Sunday, February 18, 2007
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.
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.
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.