Securities Law Prof Blog

CBOT and CBOE Dispute Ownership, Trading Rights

The Chicago Board of Trade and the Chicago Board Options Exchange are engaged in a dispute over who owns the options exchange (which is planning to go public).  CBOT says its members own 60% of the options exchange because it provided initial funding in 1973.  CBOT members also say that they have the right to trade at the options exchange and that the options exchange has interfered with these rights.  CBOE, in turn, says these rights were extinguished in the recent CBOT-CME merger.  WSJ, Bickering Exchanges.

SEC Seeks More Information on Executive Compensation

The SEC is causing consternation in executive offices at some 300 corporations.  After reviewing the disclosures of executive compensation under its new rules, it has sent letters asking for additional information, including benchmarks and targets used to determine performance based compensation.   The Wall St. Journal quotes from one letter: "If disclosure of the performance-related factors would cause competitive harm, please discuss further how difficult it will be for the named executive officer or how likely it will be for you to achieve the target levels or other factors."  Other questions have involved the work performed by compensation consultants.  The companies are supposed to respond by Sept. 21.  John White, Director of Corporation Finance, has stated publicly that the initial disclosures were "vague."  WSJ, SEC Asks Firms to Detail Top Executives' Pay.

SEC Settles Insider Trading Charges Involving Worthington Foods

On August 29, 2007, the United States District Court for the Southern District of Ohio entered a Final Judgment against Defendants Arnold L. Jack, a resident of Columbus, Ohio, and Black-Jack Enterprises, an Ohio partnership owned by Jack and co-defendant Roger D. Blackwell, for illegal insider trading in the stock of Worthington Foods, Inc. The Court's Judgment enjoined Jack and Black-Jack from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and ordered Jack to pay a civil penalty in the amount of $31,146.35. Jack and Black-Jack settled the Commission's claims without admitting or denying the allegations of the Complaint.

The Complaint alleges that Defendants Jack and Black-Jack committed illegal insider trading when they traded Worthington Foods, Inc. ("Worthington") stock after they were tipped by Blackwell about the Kellogg Company's 1999 acquisition of Worthington. The Complaint further alleged that Arnold L. Jack has been Roger Blackwell's close friend, business partner and attorney for about 30 years. Blackwell has separately agreed to pay the full disgorgement and prejudgment interest attributable, to Jack and Black-Jack. The illegal profits attributable to Jack and Black-Jack total, respectively, $31,146.35 and $26,884.74.

FINRA Study Shows Investor Anxiety

A new survey, commissioned by FINRA, shows American investors have significant and widespread anxiety about the security of their investments, particularly as it relates to their retirement savings. More investors report that they are anxious about losing money on their investments (78 percent) and saving for retirement (73 percent) than are anxious about losing their job (50 percent), buying a house (42 percent) or paying for college (35 percent). Only serious health problems were ranked above investment concerns in the survey.  Executive Summary.

Organizations Launch Website to Oppose SEC's Proxy Access Rule Proposals

The Social Investment Forum and Interfaith Center on Corporate Responsibility have jointly sponsored a website, Save Shareholder Rights!, to mount opposition to the SEC's competing versions of amendments to Rule 14a-8(i)(8) that address shareholders' access to management proxy materials for nominating directors.  Among the organizations' concerns: (1) the proposals could curb advisory shareholders resolutions; (2) the 5% threshold for director nominations is too high.  They are soliciting both individual and institutional investors to email their representatives in Congress.

Daimler Announces 10% Buyback of Stock

DaimlerChrysler (soon to be Daimler) announced a 10% stock buyback because of "excess liquidity" after its sale of Chrysler.  It also said it expects improved earnings, despite a drop in second quarter net income.  WSJ, Daimler Plans Stock Buyback,Issues Upbeat Outlook.

Hedge Funds Dominate Bond Markets

According to a recent study, hedge funds account for almost 30% of all US fixed-income trading, and 55% of US activity in derivatives with investment-grade ratings and 55% of trading volume for emerging markets bonds. WSJ, Hedge Funds Do About 30% Of Bond Trading, Study Says.

All Charges Dismissed Against Quattrone

Prosecutors dismissed all remaining charges against Frank Quattrone, former head of Credit Suisse First Boston's technology banking group.  Quattrone was tried twice for obstructing justice, convicted once, and the conviction was thrown out on appeal.  NYTimes, After 4 Years, Last Charges Dropped in Quattrone Case.

Portrait of a Shareholder Activist in Japan

The New York Times profiles Tomomi Yano, head of investment at one of Japan's largest pension funds and the unlikely face of shareholder activisim in Japan.  In a country that does not have a tradition of shareholder activism, Yano works to force boards to downsize, raise dividends, and better inform shareholders.  NYTimes, An Investor Activism Uncommon in Japan.

Lerach's Departure

The WSJ Blog has posted William Lerach's email to his firm announcing his retirement -- well worth reading.  Lerach’s Departure Memo.  The online newspaper reports that Lerach is negotiating a plea bargain with prosecutors that could involve prison time.  WSJ, Milberg Figure Lerach Retires Amid Plea Talks.

Altria Announces Spinoff of International Tobacco Business

Altria Group announced the second phase of its restructuring -- the spinoff of its international tobacco business.  Philip Morris International will be based in Switzerland, and the current Altria CEO, Louis Camilleri, will head it.  It will be able to market cigarettes abroad without US regulatory constraints.  Earlier this year Altria spun off Kraft Foods. WSJ, Altria to Spin Off International Unit.

Lerach Announces Retirement

William Lerach is retiring from the law firm he founded three years ago, Lerach Coughlin.  Lerach says he will focus his attention on the allegations against him in the federal probe of kickbacks that led to the indictment this summer of Milberg Weiss.  NYTimes, Lawyer Quits Firm to Focus on Inquiry; WSJ, Milberg Figure Lerach Retires Amid Plea Talks.

Subprime Crisis Leads to Calls for Increased International Regulation

The call for international regulation of complex financial products and hedge funds is another consequence of the subprime crisis.  Both regulators and politicians abroad argue that the US's export of financial products that cause losses in foreign countries shows the need for additional monitoring.  While the US has not been receptive to previous efforts, the increasing need for foreign money gives them greater leverage.  In particular, the failure of the ratings agencies to downgrade debt has created concern that US regulation is lax.  NYTimes, Calls Grow for Foreigners to Have a Say on U.S. Market Rules.

"The Mystery of Delaware Law's Success" Conference at Illinois

On Friday, October 19, the University of Illinois College of Law Program in Business Law and Policy will be hosting a lecture “The Mystery of Delaware Law’s Success” presented by Chancellor William B. Chandler III of the Delaware Court of Chancery with responses from Emory University Professor William Carney, University of Illinois Professor Larry Ribstein, and Vanderbilt University Professor Robert Thompson. The Law School is located in Urbana-Champaign.

Former Goldman Sachs Analyst Pleads Guilty to Insider Trading

Former Goldman Sachs Group Inc. bond analyst Eugene Plotkin pleaded guilty to insider trading and conspiracy charges in New York.  Mr. Plotkin allegedly was one of the leaders in series of insider-trading schemes that generated more than $6.7 million in illegal proceeds.  InvestmentNews, Plotkin pleads guilty to insider trading.

Rambus Settles Backdating Charges

Rambus Inc. announced settlement of claims relating to backdating stock options against all but one former officer.  The total value of the settlement exceeds $6.5 million as well as the value of the relinquished stock options.  The company said claims would be maintained against Ed Larsen, VP of Human Resources from 1996-1999 and senior VP of Administration from 1999-2004.  CFO.com, Rambus Settles Most Backdating Claims.

Court Enters Summary Judgment in Real Estate Investment Fraud

On August 23, 2007, the federal district court in the Western District of New York issued an order granting the Commission's motion for summary judgment against defendants Edward Tackaberry ("Tackaberry") and Mark Palazzo ("Palazzo"), the owners and managers of six real estate investment companies (the "Pittsford Issuers") that raised approximately $15 million from 275 investors, including many senior citizens. The Court permanently enjoined Tackaberry and Palazzo from future violations of the antifraud provisions of the federal securities laws. The Court also ordered Palazzo and Tackaberry to disgorge $11,725,294.82, plus prejudgment interest, and imposed civil penalties of $75,000 each.In his order granting summary judgment, the court found that, of the $15.5 million raised in the offerings, Palazzo and Tackaberry distributed more than $4.4 million in a series of unauthorized and undisclosed loans that were not secured by mortgages and therefore contrary to the terms of the private placement memoranda. The Court also found that Palazzo and Tackaberry never disclosed that the separate bank accounts of the Pittsford Issuers had been closed and all funds commingled into a single account. Judge Telesca found that these and other misrepresentations and omissions were material, and that Palazzo and Tackaberry acted with a "high degree of scienter; they were trained securities professionals who repeatedly made materially false and misleading statements and omissions to investors in the Pittsford Issuers."

SEC Charges Another Corporate Attorney in Backdating Charges

Continuing its tough stance against corporate attorneys, the SEC filed fraud charges against a Bay Area attorney for her role in illegally backdating stock option grants. The Commission charged Lisa C. Berry with routinely backdating option grants from 1997 to 2003, first as General Counsel of KLA-Tencor Corporation and then as General Counsel of Juniper Networks, Inc. The Commission alleges that Berry's misconduct caused the two companies to conceal hundreds of millions of dollars in stock option compensation expenses relating to undisclosed in-the-money options provided to company executives and employees.

The Commission also announced today that it has filed a settled enforcement action against Juniper, an information technology company based in Sunnyvale, Calif. Without admitting or denying the allegations, Juniper has consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. KLA, a San Jose-based semiconductor equipment company, previously settled charges brought by the Commission.

"The Commission's action today confirms that attorneys are no less bound by the securities laws than other public company executives," said Linda Chatman Thomsen, the SEC's Director of Enforcement. "At both KLA and Juniper, Ms. Berry was in a unique position to insure that the companies accurately disclosed their stock option expenses; instead, she facilitated their fraud on investors."

SEC Charges Former General Counsel of KLA-Tencor And Juniper Networks For Fraudulent Stock Option Backdating.

Will Nasdaq Have Trouble Selling LSE Stake?

Nasdaq may have problems selling its 31% stake in the London Stock Exchange, valued at about $1.63 billion.  It's the familiar problem -- who wants to own a significant minority stake in a company when those in control have no interest in selling?  Nasdaq tried for a year to merge with LSE, but now has turned its sights to the Nordic exchange operator OMX AB and faces serious competition from the Borse Dubai.  On the other hand, LSE is a "trophy property," and a number of possible buyers have expressed interest.  WSJ, Browsers, but No Buyers, for an LSE Stake.

Another Law Firm Merger

Law firms Dewey Ballantine and Leboeuf Lamb announced that they are merging.  The new firm will be called Dewey & LeBouef and will be the 14th largest law firm, with about 1300 lawyers and about $1 billion in revenues.  NYTimes, 2 Big Law Firms Announce Merger .