Securities Law Prof Blog

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

Tuesday, July 10, 2007

Judge Considers Dismissal of Brocade Backdating Charges

In the closely watched Brocade Communications stock options backdating criminal case in San Francisco, the judge is considering whether to dismiss the charges against former CEO Gregory Reyes, because, as the defendant asserts, the government failed to introduce sufficient evidence to show that the executive understood the options accounting rules.  See WSJ, Judge Mulls Brocade Dismissal.

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

Is NASD Arbitration Biased Against Rich Investors?

The Wall St. Journal puts the spotlight on a recent NASD arbitration brought by trusts established by Subway co-founder Frederick DeLuca against brokerage firm UBS.  The arbitration panel rejected in its entirety the trusts' claim that UBS was responsible for $190 million losses from investments in tech and telecom stocks in 1998-2001.  According to the reporter, it demonstrates that wealthy people have difficulty winning the sympathy of arbitration panels.  However, the outcome may not reflect any supposed biases on the part of the arbitrators, but the application of legal principles that require all investors to show "reasonable reliance" on their brokers' recommendations and that the recommendations caused the investors' loss (and not the market crash).  In addition, as the article mentions, the panel may have determined that the trusts waited too long in bringing the claim.  In any event, because arbitration hearings are private and the awards provide no reasons for their outcomes, it's mere conjecture why the panel decided as they did.  See WSJ, Why a Billionaire Lost on Wall Street.    

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

Gemstar is on the Auction Block

Gemstar, best known as the publisher of TV Guide, put itself up for sale.  The company, which is 41% owned by Rupert Murdoch's News Corp., was previously the subject of a SEC accounting fraud investigation, which led to its former CEO Henry Yuen being found civilly liable for his role in inflating the company's revenues.  See WSJ, Gemstar-TV Guide Puts Itself Up for Sale.

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

NYSE Investigates Trading in ABN ADRs

NYSE is investigating trading in the ADRs of ABN Amro Holding NV prior to the Dutch bank's March 19 announcement that it was in negotiations to sell itself to Barclays Bank.  A consortium of three European banks is competing with Barclays for ABN.  See WSJ. NYSE Investigates Trading in ABN
As Bank Held Talks With Barclays

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

Monday, July 9, 2007

SEC Gets TRO in Promissory Notes Offering

The SEC announced that on July 5, 2007 the United States District Court for the Western District of New York entered a temporary restraining order against defendants The Hockey Barn LLC and Jeffrey J. Coleman, Hockey Barn's Chief Executive Officer. The Court's order temporarily freezes defendants' assets and orders them to provide sworn accountings. In addition, the order prohibits the destruction of records, and permits the Commission to conduct expedited discovery. The Court scheduled a hearing on the Commission's request for a preliminary injunction for July 19, 2007 in Buffalo, New York.

In the complaint, the Commission alleged that from approximately October 2006 through the present, Coleman and the Hockey Barn defrauded investors through an offering of promissory notes and other investment contracts. Among other things, Coleman falsely told investors that they could obtain a return of at least 400% within 60 days [!]from an investment in a purported bond trading program.

July 9, 2007 in SEC Action | Permalink | Comments (1) | TrackBack (0)

CBOT Shareholders Approve Merger with CME

CBOT Holdings shareholders approved a merger with Chicago Mercantile Exchange, which will result in the largest derivatives exchange.  Last week CME improved its offer for the third time, which was sufficient to win sufficient shareholders' votes to eliminate IntercontinentalExchange's competing offer.  See WSJ, CBOT Shareholders Approve CME Deal.

July 9, 2007 in News Stories | Permalink | Comments (2) | TrackBack (0)

Butler Settles Misappropriation Charges

The SEC announced today that defendant Graham J. Lefford, a former butler to entertainment industry entrepreneur Robert F.X. Sillerman, has agreed to settle the insider trading charges pending against him and to disgorge his trading profits of $31,450, plus prejudgment interest of $3,280, and pay a penalty of $31,450.  According to the SEC's complaint, Lefford engaged in unlawful insider trading while employed as the house manager for Sillerman's South Hampton, New York residence. The complaint alleged that in the summer of 2004, Sillerman was in the process of negotiating the acquisition of a controlling interest in a publicly-traded company named Sports Entertainment Enterprises, Inc. ("SPEA") to use as the vehicle for acquiring the commercial rights to Elvis Presley's name and likeness. Lefford learned material non-public information about Sillerman's intended acquisition of SPEA from documents faxed between Sillerman's office in Manhattan and his South Hampton residence and used that information to purchase 5,000 shares of SPEA stock at 12 cents per share. Sillerman's acquisition of SPEA and SPEA's concurrent acquisition of the commercial rights to Elvis Presley name and likeness were jointly announced on the morning of December 16, 2004, and SPEA stock closed at $6.41 that day, an increase of over 6,400% from the prior day.

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

SEC Obtains Jury Verdict in Finite Insurance Scheme

The SEC announced that on July 6, 2007, following a jury verdict, the United States District Court for the Southern District of New York entered a Final Judgment against Timothy Harcharik (Harcharik), former director of risk management for Brightpoint, Inc. (Brightpoint) enjoining Harcharik for a period of five years from future violations of the antifraud, books-and-records, and internal controls provisions of the federal securities laws and ordering him to pay $50,000 in civil penalties. Harcharik played a key role in a fraudulent scheme involving a purported insurance policy that enabled Brightpoint to conceal $11.9 million in losses that it sustained in 1998.  The SEC alleged that Harcharik and other co-defendants devised and executed an accounting fraud scheme in order to keep escalating losses at Brightpoint within a previously announced range. Specifically, the complaint alleged that Harcharik negotiated and executed a sham insurance policy issued by American International Group, Inc. (AIG) for the sole purpose of allowing Brightpoint to write off these losses as covered by insurance. The complaint further alleged that the purported policy was simply a vehicle that masked a round trip of cash between Brightpoint and AIG, rather than real insurance. As a result of the scheme, Brightpoint's pre-tax net income for 1998 was overstated by 61 percent.  This was the first case to go to trial involving the fraudulent use of finite insurance.

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

SEC Charges Two in Botnet Fraud

The SEC has filed securities fraud charges against two Texas individuals in a high-tech scam that hijacked personal computers nationwide to disseminate millions of spam emails and cheat investors out of more than $4.6 million. The scheme involved the use of so-called computer "botnets" or "proxy bot networks," which are networks comprised of personal computers that, unbeknownst to their owners, are infected with malicious viruses that forward spam or viruses to other computers on the Internet. The SEC alleges that Darrel Uselton and his uncle, Jack Uselton, both recidivist securities law violators, illegally profited during a 20-month "scalping" scam by obtaining shares from at least 13 penny stock companies and selling those shares into an artificially active market they created through manipulative trading, spam email campaigns, direct mailers, and Internet-based promotional activities. In related enforcement actions, the Attorney General's Office for Texas and the Harris County District Attorney's Office indicted the Useltons for engaging in organized criminal activity and money laundering. The Texas criminal authorities also have seized more than $4.2 million from bank accounts associated with the Useltons.  See SEC Charges Two Texas Swindlers In Penny Stock Spam Scam Involving Computer Botnets.

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

Icahn Raises Bid for Lear

Carl Icahn raised his bid for Lear Corp. to $37.25 per share (up from $36), in response to the opposition from some large shareholders, and the company postponed the shareholders' vote until July 19. Richard Pzena, the largest shareholder after Icahn, said the increased price did not change his mind and criticized the company's agreement to pay a termination fee if the deal is rejected.  See WSJ, Icahn Affiliate Increases Bid For Lear to $37.25 a Share.

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

Bershad, Formerly with Milberg Weiss, Pleads Guilty

David Bershad, formerly a name partner at Milberg Weiss & Bershad, agreed to plead guilty to conspiring to keep secret from judges payments to class-action name plaintiffs and to cooperate with federal prosecutors in their investigation of the firm for paying illegal kickbacks.  Because of Mr. Bershad's knowledge of the finances at the law firm, this is expected to be a "big break" in the case.  See WSJ, Bershad of Milberg Weiss Agrees to Plead Guilty.

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

Hedge Fund Advisers Deregister

Since the D.C. Circuit struck down a SEC rule requiring registration of hedge fund advisers last year, 525 advisers have deregistered, out of  2479 previously registered advisers.  The rule was meant to shed some light on the secretive hedge fund industry, but the court said the rule was arbitrary.  See WSJ, Fund Advisers Deregister.

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

Dow Jones Board Still Looking for Other Bidders

The Dow Jones board is still looking for alternative bidders for the Wall St. Journal, urged on by members of the Bancroft family who do not want to sell the newspaper to Rupert Murdoch.  Ronald W. Burkle, a California billionaire, is meeting today with the special committee formed to consider the sale, and MySpace co-founder, Brad Greenspan, is said to be working on putting together a proposal.  So far no one has emerged who can match the News Corp.'s $60 per share price.  Meanwhile negotiations with News Corp. continue.  See NYTimes, Dow Jones Continues Hunt for an Alternative Bid; WSJ, Dow Jones Makes Late Push To Find Other Buyers.

July 9, 2007 | Permalink | Comments (0) | TrackBack (0)