance Fund - Major Medical;
  6. The Retiree Health Insurance Fund - Longterm Care;
  7. The University of Alaska, Investment Trust Fund; and
  8. The Alaska Children’s Trust Fund.
Alaska State Pension Investment Board funds:
  1. The Public Employees' Retirement System;
  2. The Teachers' Retirement System;
  3. The Judicial Retirement System;
  4. The National Guard/Naval Militia Retirement Systems;
  5. The Alaska Supplemental Annuity Plan; and
  6. The Alaska Deferred Compensation Plan (employee directed accounts).
Alaska Permanent Fund Corporation funds:
  1. The Alaska Permanent Fund; and
  2. The Alaska Mental Health Trust Fund.
Daily Trivia: The Exxon Valdez Oil Spill Trustee Council, the organization tasked with the efficient restoration of the environment injured by the Exxon Valdez oil spill, manages the civil settlements paid by Exxon to the state and federal governments. According to the Council's investment policies, for the first 8 years, the Council was only allowed to invest in United States Treasury securities. But with the passage of Public Law 106-113 in 1999, the Council was permitted to invest in other assets, but:
such outside investments are limited to income-producing asset classes, including debt obligations, equity securities, and other instruments or securities that have been determined by unanimous vote of the Council to have a high degree of reliability and security.
That is a seemingly tough standard that nevertheless would not have prevented or prohibited many asset managers from investing in AOL, Enron, WorldCom, Fannie Mae, AIG, or other high-flying members of the S&P 500 that have suffered through scandals in the recent past.

Wednesday, December 06, 2006

Four Days.

That's how long it took for Schoengold Sporn Laitman & Lometti, P.C. to announce that the firm had filed a securities class action lawsuit against Pfizer Inc. (NYSE: PFE) stemming from the company's December 2, 2006 announcement that they were suspending clinical trials of torcetrapib.

The question was posed on December 4, 2006 by the WSJ Law Blog, here.

The complaint was filed on behalf of the Uniformed Sanitationmen's Association Local 831 Pension Fund in the United States District Court for the Southern District of New York.

Torcetrapib is a CETP inhibitor, which work by blocking an enzyme that transforms HDL (the so-called good cholesterol) into LDL (the bad cholesterol). Pfizer had intended to sell Lipitor (an LDL lowering drug) in combination with torcetrapib.

According to the law firm's press release, in a clinical trial of torcetrapib involving 15,000 patients:
82 patients died taking torcetrapib/Lipitor combination as compared to only 51 patients taking Lipitor alone, and patients taking torcetrapib showed an increase in angina, congestive heart failure and procedures to clear clogged arteries.
According to an AP article, other drugmakers, including Roche Holding AG and Merck & Co., are reportedly developing CETP inhibitors.

Daily Trivia: The Schoengold firm has quite a diverse list of clients, ranging from the Association of Theatrical Press Agents & Managers Pension and Welfare Funds, to the Brotherhood of Railroad Signalmen - Local 56 Health & Welfare Fund, to the Soft Drink and Brewery Workers Union Local 812 Retirement Fund.

According to a history of ATPAM, Milton Weintraub the late secretary-treasurer of the union "developed the first union pension and welfare funds."

Tuesday, December 05, 2006

Second Circuit Reverses Class Certification in IPO Cases

According to a New York Times article (reg. req'd), the United States Court of Appeals for the Second Circuit reversed Judge Shira A. Scheindlin's October 13, 2004 decision to certify the class in six "focus cases" out of the more than 300 consolidated and coordinated class actions pending before her as part of the massive In re Initial Public Offering Securities Litigation.

A copy of the Second Circuit's opinion can be found here, courtesy of the WSJ Law Blog.

The briefs in the case are available online, as follows:
  • Brief for Defendant-Appellant Underwriters Seeking Reversal of Class Certification Under Federal Rule of Civil Procedure 23(f)
  • Brief for Plaintiffs-Appellees
  • Reply Brief for Defendant-Appellant Underwriters Seeking Reversal Of Class Certification Pursuant Federal Rule of Civil Procedure 23(f)
  • Brief for the Chamber of Commerce of the United States of America as Amicus Curiae Supporting Defendant-Appellants and Supporting Reversal of Class Certification Pursuant to Federal Rule of Civil Procedure 23(f)
  • Brief For The NAACP Legal Defense And Educational Fund, Inc. as Amicus Curiae In Support Of Plaintiffs-Appellees
Plaintiffs are represented by an executive committee consisting of Milberg Weiss Bershad & Schulman LLP (chair), Bernstein, Liebhard & Lifshitz, LLP (vice-chair), Schiffrin & Barroway, LLP, Sirota & Sirota, LLP, Stull, Stull & Brody, and Wolf Haldenstein Adler Freeman & Herz LLP.

As noted previously, here, plaintiffs' counsel maintains a website in the IPO Litigation that has copies of many of the major briefs filed in the case, as well as copies of the amended complaints filed in each of the three hundred consolidated and coordinated cases.

Update: The D&O Diary has a thoughtful post on the decision here, and there are additional news articles here (FT via MSNBC), here (American Lawyer via and here (WSJ sub. req'd).

Daily Trivia: According to the firm's resume, Sirota & Sirota filed the first antitrust action in the In re IPO Antitrust Litigation, a distant cousin to the IPO securities litigation, that alleged the collusive "laddering" of IPOs by investment banks in the United States. The litigation was initially dismissed, but reversed by the Second Circuit. A petition for certiorari is pending before the United States Supreme Court. See Billing v. Credit Suisse First Boston Ltd., 287 F.Supp.2d 497, rev’d 426 F.3d 130 (2d Cir. 2005), petition for cert. filed, April 12, 2006 (No. 05-1157).

The firm also is a bit of a rare duck, noting on their resume that they have an active securities litigation practice representing defendants prosecuted by federal or state agencies or sued by investors.

Monday, December 04, 2006

Shareholders Say 'No-Way' to Kanbay Merger

Today, Kanbay International, Inc. (NASDAQ: KBAY) announced that a class action complaint was filed in the Circuit Court of Cook County, Illinois alleging that Kanbay and its directors breached their fiduciary duties to the stockholders of Kanbay in the negotiation of the proposed merger with Cap Gemini SA (EPA: CAP) and Capgemini Financial Services, Inc. that was announced on October 26, 2006.

According to the release, the complaint:
alleges that the price negotiated is inadequate, that the directors obtained benefits that are not available to the public stockholders and that certain material disclosures are omitted from the preliminary proxy statement Kanbay filed on November 13, 2006 with the Securities and Exchange Commission.
The complaint further alleges that:
Cap Gemini aided and abetted the alleged breaches of fiduciary duty.
A copy of the complaint is available here.

Counsel for the plaintiff, Capital Trading Co., are The Brualdi Law Firm and Leland E. Shalgos.

Crain's Chicago Business has a story on the lawsuit, here, and Reuters has a story, here. The Reuters story has an obligatory "vigorous defense" quote from Cap Gemini.

Daily Trivia: One of Kanbay's board members, Cyprian D'Souza, is also the company's "Chief Culture Officer." According to a Forbes profile of D'Souza, he also held the position of "Chief People Officer from 1995 to November 2005." It's not quite a "minister of fun" or some of the other wacky job titles that internet companies handed out like candy during the boom, but it was odd enough to give me pause.

My 10 pence on the Paulson Committee Report

A guest post, by Werner Kranenburg, a former Schiffrin & Barroway, LLP summer associate, and current law student in the United Kingdom.

My 10 pence on the Paulson Committee Report

It’s only been a few days since the release of the highly-anticipated Interim Report by the Committee on Capital Markets Regulation (aka the 'Paulson Committee') and as expected it’s been the topic of the day.

For the first round of analysis, please take a look at (in no particular order) Lyle Roberts at The 10b-5 Daily, Walter Olson at here and here, Broc Romanek at Blog and Peter Lattman at The WSJ Law Blog here and here.

Looking at the Report from a UK point of view however, it is interesting to incorporate two pieces of UK legislation that do not seem to be the subject of US discussion yet. They are the Investment Exchanges and Clearing Houses Bill and the Fraud (Trials without a Jury) Bill. Regarding the first Bill, on page 69 (85 of 152) the Report states the following under the heading of 'Need For More International Regulatory Cooperation':
Regulators in the United Kingdom and Europe have voiced concerns about the extra-territorial reach of U.S. laws and rules, should a U.S. exchange merge with a U.K. or European exchange. For example, a senior officer in the U.K. Treasury has announced that the government will introduce legislation to impose a barrier against the imposition of Sarbanes-Oxley on firms trading in London should the London exchange merge with a U.S. exchange. As Ed Balls, the economic secretary to the Treasury, said with understatement: "The Sarbanes-Oxley regime in the United States is not a regime that some companies find easy to deal with."
In fact, it is Ed Balls MP, Economic Secretary to the UK Treasury (who is also quoted on page xi (13 of 152)), whose name is being used for the colloquial moniker of the Investment Exchanges and Clearing Houses Bill, namely the 'Balls Clause.' It was introduced in Parliament two weeks before the Report was published and is currently swiftly progressing toward Royal Assent. (See here to follow the Bill’s House of Commons proceedings live.)

In short, the Bill is a measure to "disallow excessive regulatory provision." Or, put differently, it is a measure against the threat of US 'regulatory creep' just in case NASDAQ were to buy or merge with the London Stock Exchange. The Report on the same page:
U.S. proponents of equity markets globalization-both market officials and regulators-have countered that extraterritorial reach should not be a problem. They argue that even after a trans-Atlantic merger, trades executed in the United Kingdom or European venues of the merged exchange, and issuers listed there, will not be subject to U.S. laws or rules. Many in Europe remain skeptical.
So true…

Regarding the second Bill, the Committee, on page 18 (34 of 152) under the heading 'Shareholder Choice of Remedies', suggests that "[t]he SEC should permit shareholders to adopt alternative procedures for resolving disputes with their companies. These procedures might include arbitration (with or without class actions) or the waiver of jury trials (a waiver commonly made in a variety of circumstances)." The Queen was there first, also by a good two weeks. In her annual Speech (as part of the State Opening of Parliament) she introduced the Fraud (Trials without a Jury) Bill thus: "A Bill will be introduced to provide for trials without a jury in serious fraud cases." It’s a controversial measure: see Legal Week for same day industry response, here for some historical background and for more recent coverage, here.

On the day of the Report’s publication (30 November), Steven Toll of Cohen, Milstein, Hausfeld & Toll, PLLC was quoted in the FT ('Experts seek to give the US back its edge', p.26), seemingly in anticipation of the Report but he could as well have responded to the Fraud Bill (an excerpt):
It [the Committee] is also expected to urge companies to ask shareholders to waive their right to a trial by jury - a move that could reduce damage pay-outs. [Which indeed it does, as noted.] Investor advocates are not convinced. Shareholder lawyer Steve Toll, of Cohen Milstein Hausfeld & Toll, called the proposal to do away with jury trials for shareholders "insane… Did anyone forget what just happened with Enron?"
As discussed previously here, he might as well already be based in the UK?

And finally, Tuesday next week (5 December) Glenn Hubbard, Co-Chair of the Committee, will be online for an hour to take Financial Times readers’ questions from 7am EST (12pm noon GMT), here. You may submit questions or comments in advance by sending an e-mail to or using the form at

Daily Trivia: Is 'on holiday,' as they say in the UK, but will return for your amusement tomorrow.

Sunday, December 03, 2006

Guest Bloggers Wanted!

I'm issuing an open call for any reader who wants to submit a guest post for this humble blog.

I'll take anything as long as it is timely, pithy, and somehow relates to securities litigation.

That means that all of you defense attorneys are welcome to write, instead of just lurking there in the background. And I expect a strong showing from the plaintiffs' bar. Academics, law students, and people without law degrees (or an intent to obtain one) who still bother to read my ramblings, are all welcome.

Go ahead, unleash your creative urge!

Interested readers should e-mail me: asavett AT findjustice DOT com (sorry for the hoops, but it keeps the spam down!)