Securities and Exchange Commission leadership and staff members addressed the public on February 20-21 at the annual “SEC Speaks” conference in Washington, D.C. Common themes among the numerous presentations included the Commission’s increasing use of data analytics, the Commission’s focus on gatekeepers such as accountants and attorneys, and the Commission’s still incomplete rulemakings mandated by both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act.
Michael C. Tu
Michael C. Tu, a partner in the Los Angeles office, is a member of the Securities Litigation, Investigations and Enforcement Group. Michael focuses on securities litigation matters, with extensive experience in defending shareholder class action and derivative litigation under the federal and state securities laws, mergers and acquisitions litigation and regulatory investigations and proceedings. He counsels public and private companies regarding corporate governance and disclosure issues, and has represented numerous board committees in connection with investigatory and litigation matters. He also regularly advises multi-national corporations and executives based in Asia and Europe with respect to business disputes and securities matters.
Michael has a track record of trial successes and is among the few lawyers in the country who have defended a securities class action trial to verdict, which was recognized as one of the "Top Defense Verdicts" in California in 2005 by the Daily Journal. He is "praised" by The Legal 500 (2010) "for his litigation skills" defending securities matters "in both federal and state courts." He is rated AV Preeminent by Martindale-Hubbell in securities and business law.
He has spoken on various securities and corporate governance topics such as public company disclosure obligations, mortgage backed securities and subprime litigation issues, auditor liability matters and has moderated roundtable events on securities law and corporate governance developments. In addition, as a faculty member of the Stanford Senior Executive Leadership Program, Michael regularly speaks to senior executives and business leaders on a number of subjects, including cross-border litigation, risk management and accounting liability issues.
Michael is a member of the Executive Committee of the Litigation Section of the Los Angeles County Bar Association, and is an editor of the monthly Securities Reform Act Litigation Reporter. He served as a Lawyer Representative for the Central District of California to the Ninth Circuit Judicial Conference from 2006-2009.
Michael serves as Vice Chair of the firm's Professional Development Committee, and is a member of the firm's Technology Committee.
On January 14, 2015, the U.S. House of Representatives passed a bill that loosens certain Dodd-Frank requirements and reduces the scope of the SEC’s regulatory authority over certain private equity firms, small businesses, and emerging companies. The bill is part of a larger fight between Democrats and Republicans over the scope of Dodd-Frank and government oversight over financial institutions generally.
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
A California federal jury sided against the U.S. Securities and Exchange Commission on Friday, June 6, finding the founder of storage device maker STEC Inc. not guilty on insider trading charges. This is the second insider trading loss in a week for the SEC, following a May 30 defeat in which a New York federal jury rejected insider trading allegations against three defendants, including hedge fund manager Nelson Obus.
In STEC, the SEC alleged that founder Manouchehr Moshayedi made a secret deal with a customer to conceal a drop in demand in advance of a secondary offering. According to the complaint, Moshayedi knew that one of STEC’s key customers, EMC Inc., would demand fewer of STEC’s most profitable products than analysts expected. The SEC alleged that he then made a secret deal that allowed EMC to take a larger share of inventory in exchange for a steep, undisclosed discount.
A recent decision dismissing an RMBS lawsuit in the Los Angeles County Superior Court highlights the critical importance of filing your claims in the correct court whenever there is a jurisdictional issue. By rejecting the plaintiff’s equitable tolling arguments and applying the appropriate statutory limitations periods, the decision is notable because it arguably conflicts with similar decisions by other state courts involving similar RMBS claims. We have previously written about the application of statutes of limitations to RMBS claims, which may be viewed here. Read More
On March 31, 2014, the Securities and Exchange Commission brought insider trading charges against Ching Hwa Chen, the husband of a corporate insider, alleging that he misappropriated financial information from his wife and then shorted her employer’s stock, netting $138,000 in ill gotten gains. SEC v. Chen, No. 5:14-cv-01467 (N.D. Cal). The SEC’s allegations (taken from its complaint) are as follows: Chen’s wife was the Senior Tax Director of Informatica, a data integration company. In late June 2012, Informatica learned it would miss its revenue guidance for the first time in 31 consecutive quarters. That miss caused the defendant’s wife to work more than usual as the company scrambled to close its books and prepare for a potential pre-release of its quarterly revenues. Over the next several days, the defendant overheard his wife’s phone calls addressing the revenue miss, including on a four-hour drive to Reno, Nevada where his wife fielded calls from the passenger seat as he drove. Early the next week, convinced that Informatica’s stock would lose value, Chen bet heavily against the company, shorting its stock, buying put options, and selling call options. In early July, after announcing the miss, Informatica’s stock price fell 27% from $43 to $31. Chen closed out all of his positions that same day. Read More
A decision is expected shortly in the highly publicized so-called confidential witness “scandal” involving the Robbins Geller Rudman & Dowd law firm. Judge Suzanne B. Conlon of the United States District Court, Northern District of Illinois, will decide whether to impose sanctions on the plaintiffs’ firm for its conduct regarding a confidential witness in the City of Livonia Employees’ Retirement System v. Boeing Company case, No. 1:09-cv-07143 (N.D. Ill.). The decision could have a lasting impact over the use of confidential witnesses in securities fraud complaints.
Judge Conlon will decide this matter following the Seventh Circuit’s remand in late March 2013 on the narrow issue of whether to impose Rule 11 sanctions for (1) providing multiple assurances to the court that the confidential source in their complaint was reliable even though none of the lawyers had spoken to the source or (2) failing to investigate after plaintiffs’ investigators expressed qualms about the confidential source. (Previous blog post here). In remanding the case, the Seventh Circuit ruled that making “representations in a filing that are not grounded in an inquiry reasonable under the circumstance or are unlikely to have evidentiary support after a reasonable opportunity for further investigation or discovery violate Rule 11.” City of Livonia Empls.’ Ret. Sys. v. Boeing Co., 711 F.3d 754, 762 (7th Cir. 2013). Read More
On May 28, 2013, in Delshah Group LLC v. Javeri, a rare securities trial regarding credit-crisis related claims, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York issued an order directing a complete defense judgment following a two-week bench trial. The decision includes a noteworthy discussion and analysis of loss causation in the context of credit crisis litigation—directly applicable to pending cases under Sections 10, 11 and 12—and highlights a tension between the Private Securities Litigation Reform Act and longstanding securities law when it comes to proving culpable intent.
The case arose from a real estate investment gone bad. In March of 2007, plaintiff purchased interests in a venture called 40 Broad Street Project. That project sought to make a return on converting commercial real estate space into condominiums and thus take advantage of the rapidly rising value of condos in New York City. Plaintiffs claimed that defendant misrepresented how far along the building project was, whether it was under budget, and how much “skin in the game” defendants had in the project. When the credit crisis hit and the real estate market collapsed, plaintiff lost substantial sums on its investment and claimed the above misstatements were its cause. Read More
Last week we heard from RUSH. This week we’re tuning in to The Supremes.
On January 8, 2013, the U.S. Supreme Court heard arguments in Gabelli v. Securities and Exchange Commission, No. 11-1274, concerning when the clock begins to run on the five-year statute of limitations for civil penalty claims by the SEC and other federal agencies. The 200-year-old statute at the heart of the dispute (28 U.S.C. §2462) provides: “Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued . . . .” Taking their cue from the Supremes that, “No, you just have to wait,” the SEC argues that “accrued” means when the government discovered, or reasonably could have discovered, the alleged wrongdoing (in this case, market timing by two executives of investment adviser Gabelli Funds, LLC ). On the other hand, the two executives want to know, “How long must I wait, How much more can I take?” arguing that “accrued” means when the government can first bring the action (typically when the alleged wrongdoing occurs), regardless of whether the government knows about it.
What can be divined from the oral argument? The justices appeared skeptical of the government’s position. It was pointed out that this was not a position that had ever been taken by any other government agency, and not by the SEC until 2004, even though the statute had been on the books for almost 200 years. Justice Breyer went so far as to press, “All I’m asking you for is one case [prior to 2004],” but the government’s attorney could not provide one.
Some of justices also commented that it would almost be impossible for a defendant to prove that the government “should have known” about something. There would be no bright-line rules to such an approach. Whether an agency “should have known” could potentially depend on any number of circumstances, for example whether the agency had 100 or 1,000 people reviewing things to shed light on a violation or even whether the agency was overworked or underfunded at the time of the violation. In other words, SEC, “Think it over.” Read More
A federal judge in Illinois hollowed out much of the SEC’s case against two former executives of Nicor Gas. SEC v. Fisher, et al., No. 07-4483 (N.D. Ill.) (Zagel, J.) (Order). Although the court allowed the SEC’s substantive Section 10(b) and 17(a) fraud claims to proceed, the court granted summary judgment to the executives with respect to all claims for civil penalties and injunctive relief. The Order makes clear that to survive summary judgment on injunctive relief, like any other claim, the SEC must put forth concrete evidence, not just “rank speculation.” Accordingly, the SEC’s claims will proceed to trial only for the equitable remedy of disgorgement of profits.
In 2008, the SEC brought fraud charges against three former executives of Nicor Gas, a utility company providing Northern Illinois with natural gas. The SEC alleges that from 1999 to 2002, these executives manipulated Nicor’s earnings through accounting gimmicks and transactions that took advantage of Nicor’s low cost of inventories in a rising gas price environment without disclosing the practice or its effect on earnings. Read More