M. Todd Scott

Senior Associate
Securities Litigation, Investigations & Enforcement
Read full biography at www.orrick.com

M. Todd Scott, a senior associate in the San Francisco office, is a member of the Securities Litigation, Investigations and Enforcement Group. His practice focuses on shareholder derivative suits, securities class actions, other complex business litigation and corporate governance counseling.

Mr. Scott has represented numerous corporations, directors and officers in federal securities class actions, SEC enforcement actions and shareholder derivative suits, at arbitration and on appeal. Notable engagements include:

  • Weinstein v. Chesapeake Energy Corp. et al., 2013 U.S. Dist. LEXIS 51380, 2013 WL 1457718 (W.D. Okla. 2013). Obtained dismissal at the pleading stage of a putative securities class action asserting claims under the Securities Exchange Act of 1934 against the company and its top officers.
  • United Food and Commercial Workers Union v. Chesapeake Energy Corp., 2013 U.S. Dist. LEXIS 45434, 2013 WL 1336123 (W.D. Okla. 2013). Obtained summary judgment and dismissal of a securities class action asserting claims under the Securities Act of 1933 against the company, its top officers, and board of directors.
  • Cheseldine v. McClendon. Obtained dismissal at the pleading stage of a putative stockholder derivative action asserting claims for breach of fiduciary duties against Chesapeake Energy Corp.’s board of directors. Also successfully repelled motion for temporary restraining order to enjoin payment of outgoing CEO’s severance.
  • Egleston v. McClendon. Obtained dismissal at the pleading stage of a putative stockholder derivative action asserting claims for breach of fiduciary duties against Chesapeake Energy Corp.’s board of directors.
  • Norris v. McClendon et al. Derivative Litigation. Represented the board of directors in a shareholder derivative action challenging company proxy disclosures. Obtained a dismissal the pleading stage.
  • Bundy v. IronPlanet. Represented the 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.
  • Cheseldine v. Chesapeake Energy Corp. Defended the Company against an invasive shareholder books and records action and obtained a dismissal at the pleading stage.
  • 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 Act against the company and certain of its officers and directors.
  • KPMG Corporate Finance v. LeadClick Media, Inc.. Represented the firm in an action to recover fees. After arbitration obtained a complete judgment in the client’s favor and an award of attorneys’ fees and costs.

Mr. Scott also regularly advises companies on questions of corporate governance, fiduciary duties and disclosure obligations, and has extensive experience in responding to shareholder litigation demands and books and records requests.

Before joining the firm, Mr. Scott was an associate at the San Francisco office of Clifford Chance US LLP. In his spare time, Mr. Scott is a musician, author and father to three amazing children.

M. Todd Scott

For Theranos, Life is Not All Rainbows and Unicorns: Government Conducting Criminal and Civil Investigations of Blood-Testing Company Theranos

In a memorandum released on April 18, 2016, the private blood-testing company Theranos – once valued at over $9 billion – announced that it is under investigation by the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Attorney’s Office for the Northern District of California, among other government agencies.  The memorandum did not disclose the focus of the government investigations.  Theranos’ announcement about the investigations comes on the heels of a series of October 2015 Wall Street Journal (“WSJ”) articles critical of the accuracy of the company’s blood-testing methods.  The government investigations into Theranos are not surprising, particularly in light of recent remarks by SEC Chair Mary Jo White (“White”) at a March 31, 2016 address at Stanford University’s Rock Center for Corporate Governance, where White revealed the SEC’s focus on Silicon Valley’s privately held unicorns – private start-up companies with valuations exceeding $1 billion.

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Storm Warning for Safe Harbor

On February 29, 2016, the Supreme Court denied certification in Harman International Industries Inc. et al. v. Arkansas Public Employees Retirement System et al., thereby leaving unanswered a number of questions related to the Safe Harbor provision of the Private Securities Litigation Reform Act (PSLRA).  The petitioners, defendant Harman International Industries Inc. (“Harman” or “the Company”) and related individual defendants, argued that the D.C. Circuit Court of Appeals erred when it reversed the district court’s decision granting Harman’s motion to dismiss.  In declining to hear the case, the Supreme Court failed to resolve a circuit split concerning the relevance of state of mind to the efficacy of cautionary language.

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Forum Shopping No More? Oregon Joins Delaware in Upholding Exclusive Forum Bylaw Provision

On December 10, 2015, the Oregon Supreme Court held that an exclusive forum bylaw provision adopted unilaterally by a Delaware company’s board was a valid and enforceable contractual forum selection clause.  Importantly, the Oregon decision is the only reported non-Delaware appellate court decision to date addressing the validity of exclusive forum bylaws on the merits.

The decision, Roberts v. TriQuint Semiconductor, Inc., comes on the heels of the Delaware Court of Chancery’s forum bylaw ruling in Boilermakers Local 154 Retirement Fund v. Chevron CorporationAs previously noted on this blog, in Chevron, then-Chancellor Strine of the Delaware Court of Chancery held that an exclusive forum bylaw provision adopted unilaterally by a board was both facially valid under the Delaware General Corporation Law (“DGCL”) and an enforceable contractual forum selection clause.  Citing Chevron, the Oregon Supreme Court similarly concluded that an exclusive forum bylaw adopted only two days prior to the announcement of a merger was permissible and did not render the bylaw unenforceable in the shareholder merger litigation that followed.

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The End of Disclosure Only Settlements in M&A Cases? Not So Fast.

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.”

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International Hacking and Insider Trading Scheme Exposes Cybersecurity Vulnerabilities at Third-Party Vendors

On August 11, 2015, the SEC announced that it was bringing fraud charges against 32 defendants for their alleged participation in a five-year, international hacking and insider trading scheme.  According to the SEC, two Ukrainian men hacked into at least two major newswire services, stole non-public copies of embargoed corporate announcements containing quarterly and annual earnings data, and provided the announcements to 30 other defendants, who traded off the information.  In parallel actions, the U.S. Attorney’s Offices for the District of New Jersey and the Eastern District of New York also announced criminal charges against some defendants named in the SEC’s action.  The SEC’s enforcement action may be a harbinger of events to come.  As we have written, cybersecurity is emerging as the SEC’s newest area of focus for enforcement actions.

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Fannie and Freddie Shareholders Sue FHFA and Treasury Department Over Payment of Profits to U.S. Government

On May 28, 2015, three Fannie Mae and Freddie Mac (the “Companies”) shareholders filed a complaint in the United States District Court for the Northern District of Iowa against the Federal Housing Finance Agency (“FHFA”), its director, and the U.S. Treasury Department in connection with FHFA’s agreement to pay all of the Companies’ profits to the Treasury on a quarterly basis (the “Net Worth Sweep”).  According to plaintiffs, the Net Worth Sweep would be all encompassing depriving the private shareholders of their profits forever.

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For Shareholder Inspection Demands, A Purpose Isn’t “Proper” When the Issue Has Already Been Decided

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.

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Ninth Circuit Applies Heightened Pleading Standards for Loss Causation

On December 16, 2014, the Ninth Circuit affirmed the U.S. District Court of Arizona’s dismissal of a Section 10(b) class action against Apollo Education Group, Inc., a for-profit education company, and several of its officers and directors. In doing so, the Ninth Circuit held that the heightened pleading standard of Federal Rule of Civil Procedure Rule 9(b) applies to all elements of a securities fraud action, including loss causation.

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Circuits Split on When to Impute Employees’ Knowledge to Corporation for Section 10(b) Claims

One of the most significant challenges facing plaintiffs in pleading a violation of Section 10(b) of the Securities Exchange Act of 1934 is sufficiently alleging that the defendant company possessed scienter, or an “intent to deceive.”  Because a corporation can only act through its employees, the challenge is to determine which employees’ alleged state of mind should be imputed to the company.

On October 10, 2014, the Sixth Circuit considered that question in In re Omnicare Sec. Litig., No. 13-5597, 2014 WL 5066826 (6th Cir. Oct. 10, 2014).  Omnicare involved a Section 10(b) shareholder class action against Omnicare, Inc., a pharmaceutical manufacturer, alleging that Omnicare’s financial statements and other public disclosures contained misstatements regarding the company’s compliance with Medicare and Medicaid regulations.  In particular, plaintiffs alleged that although Omnicare’s internal audit group discovered that certain company facilities had submitted false reimbursement claims, Omnicare failed to disclose the fraud and, in publicly-filed documents signed by the CEO and CFO, asserted that Omnicare’s “billing practices materially comply with applicable state and federal requirements.” Read More

For Now, The Broad Interpretation of “Foreign Officials” Under the FCPA Is Here to Stay

In recent years, the DOJ and SEC have significantly increased their Foreign Corrupt Practices Act (FCPA) enforcement efforts, and in the process, have successfully advocated the theory that state-owned or state-controlled entities should qualify as instrumentalities of a foreign government under the FCPA. The FCPA defines a foreign official as “any officer or employee of a foreign government or any department, agency or instrumentality thereof.” In August 2014, the government’s broad definition of who constitutes a “foreign official” came into question for the first time when two individuals (Joel Esquenazi and Carlos Rodriguez) filed a petition for writ of certiorari with the Supreme Court to challenge their convictions under the FCPA and argued for the high court to limit the FCPA’s definition of the term. However, on October 6, 2014, the Supreme Court declined to consider the potential landmark case effectively upholding the government’s broad view of the term “foreign official.” Read More