Securities Law Prof Blog

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

Tuesday, August 7, 2012

Pfizer Settles FCPA Charges with SEC and DOJ

The SEC and Pfizer Inc. have agreed to settle charges that the company violated the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed doctors and other health care professionals employed by foreign governments in order to win business.  The SEC alleges that employees and agents of Pfizer’s subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. According to the SEC’s complaint against Pfizer filed in U.S. District Court for the District of Columbia, the misconduct dates back as far as 2001.

The SEC separately charged another pharmaceutical company that Pfizer acquired a few years ago – Wyeth LLC – with its own FCPA violations.

Pfizer and Wyeth agreed to separate settlements in which they will pay more than $45 million combined to settle their respective charges. In a parallel action, the Department of Justice announced that Pfizer H.C.P. Corporation agreed to pay a $15 million penalty to resolve its investigation of FCPA violations.

 According to the SEC, Pfizer made an initial voluntary disclosure of misconduct by its subsidiaries to the SEC and Department of Justice in October 2004 and fully cooperated with SEC investigators. Pfizer took remedial actions including undertaking a comprehensive worldwide review of its compliance program.

Pfizer consented to the entry of a final judgment ordering it to pay disgorgement of $16,032,676 in net profits and prejudgment interest of $10,307,268 for a total of $26,339,944. Wyeth also is required to report to the SEC on the status of its remediation and implementation of compliance measures over a two-year period, and is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement of $17,217,831 in net profits and prejudgment interest of $1,658,793, for a total of $18,876,624. As a Pfizer subsidiary, the status of Wyeth’s remediation and implementation of compliance measures will be subsumed in Pfizer’s two-year self-reporting period. Wyeth also is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The settlements are subject to court approval.

August 7, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, August 6, 2012

Debate over Adviser SRO Heats Up Again

Representative Spencer Bachus, Chairman of the House Financial Services Committee, has an op-ed piece in today's Wall St. Journal called "Financial Advisers, Police Yourselves," in which he calls for support of the Investment Adviser Oversight Bill that would authorize the establishment of one or more SROs to supplement the SEC's examinations for investment advisers.  The alternative that has been floated is allocation of additional funds so the SEC can conduct more exams.  Rep. Bachus, in response to this, states:

But the SEC has informed Congress that even if it received increased funding this year, it would be able to examine only one in 10 investment advisers annually. This is unacceptable.

Additionally, this approach ignores the SEC's poor track record leading up to the financial crisis. The SEC failed to protect investors and detect fraud even though evidence about the Madoff and Stanford Ponzi schemes was handed to them by insider informants on a silver platter.

As Investment News notes, on July 25 Rep. Bachus suspended his bill after Rep. Maxine Walters introduced a bill that would allow the SEC to charge advisers user fees to fund exams and said that no legislation would move forward until consensus was reached.  Representatives of the investment adviser industry expressed disappointment with Mr. Bachus's statement.  Inv News, Game on: Bachus reopens SRO debate, snipes at advisers 


August 6, 2012 in News Stories, Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Sunday, August 5, 2012

Langevoort on Insider Trading & Scienter

What Were They Thinking? Insider Trading and the Scienter Requirement, by Donald C. Langevoort, Georgetown University Law Center, was recently posted on SSRN.  Here is the abstract:

On its face, the connection between insider trading regulation and the state of mind of the trader or tipper seems intuitive. Insider trading is a form of market abuse: taking advantage of a secret to which one is not entitled, generally in breach of some kind of fiduciary-like duty. This chapter examines both the legal doctrine and the psychology associated with this pursuit. There is much conceptual confusion in how we define unlawful insider trading — the quixotic effort to build a coherent theory of insider trading by reference to the law of fraud, rather than a more expansive market abuse standard — which leads to interesting psychological questions as to the required state of mind. Is it always simple greed? What if there is an element of unconscious misperception — or rationalization — at work? My sense is that the causal explanations for what is charged as insider trading are sometimes quite murky and not easily explained as pure greed. The chapter thus tries to connect the law of insider trading to a more sophisticated approach to state of mind, motivation and causation.

August 5, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Fried on Corporate Insider Trading

Insider Trading via the Corporation, by Jesse M. Fried, Harvard Law School, was recently posted on SSRN.  Here is the abstract:

When a U.S. firm trades its own shares in the open market, it is subject to much less stringent trade-disclosure rules than an insider of the firm trading in those shares. Insiders owning equity in their firm thus frequently engage in indirect insider trading: having the firm buy and sell its own stock at favorable prices. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by causing insiders to take steps that destroy economic value. To reduce these costs, I put forward a simple proposal: subject firms to the same trade-disclosure rules imposed on their insiders.

August 5, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)

Johnson on Regulatory Failure and Medical Capital Fraud

Fleecing Grandma: A Regulatory Ponzi Scheme, by Jennifer J. Johnson
Lewis & Clark Law School, was recently posted on SSRN.  Here is the abstract:

This Article examines the regulatory failure that allowed Medical Capital to engage in a Ponzi scheme to market over $2 billion in promissory notes as private placements. Utilizing a vast stockbroker network, Medical Capital sold the notes to more than 20,000 retail investors including vulnerable senior citizens. The Article explains how in spite of many warning signs, none of the potential gatekeepers, including the SEC, FINRA, the stockbrokers, the banks, the attorneys, or the independent due diligence analyst interceded to protect the investors.

Under current SEC rules, issuers can sell any dollar amount of private placement securities to an unlimited number of defined accredited investors with virtually no governmental oversight. The Article recommends that in line with its authority under the Dodd–Frank Act, the Commission tighten the standards for accredited investor status. The Article further argues that, coupled with untethered stockbroker activity, the current regulatory structure unduly favors small business at the expense of retail investors. This problem will be exacerbated by the 2012 JOBS Act, which mandates looser advertising rules for Rule 506 private placements. The Medical Capital fraud suggests that Congress and the SEC are misguided in their heavy reliance upon stockbrokers as effective intermediaries. The Article concludes with a modest proposal to rein in the activities of the brokers.

August 5, 2012 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)