Securities Law Prof Blog

SEC Obtains Freeze of Assets of Alleged Ponzi Scheme

The SEC obtained a court order halting a $25 million fraudulent scheme allegedly perpetrated by Laguna Hills, Calif.-based Safevest, LLC and its principals, Jon G. Ervinand John V. Slye.  The U.S. District Court for the Central District of California issued an order freezing assets and appointing a temporary receiver over Safevest and its affiliates. 

The SEC's complaint alleges that since at least May 2007, the defendants have raised at least $25 million from more than 500 investors, including many from the Christian community, misrepresenting that investor funds would be pooled and invested in futures commodities trading, that the investment would generate daily profits ranging from 1.5% to 1.9%, and that investors could receive their money back within 72 hours of requesting it. In reality, according to the complaint, no investor money was invested in futures trading, and requests by investors for withdrawal of their funds have either not been honored or have only been partially honored. The complaint further alleges that, undisclosed to investors, the defendants paid more than $18 million to investors in Ponzi-like fashion. The defendants also allegedly misappropriated investor funds for the personal use of Ervin, Slye, and their family members.

The Commission also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against all defendants.

"Dolan Discount"?

Another example that it's tough being minority shareholders in a family-controlled public corporation.  Last fall the public Cablevision shareholders rejected the Dolan family's bid to buy them out at $36.26.  This year Cablevision's stock has declined, while the stock of its two competitors -- Comcast and Time Warner -- has risen.  Investors worry about CEO James Dolan's acquisition plans, including a bid for Newsday, the Long Island newspaper.  Some think he is punishing the company for rejecting the offer; according to Dolan, the shareholders gave him a mandate to grow the company.  WSJ, 'Dolan Discount' Affliction.

Herbalife President Resigns

Herbalife's President Gregory Probert resigned, after admitting he faked a MBA claimed in the company's SEC filings.  "Vanity" made him do it.  WSJ, Herbalife President Resigns.

Banc of America Investment Services Settles SEC Charges of Favoring Proprietary Funds

The SEC filed a settled enforcement action against Banc of America Investment Services, Inc. (BAISI) for failing to disclose to clients that in selecting investments for discretionary mutual fund wrap fee accounts, it favored two mutual funds affiliated with BAISI.  The SEC also charged Columbia Management Advisors, LLC (Columbia), as successor to Banc of America Capital Management, LLC (BACAP), with aiding and abetting, and causing certain of BAISI's violations. As part of the settlement, BAISI and Columbia agreed to pay a total of nearly $10 million in disgorgement and penalties. The Commission ordered BAISI to distribute the settlement amount to affected clients.

According to the SEC, from July 2002 through December 2004, BAISI made material misrepresentations and omissions to clients who had given BAISI discretion to select mutual funds for them. The clients participated in an asset-based or "wrap" fee program in which they paid BAISI a fee based upon the amount of their assets in exchange for BAISI providing advisory and other account services. BAISI purchased at least two proprietary "Nations Funds" for clients with discretionary wrap fee accounts using a methodology that was contrary to BAISI's disclosures to those clients. The Order also finds that BAISI omitted to disclose the scope of its and BACAP's conflict of interests, and their bias in the recommendation and selection process. BACAP earned additional fees as a result of these violations because it was paid management and other fees based on the total assets of Nations Funds.

McCann-Erickson Settles Accounting Fraud Charges

The SEC filed a civil injunctive action against McCann-Erickson Worldwide, Inc. (“McCann”) and the Interpublic Group of Companies, Inc. (“IPG”) alleging that McCann committed securities fraud when it misstated its financial results by failing to expense properly intercompany charges and IPG negligently failed to address the intercompany problems at its largest subsidiary, McCann. IPG also violated the reporting, internal controls and books and records provisions of the securities laws in connection with a variety of issues that were reflected in various restatements IPG issued from August 2002 through September 2005 totaling more than $600 million. IPG and McCann agreed to settle the Commission’s charges, and McCann agreed to pay a $12 million civil penalty.

The SEC also brought settled charges against Salvatore LaGreca and Brian Watson for their role in failing to reconcile intercompany accounts that resulted in the 2002 restatement. LaGreca served as McCann’s Vice-Chairman, Finance and Operations and CFO from January 1996 to October 2002. Watson joined McCann’s European-Middle-East-Asia region (“EMEA”) as Director of Operations in 1996, from 2000 served as Chief Operating Officer and in approximately May 2002 became Deputy Regional Director of EMEA and, from approximately the middle of 1998 until January 2000, and from early 2001 to May 2002, when EMEA did not have a Finance Director, Watson handled many aspects of the Finance Director’s responsibilities.

IPG, McCann, LaGreca and Watson settled the Commission’s charges without admitting or denying the allegations in the Commission's complaints.

Time Warner Will Spin Off Cable Subsidiary

The dismantling of the failed Time Warner-AOL merger continues.  Time Warner announced that it would spin off Time Warner Cable, its 84% owned subsidiary and the second largest provider of cable television, high-speed Internet, and telephone service.  The cable company needs to invest in capital improvements, but much of its excess cash has gone back to Time Warner. 

Next Time Warner is expected to focus on the future of AOL.  Previously Time Warner had discussions with Yahoo about combining AOL's advertising platform and Yahoo's portal, in an effort to thwart Microsoft's bid for Yahoo, but there does not appear to be any progress on those talks.  WPost, Time Warner To Spin Off Cable; NYTimes, Time Warner Refocusing With Move to Spin Off Cable.   

Meanwhile, Microsoft's board reportedly met yesterday to discuss the Yahoo bid, but no public announcement of its plans yet.  NYTimes, Microsoft’s Board Meets on Yahoo Bid; WSJ, Microsoft Fails to Reach Yahoo Decision.

Cabelvision Joins Bidding for Newsday

Cablevision entered the auction for the Long Island newspaper Newday with a $650 million bid, competing against Rupert Murdoch and Mortimer Zuckerman, each of whom has bid $580 million.  The latter two have also agreed to structure the deal so that the Tribune, parent of Newsday, can avoid taxes on the deal.  NYTimes, Cablevision Set to Raise the Stakes in Newsday Bidding

Survey of Auditors' Fees

A survey of financial executives at 185 companies found that larger firms spent an average of $3.6 million on total audit costs in 2007, up 2% from 2006, but a 5.4% decline in the cost for auditors' review of management's internal controls.  Larger firms paid an average of $210 per hour for auditors, up 5% from 2006.  WSJ, Sarbanes-Oxley Costs For Compliance Decline.

SEC Settles Earnings Management Charges Against Former Nortel VPs

The SEC announced that Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor — who were the vice presidents of finance for the Wireline, Wireless, and Enterprise business units of Nortel Networks Corporation (“Nortel”), respectively — agreed to settle the Commission’s charges against them arising from their alleged involvement in Nortel’s earnings management fraud during 2002 and 2003. Each has consented, without admitting or denying the Commission’s allegations against them, to the entry of a final judgment in the Commission’s pending litigation.  The final judgments order each individual to pay a $75,000 civil penalty and to pay disgorgement in the amount of $66,845 (Johnson) and $52,000 (each for Kinney and Taylor), along with prejudgment interest in the amount of $21,186 (Johnson) and $16,481 (each for Kinney and Taylor). The final judgments also bar each individual from acting as an officer or director of any public company for five years and permanently enjoin each individual from federal securities law violations.

FINRA Issues Notice on Partial Redemptions of Auction Rate Securities

FINRA issued a Notice to Members regarding partial redemptions of auction rate securities.  In response to current market conditions, some issuers are offering partial redemptions of auction rate securities. This Notice reminds firms that when allocating partial redemptions of auction rate securities among their customers, they must adopt procedures that are reasonably designed to treat customers fairly and impartially, and must put their customers’ interests ahead of their own.

AFD $5 Million Fine for Directed Brokerage Upheld on Appeal

A $5 million fine imposed against American Fund Distributors (AFD) for directed brokerage in 2006 will stand, according to a ruling issued today by the National Adjudicatory Council (NAC), the appeals body of the Financial Industry Regulatory Authority (FINRA).  The NAC upheld a FINRA Hearing Panel decision finding that AFD violated FINRA's Anti-Reciprocal Rule when it directed more than $98 million in brokerage commissions between 2001 and 2003 to the 46 retail securities firms that were the top sellers of its mutual funds.

AFD is the principal underwriter and distributor of American Funds, a family of 29 mutual funds. In ruling on AFD's appeal of the Hearing Panel decision, the NAC concluded that AFD arranged for the direction of a specific amount or percentage of brokerage commissions to other securities firms conditioned upon those firms' sales of American Funds shares, an "outright" violation of FINRA's Anti-Reciprocal Rule.  The NAC also concluded that AFD's requests and arrangements for the direction of brokerage, conditioned upon sales, was directly at odds with the goal of the Anti-Reciprocal Rule, which is "to curb conflicts of interest that might cause retail firms to recommend investment company shares based upon the receipt of commissions from that investment company."

In the decision released today, the NAC emphasized that AFD tracked, monitored, and facilitated the directed brokerage payments by identifying the top-selling retail firms of American Funds, providing its investment adviser with the amount of commissions to be sent, and monitoring its investment adviser's trading with, and the payment of commissions to, the selected retail firms throughout the year. The NAC also highlighted the fact that AFD directed commissions to "step-out firms" - retail firms that had no capability to execute portfolio trades for American Funds, but nevertheless obtained commissions indirectly from clearing firms that did execute the trades.  The NAC also found that AFD's conduct was intentional.  The NAC concluded that AFD's violations, while "not egregious, were quite serious" and that a "substantial" fine of $5 million was appropriate based on the facts and circumstances of the case.

SEC Charges Birmingham Mayor with Municipal Bond Fraud

The SEC filed a civil action today against Birmingham Mayor Larry Langford, William Blount, and Albert LaPierre, alleging that while Langford served as president of the County Commission of Jefferson County, Alabama (County Commission), he accepted more than $156,000 in undisclosed cash and benefits over the course of two years from Blount, the chairman of Blount Parrish & Co, Inc. Blount Parrish is a broker-dealer based in Montgomery, Alabama.  According to the SEC's complaint, Langford selected Blount Parrish to participate in every Jefferson County municipal bond offering and security-based swap agreement transaction during 2003 and 2004, earning Blount Parrish over $6.7 million in fees. Moreover, the SEC alleges, Langford and Blount concealed the payment scheme by using their long-time friend, LaPierre, an Alabama registered political lobbyist, as a conduit. The case is the SEC's first enforcement action involving security-based swap agreements.

SEC Charges Two Former Monster Worldwide Officers with Backdating

The SEC today charged two former senior executives at Monster Worldwide, Inc., for their alleged participation in a multi-year scheme to secretly backdate stock options granted to thousands of Monster officers, directors and employees.  The SEC alleges that Monster's former president and chief operating officer James J. Treacy and former controller Anthony Bonica participated in a scheme that began in 1997 to fraudulently backdate stock options to coincide with the dates of low closing prices for the New York-based company's common stock.  As a result of their conduct, Monster misrepresented that all stock options were granted at the fair market value of the stock on the date of the award and also filed materially misstated financial statements in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants.  As a result, Monster overstated its aggregate pre-tax operating income by approximately $339.5 million for fiscal years 1997 through 2005.

The SEC's complaint further alleges that Treacy and Bonica personally benefited from the fraudulent scheme by receiving and exercising backdated grants of in-the-money options.  The Commission is seeking permanent injunctive relief, disgorgement of ill-gotten gains and financial penalties from each defendant, as well as an officer and director bar against Treacy.

Report Calls for Eliminating Price Discrepancies

The Security Traders Association will release a report calling on the NYSE and Nasdaq to work on "an appropriate and coordinated opening process" to eliminate growing price discrepancies in stocks at the opening of trading.  "Divergent prices confuse investors," explained John Giesea, president of the group.  WSJ, NYSE, Nasdaq Urged To Cut Price Divergence.

Countrywide Announces Another Big Loss

Countrywide Financial announced a $893 million loss in the first quarter ($1.60 per share) because of rising loan defaults.  The Wall St. Journal reports that a federal investigation has uncovered evidence that Countrywide sales executives falsified income figures for many borrowers, particularly in the Fast and Easy mortgage program, where borrowers did not have to provide documentation of their income.  NYTimes, Countrywide Says It Lost $893 Million in Quarter; WSJ, Countrywide Loss Focuses Attention on Underwriting.

Citigroup Issues $3 Billion in New Stock

Citigroup will sell $3 billion in common shares this week to increase its capital and help protect its dividend.  This will make $39 billion Citigroup has raised since November.  NYTimes, Citigroup to Sell $3 Billion in Stock.

Freddie Mac's Compensation Committee Cites Accomplishments in Awarding CEO Compensation

Freddie Mac lost $3.1 billion in 2007, its first annual loss, and its regulator Ofheo reported to Congress that the company remains "a significant regulatory concern."  Yet the company's compensation committee cited management's "notable accomplishments" in the annual report and disclosed total compensation to the chairman and CEO Richard Syron of over $13 million.  His $2.2 million performance-based cash bonus, though, was only 66% of his target amount since, a spokesperson explained, Freddie Mac's financial performance was "not good."  WPost, Freddie Mac Differs With Regulator on 2007 Results.

FINRA Proposes Amendments to Options Communications Rule

The SEC has released for public comment FINRA's proposed amendment of NASD Rule 2220 (Options Communications with the Public), which FINRA says is being revised to better address current needs for regulating options communications practices and promote consistency across the options communications rules of other self-regulatory organizations ("SROs").  FINRA explains that it, along with other SROs, have sought to modernize their rules concerning options communications with the public. One of the goals of this rule modernization is to make the rules on options communications consistent with the general rules on communications with the public. To this end, FINRA proposes to: (1) use, to the extent appropriate, the same terminology and definitions as in its general communications rules; (2) make the requirements for principal review of correspondence concerning options the same as for correspondence generally; and (3) update the standards on the content of communications that precede the delivery of the options disclosure document ("ODD").

SEC Settles Insider Trading Charges Against Bank Director and Son

The SEC settled an insider trading action against Charles R. Norton, a former director of Community Bancorp, and his son, Chad R. Norton, who traded in Valley Bancorp stock shortly before the June 28, 2006 announcement of Valley Bancorp's acquisition by Community Bancorp.  The SEC alleged that Charles and Chad Norton traded on the basis of confidential information about Community Bancorp's imminent acquisition of Valley Bancorp. Charles Norton sat on the board of directors of Community Bancorp and had access to sensitive information about the acquisition through his attendance at Community Bancorp board meetings. The complaint alleges that Charles Norton tipped Chad Norton, who traded ahead of the announcement. Charles and Chad Norton realized illegal profits of $35,064.71 from the trades.

To settle the SEC's charges, Charles and Chad Norton have consented, without admitting or denying the allegations in the complaint, to a final judgment permanently enjoining them from future violations, to pay $38,433.72, representing the disgorgement of their illegal trading profits and prejudgment interest, and each to pay a civil penalty of $35,064.71. In addition, Charles Norton will be barred from serving as an officer or director of a public company for five years. The settlement is subject to approval by the court.

SEC's Corporation Finance Recommends Changes to Cross-Border Tender Offer Rules

The SEC's Division of Corporation Finance said today that it has completed its review of the Commission's cross-border tender, exchange offer and business combination rules, and has prepared recommendations for consideration by the Commission.  The cross-border tender offer rules apply to offers for the securities of foreign companies that have U.S. security holders.

Director of Corporation Finance John White said that the goal of the review was to determine whether changes could be made that would facilitate the ability of U.S. investors to exercise their rights in connection with cross-border mergers and acquisitions. This review included looking at areas of conflict and inconsistency with foreign regulations and practice that are frequently encountered in cross-border business combinations and that result in U.S. investors being excluded from these transactions.

Two Views on SEC Reform

The New York Times today has two pieces relevant to the question of market reform.  First, an Op-Ed piece, "Muzzling the Watchdog," by three former SEC Chairs, Arthur Levitt, William Donaldson, and David Ruder, warns against a regulatory approach that would turn the SEC, in its words, "from a market referee into an industry coach -- a regulator that is heavy on forgiveness and light on punishment."  It calls for a thorough study of the causes of the current market crisis.  Perhaps predictably, the piece concludes by saying that the problem with the SEC today is lack of adequate funding to allow the agency to perform its job as law enforcement agency and investors' advocate.

Andrew Ross Sorkin's column, Junk Bonds, Mortgages and Milken, is a response to recent assertions that Michael Milken, and specifically the creation of junk bonds, is to blame for the recent credit crisis.  While I agree that blaming Milken is classic passing-the-buck, what caught my attention are the following two sentences:

Toward the end of every bubble, people misuse the financial tools at their disposal, and then a witch hunt begins for the villain. Then, of course, the regulators jump in and try to fix things — and often go a bit overboard. (emphasis added)

Huh?  In fact, the response to this crisis, to date, has been quite the opposite.  Treasury Secretary Paulson's Blueprint, as the former SEC Chairs point out, is more deregulatory than otherwise, and even if anyone in this current administration thought beefing up the SEC's budget was a good idea, it's hard to see where the money would come from.  Moreover, despite the inspirational words from the former SEC Chairs, the current SEC seems, to this outside observer, to lack the energy and the will to be a true Investors' Advocate.

Circuit City Investors Urge Sale

Two large Circuit City shareholders have called upon the company to allow Blockbuster to conduct due diligence.  To date Circuit City has refused, saying that it did not believe that Blockbuster had the finances for the deal.  HBK Investments, a hedge fund that is a large investor in both companies, says that Circuit City should conduct an auction for its sale.  WSJ, Circuit City Gets Pressure From Big Investor for a Deal.

Mars and Wrigley Agree to Join Candy and Gum Businesses

Mars' acquisition of Wrigley for $23 billion cash($80 per share, or a 28% premium)will create a huge privately owned company with many of the iconic brands in the candy and gum business (along with pet food and Uncle Ben's rice).  While the deal surprised Wall St., Mars reportedly had its eye on Wrigley for some time.  Wrigley has been a public company since 1923; the Wrigley family controls two-thirds of the supervoting shares, although Bill Jr. is the only family member active in the business.  Warren Buffett's Berkskhire Hathaway is providing $4.4 billion in loans to finance the deal.  The Wall St. Journal has a complete history of both companies.  WSJ, Mars's Takeover of Wrigley Creates Global Powerhouse; NYTimes, Mars Offers $23 Billion Cash for Wrigley.

SEC Settles Insider Trading Charges Involving Laserscope

The SEC settled insider trading claims against Edward O. Boshell, an outside disinterested director of a Dallas-based business development company (BDC), and Donald J. Pochopien, a shareholder of a Chicago-based law firm. The SEC alleged that Boshell and Pochopien engaged in unlawful insider trading in the securities of Laserscope in advance of a public announcement on June 5, 2006 that Laserscope would be acquired by American Medical Systems Holding, Inc. (American Medical).  The SEC alleges that Boshell was made aware of the acquisition during a routine board meeting of the Dallas-based BDC approximately a month before the public announcement. The Commission alleges that Pochopien was made aware of the acquisition approximately a month before the public announcement when his law firm was hired by American Medical to conduct a due diligence review of the Laserscope acquisition.

SEC Drops Whole Foods Blogging Investigation

Whole Foods Market said that the SEC ended its probe into blog postings by CEO John Mackey without recommending any action.  Last July Mackey's postings, some of which denigrated its merger partner Wild Oats, under an assumed name received a great deal of attention.  A special committee of the Whole Foods board conducted an investigation last fall and affirmed its support for management.  CFO.com, Whole Foods "Blogging" Probe Dropped by SEC.

SEC's Enforcement Director Speaks on Lawyers' Liability and FCPA

Linda Chatman Thomsen, Director, Division of Enforcement, SEC, spoke before the Minority Corporate Counsel 2008 CLE Expo, in Chicago, Illinois, on March 27, 2008, on lawyers' liability in general and in particular with respect to the FCPA.

Tracinda Bids for 20 Million Ford Shares

Kirk Kerkorian's Tracinda bid $8.50 for up to 20 million shares of Ford, a 13% premium over its closing price on Friday.  The shares represent about 1% of Ford's outstanding.  Tracinda currently owns about 4.7%.  Nasdaq, Tracinda Bids $8.50 A Share For 20 Million Ford Shares.

Fiorina A Possible Republican VP Candidate?

Carly Fiorina, the former "rock-star" Hewlett-Packard CEO, now Victory Chairman of John McCain's campaign, is being mentioned as a possible VP candidate.  WSJ, Ex-CEO Fiorina Seems Comfortable Following McCain's Lead.

Yahoo Does Not Respond to Microsoft's Deadline

Saturday was the deadline Microsoft gave Yahoo to agree to a deal.  Now Microsoft must decide whether to back away or go forward with a hostile tender offer and proxy contest as Steve Ballmer stated several weeks ago.  Many of Microsoft's own executives, however, are said to oppose the deal as diverting resources from other projects.  WSJ, Microsoft Confronts Tough Choice on Yahoo.

Mars Negotiates to Buy Wrigley

Mars, privately owned by the Mars family (M&M's, Mars, Snickers) reportedly has struck a deal to acquire the Wm. Wrigley Jr. Co. (chewing gum, Lifesavers, Altoids) for approximately $22 billion.  Warren Buffett's Berkshire Hathaway will provide Mars with financing.  Wrigley's market value on Friday was $17.3 billion.  Mars is the world's largest maker of chocolate by sales.  NYTimes, Candy Maker Reported Near Deal for Chewing Gum Giant; WSJ, Mars, Buffett Team Up in Wrigley Bid.

Hamermesh on Shareholders' Inspection Rights

Twenty Years after Smith v. Van Gorkom: An Essay on the Limits of Civil Liability of Corporate Directors and the Role of Shareholder Inspection Rights, by LAWRENCE A. HAMERMESH, Widener University School of Law, was recently posted on SSRN.  Here is the abstract:

With director monetary liability for lack of care (appropriately, in the author`s view) fading or disappearing altogether since Smith v. Van Gorkom, litigation invoking the duty of care seems increasingly unlikely to serve as a vehicle for public scrutiny of, and reputational sanctions for, director conduct that is substandard but does not involve self-interest or lack of good faith. It is therefore increasingly important to examine when information obtained through the exercise of stockholder inspection rights can be made public. A recent case involving the Walt Disney Company - but not the well-known litigation involving Michael Ovitz' termination compensation - addresses the issue of confidential treatment of such information. Prompted by the Court of Chancery's treatment of the issue, this Article proposes that the courts review and balance a number of factors - the subject matter of the information, the level of public interest in the information, the motives of the stockholder in seeking the information and (perhaps) ultimately seeking to make it public, and the context in which the information was generated - to determine whether information afforded pursuant to stockholder inspection rights should remain confidential.

Zitzewitz on Mutual Fund Settlements

An Eliot Effect? Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7, by ERIC ZITZEWITZ, Dartmouth College, was recently posted on SSRN.  Here is the abstract:

This paper examines the negotiated settlements of 20 market timing and late trading cases, comparing the restitution obtained for shareholders with an estimate of shareholder dilution. This restitution ratio varies from 0.04 to 5, or from 0.1 to 10 if penalties are included. While some of this variation is explained by differences in the defendants' conduct, controlling for this, settlement negotiations that involved New York as well as the Security and Exchange Commission (SEC) resulted in restitution ratios that were higher by a factor of 5-10. An analysis that uses the firms' headquarters location and customers' state of residence as an instrument for New York's involvement suggests that this difference is causal, and not the result of New York involving itself in cases likely to lead to large settlements. Given the much larger staff and institutional expertise of the SEC, it is likely that these differences in outcomes are due to differences in aggressiveness, not prosecutorial resources. Differences in aggressiveness are consistent with popular conceptions of the regulators' career concerns, as well as with theories of industry focus and regulatory capture.

Harner on Activist Debt Investing

The Corporate Governance and Public Policy Implications of Activist Distressed Debt Investing, by MICHELLE M. HARNER, University of Nebraska College of Law, was recently posted on SSRN.  Here is the abstract:

Activist institutional investors traditionally have invested in a company's equity to try to influence change at the company. Some of these investors, however, are now purchasing a company's debt for this same purpose. They may seek to change a company's management and board personnel, operational strategies, asset holdings or capital structure.

The chapter 11 bankruptcy cases of Allied Holdings, Inc. and its affiliates exemplify the strategies of activist distressed debt investors. In the Allied cases, Yucaipa Companies, a distressed debt investor, purchased approximately 66% of Allied's outstanding general unsecured bond debt. Yucaipa used this debt position to exert significant influence over Allied's chapter 11 cases and business operations, including its labor contract with the Teamsters. Yucaipa emerged as Allied's majority shareholder under Allied's confirmed plan of reorganization.

Allied is not an isolated example. In 2006, distressed debt investors raised a record $19 billion in investment funds. The research shows that some investors are using these investment funds for activist purposes. Indeed, activist distressed debt investing is on the rise in both the United States and the United Kingdom. This activism is changing the dynamics of corporate restructurings and presenting new challenges for corporate management and public policymakers.

Rosen on Executive Compensation

Who Killed Katie Couric? And Other Tales from the World of Executive Compensation Reform, by KENNETH M. ROSEN, University of Alabama - School of Law, was recently posted on SSRN.  Here is the abstract:

With average Americans perturbed about executive pay, government officials are taking action. Officials appear to be racing against each other to battle corporate excess. The U.S. Securities and Exchange Commission (SEC) engaged in major rulemaking related to the disclosure of executive compensation, and Congress quickly considered executive compensation legislation. More reform, however, is not always better. Concurrent reform by multiple regulators presents perils.

This Article adds to the dialogue about scandal-driven reform. While much discussion exists about the advisability of particular reforms, the focus here is on the process of reform. The Article conducts a comparative analysis of the SEC and House of Representatives' reform processes, which reveals that different policy-making processes may be more or less likely to yield positive reforms. The Article argues that promoting distinct, more delineated roles for certain public actors could improve synergies between regulatory reform efforts.

Part I explores how the SEC's response to the public notice and comment process for its compensation disclosure rulemaking shows how administrative agencies properly can tailor regulation in a deliberative fashion. Part II then provides the contrasting story of the House's passage of H.R. 1257 that illustrates the pitfalls of scandal-driven reform. Unfortunately, the House's actions followed disturbing trends in mandating content for SEC regulation and in failing to account adequately for synergies between concurrent regulatory efforts.

Part III concludes by suggesting a framework identifying when congressional action on business regulation seems most appropriate given concurrent regulatory efforts. The Article identifies Congress's important potential role in settling authority issues, providing oversight to administrative agency reforms, and being prepared to intervene when agencies are recalcitrant about enacting necessary rule changes. In offering this framework, the Article moves beyond executive compensation issues to see how Congress might deal with other crises of confidence in business regulation. Areas for potential application of the framework include the regulation of hedge funds, imported toys and other consumer products, proxy voting, and subprime lending.