Monday, November 16, 2009
The SEC charged four individuals and two companies involved in perpetrating a $30 million Ponzi scheme in which they persuaded more than 300 investors nationwide to participate in purported environmentally-friendly investment opportunities. The SEC alleges that Wayde and Donna McKelvy, who were previously married and living in the Denver area, particularly targeted elderly investors or those approaching retirement age to finance such "green" initiatives of Pennsylvania-based Mantria Corporation as a supposed "carbon negative" housing community in rural Tennessee and a "biochar" charcoal substitute made from organic waste. The McKelvys promoted Mantria investment opportunities through their Denver-based company Speed of Wealth LLC. With the help of two other promoters who are Mantria executives — Troy Wragg and Amanda Knorr of Philadelphia — they convinced investors attending seminars or participating in Internet "webinars" to liquidate their traditional investments such as retirement plans and home equity to instead invest in Mantria.
The SEC alleges that the "green" representations were laced with bogus claims, and investors were falsely promised enormous returns on their investments ranging from 17 percent to "hundreds of percent" annually. In fact, Mantria's environmental initiatives have not generated any significant cash, and any returns paid to investors have been funded almost exclusively from other investors' contributions.
The SEC's complaint, filed in federal court in Denver, charges Mantria and Speed of Wealth as well as the McKelvys, Wragg and Knorr, and seeks an emergency court order to freeze their assets. The SEC's complaint charges each of the defendants with violating the antifraud and offering registration provisions of the securities laws. The SEC also charged all of the defendants except for Mantria with violating broker-dealer registration requirements. The SEC seeks injunctions, disgorgement, and financial penalties from the defendants.
Sunday, November 15, 2009
Litigation Governance: Taking Accountability Seriously, by John C. Coffee Jr., Columbia Law School; European Corporate Governance Institute (ECGI); American Academy of Arts & Sciences, was recently posted on SSRN. Here is the abstract:
Both Europe and the United States are rethinking their approach to aggregate litigation. In the United States, class actions have long been organized around an entrepreneurial model that uses economic incentives to align the interest of the class attorney with those of the class. But increasingly, potential class members are preferring exit to voice, suggesting that the advantages of the U.S. model may have been overstated. In contrast, Europe has long resisted the U.S.’s entrepreneurial model, and the contemporary debate in Europe centers on whether certain elements of the U.S. model - namely, opt-out class actions, contingent fees, and the “American rule” on fee shifting - must be adopted in order to assure access to justice. Because legal transplants rarely take, this Essay offers an alternative “non-entrepreneurial model” for aggregate litigation that is consistent with European traditions. Relying less on economic incentives, it seeks to design a representative plaintiff for the class action who would function as a true “gatekeeper,” pledging its reputational capital to assure class members of its loyal performance. Effectively, this model marries aspects of U.S. “public interest” litigation with existing European class action practice. Examining the differences between U.S. and European practice, this Essay argues none of these differences are dispositively prohibitive and that functional substitutes, including an opt-in class action and third party funding, could be engineered so as to yield roughly comparable results. Although the two systems might perform similarly in terms of compensation, the ultimate question, it argues, is the degree to which a jurisdiction wishes to authorize and arm a private attorney general to pursue deterrence for profit.
The Peril and Promise of a Multi-Enforcer Approach to Securities Fraud Deterrence: A Framework for Analysis, by Amanda M. Rose, Vanderbilt University Law School, was recently posted on SSRN. Here is the abstract:
Participants in the United States’ national securities markets face potential fraud liability at the hands of the SEC, class action plaintiffs, and state regulators. Does this “multi-enforcer” approach to securities fraud deterrence make sense? How does one even go about answering that? This Article tackles the second question, filling a current void in the securities fraud literature by elucidating the circumstances that must prevail in order for a multi-enforcer approach to serve the cause of optimal deterrence. It thus situates debates over the preemption of state securities fraud enforcement authority and the desirability of private Rule 10b-5 enforcement within a framework of rational inquiry, and clarifies the empirical questions that must ultimately drive their resolution.
The Story of Hewlett-Packard, by Barbara Black, University of Cincinnati - College of Law, was recently posted on SSRN. Here is the abstract:
With the development of the modern corporation, corporate boards have been the locus of corporate authority, and particularly since the 1980s, boards and their performance have been under intense scrutiny. Nevertheless, corporate law has not developed a consistent theory for what boards are supposed to do; instead, it sends mixed messages about the functions and expectations of boards and the appropriate people to sit on them. The HP saga illustrates some of the dilemmas faced by directors confronted by these competing pressures.
Grounds to Challenge FINRA Arbitrators, by Jill Gross, Pace Law School, was recently posted on SSRN. Here is the abstract:
This short article describes the grounds and processes parties can invoke to challenge the neutrality of arbitrators appointed to decide their disputes filed with FINRA Dispute Resolution, either pre-hearing or post-award.