Justin Bagdady

Managing Associate
Securities Litigation & Regulatory Enforcement
Read full biography at www.orrick.com

Justin Bagdady, a managing associate in Orrick’s Washington, D.C., office, is a member of the Securities Litigation and Regulatory Enforcement Group.

Mr. Bagdady focuses his practice on the representation of entities and individuals in regulatory investigations and enforcement actions, private actions under federal and state securities laws, and commercial litigation matters.

Recent engagements include:

  • SEC v. Mercury Interactive, Inc. Represented the General Counsel of Mercury in an SEC enforcement action alleging backdating of stock options and improper accounting practices.
  • Bundy v. IronPlanet. Obtained judgment in favor of client on all counts, including an award of attorneys’ fees and costs, in an action alleging breach of a repurchase contract over shares of stock allegedly worth more than US$20 million.
  • Molina Information Systems v. Unisys Corp. Represented Molina in contractual dispute alleging breaches of representations and warranties related to purchase of information management business.
  • SEC v. Mozilo, et al. Represented the former President and Chief Operating Officer of the nation’s largest mortgage lender in litigation with the SEC involving allegations of disclosure fraud. Also represented the same client in private securities actions.
  • SEC v. Espuelas, et al. Represented the former Vice President of Global Sales of StarMedia Network, Inc. in an SEC enforcement action in federal court alleging improper revenue recognition.
  • Represented corporations and individuals in investigations and in administrative proceedings brought by the SEC and FINRA.

Prior to joining Orrick, Mr. Bagdady interned at the United States Office of Government Ethics.

Justin Bagdady

The MCDC Initiative: Round One Is Underway

The clock will strike on the first self-report deadline under the SEC’s Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”) at 12:00 a.m. EST on September 10, 2014.  Under the MCDC Initiative, underwriters and issuers of municipal securities may choose to self-report any potential, materially inaccurate statements relating to prior compliance with continuing disclosure obligations in exchange for a recommendation of “favorable settlement terms.”  Under the terms of the original SEC announcement, the deadline for both underwriters and issuers was September 10.  But the SEC announced a set of modifications to the MCDC Initiative on July 31, 2014, including a shift to a piecemeal approach whereby the deadline for underwriters went unchanged but the deadline for issuers was moved to December 1, 2014.  This decision was admonished in an August 28, 2014 letter from U.S. Representatives Steve Stivers and Krysten Sinema to SEC Chair Mary Jo White, in which they “urge[d] the SEC to extend the self-reporting deadline for dealers to match the deadline for issuers” because there “simply is no justification for separate reporting deadlines.” Read More

What’s The Opposite of Rubber Stamping a Settlement? Meet Judge Kane in SEC v. Van Gilder

Judge John L. Kane of the United States District Court for the District of Colorado is uninterested in oxymoronic gimmicks, that much is clear.  In a fiery April 24, 2014 opinion, Judge Kane rejected settlements between the SEC and two individual defendants in an insider trading case.  Judge Kane evoked—both in style and via explicit citation—Judge Jed Rakoff’s well-known rejection of the proposed settlement in SEC v. Citigroup Global Markets and similarly rejected the proposed settlements because they included numerous “provisions and recitations that [he would] not endorse.”

Judge Kane’s ire was focused on the SEC’s proposed settlement with Michael Van Gilder, the individual who allegedly traded based on inside information in advance of a high-stakes acquisition and tipped friends and family in an email titled “Xmas present.”  The SEC’s proposed settlement with Van Gilder included a permanent injunction prohibiting future violations of Section 10(b) or Rule 10b-5, a $109,265 disgorgement payment (credited in part by a payment already made in a parallel criminal proceeding), and another $109,265 in civil penalties.  The proposal included a number of standard provisions for SEC settlements, including a waiver of the entry of findings of fact and conclusions of law, a waiver of the right to appeal from the entry of final judgment, “a statement that Van Gilder neither admits nor denies the allegations of the Complaint,” and enjoining Van Gilder from future violations of existing statutory law.  Judge Kane decisively rejected each of these in turn. Read More

SEC Speaks, Cuban Tweets

The leaders of the Securities and Exchange Commission addressed the public on February 21-22 at the annual SEC Speaks conference in Washington, D.C.  The presentations covered an array of topics, but common themes included the Commission’s ongoing effort to carry out the rulemaking agenda set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, its role as an enforcement body post-financial crisis, its increasing utilization of technology, and its renewed focus on the conduct of gatekeepers.  In a surprise appearance, Dallas Mavericks owner and former insider trading defendant Mark Cuban attended the first day of the conference.  During his time at the conference, Mr. Cuban shared his thoughts on a number of the presentations via his Twitter account.

From a litigation and enforcement perspective, key takeaways from the conference include the following: Read More

A Bird in the Hand is Worth … Nothing if you Can’t Really Sell it

A pair of investment firms recently filed suit against Twitter in the Southern District of New York, alleging that Twitter had fraudulently refused to allow them to sell its private stock in advance of its much-anticipated IPO.  If that sentence looks somewhat bizarre, it is because the allegations themselves are bizarre, at best.

In short, the plaintiff investment firms allege that a managing partner of GSV Asset Management, who was a Twitter shareholder, engaged them to market a fund that would purchase and hold nearly $300 million in private Twitter shares from the Company’s early-stage shareholders.  Plaintiffs then embarked on an “international roadshow” to line up investors in the fund.  Plaintiffs allege that, on the roadshow, “there was substantial interest in purchasing [the private] Twitter shares at $19 per share.” Read More

A Ponzi of A Different Color

High profile schemes perpetrated by Bernie Madoff, Allen Stanford, Nevin Shapiro, and others have brought, or at least reinforced, a general understanding of the term “Ponzi scheme” into the public lexicon.  But what, legally, is a Ponzi scheme?  In SEC v. Management Solutions, Inc., 2013 WL 4501088 (D. Utah Aug. 22, 2013), Judge Bruce Jenkins endeavored to answer that question and, in the process, authored an encyclopedic account of the term and key court opinions, from seven federal circuits, that have construed it.

Management Solutions was an SEC enforcement action against a father-and-son team that had allegedly raised over $200 million through a “classic Ponzi scheme.”  According to the SEC’s complaint, investors in the scheme were sold “membership interests” in an apartment-flipping business and were guaranteed a return of five to eight percent.  In reality, the funds were allegedly deposited into a general account and were used to pay a variety of expenses, including returns to other investors.  Each of the defendants in the SEC case settled without admitting or denying the allegations.

A hearing was held in 2013 to determine whether, as argued by the court-appointed receiver, the scheme was properly classified as a “Ponzi scheme” and, if so, at what point that designation became applicable.  The receiver sought such a finding in order to obtain the so-called “Ponzi presumption,” which is sufficient to establish actual intent to defraud.  Read More

Making a Statement: The Two Faces of Janus in the SDNY

Almost two years after the Supreme Court issued its momentous decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), lower courts continue to reach significantly different conclusions concerning its scope. The Supreme Court held that, for purposes of SEC Rule 10b-5, “the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Id. at 2302. Specifically, in Janus, the Supreme Court held that an investment advisor could not be liable for statements in prospectuses filed by a related, but legally separate entity. Because the investment advisor did not “make” the statements—that is, did not have “ultimate authority” over them—it could not be liable as a primary violator of Rule 10b-5 for any misstatements or omissions contained therein.

Janus established a bright-line rule. But the Southern District of New York, in particular, has split over whether Janus applies beyond the context of private actions brought under Rule 10b-5(b). In the most recent decision from that district to address the issue, SEC v. Garber, No. 12 Civ. 9339, 2013 WL 1732571 (S.D.N.Y. Apr. 22, 2013), Judge Shira A. Scheindlin deepened this divide. Read More

SEC Is “Here to Stay” on Insider Trading

It has been over three years since the SEC filed its insider trading charges against Galleon Management and Raj Rajaratnam. When that complaint was filed, the Director of the SEC’s Division of Enforcement, Robert Khuzami promised to “roll back the curtain” and “look at patterns across all markets” for illegal insider trading. Last month, Mr. Khuzami echoed those remarks when he announced that the SEC had filed its largest-ever insider trading case and warned “would-be insider traders” that the SEC is “here to stay.”

In that case, SEC v. CR Intrinsic Investors, LLC, the SEC alleges that a group of hedge funds and their managers made $276 million in illicit profits by improperly trading on insider information about pharmaceutical clinical trial results. One of the defendants, a medical consultant for an “expert network” firm who allegedly provided the inside information on which the trades were based, entered into a settlement with the SEC and a non-prosecution agreement with the Department of Justice. The case against the portfolio manager who allegedly made the trades, and the investment adviser with whom he was affiliated, is ongoing.

Last week, the SEC filed yet another insider trading complaint, this time against ten individuals who made stock trades in advance of four merger and acquisition transactions. In SEC v. Femenia, the SEC claims to have identified a “massive, serial insider trading scheme obtaining at least $11 million in illicit trading profits” centered around a former investment banker who misappropriated the information and “tipped” his personal friends about the upcoming deals. According to the SEC, those personal friends (who are also defendants in the case) traded on the information and paid a portion of their profits to the investment banker. In some instances, the information was even “tipped” a second time to friends and family members of the original “tippee.”

According to the SEC’s statistics, it has brought 58 enforcement actions for insider trading in 2012, the second-highest total in the last ten years and the most in any year since 2008.  Those numbers confirm that the SEC really is “here to stay” on insider trading.

SEC Asks Congress For Increased Authority To Regulate Muni Bond Market

In its recently-released Report on the Municipal Securities Market, the Securities and Exchange Commission asked Congress to increase the SEC’s authority to regulate the municipal securities market, which it described as “decentralized . . . illiquid and opaque.” While the SEC has brought a handful of enforcement actions against issuers of municipal securities based on allegedly-misleading offering materials, most recently against the state of New Jersey in 2010 and the city of San Diego in 2006, it has done so rarely because municipal securities are exempted from most of the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Read More