Securities Law Prof Blog

LSE-TSE Alliance

the London Stock Exchange and Tokyo Stock Exchange agreed to facilitate market access and creat a 24-hour trading market.  This is the latest in a number of trans-border alliances between exchanges.  TSE previously entered an alliance with the NYSE; LSE fought off attempts to be acquired by Nasdaq.  See NY Times, London and Tokyo Exchanges to Collaborate

More on Backdating at Take Two

Take Two announced that 5 independent directors received backdated stock options and have agreed to repay the corporation.  See NYTimes, 5 Will Repay Take-Two Over Options.

Court Postpones Vote on Caremark-CVS Merger

The Delaware Chancery Court told Caremark that it must provide its shareholders information about their right to vote no on the Caremark-CVS merger and seek appraisal rights to determine the value of their shares.   The shareholder vote was scheduled for March 9.  See Judge Refuses to Halt Deal
Between Caremark-CVS.

Criminal Investigation into Backdating at KB Home

KB Home announced that a criminal investigation into backdating stock options is ongoing and it is not the target.  Last November the company fired CEO Bruce Karatz and top human resources officer Gary Ray after an internal investigation showed a number of instances of backdating from 1998.  See NY Times, New Inquiry on Options at KB Home and WSJ, Former KB Officials Face U.S. Backdating Probe.

Bayou Hedge Fund Investors Can Sue on Fraudulent Conveyance Theory

A bankruptcy judge in New York held that investors who lost money in the failed hedge fund Bayou Management could seek to recoup $140 million withdrawn from the fund before its collapse in 2005, on the ground that the withdrawals were fraudulent conveyances intended to defraud creditors.  See WSJ, Bayou Investors Who Lost Money in Collapse Can Sue Other Investors.

Latest on Former Comverse CEO

What's Kobi Alexander, former CEO at Comverse, up to, after fleeing the U.S. to avoid criminal charges on backdating stock options?  He's still in Namibia and has started a company dealing in construction, tourism, and agriculture.  See NY Times, U.S. Fugitive Starts Over in Namibia.

Record High for Margin Debt

Margin debt at brokerage firms reached $285.6 billion at end of last month, topping the previous high of 278.5 billion in March 2000.  Does this reflect unhealthy speculation or healthy investor confidence?  See NY Times, A Mountain of Margin Debt May Not Be Cause for Concern.

KKR & Co. Plans to Acquire TXU

KKR & Co. (remember Henry Kravis?) is reportedly finalizing a deal to acquire the controversial Texas utility, TXU Corp.,  The New York Times says it will be for $45 billion, which would make it largest LBO to date; the Wall St. Journal says it will be for $32 billion.  Environmental groups criticize TXU's plans to build eleven coal-fired power plants in Texas.   KKR is partnering with Texas Pacific Group.  See NY Times, At $45 Billion, New Contender for Top Buyout and WSJ, Buyout Firms Seek Utility TXU For $32 Billion.

SEC Corporate Finance Status Report

Speech by SEC Staff: The Promise of Transparency — Corporation Finance in 2007 by John W. White
Director, Division of Corporation Finance U.S. Securities and Exchange Commission, 29th Annual Conference on Securities Regulation and Business Law Dallas, Texas February 23, 2007

In this speech, Mr. White outlines the initiatives of Corporation Finance, including: foreign private issuer deregistration (working hard on proposed rule because of June 30 deadline when some foreign private issuers will have to file 404 reports); guidance to management on required assessments under SOX section 404; e-proxy; executive compensation disclosure (waiting, like everyone else, to see the results of the new rules); process access (the "elephant in the room" after the 2d Cir. AIG opinion); international financial standards; interactive data; PIPEs; Restatementsand Item 4.02 of Form 8_K; and Small Business Capital Raising and Private Offering Reform  (the "long-lost uncle" in the course of being found again).  Well-worth reading for anyone wanting to keep up-to-date on the staff's thinking.

Backdating Options Investigations -- No End in Sight?

There are many ongoing investigations about options backdating that seem to drag on.  A New York Times focuses on the $7 million settlement that Brocade Communications agreed to pay last July, which has not yet been approved by the SEC.  Does this signal disagreement among the Commissioners?  Some say the SEC is just taking its time to understand the situation better.  NYTimes, The Slow Pace of Justice on Options Backdating.

More International Alliances Between Stock Exchanges

Every day the news reports cross-border alliances between stock exchanges.  The Deutsche Borse is acquiring 5% interest in the Bombay Stock Exchange, the NYSE is acquiring 5% in the National Stock Exchange in India, and the Tokyo Stock Exchange is exploring an alliance with the London Exchange after making an alliance with the NYSE.  Are these real partnerships or just for show?  See NY Times, Stock Exchanges in a Rush to Forge Links With One Another and WSJ, London, Tokyo Stock Exchanges To Develop Jointly Traded Products.

No News on Chrysler Sale

Don't expect any announcements about a sale of Chrysler for weeks or months, said Chrysler CEO Thomas LaSorda in an e-mail message to employees, telling them to stay focused on revamping efforts.  Meanwhile, morale is low at DaimlerChrysler, as cost-cutting measures go into effect.  See NYTimes, Watchwords at Chrysler Are Hurry Up and Wait. Meanwhile, Daimler Chrysler plans to offer financial information about Chrysler selectively and not hold a formal auction open to all bidders, says WSJ, Chrysler's Big Secrets To Be Told With Care.

Bankruptcy Decision Has Prime Brokers Worried

The ramifications of last month's bankruptcy court decision, requiring Bear Stearns to turn over to the bankruptcy estate of a failed hedge fund client $160 million, are explored in NY Times, The Bankruptcy Development That Has Wall St. Worried.  The court found that Bear Stearns failed to adequately investigate red flags that would have disclosed the fraud.  Prime brokerage, providing services to hedge funds, is lucrative business on Wall St. these days.

New Report on Hedge Funds States the Obvious

Months of study and what does Treasury Secretary Paulson's Working Group on Financial Markets recommend about hedge funds?  Investors shouldn't take risks they can't tolerate, and hedge funds should provide better disclosure.  And, oh yes, there is no need for federal regulation.  See NYTimes, Officials Reject More Oversight of Hedge Funds.

Market-Timing Judgment Against Deustche Bank Securities Broker

SEC OBTAINS FINAL JUDGMENT AGAINST FORMER REGISTERED REPRESENTATIVE AT
   DEUTSCHE BANK SECURITIES, INC. FOR DECEPTIVE MARKET TIMING  OF  MUTUAL
   FUNDS

The SEC announced  that  on  Jan.  26,  2007,  the  U.S. District Court for the Southern District of New York entered  a final judgment  against  Michael  G.  Velasco.  Velasco  was  a   registered representative at Deutsche Bank Securities, Inc., a registered broker-dealer and investment adviser. In the complaint in  this  action,  the Commission alleges that Velasco defrauded mutual funds by engaging  in deceptive practices to circumvent mutual funds'  restrictions  on  his market  timing  customers.  The  final  judgment  permanently  enjoins Velasco from violating Section 17(a) of the Securities  Act  of  1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule  10b-5.  In addition, the final judgment directs Velasco to pay disgorgement of    $60,824.26 plus prejudgment interest of $8,063.17, and directs him  to pay a civil penalty of $60,824.26. Velasco consented to the  entry  of the final judgment without admitting or denying the allegations in the complaint. The Commission also announced today that  it  instituted  a settled administrative  proceeding  against  Velasco.  The  Commission entered an order based on the entry of the injunction barring  Velasco from association with any broker or dealer or investment adviser, with the right to reapply  for  association  after  2  years,  pursuant  to Section 15(b) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940. Velasco consented to  the  entry  of  the  order without admitting or denying its findings except he admitted the entry of the injunction.

NASD Investor Education Foundation Expands Military Financial Education Program

The NASD Investor Education Foundation will expand the scope of its Military Financial Education Campaign this year, adding two new programs aimed at specific populations within the military community - military spouses and wounded and severely injured servicemembers. An e-learning financial simulation game is also in development to teach the military community about the importance of managing their finances and financial planning. The NASD Foundation has committed $3.8 million to fund the military program's second year.

Formally launched in February 2006 with the goal of providing servicemembers and their families with unbiased financial education information and tools, the program offers dozens of educational forums at military installations in the U.S. and abroad, continuing education for on-base Personal Financial Managers (PFMs), a financial counseling fellowship program for military spouses, a comprehensive Web site-SaveAndInvest.org-that focuses on the unique financial needs of the military community and a targeted public education campaign to raise awareness of available programs and resources.

"The NASD Foundation's Military Financial Education Campaign has succeeded in meeting a critical need, reaching thousands of military servicemembers and their families with the tools and resources designed to meet the unique financial education needs of military families," said NASD Foundation Chairman Mary Schapiro, who also serves as NASD's Chairman and CEO. "As we move into 2007, our core goal remains the same: provide military families with the information they need to save and invest with confidence."

NASD Investor Education Foundation Announces New Grants and Guidelines

NASD's Investor Education Foundation announced its guidelines for its next round of grants to further investor education and also announced recent recipients of grants.  Behavioral finance, the retirement income security of older Americans and new marketing and distribution channels for investor education will be the main areas of focus for the NASD Investor Education Foundation's 2007 General Grant Program.

To provide greater flexibility for applicants, the 2007 General Grant Program will have two cycles. In the first cycle, applicants submitting proposals postmarked on or before Monday, February 26, will be notified of grant decisions in July. For the second cycle, proposals must be submitted on or before Friday, August 10, and notifications will be made in late December. The NASD Foundation's grant programs are open to non-profit organizations, including public and private colleges and universities.

"Most of us assume that individuals consider all available information when making decisions, especially financial decisions," said NASD Foundation Chairman Mary L. Schapiro, who also serves as NASD's Chairman and CEO. "But there's a growing body of evidence that that's not always true - that social, emotional and other influences lead people to make unwise economic and investment decisions that affect their financial security. We want to pursue research in the area of 'behavioral finance' so we can better understand how those biases affect financial decision-making, and develop investor education materials and strategies that can overcome those biases."

The NASD Foundation's 2007 grant program priorities also recognize the increasing importance of educating older Americans about managing their finances in retirement, given that the retirement population will swell to an unprecedented 70 million or more individuals, many of whom will have to manage assets accumulated in 401(k)s and other defined contribution plans. Another priority area focuses on new and effective ways to market and distribute investor education so that large numbers of Americans receive the help they need.

Among the grants awarded was was Guide to Dispute Resolution for the Small Investor - $153,725 to Pace University Law School in White Plains, NY, to develop and distribute an educational guide to help small, individual investors understand their legal rights and responsibilities in order to avoid disputes, or seek resolution through arbitration or mediation in the event of a dispute.  (In the interests of full disclosure, this blogger was formerly associated with Pace, but had no involvement in the grant process.)

Paulson's Group Issues Report on Hedge Funds

The President's Working Group on Financial Markets (spearheaded by Treasury Secretary Paulson) released a report calling for a consistent and uniform approach to the regulation of hedge funds.  It identifies a number of "best practices," but does not set forth any recommendations for new regulation.  See WSJ, Paulson-Led Group Suggests No New Hedge Fund Regulation.

Whole Foods to Acquire Wild Oats

Whole Foods announced a merger with its struggling competitor, Wild Oats, at $18.50 per share, a 18% premium over Wild Oats' closing price yesterday.  Competition for affluent grocery shoppers, willing to pay more for organic foods and fresh produce, is heating up as the big-name chains have entered the market.  See WSJ, How Whole Foods' Wild Oats Deal Is Unhealthy for Rivals and NYTimes, Whole Foods Makes Offer for a Smaller Rival .

GM-Chrysler?

Speculation continues to grow that GM might acquire Chrysler, after DaimlerChyrsler's announcement that all options were on the table.  Analysts, however, think the acquisition would be "illogical."  See WSJ, What Chrysler Could Add to GM.

Big Bonuses at Goldman Sachs

Goldman Sachs led investment banks in 2006 in profits and bonuses.  With $9.6 billion in profits, it could afford to pay a $53.4 million bonus to its CEO, bonuses of $52.3 million to each of its two Co-Presidents, and a $31.5 million bonus to its Vice Chair.  See NYTimes, Even for Rungs Below the Top, Goldman Bonuses Were Hefty and WSJ, At Goldman, Two More Officials Revealed as $50 Million Men.

SEC Comments on Accounting for IPO/Merger with Entities under Common Control

The SEC website has just posted  a December 2006 Speech by Leslie A. Overton, Associate Chief Accountant, Division of Corporation Finance, before the 2006 AICPA National Conference on Current SEC and PCAOB Developments, on Accounting and Reporting Issues for an IPO in Connection with a Merger of Entities under Common Control.

Former Biopure CEO Settles Fraud Charges

The SEC announced that a final judgment  by  consent  was entered by the U.S. District Court of the  District  of  Massachusetts against Thomas Moore, the former chief executive  officer  of  Biopure Corporation, in a previously-filed action alleging  misleading  public statements about the company's efforts to obtain FDA approval for  its primary product,  Hemopure,  a  synthetic  blood  product.  The  final judgment permanently enjoins Moore from violating antifraud provisions of the federal securities laws and orders him to  pay  a  $120,000  civil penalty.

For further information, see Litigation Release No. 19825  (Sept.  12, 2006) (SEC Settles Civil Injunctive Action Against Biopure Corporation and Its General Counsel), Litigation  Release  No.  19651  (April  11, 2006) (SEC Settles  with  Former  Biopure  Executive)  and  Litigation Release No. 19376 (Sept. 14, 2005) (Biopure and others charged by  the Commission). [SEC v. Biopure Corporation, et al., Civil Action No. 05-11853-PBS (D. Mass.)] (LR-20010)

former Bennett Environmental CFO Settles Charges

The SEC settled fraud charges against Richard L. Stern, the former CFO of Bennett Environmental, Inc.  (BEI),  and  two others for their roles in the  repeated  dissemination  of  false  and misleading  information  concerning  a  Superfund   soil   remediation contract awarded to the company in 2003.  The Commission alleged that between June 2003 and  April  2004,  Stern and others caused BEI to issue press releases and make public  filings misrepresenting and exaggerating a contract that it extolled  as  "the largest in the Company's  history"  with  a  value  of  "$200 million  [Canadian]." In reality, the contract had a guaranteed value  of  less than $250,000, later was cancelled by the  Army  Corps  of  Engineers, reinstated on a limited basis, and then re-solicited under  materially different terms. The complaint alleges that during the  relevant  time period, Stern and the other defendants failed  to  inform  the  public about material changes to the contract, failed to correct prior  false statements, and continued to misrepresent the  contract  by  asserting that it was in full force and effect and  worth  C$200  million.  Only after a new CEO took over at BEI did the true  facts  come  to  light, which were disclosed in a July 2004 press release.

Without admitting or denying the Commission's allegations , Stern consented to the entry of a final judgment permanently  enjoining  him from violating Section 10(b) of the Securities Exchange  Act  of  1934 (Exchange Act) and Rules 10b-5 and 13a-14 thereunder, and  aiding  and abetting violations of Section 13(a) of the  Exchange  Act  and  Rules 12b-20, 13a-1, and 13a-16 thereunder.  Stern  also  agreed  to  pay  a $75,000 civil penalty and to be barred from acting as  an  officer  or director  of  a  public  company  for  five  years.  [SEC  v.  Bennett Environmental, Inc., John  A.  Bennett,  Robert  P.G.  Griffiths,  and Richard L. Stern, Case No. 06-Civ-14294] (LR-20009)

Veritas settles earnings management charges

The SEC filed a complaint in the U.S. District  Court  for  the    District of Columbia yesterday charging Veritas  Software  Corporation with securities fraud for engaging in an  earnings  management  scheme and filing false and misleading financial statements from 2000 through 2003. Veritas was also charged with fraud in connection with  improper round-trip  transactions,  including  a  round-trip  transaction  with  America Online, Inc. (AOL), as well as aiding  and  abetting  AOL's fraud. Veritas was acquired by Symantec Corporation on July 2, 2005.

Without admitting or denying the allegations in the complaint, Veritas consented to the entry of a judgment that  enjoins  the  company  from violating the antifraud, reporting, books and  records,  and  internal control provisions of the federal securities laws, and from aiding and abetting securities fraud violations by  other  parties.  Veritas  was also ordered to pay a $30 million civil penalty, which the  Commission will seek to distribute to harmed investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. [SEC v. Veritas  Software
   Corp., Civil Action No. 07-364 (D.D.C.)] (LR-20008; AAE Rel. 2562)

NASDD TRACE Fact Book Available

The 2006 NASD TRACE Fact Book is now available on its website.  It is intended to give retail investors, market professionals, media and educational institutions a historical perspective of the over-the-counter (OTC) U.S. corporate bond market. The Fact Book is released annually and is based on aggregated data as entered into the Trade Reporting and Compliance Engine (TRACE).

Raymond James Fined $2.75 million for Inadequate Supervision

NASD fined Raymond James Financial Services, Inc. (RJFS) of St. Petersburg, FL, $2.75 million for failing to maintain an adequate supervisory system to oversee the sales activities of over 1,000 producing branch managers working in offices throughout the United States.

"RJFS's supervisory system was inadequate because it allowed producing branch managers to supervise themselves, said James S. Shorris, NASD's Executive Vice President and Head of Enforcement. "This flawed supervisory system created a situation where the unsuitable sales of variable annuities and risky mutual funds to elderly and risk-averse customers went undetected."

From early 2000 through September 2004, RJFS employed over 1,100 producing registered principals, or branch managers, most of whom worked in small, geographically dispersed offices. These branch managers were allowed to act as the primary supervisors of their own business activities. They approved their own transactions, opened and accepted new accounts, and reviewed their own correspondence. The firm relied on an electronic transaction surveillance system maintained by RJFS's Compliance Department, and a series of exception reports, to flag transactions that required further review. It also assigned supervisory responsibility for these 1,100 branch managers to three sales managers. The activities commonly associated with daily supervision, however, were conducted by the branch managers, who in many cases, in effect, supervised themselves. By permitting these principals to engage in self-supervision, RJFS's supervisory system was not reasonably designed to achieve compliance with securities rules and regulations.

One such producing manager was Donna Vogt, whose sales practice violations went undetected for approximately four years. Vogt was the branch manager and the only registered person working in her office in Wisconsin. She maintained hundreds of customer accounts and sold mainly mutual funds and variable annuities. Many of her customers were of retirement age or older. NASD found that, in determining which products to recommend, Vogt treated her customers as a homogeneous group, regardless of age, financial status, investment experience and objectives. Of her approximately 700 accounts, more than 90 percent listed their primary investment objective as "growth" and risk tolerance as "medium." RJFS never questioned the fact that Vogt listed these objectives and strategies for almost all of her customers. In fact, the person who reviewed and accepted the customer account documents was Vogt herself.

Judge Throws Out Conviction of Specialist

A federal district court judge in New York threw out the conviction of Dennis Finnerty, a trader at the  NYSE specialist firm, Fleet Specialists, for improper trading for his firm's accounts.  The prosecution was one of a number against specialist firms for allegedly interpositioning themselves between customers' orders to make a profit.  The judge said that the government did not meet its burden of showing fraud or deceptive conduct or establishing that the customers were misled or defrauded.  See WSJ, Judge Throws Out Conviction Of Ex-Specialist Finnerty.

Fannie Mae Cancels Bonuses

Fannie Mae, whose profits were overstated by $6.3 billion, announced it would not pay bonuses totalling $44.4 million to 46 current and former employees for the period 2001-04.  See WPost, Fannie Cancels Executive Bonuses and WSJ, Fannie Won't Pay $44.4 Million in Bonuses.

SEC Sustains NASD's Findings in Research Reports Case

The SEC sustained  NASD's  findings  of  violation  against Donner Corporation International, a former NASD member  firm,  Jeffrey L. Baclet, its former president and sole owner, and Vincent M.  Uberti and Paul A. Runyon, former registered representatives of Donner.  NASD found that Donner, Baclet, Uberti, and Runyon violated  Section  10(b)and Rule  10b-5,  and NASD Rules  2120,  2210,  and  2110  by  preparing  and  disseminating research reports which contained material misstatements and omissions.  NASD found further that Donner, Baclet, and Uberti violated NASD  Rule 2110 by failing to disclose in certain  Donner  research  reports  the compensation Donner  received  for  writing  the  reports.  NASD  also determined that Donner and Baclet violated NASD Rules 3010, 2210,  and 2110 by failing to establish and maintain adequate written supervisory procedures and by failing  to  ensure  written  approval  of  Donner's  research reports by a firm principal.

Further Due Process Restrictions on Punitive Damages

The Supreme Court, in a 5-4 decision, imposed further restrictions on punitive damages awards, holding that the award cannot penalize the defendant for harm done to non-parties.  While punitive damages are not allowed in federal securities claims, they may be awarded in some state securities claims and in arbitration cases against brokerage firms.  Recently, there have been some judicial opinions holding that due process limits on punitive damages awards are applicable in arbitration, even though there is no state action.  For discussion of the Phillips Morris v. Williams decision, see WSJ, High Court Throws Out Verdict Against Philip Morris.

Academic Study on Hedge Fund Performance

The New York Times highlights the study of "Hedge Fund Activism, Corporate Governance and Firm Performance" by law professors Frank Partney (San Diego) and Randall Thomas (Vanderbilt) and two finance professors. The study contradicts the generally held view that hedge funds are not "real" shareholders and only in it for short term gains.  In fact, they find that most hedge funds take long-term positions in the companies they invest in and improve the bottom line for all shareholders.  (Frank and Randall presented the paper at the January AALS meeting.)  See NY Times, A Good Word for Hedge Fund Activism (It appeared in the Sunday paper, but you may have missed it because of the holiday.)

Study on Foreign IPOs since SOX

It has practically become common wisdom -- that since the enactment of Sarbanes Oxley, foreign companies have avoided the U.S. markets.  But a new study by Thomson Financial examines IPOs for the past 20 years and finds little evidence that it's true.  See WSJ,  Do Tough Rules Deter Foreign IPOL istings in U.S.?

New Brokerage Ad Campaigns

Morgan Stanley is unveiling its new ad campaign since changing CEOs in 2005.  It has dumped the "your stockbroker is your family friend" theme and is going for a "chillier, less emotional image" with the tagline "World Wise."  Courting retail investors is a big business for the large brokerage firms.  See WSJ, Morgan Stanley Alters Its Pitch.

Hedge Funds Get Attention from Fed Reserve of NY

Timothy Geithner's ( President of the Federal Reserve Bank of New York) mission:  prevent financial system meltdown.  He is focusing his attention on the risks presented by hedge funds, as he works with other regulators to minimize systemic risk.  See WSJ, Geithner's Balancing Act.

Mercury Court Documents Reveal Backdating

More details about those incriminating emails released in court documents (previously sealed) in the Mercury backdating options lawsuit -- The WSJ provides excerpts that demonstrate the blatant nature of the backdating, with talk of using the "magic backdating ink."  See WSJ, Emails Reveal Backdating Scheme.

Daimler Reportedly Getting Ready to Sell Chrysler

Reports that DaimlerChrysler will shed Chrysler gain traction.  Investment bankers are reportedly working to put a value on Chrysler, and an auction or spin-off may take place in the coming months.  See WSJ, Future of Chrysler Rests With Zetsche.

Lateral Moves in Academia

Gordon Smith is moving from Wisconsin to BYU.

Susan Stabile is moving from St. John's to St. Thomas (Minneapolis).

Congrats to both Gordon and Susan!

Citigroup Considering TSE Listing

Citigroup is considering listing its shares on the Tokyo Stock Exchange, to facilitate its expansion efforts in Japan.  See WSJ, Citigroup Studies Possibility Of Tokyo Share Listing.

Daimler May Shed Chrysler

Today's rumor is that DaimlerChrysler will sell or spin off Chrysler.  This follows last week's rumor of a Chrysler-GM merger.  SeeWSJ, Kicking Chrysler's Tires

Mercury Backdating Derivative Suit

Court documents filed in a shareholders derivative suit against Mercury Interactive Corp. in California state court reportedly contain evidence that former executives altered dates on stock options and sent emails discussing backdating, including talk about using "magic backdating ink."  News organizations are seeking an order to unseal the documents.  See WSJ, Document Shows Mercury Executives Allegedly Discussed Options Dating.

Perspectives on the Week's News

Two themes this past week:

Globalization of the capital markets is the catchphrase -- and this week presents a contrast between the two leading U.S. markets' efforts on this front.  The SEC approved the NYSE-Euronext merger, while Nasdaq failed in its second bid to acquire the LSE -- or, as Nasdaq CEO put it, Nasdaq "chose not to win."

Second, the backdating stock options investigations lead to (actual and possible)criminal charges in the corporate offices -- former Monster GC pleaded guilty ; and there are reports of possible criminal charges against the former McAfee GC and former Broadcom CFO.  In addition, the former CEO of Take-Two settled SEC charges related to stock options backdating.

Scholarship on Mutual Funds

SSRN recently posted "The Investment Company Act's Definition of "Security" and the Myth of Equivalence," by JOSEPH A. FRANCO, Suffolk University Law School 

Here is the abstract:

This article addresses a fundamental issue under the Investment Company Act, the federal statute governing mutual funds and other investment companies: the scope of the Act's definition of "security." Currently the SEC construes the definition as encompassing commercial instruments (such as commercial notes, bank instruments, and derivatives structured as notes), even though the similarly-worded definition of "security" in the Securities Exchange Act of 1934 is construed as excluding such instruments. Although the SEC's construction is seemingly counter-intuitive (i.e., the same words are construed differently in related statutes), it is also of fundamental importance in terms of the ability of the SEC to regulate money market funds and other pooled investment vehicles that hold significant portfolios of commercial instruments. Another law review article recently argued that the SEC has abused its discretion in the way that it construes the term for purposes of the Investment Company Act and that, in fact, the definitions across statutes should be construed as "equivalent." See C. Steven Bradford, “Expanding the Investment Company Act: The SEC's Manipulation of the Definition of Security,” 60 Ohio St. L. Rev. 995 (1999). This article explains why the SEC's approach is more sound both as a matter of statutory construction and as a matter of policy.