Securities Law Prof Blog

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

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Friday, August 28, 2009

More Questions on the SEC-BofA Settlement

Zachary Goldfarb of the Washington Post consistently provides insightful coverage into the SEC.  Check out his article today on the SEC's dilemma in persuading Judge Rakoff to accept the Bank of America settlement over the Merrill bonuses, in the face of the judge's criticism about not going after individual defendants.  He raises a number of unresolved issues about the settlement process.  WPost, SEC's About-Face on Bank of America Raises Eyebrows.

(And now I'm going on vacation.)

August 28, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

Thursday, August 27, 2009

Going Fishing

I'll be out of town and without a pc for a few days.  Check back here on Sept. 2, and I'll be doing some catch-up.

August 27, 2009 in News Stories | Permalink | Comments (1) | TrackBack (0)

SEC Suspends Las Vegas CPA for Auditing Deficiences

The SEC charged a Las Vegas-based CPA and his public accounting firm with securities fraud for issuing false audit reports that failed to comply with Public Company Accounting Oversight Board ("PCAOB") Standards and were often the product of high school graduates hired with little or no education or experience in accounting or auditing. The Commission's lawsuit, filed in federal district court in Las Vegas, Nevada, names Michael J. Moore ("Moore"), CPA, and Moore & Associates Chartered ("M&A"), and they have agreed to settle the charges without admitting or denying the allegations.

According to the SEC's complaint, Moore and M&A issued audit reports for more than 300 clients who consist of primarily shell or developmental stage companies with public stock quoted on the OTCBB or the Pink Sheets. The SEC alleges that Moore and M&A violated numerous auditing standards, including a failure to hire employees with adequate technical training and proficiency. The SEC further alleges that Moore and M&A did not adequately plan and supervise the audits, failed to exercise due professional care, and did not obtain sufficient competent evidence. Despite the audit failures, M&A issued and Moore signed audit reports falsely stating that the audits were conducted in accordance with PCAOB Standards.

To settle the Commission's charges, Moore and M&A consented to the entry of a final judgment permanently enjoining them from future violations of the securities and ordering them to disgorge ill-gotten gains of $179,750 plus prejudgment interest of $10,151.59. Moore separately agreed to pay a $130,000 penalty. Moore and M&A also consented to the entry of an administrative order that makes findings and suspends them from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.

August 27, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Three Defendants Settle SEC Charges Involving Insider Trading in ISE Merger

The SEC announced that it filed an amended complaint in its pending insider trading case originally filed on March 13, 2008, against John F. Marshall, the former Vice Chairman of International Securities Exchange Holdings, Inc. ("ISE"), Alan L. Tucker and Mark R. Larson. The original complaint alleged that Marshall tipped his business partners, Tucker and Larson, concerning ISE's merger talks with Eurex Frankfurt AG ("Eurex"), a German company, and that both men traded on the information ahead of the April 30, 2007 announcement of Eurex's $2.8 billion cash merger agreement with ISE, for illegal profits totaling approximately $1.1 million and $31,000, respectively. This amended complaint adds a new defendant, Thomas Genzale, and charges him with having also traded in ISE securities in advance of the April 30, 2007 acquisition announcement based on tips from defendant Marshall, resulting, in Genzale's case, in profits of approximately $826,000. Genzale, Marshall, and Tucker have all agreed to settle the Commission's charges set forth in the Complaint without admitting or denying those allegations.

Recently, on the Commission's motion, the Court dismissed the Commission's charges against defendant Larson with prejudice. In place of the original complaint's allegation that Marshall tipped Larson, the First Amended Complaint alleges that Marshall recommended the purchase of ISE securities to a business partner, who, in turn, purchased 1,700 shares of ISE, resulting in profits of approximately $31,000.

Genzale has consented to pay $826,118.84 in disgorgement, $105,977.61 in prejudgment interest, and an $826,118.74 penalty. Marshall has consented to pay $31,452.73 in disgorgement (the alleged amount of the trading profits of the business partner to whom he recommended ISE), and $4,034.88 in prejudgment interest-and has also consented to be permanently barred from serving as an officer or director of a publicly-traded company. Finally, Tucker has consented to pay $18,342.06 in prejudgment interest.

August 27, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 26, 2009

Assessing Bernanke's First Term

There has been much talk the last few days about the reappointment of Ben Bernanke to head the Federal Reserve, an action that went from unlikely to quite certain in a short period of time.  Today's Wall St. Journal offers a thoughtful assessment of Bernanke's evolution during his first term.  The title sums it up:

After Slow Start, Fed Chief Found His Groove

August 26, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 25, 2009

Judge Asks for More Explanation for SEC-BofA Settlement

Judge Rakoff still isn't satisfied with the explanations given to him by the SEC and the Bank of America about the settlement involving the disclosure (or lack thereof) of Merrill bonuses in the BofA proxy statement.  He instructed the SEC to provide more explanation about why it didn't follow SEC policy and seek penalties from individual defendants.  He also didn't accept the agency's explanation that its hands were tied because the corporation asserted reliance on advice of counsel as a defense and would not waive the attorney client privilege and give the SEC the documents.  How could the corporation base a defense on attorneys' advice without disclosing the advice?  The judge asked for further submissions due Sept. 9.  WSJ, SEC Ordered to Explain Handling of BofA Case.

The standard for judicial review for negotiated settlements, in case you're wondering, is that the judge should give deference to the agency and approve the settlement so long as it is reasonable and in the public interest.

August 25, 2009 in News Stories | Permalink | Comments (1) | TrackBack (0)

Monday, August 24, 2009

SEC Settles Insider Trading Charges Involving First Indiana Corp. Stock

The SEC today settled charges against Nancy Jewell, Kristin Mays, and Matthew B. Murphy, III, alleging that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder by buying First Indiana Corporation (First Indiana) common stock on the basis of material nonpublic information ahead of a public announcement that First Indiana had entered into a merger agreement.

The Commission's complaint alleges that on July 6, 2007, a member of First Indiana's Board of Directors received a phone call advising him of a special Board meeting scheduled for Sunday, July 8, 2007. The Director had a longstanding relationship and a history of sharing confidences with each of the defendants. The complaint further alleges that the Director complained to each of the defendants that he was upset that a special First Indiana Board meeting was taking place on Sunday and ruining his scheduled plans for that day. The complaint alleges that the defendants then each misappropriated that information from the Director by purchasing First Indiana common stock that same day on the basis of the information. Before the start of trading on July 9, 2007, First Indiana announced that it had agreed to be acquired by Marshall & Ilsley Corporation at a price per share that represented a 42% premium over the Friday, July 6, closing price for First Indiana common stock.

Pursuant to the proposed settlements, Jewell would pay disgorgement of $8,888, with prejudgment interest of $943.56, and a civil penalty of $8,888; Mays would pay $7,960, with prejudgment interest of $845.03, and civil penalty of $7,960; and Murphy would pay $9,078, with prejudgment interest of $963.72, and a civil penalty of $9,078. The proposed settlements are subject to the approval of the District Court.

August 24, 2009 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASAA Identifies Top 10 Investor Traps

NASAA recently published its Top 10 Investor Traps.  They are:

Entertainment Investments.  

Gold Bullion and Currency Scams.

Leveraged Exchange-Traded Funds (ETFs).

Life Settlements.

Natural Resource Investments.

Ponzi Schemes.

Private Placement Offerings. 

Real Estate Investment Schemes.

Short-term Commercial Promissory Notes.

Speculative Inventions and New Products.

August 24, 2009 in Other Regulatory Action | Permalink | Comments (1) | TrackBack (0)

New Blog on FCPA

Readers of this Blog know that the SEC has recently been enforcing the Foreign Corrupt Practices Act (FCPA) with renewed energy.  Mike Koehler (Butler University) has a new blog, FCPA Professor, that is devoted to FCPA issues; check it out!

August 24, 2009 in News Stories | Permalink | Comments (0) | TrackBack (0)

Bullard on Recursivity in Securities Laws

Professor Mercer Bullard (Mississippi) recently published  a  commentary on recursivity in the securities laws as illustrated by Bank of America‚Äôs recent SEC settlement.

August 24, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Sunday, August 23, 2009

Velasco on Fiduciary Duties in Corporate Law

How Many Fiduciary Duties Are There in Corporate Law?, by Julian Velasco, University of Notre Dame, was recently posted on SSRN.  Here is the abstract:

Historically, there were two main fiduciary duties in corporate law, care and loyalty, and only the duty of loyalty was likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected the triadic formulation and declared that good faith was a component of the duty of loyalty. In this and other respects, Delaware seems to be returning to a bifurcated understanding of the law of fiduciary duties. I believe that this is a mistake. The law is inherently complex and much too important to be oversimplified.

The current academic debate on the issue focuses on whether there should be two duties or three. In this article, I argue that the question is misleading and irrelevant, but that if it must be asked, the best answer is that there are five duties - one for each paradigm of enforcement. In defending this claim, I explain the true nature of fiduciary duties and provide a robust framework for the discussion, implementation, and development of the law.

August 23, 2009 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)