Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Saturday, March 10, 2007

Eyes on HP Shareholder Meeting

A much-anticipated event next Wednesday -- Hewlett-Packard's shareholders will vote on a proxy access proposal that management reluctantly included on the proxy statement.  The proposal is the first shareholder vote at a major corporation on a proxy access proposal and would allow a shareholder holding more than 3% of the stock for more than 2 years to use the management proxy statement to nominate candidates.  Major shareholder advisory firms are recommending a yes vote.  See NYTimes, Battle Lines Are Drawn in Hewlett Proxy Issue.

March 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Conrad Black's Trial Set to Begin Next Week

Expect another headline-producing corporate scandals trial beginning next week, with the fraud and racketeering trial of Lord Conrad Black, former head of the publisher that at one time owned the London Telegraph, the Jerusalem Post and the Chicago Sun Times, among other newspapers.  In his heyday, Black was known for his jet-setting with notables like Henry Kissinger, lavish lifestyle and the envirionment of "corporate kleptocracy," as federal monitor (and former SEC Commissioner) Richard Breedon's report called it.  Among other things, the corporation purchased private papers of FDR for $9 million, so Black could research a book he was writing on the President.  See WSJ, Fraud Trial Looms For Jet-Setting Publishing Mogul.

March 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Conferences on Wall St

Expect a lot of hand-wringing next week about Wall St.'s loss of competitive edge.  On Monday the Chamber of Commerce will release its report on the topic, followed on Wednesday with its First Annual Capital Markets Summit:  Securing America's Competitiveness.  On Tuesday, the Treasury Department will host its own conference, and speakers are expected to call for flexible accounting standards and less regulatory overlap.  The Chamber of Commerce has been quiet about its recommendations, although one participant says the report will recommend companies stop giving quarterly earnings guidance.  See WSJ, Business Leaders, Washington Aim to Fix Wall Street's Ailment.

March 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Citigroup-Nikko Cordial Deal too Low?

Two major shareholders of Nikko Cordial, the scandal-ridden Japanese brokerage firm, say that Citigroup's $11 billion offer to buy Nikko is too low, leading to speculation that Citigroup will increase its price.  The acquisition would mark a significant incursion into the Japanese market for Citigroup in its quest to take over the world.  See WSJ, Another Nikko Cordial Shareholder Calls Citigroup's Offer Too Low.

March 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Enron Investors Settlement with Arthur Andersen Approved

The court approved a $72.5 million settlement of investors' claims against Arthur Andersen in the Enron class action securities fraud action.  Plaintiffs' attorneys said it was the most they could get from the defunct accounting firm.  Investors' attorneys have already obtained more than $7.3 billion from Enron's banks and lawyers.  See WPost, Arthur Andersen Settlement Approved for Enron Investors.

March 10, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, March 9, 2007

Proposed Changes to SEC Financial Responsibility Rules

The SEC has published for comment amendments to its Financial Responsibility Rules for broker-dealers -- the net capital, customer protection, books and records and notification rules.

March 9, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Report on Options Order Routing and Execution

The Commission’s staff today released a report summarizing the results of recent examinations and analysis of routing and execution practices in equity options. The “Report Concerning Examinations of Options Order Routing and Execution” can be found on the Commission’s website.  The SEC’s Office of Compliance Inspections and Examinations, with the staff from the Division of Market Regulation, conducted a series of examinations of the options order routing practices of eight broker-dealers that have a significant amount of retail options order flow. In addition, the Office of Economic Analysis conducted an analysis of quote competition among the options markets. Today's staff report describes broker-dealers’ current order routing practices, including the use of “smart routing” technology, opportunities for price improvement for retail options orders, and payment for order flow and internalization practices. Among other things, the staff found the following.

Many firms have begun to utilize order routing technology — often called “smart routers” — to ensure that marketable retail customer options orders are sent to the market displaying the best price.

While there has been improvement in order routing firms’ processes to seek and obtain best execution for their retail customers’ options orders, multiple market centers often display the same best price, so firms frequently rely on other competitive factors, such as payment for order flow and other inducements, to determine to which market center to route customer orders.

The amount of quote competition in the options markets has increased since 2000. For the most actively-traded options series, there are at least four exchanges quoting at the NBBO for more than half of the trading day, and the NBBO is at the minimum increment for a significant portion of the trading day.

Because standardized execution quality statistics are not provided by each of the options exchanges, most firms analyze only the execution quality provided to their own customer orders. The lack of standardized, widely available execution quality data may affect thorough best execution reviews by firms.

The Report concludes that these findings support the Commission’s efforts to encourage the options markets to quote in penny increments and support the need for standardized execution quality data in best execution analyses for the options market.

March 9, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Latest on CVS-Caremark Merger

CVS made what it calls its "best and final" offer for Caremark, raising the cash dividend from $6 to $7.50, for a deal valued at $26 billion.  The Caremark shareholders are scheduled to vote on the merger on March 16.  ExpressScripts' rival bid is still higher at $26.3 billion, but it faces regulatory delays with the FTC.  SeeNYTimes, CVS Again Increases Its Offer for Caremark and WSJ, CVS Makes 'Final' Bid to Secure Caremark.

March 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Fallout from AOL-Time Warner Merger

Time Warner has added $145 million to reserves, bringing the total spent on shareholder claims related to the AOL-Time Warner merger to a whopping $3.75 billion.  See WSJ, Time Warner Sets Reserve to Resolve Final Suits.

March 9, 2007 in News Stories | Permalink | Comments (1) | TrackBack (0)

Levitt Calls for Accounting Reform

Former SEC Chair Arthur Levitt calls for reforming the Financial Accounting Standards Board and the Governmental Accounting Standards Board, which he charges have been captured by special interest groups, in an opinion piece in the WSJ, Standards Deviation.

March 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Cox Says Proxy Access Rule on the Way

SEC Chair Cox told reporters that the agency will put out for public comment a proxy access rule favorable to investors later this year, in time for adoption before the 2008 proxy season.  Skeptics will recall earlier SEC predictions of a rule in time for the 2007 proxy season.  See WSJ, Making 'Great Deal of Progress' On Proxy Access, SEC's Cox Says.

March 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Pinnacle Founder Indicted, Charged with Ponzi Scheme

Real estate promoter, Gene O'Neal, founder of Pinnacle Development Partners, was indicted in Atlanta on charges of running a Ponzi scheme.  O'Neal allegedly raised $69 million from 2,000 investors by promising 25% returns in 45 or 60 days by purchasing and selling distressed properties and advertised in publications like Newsweek and WSJ.  A federal receiver was appointed to recover assets for the investors. Mr. O'Neal denies all charges. See NYTimes, Real Estate Promoter Is Indicted and WSJ, Pinnacle Development Head Faces Ponzi Scheme Charges.

March 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Big 4 Push for Limits on Damages

The Big Four accounting firms' latest push to get caps on damages is reported in the Washington Post, with the establishment of a Public Policy Center and talks with SEC officials, who have been meeting with unnamed "outside experts" to consider safe harbors or arbitration of claims.  A breath of fresh air comes from Bevis Longstreth, a former securities and exchange commissioner during the Reagan administration: "It's just unacceptable to cap liability and not even look at profit.  No one knows what the profits are because there is no transparency."  See WPost,  Accounting for the Future.

March 9, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, March 8, 2007

Former Gateway Execs Guilty of Securities Fraud

The Securities and Exchange Commission announced that a federal court jury late yesterday returned a verdict in the SEC's favor on all charges against the former chief financial officer, John J. Todd, and the former controller, Robert D. Manza, of Gateway Inc., the personal computer manufacturer. Todd and Manza were accused of engaging in a fraudulent revenue and earnings manipulation scheme to meet Wall Street analysts' expectations in 2000, and for concealing from the investing public important information about the success of Gateway's PC business.

March 8, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Roundtable on Use of Interactive Data

The Securities and Exchange Commission announced today that Vanguard Group Chairman and CEO John J. Brennan will be the keynote speaker at the Commission's March 19 roundtable on the use of interactive data by public companies and mutual funds to improve disclosure for individual investors.  Mr. Brennan is expected to discuss how the new interactive data will allow investors to easily gather and compare mutual fund risk and return information, including costs and performance that might otherwise be buried deep within disclosure documents.

The Commission welcomes feedback on any aspect of the use of interactive data. The information that is submitted will become part of the public record of the roundtable.  For further information, see  Commission Announces March 19 Roundtable: Creating Interactive Data to Serve Investors.

March 8, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Insider Trading Charges Against Former Exec of Drug Manufacturer

The U.S. Securities and Exchange Commission today simultaneously filed and settled civil charges against Shashikant C. Shah, formerly Vice President of Quality Control, Quality Assurance and Regulatory Affairs of now-defunct generic drug manufacturer Able Laboratories, Inc., alleging that during a 16-month period, Shah reaped $909,000 in profits by selling Able's common stock while possessing material, non-public information about Able's faulty quality control testing practices. Before halting operations in May 2005 after an internal review uncovered such testing improprieties, Able developed, manufactured and sold at least 40 generic drugs including numerous antibiotic, analgesic and antipsychotic medications.

Also on March 8, 2007, in a related criminal action filed by the United States Attorney's Office for the District of New Jersey, Shah pleaded guilty to one count of conspiracy to commit securities fraud and to distribute misbranded and adulterated drugs. Three former supervisory chemists under Shah, Jose Concepcion, Ashish Macwan and Jyotin Parikh, also pleaded guilty to separate criminal informations charging each with one count of conspiracy to distribute misbranded and adulterated drug products. Shah and the three chemists each face a maximum of five years in federal prison and a $250,000 fine. The issue of restitution will be determined by the sentencing court.

March 8, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC's Operation Spamalot

The Securities and Exchange Commission this morning suspended trading in the securities of 35 companies that have been the subject of recent and repeated spam email campaigns. The trading suspensions - the most ever aimed at spammed companies - were ordered because of questions regarding the adequacy and accuracy of information about the companies.

The trading suspensions are part of a stepped-up SEC effort - code named "Operation Spamalot" - to protect investors from potentially fraudulent spam email hyping small company stocks with phrases like, "Ready to Explode," "Ride the Bull," and "Fast Money." It's estimated that 100 million of these spam messages are sent every week, triggering dramatic spikes in share price and trading volume before the spamming stops and investors lose their money.

March 8, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

EDF Goes Wall St.

The Environmental Defense Fund, which played a role in the negotiations for the $38 billion LBO of TXU, announced that it has hired investment banker Perella Weinberg Partners as its adviser.  TXU is entering the "market test" phase and will be soliciting bids to top that of Texas Pacific and KKR.  See NYTimes, Environmental Group Behind the TXU Deal Hires a Banker

March 8, 2007 | Permalink | Comments (0) | TrackBack (0)

Congress Scrutinizes McNulty Memo

DOJ's revised policies on corporate fraud investigations (known as the McNulty memo, replacing the Thompson memo) continue to draw criticism from lawmakers as not doing enough to protect the confidentiality of corporate documents and the rights of corporate employees.  The House Judiciary Committee will hold a hearing today, and several prominent lawyers are expected to testify.  See NYTimes,  Some Lawyers Urge More Safeguards on Rights in Corporate Fraud Cases

March 8, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Stout on Proxy Access

UCLA's Lynn Stout argues in a Wall St. Journal Commentary that increased shareholder access to management's proxy statement accelerates the trend toward privatization of public corporations.  According to her, directors and officers are tired of the "shrill, often conflicting and apparently endless demands" of shareholder activists and turn to private equity.  See WSJ, Democracy by Proxy

March 8, 2007 in News Stories | Permalink | Comments (0) | TrackBack (1)