Securities Law Prof Blog

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

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Saturday, June 2, 2007

Advising Religious Shareholders on Executive Compensation

Rerligious orders have long played a role on corporate social responsibility issues like the environment and human rights.  Now they have joined forces with pension groups and labor unions to focus on corporate governance issues and executive compensation.  The thirty year career of Sister Valerie Heinonen, a Catholic nun and consultant on CSR to religious shareholders, is highlighted in this Washington Post article; see Bringing Faith To Bear on Firms.

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

SEC Will Side with Investors on "Scheme" Liability Case

According to the Washington Post, the SEC has asked the U.S. Solicitor General to file papers on the side of Enron investors, who are seeking Supreme Court review of a Fifth Circuit decision that held that investors could not sue investment banks who were involved in several of Enron's fraudulent deals.  The issue for Supreme Court review is whether the banks could be held liable under a scheme liability theory, or are they simply aiders and abettors under the Central Bank rationale.  The Supreme Court has already accepted certiorari in another case addressing this issue.  William Lerach (see related story about his possible retirement) has been lobbying the SEC hard to side with the investors on this.  See WPost, SEC to Side With Enron Plaintiffs.

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

Firm Says Lerach Is Considering Retirement

Controversial plantiffs' class action attorney, William Lerach, is considering retirement, according to a statement released by his law firm, Lerach Coughlin.  The statement refers to the "distraction" of the federal investigation into Milberg Weiss, the law firm Lerach split from four years ago.  (Milberg Weiss and two of its partners are under indictment for making illegal payments to named plaintiffs in class actions.)  The statement also says that Lerach Coughlin is not a target of the federal investigation.  See WSJ, Lerach Considers Retiring Amid Legal Scrutiny.

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

More Insight on Bancroft Family's Change of Mind About Sale of Dow Jones

What made members of the Bancroft family change their minds and make a statement that the family would meet with Rupert Murdoch and consider selling Dow Jones & Co.? In an article that contains unusally detailed information about two important meetings -- a family meeting held on May 23 and a board meeting on May 30 -- the Wall St. Journal gives the reasons.  First, Michael Elefante, Boston lawyer, Dow Jones director and trustee to some Bancroft family trusts, changed his mind and decided that the family should consider options.  Second, some family members, particularly the younger generation, pressed hard for consideration of the offer.  Finally, the family became aware of the downside of turning down the offer, as well as the competitive pressures of the business information industry.  It is also clear that the family remains deeply conflicted.  Even after the family statement was released publicly, some family members wanted to reconsider it. 

Representatives of the Bancroft family will meet with Murdoch on Monday to discuss principally editorial independence; Dow Jones' nonexecutive chair, M. Peter McPherson, will also attend.  On the still unanswered question about whether there was a leak of the Murdoch bid before its public announcement, the article makes clear that Murdoch has been reaching out to various members of the Bancroft family since last fall.  See WSJ, Behind the Bancrofts' Shift at Dow Jones.  For the New York Times' take on these events, see How the Bancrofts Decided to Talk With Murdoch.

June 2, 2007 in News Stories | Permalink | Comments (1) | TrackBack (0)

Friday, June 1, 2007

Former Qwest CFO Settles Fraud Charges

On June 1, the SEC announced settlement of charges action  against  Robin  R. Szeliga, former chief  financial officer of Qwest Communications International  Inc.  Szeliga consented  to  the entry of the judgment that enjoins  her  from  securities law violations directs her  to  pay  $226,135  of  disgorgement,  plus $100,917 of prejudgment interest, and a $250,000  civil  penalty;  and prohibits her from acting as  an  officer  or  director  of  a  public company. Szeliga's misconduct occurred when  she  was  Qwest's  senior vice president of financial  planning  and  analysis  and  then  chief financial officer.  According to the SEC's complaint, from at least April  1,  1999,  through  March  31,  2002, Szeliga and others at Qwest engaged in a massive financial fraud  that hid from the investing public the true source of the company's revenue and earnings growth.      

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

Lerach May Leave His Law Firm

William Lerach, the prominent securities class action lawyer, is reportedly planning to leave the San Diego firm, Lerach Coughlin, that he founded three years ago in a split from New York-based Milberg Weiss.  In recent weeks Lerach has been waging a very public campaign urging the SEC to file an amicus brief to persuade the Supreme Court to accept certiorari in a case seeking to impose liability on investment banks who entered deals with Enron.  The Fifth Circuit dismissed the charges saying that at most, the banks were aiders and abettors.  The big question is whether Lerach's departure (if indeed the report is correct) is related to the federal investigation into both the Lerach and Milberg firms involving kickbacks to named plaintiffs in class actions.  Neither Lerach nor his firm has been indicted; Milberg Weiss and two of its partners have been indicted and have been engaged in talks with prosecutors.  See NYTimes, Top Lawyer, Under Fire, May Depart; WSJ, Milberg Weiss Held Talks On Settling Criminal Case.

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

Bancroft Family Will Consider Sale of Dow Jones

The Bancroft family, the controlling shareholders of Dow Jones & Co., announced yesterday that it would meet with Rupert Murdoch and that it would consider a sale of the company.  It statement read:

"After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include the News Corporation."

Insiders said there were two conditions to any sale: (1) a higher price than Murdoch's $60 per share price (the stock was trading at $36 pre-Murdoch announcement); and (2) an independent overseer to guarantee editorial independence.  See NYTimes, Dow Jones Says It Will Consider Options for Sale;    WSJ, Bancrofts Open Door To a Sale Of Dow Jones.

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

Thursday, May 31, 2007

Is There Consistency in Corporate Penalties?

The word for months was that the SEC was striving to achieve consensus and set a consistent policy in imposing penalties on corporations for violations of the federal securities laws.  This was the explanation for the long delay in finalizing settlements in the stock options backdating cases.  So, with the settlements in Mercury and Brocade, can we discern a consistent policy?  I confess that, on an initial quick glance, I do not see it.  Brocade was settled for $7 million civil penalty; the period of fraud lasted five years, and the SEC press release mentions that the company's audit committee conducted a thorough investigation when the abuses surfaced, surely a mitigating factor.  Mercury was settled for $28 million penalty.  In that case, the fraud lasted eight years, and the SEC press release emphasizes the "widespread and pernicious misconduct" in that case.  But identification of these factors does not make out a policy to account for the difference between $7 million and $28 million, to my mind.  Anyone have any additional insights?

May 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack (1)

SEC Settles Charges Involving Trading in Advance of Stolen Press Releases

The Securities and Exchange Commission announced settlement of charges against against Lohmus Haavel & Viisemann ("LHV"), an Estonian financial services company, and Oliver Peek, a former employee of LHV, who is a citizen and resident of Estonia. LHV and Peek are the remaining defendants in a fraud action filed by the Commission on November 1, 2005.  The Commission alleged in its Complaint that, from at least January 2005 until the scheme was halted by the Commission's filing of an emergency action in the District Court, the defendants conducted a fraudulent scheme involving the electronic theft and trading in advance of more than 360 confidential, non-public press releases issued by more than 200 U.S. public companies. The Commission alleged that the defendants illegally traded on confidential, non-public information fraudulently stolen from the website of Business Wire, a leading commercial disseminator of news releases and regulatory filings for companies and groups throughout the world.  Without admitting or denying the allegations in the Commission's Complaint, Peek and LHV consented to a permanent injunction; disgorgement by Peek of profits of $13,000,000, representing the illegal profits from the alleged scheme, together with a civil penalty of $1,350,000. LHV was also ordered to pay a civil penalty of $650,000.

May 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Settles Backdating Charges Against Mercury

The SEC announced a settlement of the stock options backdating charges against Mercury Interactive, LLC (formerly known as Mercury Interactive Corporation) for $28 million civil penalty.  The litigation against four former senior officers of Mercury — former Chairman and Chief Executive Officer Amnon Landan, former Chief Financial Officers Sharlene Abrams and Douglas Smith, and former General Counsel Susan Skaer-- is ongoing.  The SEC alleges that the former senior officers perpetrated a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other employees undisclosed, secret compensation by backdating stock option grants, failing to record hundreds of millions of dollars of compensation expense, and falsifying documents to further this scheme.  The SEC also alleges that during this period Mercury, through Landan and at times Abrams, Smith or Skaer, made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses. Mercury was acquired by Hewlett-Packard Company after the alleged misconduct.

May 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC and Brocade Communications Settle Back Dating Charges

As earlier reported, in a much-anticipated settlement to show the agency's current thinking on corporate penalties, the Securities and Exchange Commission announced today the formal settlement of stock options backdating charges against Brocade Communications Systems, Inc., with a civil penalty of $7 million.  The Commission's complaint alleges that Brocade's former CEO, President and Chairman, Gregory L. Reyes, routinely provided extra compensation to employees by granting valuable in-the-money stock options for which a financial statement expense was required. In order to avoid reporting to investors the hundreds of millions of dollars in undisclosed compensation expenses, Brocade's former executives allegedly concealed the fact that the options had been granted in-the-money by creating records making it falsely appear that the options had been granted at a lower price on an earlier date.

May 31, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Milberg Weiss Partner May Plead Guilty

Milberg Weiss & Bershad partner, David Bershad, is discussing with the government a settlement of the allegations involving kickbacks in class actions against him that could result in a guilty plea, according to the Wall St. Journal.  A trial against him, the firm and a former partner, Steven Schulman, is scheduled for January.  The three were indicted last May.  See WSJ, Milberg's Bershad Weighs Making
Guilty Plea in Talks With Prosecutors.

May 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC and Brocade Communications Settlement of Backdating Charges Expected; $7 Million Penalty

The SEC will announce shortly that Brocade Communications has agreed to pay a $7 million civil penalty to settle stock options backdating charges, according to the Wall St. Journal.  People have been waiting for this settlement for months, to get an indication of the SEC's thinking on corporate penalties in the stock options backdating context.  According to the WSJ, Brocade agreed to the $7 million penalty over a year ago, but SEC approval was delayed as SEC attorneys opened numerous investigations into backdating charges and the Commissioners debated the appropriate policy on corporate penalties.  After the huge penalties paid by corporations in some of the financial fraud cases, some argued (including Commissioner Paul Atkins) that penalties on corporations imposed a hardship on current shareholders; penalties are more appropriately imposed on the executives who engaged in the wrongdoing.  The backdating cases present thorny questions of whether the anyone was harmed by the backdating (since in many cases the stock prices quickly recovered after disclosure) and, conversely, was there a corporate gain -- both factors taken into account in determining the level of penalties.  A few months ago, Chair Cox confirmed the SEC's new policy of requiring staff attorneys to seek Commission approval before beginning settlement talks that could result in a corporate penalty, in order to achieve some consistency in this area.  Some viewed this as a signal that corporate penalties would become less common and smaller in amount, although Cox denied this would necessarily be the outcome.  See WSJ, Backdating Fine May Set Model.

May 31, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 30, 2007

Company's Non-Response to NYSE Request for Statement

The following press release is posted on the NYSE Regulation website:

Pennsylvania Real Estate Investment Trust (PEI) 
 
In view of the unusual market activity in Pennsylvania Real Estate Investment Trust (PEI) stock, the Exchange has contacted the company and requested that the company issue a public statement indicating whether there are any corporate developments which may explain the unusual market activity.

The company stated that its policy is not to comment on unusual market activity or rumors.

It seems to me that the company's statement does not respond to the NYSE's request.  I wonder if it is customary for companies to fail to respond to NYSE's request for information.  This does not seem to comply with at least the spirit of the NYSE rules requiring prompt disclosure of material information (or a statement that there is none).

May 30, 2007 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Barclays Bank and Trader Settle Insider Trading Charges

The SEC today settled a civil action against Barclays Bank PLC (Barclays) and Steven J. Landzberg (Landzberg), a former proprietary trader for Barclays' U.S. Distressed Debt Desk, alleging that Barclays and Landzberg engaged in securities fraud through a pattern of illegal insider trading.  The complaint included allegations that Barclays and Landzberg illegally traded millions of dollars of bond securities over eighteen months, while aware of material nonpublic information received through six creditors committees. Landzberg simultaneously served as Barclays' representative on the creditors committees and as its proprietary trader. The complaint also alleges that Barclays and Landzberg misappropriated material nonpublic information by failing to disclose any of their trades to the creditors committees, issuers, or other sources of such information. In a few instances, Landzberg used purported "big boy letters" to advise his bond trading counterparties that Barclays may have possessed material nonpublic information. However, in no instance did Barclays or Landzberg disclose the material nonpublic information received from creditors committees to their bond trading counterparties. The complaint further alleges that Barclays' senior management authorized Landzberg to buy and sell securities for Barclays' account while he served on bankruptcy creditors committees. Barclays' Compliance personnel failed to prevent the illegal insider trading, despite receiving notice that the proprietary desk had nonpublic information and should have been restricted from trading.

Barclays and Landzberg each consented, without admitting or denying the allegations in the Commission's complaint, to entry of final judgments permanently enjoining them from federal securities law violations. Barclays also consented to payment of  $10.94 million: disgorgement of $3,971,736, prejudgment interest of $971,825, and a civil money penalty of $6,000,000. Landzberg further consented to be permanently enjoined from participation in any creditors committee in any federal bankruptcy proceeding involving an issuer of securities, and to pay a civil money penalty of $750,000.

May 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Former Majority Leader of Connecticut Senate Found Guilty in Fraudulent Investment Scheme

The Securities and Exchange Commission announced today that on May 18, 2007, a federal jury found William A. DiBella, the former Majority Leader of the Connecticut State Senate, and his consulting firm, North Cove Ventures, L.L.C., liable for aiding and abetting then Treasurer of the State of Connecticut, Paul J. Silvester in a fraudulent investment scheme. Pursuant to the scheme, Silvester invested $75 million in state pension funds with Thayer Capital Partners, a Washington, DC-based private equity firm, and arranged for Thayer to pay DiBella a percentage of the investment, though he did not do work to justify the payment.

May 30, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC's Atkins May Move to CFTC

Paul S. Atkins, an SEC Commissioner who regularly speaks out against what he perceives as excess regulation in the post-Enron era, may be nominated to serve as the next Chair of the CFTC.  See WPost, SEC's Atkins Tapped for Commodities Regulator.

May 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Pakistani Banker Charged in Insider Trading Scheme

Prosecutors charged Ajaz Rahim, the country head of investment banking at Faysal Bank Limited, a Pakistan investment bank, with insider trading.  The government alleges that Rahim received tips about nine deals, including the takeover of TXU, from Hafiz Muhammed Zubair Naseem, a Credit Suisse energy analyst, from April 2006 through February 2007, for a total profit of $7.5 million.  The government has previously charged Naseem.  The SEC has also named both Rahim and Naseem in a civil complaint.  See NYTimes, Prosecutors Accuse Banker of Fraud and Conspiracy; WSJ, Pakistani Banker Charged.

May 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

IBM Buys Stock and Borrows Money

IBM is buying back $12.5 million of its own stock (about 8% of the outstanding) from three banks and borrowing $11.5 billion to make the purchase.  Since 1995 it has spent $80 billion on stock repurchases, and in April the board authorized $15 billion in new repurchases.  IBM has been spending $100 million a day on stock buybacks.   An unusual aspect of the buyback is that IBM is financing it through a Netherlands subsidiary, to avoid the higher US taxes that would result from repatriating the funds. See NYTimes, I.B.M. Borrows $11.5 Billion to Buy Back Stock; WSJ, IBM Hones the Stock Buyback.

May 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

ICE May Gain Advantage in Competition for CBOT

Intercontinental Exchange (ICE) and Chicago Mercantile Exchange (CME) are competing to acquire the Chicago Board of Trade (CBOT).  The CBOT board currently favors CME, and the deal is scheduled for a shareholder vote on July 7.  However, ICE is expected to announce today that it has agreed to a settlement of a longstanding dispute between the Chicago Board Options Exchange and CBOT's parent, on condition that CBOT becomes part of ICE, which would give ICE a competitive advantage over CME.  See WSJ, ICE Finds a Chicago Ally.

May 30, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)