Judy Kwan, a managing associate in the San Francisco office, is a member of the Securities Litigation, Investigations and Enforcement Group. Her practice in complex litigation matters focuses on defending companies, officers and directors in shareholder class actions, derivative suits and regulatory proceedings and investigations in state and federal district and appellate courts throughout the country.
Representative cases include defending a former corporate officer in regulatory investigations, multi-district litigation and appeals involving mortgage-backed securities; defending corporation, directors and officers in securities class actions and derivative suits involving claims including fraud, conspiracy, and insider trading; and defending city employee in connection with SEC action over alleged misstatements in connection with the issuance of municipal bonds. Pro bono matters include representing peaceful protestors appealing convictions before the U.S. Court of Appeals for the Sixth Circuit; parapalegic bringing claim of deliberate medical indifference against a federal prison in California, and domestic violence victim seeking permanent restraining order on behalf of herself and her family. Judy has also helped write amicus briefs in the U.S. Supreme Court and the California Supreme Court on issues involving the Voting Rights Act and whether undocumented immigrants should be able to practice law in the state of California.
Judy regularly contributes to Orrick's blog on Securities Litigation and has written for the Securities Reform Act Litigation Reporter and Orrick's Guide to Securities Litigation.
During law school, she was a summer law clerk at Orrick and was also a summer law clerk at the Federal Trade Commission in the Bureau of Consumer Protection in Washington, D.C. Prior to attending law school, she worked as a case assistant at Kirkland & Ellis LLP.
2016 was a high-water mark for SEC enforcement activity; however, with the uncertainties associated with the new administration’s enforcement regime, we could be seeing a downturn going forward. According to a recent report issued by the NYU Pollack Center for Law & Business and Cornerstone Research, the SEC’s 2016 fiscal year (spanning October 1, 2015 – September 30, 2016) saw the highest number of enforcement actions brought against public companies and their subsidiaries since 2009, the year the Pollack Center and Cornerstone Research first began tracking information on such actions. The 92 actions brought against public companies and their subsidiaries last year is more than double the level of enforcement activity from just three years ago and represents the latest in a continuing upward trend of enforcement actions. Also consistent with recent trends, the vast majority of these actions have been brought as administrative enforcement proceedings before SEC ALJs, rather than civil actions in federal court.
The SEC continues to focus most heavily on issuers’ reporting and disclosure obligations, which comprised more than a quarter of the enforcement actions initiated last year. The SEC has consistently emphasized issuer disclosures as an area of enforcement priority and its pattern of activity has, to date, backed that up. Last year also brought enhanced focus on investment advisors and investment companies, with the SEC initiating more actions against those defendants in 2016 than in the previous three years combined. Allegations of foreign corrupt practices and actions against companies making initial or secondary securities offerings also resulted in an increased rate of enforcement activity over prior periods.
On February 9, 2017, the Supreme Court of Delaware summarily affirmed the Court of Chancery’s decision in In re Volcano Corp. Stockholder Litigation which had dismissed plaintiffs’ complaint on defendants’ 12(b)(6) motion to dismiss.
Plaintiffs, former stockholders of Volcano Corporation, had brought an action against defendants for breaches of fiduciary duty arising from the all-cash merger between Volcano and Philips Holding USA Inc. The parties had disputed what standard of review the Court of Chancery should apply: the Revlon test, as plaintiffs claimed, because Volcano’s stockholders received cash for their shares, or the irrebuttable business judgment rule, as defendants argued, because Volcano’s stockholders were “fully informed, uncoerced, and disinterested” when they approved the merger by tendering a majority of Volacano’s shares into a tender offer. As the Court of Chancery explained, if a business judgment rule is irrebuttable, plaintiffs could only challenge the transaction on the basis of waste. Thus, plaintiffs also argued in the alternative that if the business judgment rule did apply, it should only be a rebuttable presumption.
On August 31, 2016, the SEC caught a break when a Ninth Circuit panel reversed Judge Manuel L. Real’s bench trial verdict for defendants, former corporate officers of the now-defunct Basin Water, Inc., finding that the SEC was wrongfully denied its shot at a jury trial in a securities fraud action involving alleged false reporting of millions of dollars in unrealized revenue. The panel vacated the judgment and remanded for a jury trial, noting that the SEC had not consented to the defendants’ withdrawal of their jury demand, and in fact, consistently demonstrated its objection to a bench trial, preserving its objection all the way to the appellate court. READ MORE
On July 7, 2016, Judge Paul A. Magnuson of the United States District Court for the District of Minnesota granted Defendants’ Motions to Dismiss a shareholder class action that had been initiated following a 2013 holiday season data breach involving customers of Target Corporation (“Target,” or “the Company”). The data breach, which resulted in the release of information of approximately 70 million consumer credit and debit cards, made headlines as one of the biggest privacy hacks at the time. Initially disclosed to the public in December 2013, with an estimated 40 million credit and debit cards affected, Target subsequently revealed a little less than a month later that additional consumer data, including customers’ names, mailing addresses, phone numbers and email addresses, were also stolen, and increased its initial estimate to 110 million.
In a move evidencing the SEC’s continued commitment to its whistleblower program, the Commission announced on Friday that it has awarded a whistleblower over $3.5 million for providing information that did not lead to a new investigation, but rather only served to bolster an ongoing investigation. This decision came after the SEC’s Claims Review Staff preliminarily determined that the SEC should deny the whistleblower claim because the information provided by the individual did not appear to “cause Enforcement staff to open the investigation or to inquire into different conduct, nor . . . to have significantly contributed to the success” of the action. But after reviewing the whistleblower’s written response for reconsideration, in addition to factual information from staff in the Division of Enforcement, the Commission changed course, determining that the information indeed “significantly contributed” to the success of the SEC’s action, and approving the award.
In a recent address, SEC Chair Mary Jo White stated that the SEC had focused its reinvigorated investigation and enforcement efforts on holding preparers and auditors accountable for their work on financial statements. She alerted the 2015 American Institute of Certified Public Accountants (“AICPA”) National Conference to the weighty responsibilities and challenges faced by auditors and preparers, as well as audit committee members, standard setters and regulators, when endeavoring to ensure high-quality, reliable financial reporting.
On Tuesday, Andrew Ceresney, Director of the Securities and Exchange Commission’s Division of Enforcement, told the House Judiciary Committee that the Email Privacy Act (H.R. 699) and the Electronic Communications Privacy Amendments Act (S. 356) should not be amended to require prosecutors and civil enforcement agencies to obtain criminal warrants when requesting emails and other electronic data directly from internet service providers (“ISPs”), which include cloud-based storage services. READ MORE
The SEC has rolled out its second wave of enforcement actions against 22 municipal underwriting firms for alleged securities violations in municipal bond offerings in connection with its Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. As previously reported, the MCDC initiative was announced in March 2014 to address potential securities violations by municipal bond underwriters and issuers. Under this initiative, the SEC offered favorable settlement terms to those who self-reported by the end of 2014.
Last Thursday, the SEC announced it reached settlement agreements with 36 municipal securities underwriting firms pursuant to its Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. These settlements mark the first enforcement actions against underwriters of municipal securities under the MCDC Initiative. READ MORE
Last week the SEC announced an award of between $1.4 to $1.6 million to a whistleblower who provided information that assisted the SEC in an enforcement action. The enforcement action against the whistleblower’s company resulting in monetary sanctions exceeding $1 million. This marks the second award to a whistleblower with an internal audit or compliance function at a company. The first was back in August 2014, when the SEC awarded a whistleblower in internal auditing/compliance with over $300,000. Here, as with the prior award, the officer had a reasonable basis for believing that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors. In both cases, responsible management was made aware of the potential harm that could occur, yet failed to take steps to prevent it.