Securities Law Prof Blog

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

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Saturday, May 5, 2007

Dow Jones: Shareholder Suit and Insider Trading

Nora Vides, a Dow Jones shareholder, filed suit May 3 in New York state court, charging that the Dow Jones board of directors breached its fiduciary duty by its "hasty" rejection of the News Corporation's bid for the company, allegedly so that the directors could maintain "their controlling voting position against any real or perceived threat."  As to the other constant about big deals -- insider trading, WSJ reports that trading in Dow Jones options from late April to the public announcement was about 10,000 options, compared to about 7,000 options for the entire first quarter.  See WSJ, Regulators Probe Suspicious Trading in Dow Jones.

May 5, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Friday, May 4, 2007

Call For Papers: Conglomerate Online Workshop for Junior Scholars

Christine Hurt, who blogs on Conglomerate, asked me to announce Conglomerate's online workshop for junior scholars, and I am glad to do so.  The workshop provides a valuable service to junior scholars by connecting them with expert commentators in their field who provide helpful commentary and by introducing them to Conglomerate's readership.  Christine goes on to say: "Although I understand that causation would be impossible to prove, participants from the past two workshops who have gone on the market from visiting positions have had enormous success, including David Gamage, Paul Rose, Brian Galle, William Birdthistle, and Adam Levitin.  In addition, papers that were honed and sharpened during the workshop enjoyed equal success in the placement process. "   The Call for Papers is at its website.

May 4, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

SEC Charges Credit Suisse Banker with Insider Trading in TXU LBO

The Securities and Exchange Commission today charged Hafiz Naseem, an investment banker with Credit Suisse (USA) LLC, with illegally divulging non-public information to a person believed to be a banker in Pakistan concerning the leveraged buyout of TXU Corp. by an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. Naseem misappropriated the information from his employer, Credit Suisse, which served as a financial advisor to TXU in connection with the buyout.

The Commission originally filed a complaint in the U.S. District Court for the Northern District of Illinois on March 2, 2007, alleging insider trading ahead of the TXU buyout against Certain Unknown Purchasers of TXU Call Options. Today, the Commission amended its complaint to name Naseem as a defendant. The Commission's Second Amended Complaint alleges that Naseem, in breach of his duty to Credit Suisse and its client TXU, telephoned the Pakistani banker on several occasions in February 2007 and disclosed non-public, material information about the proposed but unannounced TXU buyout. The Pakistani banker allegedly traded on the inside information provided by Naseem and reaped millions of dollars in profits when the buyout was publicly announced. In addition to tipping at least one of the traders in the TXU case, the SEC alleges that Naseem tipped the Pakistani banker and possibly others concerning eight additional mergers or business deals since joining Credit Suisse's New York office in March 2006. 

Criminal charges were filed against Naseem yesterday in Manhattan.

May 4, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Announces Agenda for Roundtable on Proxy Rules

The Securities and Exchange Commission announced today the final agenda and participants for the Roundtable on the Federal Proxy Rules and State Corporation Law scheduled for May 7, 2007. The Roundtable — which will be webcast live -- will cover a number of topics, including: (1) the federal role in upholding shareholders' state law rights; (2) the purpose and effect of the federal proxy rules; (3) non-binding proposals under the proxy rules; and (4) binding proposals under the proxy rules.  Here is the briefing paper:Briefing Paper: Roundtable on the Federal Proxy Rules and State Corporation Law
May 7, 2007
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Panelists will include:

Stephen Bainbridge (UCLA School of Law)
R. Franklin Balotti (Richards, Layton & Finger, P.A.)
John C. Coffee (Columbia Law School)
Richard J. Daly (BroadRidge Financial Solutions, Inc.)
Jill E. Fisch (Fordham University School of Law)
Amy L. Goodman (Gibson, Dunn & Crutcher LLP)
Joseph A. Grundfest (Stanford Law School)
James J. Hanks, Jr. (Venable LLP)
Stanley Keller (Edwards Angell Palmer & Dodge LLP)
Cary Klafter (Intel Corporation)
Stephen P. Lamb (Court of Chancery of the State of Delaware)
Donald C. Langevoort (Georgetown University Law Center)
Paul M. Neuhauser (University of Iowa College of Law)
Larry E. Ribstein (University of Illinois College of Law)
Roberta Romano (Yale Law School)
Leo E. Strine, Jr. (Court of Chancery of the State of Delaware)
William Underhill (Slaughter and May)
Ted White (Knight Vinke Asset Management)
John C. Wilcox (TIAA-CREF)
Ann Yerger (Council of Institutional Investors)

The Roundtable will take place in the Auditorium of the Commission's headquarters at 100 F Street, NE, Washington, D.C. on May 7, 2007 from 9:00 a.m. to 4:45 p.m. The Roundtable will be open to the public with seating on a first-come, first-served basis. Doors will open at 8:30 a.m. Visitors will be subject to security checks.

May 4, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Announces Investor Protection Conference for Seniors

Securities and Exchange Commission Chairman Christopher Cox today announced the SEC will partner with the Elder Law Journal of the University of Illinois College of Law and the Federal Reserve Bank of Chicago to present the Senior Investor Protection Symposium in Chicago on May 18.  The Symposium will feature a discussion panel including distinguished representatives from the business, law, regulatory and academic communities who have significant experience tackling the issues facing seniors as they prepare for and enjoy their retirement. The panelists will discuss how older Americans can protect themselves from investment fraud while financially preparing for the future.

The Symposium will be held May 18, 2007 from 9:00 a.m. to noon in the Illinois Rooms of the Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Ill. The public is invited to attend, but seating is limited.   More information is at the SEC's website.

May 4, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (1)

More Deregulation on the Way

The Wall St. Journal reports that the Treasury Dept. will announce reforms in the next few weeks that will reduce the regulatory burdens on U.S. corporations.  Treasury Secretary Paulson, SEC Chair Cox, and Federal Reserve Board Chair Bernanke met recently to discuss.   The article is short on details, but mentions some of the usual suspects -- principles-based accounting, reducing regulatory overlap (but not merging the SEC and the CFTC).  See WSJ, Tweaks to U.S. Financial Rules Are Near.

May 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Recount for Shareholders' Advisory Pay Proposal at Verizon

Shareholders at yesterday's annual meeting of Verizon voted on a shareholder proposal calling for an advisory vote on executive pay, and the vote is too close to call.  The company said it would be a week before the results would be announced.  Shareholder anger has focused on the $20 million compensation of CEO Ivan G. Seidenberg.  If it passes, it will be the first "vote on pay" proposal to be adopted at a major U.S. corporation.  See NYTimes, Verizon Vote on Pay Levels to Be Decided in a Recount; WSJ, Verizon Shareholders May Get 'Say on Pay'.

May 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Clear Channel Board Rejects Bid

Is it over yet?  The board of directors at Clear Channel Communications rejected a revised LBO bid from two equity firms that would have increased the per share price from $39 to $39.20 and would have given the shareholders up to a 30% interest in the restructured company ("stub equity").  A two-thirds shareholder vote is necessary to approve the deal, and early returns  on the $39 per share price show the votes were not there, as major shareholders and proxy advisors hold out for a higher price.  See Clear Channel Board Rejects weetened Offer From Bidder; WSJ, Clear Channel Rejects Firms' Revised Offer.

May 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Credit Suisse Banker Arrested in Insider Trading Charges

A junior investment banker in Credit Suisse's energy banking group in Manhattan, Hafiz Muhammed Naseem, was arrested yesterday for trading in inside information about nine deals, including the TXU buyout.  The allegations are classic Rule 10b-5 fraud -- his desk was near a copying machine where documents concerning the deals were reproduced, and he passed on the information to a banker in Pakistan, who made the trades in Naseem's brokerage account, as well as tipping others.  Allegedly they made $7.5 million in illegal trading profits.  See NYTimes, Wall St. Banker Jailed in Trading on 9 Deals. WSJ, Credit Suisse Banker Charged With Insider Trading.

May 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

More on Murdoch

Rupert Murdoch is known for his patience, persistence and charm, and all are apparent in an interview he gave to the New York Times on his aspirations for the Wall St. Journal.  There was also real grit as he spoke of the Bancroft family:

And if a large majority of the family ended up clearly rejecting his bid? “It would be ugly — depending on your perspective, it might be admirable too,” Mr. Murdoch said of the way the family would most likely be perceived. “I think it would cause quite a lot of argument.

Murdoch is also reaching out to WSJ reporters, talking about the need for capital investment and beefed-up resources for its operations.  See NYTimes, Murdoch on Owning The Wall Street Journal; see also WSJ, News Corp. Plans Strategy To Woo Family, Journalists.

May 4, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, May 3, 2007

SEC Obtains Asset Freeze of Hedge Fund Advisor

The Commission announced that today the U.S. District Court in  Boston will issue a preliminary injunction order that,  among  other  things, continues a freeze on the assets of a Boston-based hedge fund  adviser and its principals.  On  April  12,  2007,  the  Commission  filed  an emergency action  in  the  federal  district  court  in  Massachusetts against Lydia Capital, LLC, a registered investment adviser  based  in Boston, Massachusetts, and its two principals, Glenn  Manterfield,  of Sheffield, England and Evan Andersen, of  Boston,  Massachusetts.  The Commission's Amended Complaint alleges that,  between June 2006 and April 2007, Manterfield  and  Andersen,  acting  through Lydia, engaged in a scheme to defraud  more  than  60  investors,  who invested  approximately  $34  million  in  Lydia  Capital  Alternative Investment Fund LP (Fund),  an  unregistered  hedge  fund  managed  by Lydia.  The Amended Complaint alleges that defendants told investors that they intended to use the Fund's assets  to  acquire  a  portfolio  of  life insurance polices in the life  settlement  market.  According  to  the Amended Complaint, while  the  Fund  did  acquire  interests  in  some insurance polices, defendants materially misled investors about  their operations and misappropriated at least $2 million of investor  funds.  On April 12,  2007,  in  response  to  the  Commission's  request  for emergency relief, the Court issued a temporary restraining order that, among  other  things,  froze  defendants'  assets.  On  May  3,  2007, following a hearing before the Court on May 2, 2007, the Court  issued a consented-to preliminary injunction and ordered a continuation of an asset freeze of the defendants' assets.

May 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC's White on Recent Developments on the International Front

Speech by SEC Staff: Corporation Finance and the Foreign Private Issuer Community in 2007, by
John W. White, Director, Division of Corporation Finance, U.S. Securities and Exchange Commission, at the Practising Law Institute Conference "Foreign Issuers & the U.S. Securities Laws 2007: Strategies for the Changing Regulatory Environment", New York, New York, May 2, 2007.

May 3, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Court Dismisses Challenge to SRO Merger

The federal district court in the S.D.N.Y. dismissed a challenge to the consolidation of the NASD and NYSE regulatory arms, ruling that the plaintiff had not exhausted its administrative remedies.  See Suit to stop SRO merger dismissed.

May 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

SIFMA Calls for Principles-Based Regulation

SIFMA issued a press release commending the UK Financial Services Authority for its recent paper on principles-based regulation and called on regulators to promote a "pragmatic, principles-based approach" to regulatory requirements.  See Principles-Based Regulation Supported by SIFMA.

May 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Testimony at Conrad Black Trial

Does skimming documents satisfy the directors' duty of care?  All three members of the audit committee at Hollinger International have testified, and whether or not Conrad Black is found to have committed fraud, the directors' attention to their responsibilities comes off as wanting.  Each of the audit committee members testified that they were misled by Black and did not know that the large non-compete payments were going to Black and his confederates, not to the company.  The problem is that there is plenty of documentation spelling this out; defense lawyers found eleven instances.  James R. Thompson, former governor of Illinois, testified that the documents, principally SEC filings, were lengthy and loaded with jargon and he "would skim them."  He conceded that he did not read them in detail -- "I should have, but I did not."  See NYTimes, Ex-Governor Assailed as Inept in Trial of Conrad Black.

May 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Cablevision Board Accepts Dolans' Offer

Will the third (or the fourth, depending on who's counting) time be the charm?  The board of Cablevision accepted the Dolan family's $10.6 billion offer to buy out the public shareholders.  The deal, however, is subject to approval by a majority of the minority shares, and some investors and analysts still think the price (36.26 per share) is too low.  It is thought that the Dolans, in turn, may sell the company to another competitor like Time Warner.  See NYTimes, Cablevision Deal Remains Very Much Up in the Air; WSJ, Cablevision Deal Faces Hurdles.

May 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

News on the Murdoch Bid for WSJ

The board of directors of Dow Jones & Co. (parent of the Wall St. Journal) met for over four hours yesterday and announced that it "would take no action" on Rupert Murdoch's $5 billion bid because members of the Bancroft family holding 52% of the voting power opposed it.  The wording may have left the door open for Murdoch, who is known for his patience in getting what he wants.  He has suggested a meeting between his family and the Bancrofts.  See NYTimes, First the Bid, Now the Jockeying.  The Wall St. Journal provides further information about the Bancroft family, which has many branches and several generations, presenting the possibility that for some a 67% premium presents an attractive opportunity.  See WSJ, At Dow Jones, Focus Is on the Bancroft Family. The WSJ also highlights someone who is a key player in the drama:  Michael Elefante, a Boston trusts and estate lawyer who sits on the Dow Jones board and is trustee for one Bancroft family trust.  See WSJ, Murdoch Bid Puts Trustee on the Spot.

Meanwhile, there was more specific information about the unusual activity in Dow Jones options in the week preceding the public announcement of the bid.  On April 25 someone purchased an option to buy 280,000 shares for $40 in September.  This is an unusually large amount of shares, the stock price at the time was $36, and it had not traded at $40 in over a year.  See NYTimes, Heavy Options Activity Stirs Suspicions.

May 3, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 2, 2007

Video Game Distributor Settles Aiding and Abetting Charges in Take-Two Securities Violations

Securities and Exchange Commission ("Commission") today announced that it filed a settled civil action in federal district court against video game distributor Capitol Distributing, L.L.C. ("Capitol") and one of its owners, Terry M. Phillips ("Phillips"). The Commission charged Capitol, a privately-owned, Virginia-based video game distributor, with aiding and abetting video game publisher Take-Two Interactive Software, Inc. ("Take-Two") in Take-Two's violations of the antifraud, reporting and recordkeeping provisions of the federal securities laws during fiscal years 2000 and 2001 through a fraudulent video game parking scheme. The Commission also charged Phillips with liability as a controlling person for Capitol's violations and instituted a settled administrative cease-and-desist order against Phillips, which found that Phillips was a cause of Capitol's violations.

In its complaint filed today, the Commission alleged that Capitol aided and abetted Take-Two's violations of the antifraud, financial reporting and recordkeeping provisions of the federal securities laws by knowingly providing substantial assistance to Take-Two's fraudulent scheme to inflate reported revenue during its fiscal years 2000 and 2001. Specifically, the complaint alleges that Take-Two shipped to Capitol hundreds of thousands of video games, typically at the end of reporting periods, and fraudulently recorded those shipments as sales when, in actuality, Capitol only temporarily parked the games for Take-Two and did not intend to sell them. The complaint alleges that in furtherance of the scheme Take-Two twice provided funds to Capitol or another Phillips-owned entity known as Phillips Land Company ("PLC"), for transmission to Take Two to create the false appearance that Capitol or PLC were paying for the games. According to the complaint, Capitol in two instances returned the games to Take-Two under invoices falsely describing them as "purchases" of "assorted product." The scheme enabled Take-Two to report approximately $15 million in phantom revenue from four separate parking transactions with Capitol.

May 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

A.G. Edwards Settles Market-Timing Charges

The Securities and Exchange Commission today announced settled enforcement proceedings against A.G. Edwards & Sons, Inc., alleging that A.G. Edwards failed reasonably to supervise some of its registered representatives who used deceptive means to place market timing trades on behalf of their customers. As part of its settlement with the SEC, A.G. Edwards, a registered broker-dealer headquartered in St. Louis, Mo., will pay disgorgement and prejudgment interest of $2.36 million and civil penalties of $1.5 million for a total payment of $3.86 million. A.G. Edwards also agreed to certain undertakings, including hiring an independent consultant to review whether the changes A.G. Edwards has made to its policies and procedures are reasonably designed to prevent and detect future market timing activity.

The SEC also announced the institution of settled enforcement proceedings against a former registered representative in A.G. Edwards' Boston Back Bay, Mass., branch office for engaging in a fraudulent market timing scheme and the institution of administrative and cease-and-desist proceedings against a registered representative in A.G. Edwards' Boca Raton, Fla., branch office and two branch managers for their alleged involvement in the fraudulent market timing schemes.

The SEC's Order relating to A.G. Edwards finds that between January 2001 and September 2003, registered representatives in several of A.G. Edwards' branch offices engaged in illegal market timing schemes on behalf of their customers. These registered representatives engaged in deceptive practices designed to circumvent restrictions that mutual funds imposed on market timing. A.G. Edwards failed to develop or adopt reasonable policies, procedures or systems to monitor market timing in order to prevent and detect its registered representatives' misconduct. A.G. Edwards also failed to develop or adopt reasonable policies, procedures or systems for monitoring and responding to red flags about its registered representatives' deceptive market timing on behalf of customers

May 2, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

ISS Recommends No to Clear Channel Communications Buyout

ISS recommends that Clear Channel Communications reject the $19.3 billion takeover bid by two equity firms, saying that the revised $39 per share price continues to be too low.  Two large shareholders, Fidelity and Highfields Capital, continue to oppose it.  The deal requires approval by two-thirds of the outstanding shares.  Responding to shareholders' criticism, the three top officers accepted reductions in the payments they would receive if they were fired or if they resigned because of a change in control.  See NYTimes, Proxy Adviser Opposes Clear Channel Bid; WSJ, Clear Channel Severance Pacts Adjusted.

May 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)