March 24, 2006
S&P goes Google
Home Depot, Wal-Mart, Citigroup, Google... What do these companies have in common?? Members of the S&P 500...
Last night, S&P announced that Google Inc. will be joining the S&P 500 index, sending the shares soaring up 9% in afterhours trading. Google will be replacing Burlington Resources Inc., the Houston-based oil producer being bought by CononcoPhillips Inc. (AP article via Yahoo!)
The addition of Google to the S&P means that many large mutual funds, which are based upon index composition, will have to purchase shares in order to "track" the S&P 500. Also, many conservative mutual funds are limited to companies in the S&P 500, allowing them to purchase the search engine company.
March 23, 2006
Supreme Court Decides Merrilly Lynch v Dabit
The Supreme Court has reversed the Second Circuit in Merrill Lynch v Dabit. The Court held that the Securities Litigation Uniform Standards Act of 1998 pre-empts "holder" private suits in state court as well as "trader" private suits under state equivalents of a Rule 10b-5 cause of action. A holder suit is a claim by an investor that they "held", did not trade, as a result of an actionable statement or omission. A "trader" suit is a claim by an investor that they bought or sold as a result of an actionable statement or omission. Federal Rule 10b-5 supports private actions only by traders (the Ernst & Ernst decision). State holder suits were a transparent attempt to avoid the reach of SLUSA, and the Supreme Court stopped the practice. The result is not a surprise after the arguments. What was a surprise was the Second Circuit decision to the contrary. Lawyers should note however that SLUSA has a 50 or fewer class size exception. Institutional investors, for example, can still sue in state court on their own when the amount in issue merits the litigation.
Quattrone Not Guilty Again
The Second Circuit has remanded the Quattrone case for a third trial and ordered the trial judge replaced. Article Quattrone was one of the high-profile, bank-employed stock analysts that was making overblown recommendations in the high-tech bubble so as to aid the banks underwriting and consulting fees. The government may not try Quattrone a third time. It is a reminder of the difficulties of bringing criminal prosecutions on finanical crimes. Two full trials of this questionable character and he walks.
The trial court judge, Judge Owen, who is, how shall we say this, quirky, was a bit too intrusive in the proceedings.
"The appeals court called Owen a dedicated judge but ordered the case reassigned, saying portions of the trial transcript "raise the concern that certain comments could be viewed as rising beyond mere impatience or annoyance."
March 19, 2006
Thoughts on the Disney Case
With the academic debate in other blogs over nuances in language (is "not in good faith" different than "bad faith") and metaphysical differences (a nexus "of", "between", or "around" contracts) we can lose sight of the central problem. When a board pays its executive too much (agreed by all) when should a board be liable? The corrects answer is sometimes (so that all boards will worry a bit) and we need to find a home in the legal language of the standards of Delaware fiduciary law to catch the most egregious cases. Disney is an egregious case (the board and its compensation committee did not understand the contracts severance payments provisions and made no serious effort to do so) and somewhere in the language should be a home for a declaration that the Disney board allowed Eisner to pay Ovitz way, way too much. There are several ways to get there. Declare the payments wasteful; declare the approval of the payments reckless; declare the approval as made "not in good faith." Each or all of the three work (they are exceptions to 102(b)(7)); the Delaware Supreme Court should pick one and hold the board members proportionally liable personally for the overpayment. Let the D&O insurance companies price the risk. Public companies will then stop the practice.
If the Court does otherwise we will continue to face today's news: The top three executives of North Fork Bancorp are taking $300 million in change of control payments in the Capital One acquisition. The executives could have taken legally, by contract, $440 million but turned the package down as "awkwardly large." We cannot leave these payments "to the market" as suggested by Chancellor Chandler because the market is not working and does not work in cases of severe conflicts of interest -- the CEOs are, in effect, paying themselves and deciding, as CEO John Kanas says in North Forth, that they are "worth" the GDP of third- world countries.
Apologies to Justice Horsey
In my "A Report Card on the Performance of the Delaware Courts in Acquisition Cases" not on page 598 of my West casebook, the reference in paragraph three should be to Justice Holland and not Justice Horsey. Apologies to Justice Horsey. He decided Cede I but not Cede II or Cede III (or Iv or V either).