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Posts by: Daniel Dunne

Ninth Circuit Smells a Rat and Reinstates Claim That Pharmaceutical Company Failed to Disclose Cancers in Animal Testing

The Ninth Circuit recently revived a securities class action against Arena Pharmaceuticals, issuing a decision with important guidance to pharmaceutical companies speaking publicly about future prospects for FDA approval of their advanced drug candidates. The court’s opinion reemphasizes the dangers of volunteering incomplete information, holding that a company that touts the results of trials or tests as supportive of a pending application for FDA approval must also disclose negative test results or concerns expressed by the FDA about those studies—even if the company reasonably believes the concerns are unfounded and are the product of a good faith disagreement.

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The SEC Audit Trail – Several Industry Groups See Problems as Currently Proposed

Last week, several securities industry groups filed critical responses to the SEC’s plan for an audit trail.  While most groups that commented on the SEC’s proposed regulation supported implementing the proposal, several had concerns regarding the cost for investors and firms, and the protection of private data.

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SEC Chair Warns Silicon Valley That Unicorns Need To Be Watched and Monitored

Speaking last week at the SEC’s and Rock Center’s Silicon Valley Initiative at Stanford Law School, SEC Chair Mary Jo White cautioned Silicon Valley’s start-up companies regarding their potential lack of internal controls.  In particular, she warned that unicorns—nonpublic start-up companies valued north of one billion dollars—may warrant special scrutiny into whether their corporate governance and investor disclosures are keeping pace with their growing valuations.  Ms. White repeatedly warned that the prestige of obtaining “unicorn” status may drive companies to inflate their valuations.

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Exchanges Prevail in Flash Boys-Inspired Suits

The practice of high frequency trading has been a hot-button issue of late, thanks in part to Michael Lewis’ 2014 book Flash Boys: A Wall Street Revolt, which examines the rise of this phenomenon throughout U.S. markets.  Several class action lawsuits have alleged that various private and public stock and derivatives exchanges entered into agreements and received undisclosed fees to favor high frequency traders (“HFTs”), conferring timing advantages that damaged other market participants.  Two courts have recently addressed the merits of claims for damages against such exchanges and both ruled that plaintiffs failed to state a claim for relief.

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International Hacking and Insider Trading Scheme Exposes Cybersecurity Vulnerabilities at Third-Party Vendors

On August 11, 2015, the SEC announced that it was bringing fraud charges against 32 defendants for their alleged participation in a five-year, international hacking and insider trading scheme.  According to the SEC, two Ukrainian men hacked into at least two major newswire services, stole non-public copies of embargoed corporate announcements containing quarterly and annual earnings data, and provided the announcements to 30 other defendants, who traded off the information.  In parallel actions, the U.S. Attorney’s Offices for the District of New Jersey and the Eastern District of New York also announced criminal charges against some defendants named in the SEC’s action.  The SEC’s enforcement action may be a harbinger of events to come.  As we have written, cybersecurity is emerging as the SEC’s newest area of focus for enforcement actions.

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Remote Tippees Beware: Even if the DOJ Can’t Reach You After Newman, The SEC Can

The fall-out from the Second Circuit’s decision in U.S. v. Newman continued last week in SEC v. Payton, when Southern District of New York Judge Jed S. Rakoff denied a motion to dismiss an SEC civil enforcement action against two former brokers, Daryl Payton and Benjamin Durant, one of whom (Payton) had just had his criminal plea for the same conduct reversed in light of Newman.  Although the United States may be unable to make criminal charges stick against some alleged insider traders under a standard of “willfulness,” Judge Rakoff found that the SEC had sufficiently alleged that related conduct of the two brokers at the end of the tip line was “reckless,” satisfying the SEC’s lower civil standard.

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Going for Brokerage: SEC Report Highlights Best (and Worst) Practices in Cybersecurity Preparedness

cybersecurity

On February 3, 2015, the U.S. Securities and Exchange Commission released a Risk Alert addressing cybersecurity issues at brokerage and advisory firms, along with suggestions to investors on ways they can protect themselves and their online accounts.  FINRA issued a similar, more extensive “Report on Cybersecurity Practices” on the same day.

The National Exam Program Risk Alert, “Cybersecurity Examination Sweep Summary” summarizes cybersecurity practices and policies of 57 registered broker-dealers, and 49 registered investment advisers based on examinations conducted by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”).  These findings should be reviewed by CISOs and CIOs who have responsibility for cybersecurity protection because they highlight best practices and areas ripe for improvement.  It is reasonable to assume that both the SEC and FINRA will expect firms to review the findings and tailor their own internal assessments and practices to improve their cybersecurity posture, accordingly.  They also underscore that the simplest cyber-related scams (phishing, fraudulent e-mail scams, etc.) are still remarkably successful.

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Are Bank Branches in New York the Gateway to Seizure of Foreign Assets: The New York Court of Appeals Reconsiders the Separate Entity Rule

On September 16, 2014, the New York Court of Appeals heard oral argument on a certified question from the Second Circuit in Motorola Credit Corp. v. Standard Chartered Bank, an important case concerning the application of New York’s “separate entity rule” to foreign banks that maintain a branch in New York.

When someone obtains a judgment in New York, he may enforce that judgment by serving a restraining notice on a bank that holds the judgment debtor’s assets. Once the bank receives that notice, it may not distribute the funds to any person other than the sheriff. The judgment creditor may also sue for a court order requiring the bank to turn over the judgment debtors’ assets. READ MORE

Supreme Court Rejects Calls to Overrule Fraud-on-the-Market Theory in Halliburton; Presumption of Reliance Still a Basic Part of Class Certification

Today the Supreme Court rejected calls from lawyers, economists and corporate associations to overrule the “fraud-on-the-market” theory that makes it possible to litigate federal securities fraud claims as class actions, instead handing defendants a modest procedural victory.  In Halliburton Co. v. Erica P. John Fund, Inc., the Court declined to overrule a decision that for more than twenty-five years has been used by securities plaintiffs to certify thousands of federal class actions, but also recognized that defendants can rebut class certification by showing that allegedly misleading statements did not affect the price of a company’s securities.  Halliburton kills what had been a growing movement to eliminate federal securities fraud class actions for all intents and purposes.

Plaintiff-respondent Erica P. John Fund, Inc. (the “Fund”) purchased stock in Halliburton and lost money when Halliburton’s stock price dropped upon the release of certain negative news regarding the company.  The Fund filed suit against Halliburton and its CEO David Lesar (collectively, “Halliburton”), alleging that Halliburton had made knowing or severely reckless misrepresentations concerning those topics, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. READ MORE