On June 9, 2016, the Securities and Exchange Commission (‘SEC”) awarded the second largest whistleblower bounty – $17 million – granted under the Dodd-Frank whistleblower rules to date. Previously, the highest whistleblower awards were a $30 million award in September 2014 and a $14 million award in October 2013. The $17 million award comes on the heels of $26 million in whistleblower awards given to five anonymous individuals over the last month alone. These awards serve as a warning to companies that the SEC takes its whistleblower program seriously and will continue to encourage and reward company insiders for coming forward with information that leads to successful enforcement actions. As Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower – a department created by the SEC to give whistleblowers a place to submit their tips – said, “[W]e hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC.”
He is acknowledged by Chambers as a "Leader in their field" for Securities Litigation and has also been acknowledged as one of "America's Leading Litigators" by Benchmark.
Jim has extensive experience representing companies and individuals in securities class actions, derivative actions, merger and acquisition related litigation, SEC enforcement proceedings and other complex commercial litigation. In addition, he has extensive experience representing board committees in internal investigations, including SEC and SRO-related investigations.
He regularly advises companies on corporate governance, fiduciary duty and disclosure issues. He is a frequent lecturer on issues involving securities matters and class action litigation.
The following is a sample of Jim's representative engagements.
- In re NVIDIA Securities Litigation. Obtained a precedent-setting victory in the Ninth Circuit on behalf of firm client NVIDIA Corporation. In a published decision, the Ninth Circuit affirmed the dismissal of a securities class action alleging that NVIDIA failed to disclose defects in its products in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5.
- Livingston v. 23andMe. Achieved two significant victories on behalf of the client in a consumer class action including a motion to compel arbitration and a clause construction award.
- Bundy v. IronPlanet. Represented a company in an action alleging breach of a repurchase contract over a founder’s shares of stock. After arbitration obtained a complete judgment in the client’s favor and an award of attorneys' fees and costs.
- SEC v. Mercury Interactive, Inc. Represented the former GC of Mercury in an SEC enforcement action alleging backdating of stock options. Matter was resolved on a non-fraud basis prior to trial.
- In re Sequans Securities Litigation. Obtained dismissal at the pleading stage of a putative securities class action asserting claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 against the company and certain of its officers in connection with the company’s public offering.
- SEC v. Berry. Represented former GC of two publicly traded companies in an SEC enforcement action alleging backdating of stock options. Matter was resolved on a non-fraud basis prior to trial.
- In re Ikanos Communications Securities Litigation. Obtained dismissal at the pleading stage of a putative securities class action asserting claims under the Securities Act of 1933 against the company and certain of its officers
- In re 3dfx Bankruptcy Litigation. Jim was part of a trial team that recently obtained a ruling completely favorable to client NVIDIA Corporation in complex M&A/creditor’s rights dispute in U.S. Bankruptcy Court for the Northern District of California.
- In re: Micrus Endovascular Securities Litigation. Obtained dismissal at the pleading stage of a securities class action asserting claims under the Securities Exchange Act of 1934 against the company and certain of its officers and directors.
- In re Agile Software Derivative Litigation. Obtained dismissal at the pleading stage of a complaint asserting derivative option back-dating claims and direct breach of fiduciary duty merger and acquisition claims relating to Oracle Corporation’s acquisition of Agile.
- In re Acer/Gateway M&A Litigation. Jim was part of a team that defeated plaintiffs’ attempts to enjoin Acer’s acquisition of Gateway Computers.
- In re Watchguard Corporation. Obtained dismissal at the pleading stage of a complaint asserting breach of fiduciary duty and claims against Watchguard and certain of its officers and directors in connection to the sale of the company to private equity purchasers.
- Represent the Special Committee of the board of directors of a technology company in its investigation of past stock option grant practices and the related SEC investigation.
- Represent the Audit Committee of the board of directors of a technology company in its investigation into insider trading and revenue recognition issues.
- Represent the Special Committee of the board of directors of an international media company in its investigation of past stock option grant practices and the related SEC investigation.
- In re Intermix Securities Litigations. Obtained dismissal of federal and state complaints alleging claims in connection with NewsCorp.’s acquisition of Myspace.com on behalf of VantagePoint Venture Partners.
Posts by: Jim Kramer
The Securities and Exchange Commission’s Office of the Inspector General (“OIG”) recently released findings from its extensive investigation into allegations of potential bias against respondents in SEC administrative proceedings. The OIG report comes at a time when the fairness of the SEC’s in-house administrative forum is under scrutiny from both inside and outside of the agency.
Disclosure-only settlements have been popular in the past – last year, about 80% of settlements in M&A-related lawsuits were for disclosures only, according to Cornerstone Research – but lately they have come under scrutiny. The Delaware Court of Chancery has issued opinions refusing disclosure-only settlement agreements before, noting that at times in these cases “there is simply little to commend the process of weighing the merits of a ‘settlement’ of litigation where the only continuing interest is that of the plaintiffs’ counsel in recovering a fee.” The incentives of attorneys on both sides can be such that “the potential claims belonging to the class [are not] adequately or diligently investigated or pursued.”
On July 1, 2015, the United States for the District of Columbia sued the estate and trusts of the late Layton P. Stuart – the former owner of One Financial Corporation and its subsidiary One Bank & Trust– and the trust’s beneficiaries, for alleged fraud on the Treasury Department and its Troubled Asset Relief Program (“TARP”). This civil suit is the latest in a growing list of cases brought by the government to recover TARP funds that it alleges were fraudulently procured.
Even with the SEC’s home-court advantage in bringing enforcement actions in its administrative court rather than in federal court, the SEC will still criticize its own administrative law judges (“ALJ”) when an ALJ’s decision falls short of established legal standards. On April 23, 2015, the SEC found that an ALJ’s decision to bar Gary L. McDuff from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent or nationally recognized statistical rating organization was insufficient because it lacked enough evidence to establish a statutory requirement to support a sanctions analysis. The SEC then remanded the matter to the same ALJ – no doubt in an effort to encourage him to revise his initial opinion.
As we have previously discussed in prior posts, shareholder demands to inspect confidential corporate information are being made with increased frequency, and are forcing more and more companies to grapple with their legal obligations to respond. Earlier this month in Fuchs Family Trust v. Parker Drilling, the Delaware Court of Chancery issued further guidance, and explained why in certain cases, companies need not provide any information at all.
In an amicus brief filed earlier this month in Berman v. Neo@Ogilvy LCC, the SEC asked the Second Circuit to defer to the Commission and hold that individuals who report misconduct internally are covered by the anti-retaliation protections of the Dodd-Frank Act of 2002, regardless of whether they report the information to the SEC.
Back in May we discussed ATP Tour, Inc. v. Deutscher Tennis Bund a seminal Delaware Supreme Court case that upheld a non-stock corporation’s “loser pays” fee-shifting bylaw. ATP Tour held that where a Delaware corporation adopts a fee-shifting bylaw, it can recover its fees and costs from any shareholder that brings a derivative lawsuit and loses. Many commentators have suggested the case would effectively kill derivative actions in Delaware and indeed, since the time of that decision, the Delaware Corporation Law Council has proposed amendments to the Delaware General Corporation Law that would limit its applicability to only non-stock corporations.
Last week the Oklahoma State Legislature went a step further than ATP Tour and amended the Oklahoma General Corporation Act to specifically require fee-shifting for all derivative lawsuits brought in the state, whether against an Oklahoma corporation or not. Unlike the fee provision in ATP Tour, however, the law also affords derivative plaintiffs the right to recover their fees and costs should they win final judgment.
The difference is likely substantial. For while the law will potentially chill unmeritorious derivative actions, also known as “strike suits,” it could also provide an incentive for derivative plaintiffs with strong claims. Where shareholders use the “tools at hand”—including books and records inspection requests—to carefully vet their claims before filing, the promise of a fee recovery could encourage shareholder plaintiffs to bring claims they otherwise might not.
Consider: in the typical derivative lawsuit, the shareholder plaintiff stands to gain nothing tangible if he or she wins. Because he or she is suing on behalf of the corporation, any recovery will inure to the corporation itself. Thus, under the old regime, even if a derivative lawsuit was successful, the plaintiff would receive, at most, any resulting increase in the value of his or her company stock. Under the new statute, that same plaintiff could stand to receive the not-insubstantial costs of his or her efforts.
Corporations facing federal securities suits can sometimes avoid liability by claiming that their forward-looking statements were so vague or indefinite that they could not have affected the company’s stock price and are therefore not material. Such statements are not actionable because courts consider them “puffing,” famously described by Judge Learned Hand nearly 100 years ago as “talk which no sensible man takes seriously.” Though we cannot know today what Judge Hand would think of the civil complaint recently filed by the SEC against several marijuana-company stock promoters, it’s safe to say that this isn’t the kind of ‘puffing’ he had in mind.
The defendants in the SEC civil action are all stock promoters, most of whom operate websites where they promote stocks, including microcap or so-called “penny” stocks. The SEC alleges that the defendants promoted shares in microcap companies related to the marijuana industry. For example, one of the companies, Hemp Inc., claims to be involved with medical marijuana. According to the SEC, three of the defendants bought and sold more than 40 million shares in Hemp Inc. in order to give the appearance that there was an active market in the company’s stock. In reality, the transactions allegedly consisted of wash trades and matched orders. A wash trade occurs when a security is traded between accounts, but with no actual change in beneficial ownership, while a matched order entails coordinating buy and sell orders to create the appearance of trading activity. As the defendants were allegedly generating trading activity, they were also allegedly promoting the stock on the Internet, touting “a REAL Possible Gain of OVER 2900%” in Hemp Inc. stock. Wow, that is high.
In a virtual course on how to bring—or not bring—an M&A strike suit, on June 30, a Delaware Chancery Court dismissed all shareholder claims against a merger target and its acquirer, ending nearly two years of litigation. Though the allegations are familiar in the strike-suit context, the 45-page opinion which this ~$100 million merger yielded is notable for its methodical tour of Delaware fiduciary-duty law, 102(b)(7) exculpatory provisions, and so-called Revlon duties. The roadmap opinion should be required reading for directors considering a merger.
Defendants Ramtron International and Cypress Semiconductor both work in the technology industry and the two began their courtship in 2011. Though shareholder-plaintiff Paul Dent couldn’t prevent the 2012 Ramtron-Cypress marriage, he continued to hold out for a better dowry, naming Ramtron’s board and Cypress in a suit alleging that Cypress aided and abetted Ramtron’s board in breaching its duty to shareholders, and seeking quasi-appraisal of his shares. Vice Chancellor Parsons disposed of these claims, taking the time to explain in unusual detail why the allegations utterly failed. READ MORE