As noted previously in this blog, the SEC and other regulatory agencies continue to display an increased interest in the issue of internal and supervisory controls. The Financial Industry Regulatory Authority (“FINRA”) has continued this trend, recently bringing charges against a number of member firms related to allegedly inadequate supervisory controls.
James E. Thompson, a senior associate in the San Francisco office, is a member of the Securities Litigation, Investigations and Enforcement Group. His practice focuses on defending companies and individuals in securities class actions, shareholder derivative suits, and SEC investigations and enforcement actions.
Mr. Thompson has extensive experience litigating securities class actions, derivative suits (including M&A related litigation), and other complex commercial disputes in both state and federal courts across the country. He also has represented companies and board committees in numerous internal investigations and regularly advises companies on corporate governance, fiduciary duty and disclosure issues.
Mr. Thompson’s clients include NVIDIA Corporation, Oracle Corporation, Fisker Automotive, VantagePoint Venture Partners, Aruba Networks, and David Sambol.
Significant recent engagements include the following:
- In re NVIDIA Securities Litigation. Obtained dismissal with prejudice of securities fraud class action brought against NVIDIA and certain of its officers.
- Countrywide Mortgage-Backed Securities Litigation. Representing former President and COO of Countrywide Financial Corp. in connection with state and federal litigation in numerous jurisdictions.
- In re Intermix Securities Litigation. Obtained dismissal of federal and state actions stemming from NewsCorp.’s acquisition of Myspace on behalf of VantagePoint Venture Partners.
- Oracle/Retek Merger Litigation. Obtained summary judgment on behalf of Retek Inc. in shareholder merger litigation arising from its acquisition by Oracle.
- Represented Board of Directors of health care company in investigation of potential insider trading issues.
- Represented Audit Committee of a technology company in investigation of revenue recognition issues in China.
Mr. Thompson has also dedicated significant time to pro bono representations. Recently, he successfully tried a case before Judge Alsup in the Northern District of California on behalf of an inmate, demonstrating that the inmate had not received adequate due process.
Mr. Thompson is a regular contributor to Orrick, Herrington & Sutcliffe’s Weekly Auditor Liability Bulletin, Securities Litigation & Regulatory Enforcement Blog and the Securities Reform Act Litigation Reporter.
On February 24, 2015, the SEC announced that it had reached an agreement with Goodyear Tire & Rubber Co. (“Goodyear”) for Goodyear to disgorge more than $16 million to settle FCPA charges stemming from its Kenyan and Angolan subsidiaries. This settlement is notable because it focuses on bribery involving private companies as opposed to official corruption, which is typically prosecuted by the SEC. While the FCPA’s anti-bribery provisions apply only to improper payments to foreign officials, the SEC charged Goodyear with violations of the FCPA’s books and records provisions, which have no such requirement and instead require a company to keep records that “accurately and fairly reflect the transactions and dispositions of the assets of the issuer” and to “devise and maintain a system of internal accounting controls” sufficient to ensure the integrity of the company’s financial records. This use of the books and records provisions is important because it signals the SEC’s intent and ability to use the FCPA to bring broad, far-reaching enforcement cases that have the potential to ensnare any public company.
On November 3, 2014, the U.S. Supreme Court held oral argument in Omnicare v. Laborers District Council Construction Industry Pension Fund. As discussed in earlier posts, from March 18, 2014 and July 22, 2014, the Supreme Court in Omnicare has been asked to resolve a circuit split regarding the scope of liability under Section 11 of the Securities Act: does an issuer violate Section 11 if it makes a statement of opinion that is objectively false, or must the issuer also have known that the statement was false when made?
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
On April 9, 2014, the Securities and Exchange Commission announced that Hewlett-Packard had agreed to pay more than $108 million to settle Foreign Corrupt Practices Act actions brought by the SEC and the Department of Justice. These actions were based on HP’s subsidiaries’ alleged payments of more than $3.6 million to Russian, Polish, and Mexican government officials to obtain or maintain lucrative public contracts. The settlement is important because it highlights the SEC’s and DOJ’s continued focus on companies’ internal controls, particularly in the FCPA arena. It also shows that the SEC may be able to use lesser, non-fraud offenses in which the underlying conduct involves a fairly de minimis amount of money to police behavior and subject companies to significant financial consequences. Read More
As noted in a previous blog, in Police & Fire Retirement Systems of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013), the Second Circuit held that tolling under American Pipe – which plaintiffs had often used to revive claims by relying on earlier-filed class actions – does not apply to statutes of repose, including Section 13 of the ’33 Act. The significance of IndyMac was felt in New Jersey Carpenters Health Fund, et al. v. Residential Capital, et al., No. 08 CV 8781, 08 CV 5093 (S.D.N.Y. Dec. 18, 2013), where Hon. Harold Baer, Jr. was asked to reconsider his pre-IndyMac order denying defendants’ motion to dismiss a securities class action involving mortgage-backed securities. Upon reconsideration, Judge Baer dismissed one of the defendants, Deutsche Securities Inc., and several claims against other defendants, finding that intervening plaintiffs did not have standing to sue because the claims were not filed within the ’33 Act’s three-year statute of repose. As the case highlights, IndyMac’s effect will continue to be felt in pending cases – Judge Baer held that it should be applied retroactively – and will significantly limit the timing of future lawsuits.
In 2008, Rajat Gupta made a handful of short phone calls to his friend Raj Rajaratnam. The information that Gupta conveyed to Rajaratnam in those phone calls is now likely to cost Gupta millions of dollars, two years in prison, and the loss of his livelihood. These are the fateful consequences of the government’s use of wiretapping to uncover evidence of insider trading on Wall Street.
In June 2012, after a weeks-long trial and relying heavily on recorded conversations between Gupta and Rajaratnam, a jury convicted Gupta of three counts of federal securities fraud and one count of criminal conspiracy. The jury found that Gupta, a former director of Goldman Sachs, had provided Rajaratnam with material non-public information regarding Goldman’s then-unreported financial results and an imminent investment by Berkshire Hathaway at the height of the financial crisis. Though the court found that Gupta did not receive “one penny” in return for providing the information, he was convicted and ultimately sentenced by Judge Jed Rakoff to two years in prison and assessed a $5 million fine, a heavy penalty for his gratuitous generosity to his friend, Rajaratnam. To prove insider trading, the government is not required to prove that the “tippee” receive any direct financial benefit in recompense for transmitting material nonpublic information in violation of a duty of nondisclosure.
It is important to note that Gupta’s brief phone calls, which later became the key evidence used against Gupta in the criminal trial, were recorded by federal criminal prosecutors without Gupta’s knowledge or consent. (The SEC can seek to obtain wiretap evidence from criminal proceedings through civil discovery.) While the nation debates NSA snooping, this is a reminder that the Department of Justice could be listening to and recording your most sensitive domestic telephone conversations with court authorization. Gupta’s criminal prosecution was only possible because federal law enforcement officials had obtained warrants to record telephone communications of Gupta’s friend, Rajaratnam – telephone conversations that happened to include Gupta – based on evidence of possible insider trading. Gupta’s criminal conviction was then used to underpin his civil liability. The use of federal wire taps, previously the weapon of choice in organized crime prosecution, to generate the evidence needed to pursue both criminal and civil insider trading cases is a watershed moment in securities enforcement. Read More
On April 16, 2013, Judge Victor Marrero conditionally approved a $600 million consent judgment between the SEC and CR Intrinsic Investors LLC (“CR”) where CR “neither admitted nor denied” the allegations brought against it. The settlement was on the heels of a highly publicized investigation and lawsuit regarding CR’s purported insider trading scheme involving S.A.C. Capital Advisors and former S.A.C. trader Mathew Martoma. Despite finding the proposed injunctive and monetary relief “fair, adequate, and reasonable, and in the public interest,” Judge Marrero questioned the appropriateness of the “neither admit nor deny” provisions because of the extraordinary public and private harm caused by CR’s alleged wrongful conduct.
Approval of the CR settlement was conditioned upon the outcome of the pending Second Circuit appeal in S.E.C. v. Citigroup Global Markets, Inc., 11-cv-5227 (2d Cir.). In Citigroup, Judge Rakoff (of the Southern District of New York) denied approval of the SEC’s proposed settlement of fraud charges against Citigroup. Rakoff’s opinion harshly critiqued the agency’s use of “no admission” settlements as imposing “substantial relief on the basis of mere allegations.” He questioned whether “no admission” settlements could be properly judged when the Court did not know the relevant facts and therefore “lack[ed] a framework for determining adequacy.” Both Citigroup and the SEC appealed Rakoff’s decision to the Second Circuit, where the decision remains pending. Read More
On May 4, 2012, the Southern District of New York denied in part, and granted in part UBS’s motion to dismiss the Federal Housing Finance Agency’s (“FHFA”) federal securities and state law misrepresentation claims stemming from pre-2008 securitizations. This opinion is noteworthy because of its analysis regarding the Housing and Economic Recovery Act of 2008’s impact on the relevant statute of limitations.
In July 2011, FHFA, as Fannie Mae’s (“Fannie”) and Freddie Mac’s (“Freddie) federal conservator, sued UBS regarding $6.4 billion in residential mortgage-backed securities purchased by the two government sponsored entities between September of 2005 and August 2007. FHFA alleged that UBS violated, inter alia, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“33 Act”) by preparing and distributing offering documents which contained material misrepresentations regarding the securities underlying mortgage loans. Read More