Jim Kramer, a partner in the San Francisco office, is Chair of the Firm's Securities Litigation and Regulatory Enforcement Group. His practice focuses on defending companies, officers and directors in shareholder class actions, derivative suits and regulatory proceedings. 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.
Mr. Kramer 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.
Mr. Kramer is an editor for the Securities Reform Act Litigation Reporter and regularly contributes to Orrick's blog on Securities Litigation hot topics (www.SecuritiesLitigationBlog.com) and Orrick's Guide to Securities Litigation, the go-to-book now in its 25th year and available on iTunes. Mr. Kramer is past chair of the Embarcadero YMCA Board of Managers and remains active in YMCA philanthropy. In his spare time, Mr. Kramer enjoys time with his family and is a recreational long course triathlete.
The following is a sample of Mr. Kramer’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 dismissal of all plaintiff's claims without prejudice and partial final 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. Mr. Kramer 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. Mr. Kramer 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.
Prior to joining Orrick, Mr. Kramer was a partner at Clifford Chance US LLP and Brobeck, Phleger & Harrison LLP.
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
On June 18, 2014, Judge Victor Marrero of the U.S. District Court for the Southern District of New York approved the SEC’s no-admit, no-deny consent decrees in its insider trading case against CR Intrinsic Investors, LLC and affiliated entities. In approving the decrees, however, the court called on the SEC to take a “wait and see” approach in cases involving parallel criminal actions arising out of the same transactions alleged in its complaint.
The decision follows the much-anticipated opinion in SEC v. Citigroup Global Markets (“Citigroup IV”), in which the Second Circuit vacated Judge Rakoff’s order refusing to approve a no-admit, no-deny consent decree between the SEC and Citigroup. The Second Circuit found that district courts are required to enter proposed SEC consent decrees if the decrees are “fair and reasonable,” and if the public interest is not disserved. A court must focus on whether the consent decree is procedurally proper, and cannot find that a proposed decree disserves the public based on its disagreement with the SEC’s use of discretionary no-admit, no-deny settlements.
Summer is coming, but this is probably not the vacation Southern District of New York Judge Jed Rakoff had in mind. On June 4, 2014, the Second Circuit vacated Judge Rakoff’s order refusing to approve the SEC’s $285 million settlement with Citigroup regarding a 2007 collateralized debt obligation (“CDO”) offering. The highly anticipated opinion – the decision did not come down until more than a year after oral argument – sharply limits the instances in which a court may reject or even modify a Commission settlement, even when the SEC does not extract an admission of facts or liability. The decision, which comes at a time when the SEC has been seeking and obtaining more admissions from public companies in connection with settlements, is sure to have a significant impact on the agency’s future approach toward settlements and admissions.
Though the facts of the underlying case are almost a footnote at this point, the SEC had alleged that in 2007, Citigroup negligently represented its role and economic interest in structuring a fund made up of tranches of CDOs. As with similar allegations against Goldman Sachs and its ABACUS CDO, the SEC alleged that Citigroup hand-picked many of the mortgage-related assets in the fund while telling investors that the assets were selected by an independent advisor. The SEC further alleged that Citigroup chose mortgage-backed assets that it projected would decline in value and in which it had taken short positions. Thus, according to the SEC, Citigroup sold investors assets on the hope the CDOs would increase in value, while Citigroup had selected and bet against these same assets on the belief they would actually decrease in value. The SEC alleged that Citigroup was able to reap a substantial profit from shorting the assets it selected for the fund, while fund investors lost millions.
On March 14, 2014, the Delaware Supreme Court unanimously affirmed an important Delaware Court of Chancery decision issued in 2013 that offered a roadmap to companies and their directors on how to obtain the protections of the deferential business judgment rule when entering into a change-in-control transaction with a controlling stockholder. As we discussed previously, in In re MFW Shareholders Litigation, then-Chancellor (now Chief Justice) Strine held as a matter of first impression that the deferential business judgment rule – as opposed to the more onerous “entire fairness” – standard of review should apply to a merger with a controlling stockholder where (i) the controller conditions the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee acts with care; (v) the minority vote is informed; and (vi) there is no coercion of the minority.
Can a securities plaintiff satisfy Section 11 of the Securities Act simply by alleging that a statement of opinion was objectively false, or must the plaintiff also allege that the speaker subjectively knew the statement was false when it was made? That is the question taken up by the Supreme Court earlier this month when it granted certiorari in Omnicare, Inc. v. The Laborers District Council Construction Industry Pension Fund and the Cement Masons Local 526 Combined Funds. As we previously discussed, the Sixth Circuit decision on appeal runs contrary to decisions in the Second and Ninth Circuits, so all eyes are on the Court to settle the debate. Read More
On Tuesday, December 10, five federal regulatory agencies, the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller and the Commodity Futures Trading Commission, jointly released the long awaited and hotly contested “Final Rules Implementing the Volcker Rule.” The Rules and supplement, together more than 900 pages long, are already generating comment and controversy for their complexity and severity—or lack thereof, depending on who you ask. The Rules become effective on April 1, 2014 with final conformance expected by July 21, 2015.
A Product of Hard Times
Paul Volcker, an economist, former Federal Reserve Chairman and former chairman of the Economic Recovery Advisory Board, initially proposed a (seemingly) simple rule restricting certain risk-taking activity by American banks in a 3-page letter to President Obama in 2009. Speculative activity, for example, proprietary trading, was believed to have contributed to the “too big to fail” position that the nation’s largest banks found themselves in at the height of the Financial Crisis in 2008 and 2009. The Volcker rule thus proposed prohibiting banks from engaging in short-term proprietary trading on their own account. It also proposed limiting the relationships that banks could have with hedge funds and other private equity entities. Not long after its proposal, the rule was made into law in Section 619 of the 2010 Dodd-Frank Wall Street Reform Act, to take effect upon the issuance of implementing regulations. Read More
In 2006, Bear Stearns agreed to a $250 million “neither admit nor deny” settlement with the SEC to settle charges that it facilitated late trading and deceptive market timing by its hedge fund customers. $160 million of that settlement payment was characterized in the SEC’s Order as disgorgement of profits, even though Bear Stearns contended its own profits from the trades were less than $17 million. J.P. Morgan (the successor to Bear Stearns) sought D&O insurance coverage for the portion of the disgorgement payment that was attributable to the profits of its hedge fund customers, rather than revenue it received. The insurers denied the Bank’s claim on the ground that New York public policy prohibits insurance coverage for disgorgement payments. Disgorgement, the reasoning goes, is the return of ill-gotten gains and therefore payment for intentionally caused harm. The insurers also argued that disgorgement does not qualify as a “loss” or “damage” under terms of the insurance policies. The trial court agreed and dismissed Bear Stearns coverage suit against its D&O insurers.
On June 11 the New York Court of Appeal reinstated Bear Stearns’s coverage action. J.P. Morgan Securities Inc., et al. v. Vigilant Ins. Co., et al., 2013 N.Y. LEXIS 1465 (June 11, 2013). The Court of Appeal held that the Court must look beyond the labels of the SEC Order and even beyond its findings that the Bank’s securities law violations were willful. Those findings, the Court held, were not sufficient to conclusively establish that Bear Stearns intentionally caused harm. In short, the Court of Appeal allows the possibility of coverage for disgorgement if the insured can demonstrate that the payment, although labeled “disgorgement”, is actually payment for something else that might otherwise qualify for insurance coverage.
The June 11 ruling is notable for another reason – it came the week before SEC Chairwoman Mary Jo White announced that the SEC would depart in some cases from its long-established practice of “neither admit nor deny” settlements. It is an open question whether the Court of Appeal would have allowed J.P. Morgan/Bear Stearns’ coverage action to proceed if its settlement with the SEC had not included a neither admit nor deny provision. The Court’s willingness to look beyond the disgorgement label further highlights the importance of avoiding binding admissions wherever possible, so as to leave open every possible coverage avenue.
Several weeks ago we asked whether directors of public companies face potential liability for not preventing cyber attacks. But what about liability for other acts of oversight? Can directors be held personally liable for money damages when they have done nothing affirmatively wrong?
Generally, the answer is no. Many states, like Delaware, allow corporate charters to include provisions that protect directors (and sometimes officers) from money damages for certain breaches of fiduciary duty. Acts that are not protected include breaches of the duty of loyalty, intentional misconduct, knowing violations of the law or receiving an improper personal benefit. But where plaintiffs seek money damages for breaches of the duty of care, exculpatory provisions in corporate charters typically provide directors a defense to the claims.
Practically speaking, these provisions protect directors against claims of negligence, and some courts have held the provisions even go so far as to protect against “reckless indifference.” The protection stops, however, when a director consciously disregards his or her duties. For example, and with reference to the earlier discussion on cyber attacks, an exculpatory provision might not shield a director from money damages where (i) a damaging cyber attack occurred, and (ii) it could be proven that the director exhibited a “sustained or systematic failure to exercise reasonable oversight” over the company’s cybersecurity, such that it evidenced the director’s conscious disregard of cybersecurity. Read More