Halliburton’s Brief Asks The U.S. Supreme Court To Overturn The Not So Brief 25-Year-Old Fraud-On-The-Market Presumption

As discussed in a previous December 3, 2013 post, the U.S. Supreme Court has agreed to hear Halliburton’s pitch to overrule or modify the decades old fraud-on-the-market presumption established in Basic Inc. v. Levinson, 485 U.S. 224, 243-50 (1988).  This theory effectively allows shareholders to bring class action suits under Section 10 of the 1934 Act by presuming that plaintiffs, in purchasing stock in an efficient market, relied on alleged material misstatements made by defendants because such public statements were reflected in the company’s stock prices.

Urging the reversal of Basic, Halliburton filed its opening brief on December 30, 2013, in Halliburton Co. v. Erica P. John Fund, No. 13-317.  Halliburton makes several arguments in its brief in support of overturning Basic, including many familiar legal arguments relating to statutory interpretation, congressional intent and public policy objectives.  Perhaps most interesting, however, is the brief’s focus on the academic literature regarding the economic assumptions underlying Basic that may not be as familiar to practitioners.  Specifically, Halliburton argues that academics have discredited and rejected Basic’s key premise that the market price of shares traded on well-developed markets reflects all publicly available information.  In particular, Halliburton argues that: Read More

The Meaning of Life Settlements: Are They Securities Or Not?

“Life settlements” are financial transactions in which the original owner of a life insurance policy sells it to a third party for an up front, lump sum payment.  The amount paid for the policy is less than the death benefit on the policy, yet greater than the amount the policyholder would otherwise receive from an insurance company if the policyholder were to surrender the policy for its cash value.  For the life settlement investor that buys the policy, the anticipated return is the difference between the death benefit and the purchase price plus the amount paid in premiums to keep the policy in force until the death benefit is payable.

Some commentators have deemed life settlements as essentially a “bet” on the life of the insured.  The longer the insured lives, the lower the rate of return on the investment.  Critics of life settlements are quick to point out that investors have a financial interest in the early demise of the insured person.  The life settlement industry has been subject to extensive litigation for several years.

An important and as yet unsettled question is whether life settlements are “securities” as defined under federal and state securities law.  This basic question has important ramifications for how life settlement contracts will be treated by courts and regulators. Read More

New Wave Of Lawsuits Targeting Disclosures On “Say-On-Pay;” Plaintiffs Use M&A Litigation Tactics To Attack Executive Pay

The plaintiffs’ bar has taken new aim at public companies’ annual meetings: filing lawsuits to enjoin annual shareholder approval of stock plan proposals and “Say-On-Pay” (“SOP”) votes, typically arguing that the proxy disclosures regarding these topics are inadequate. Dozens of cases have been filed this year to date. The Santa Clara Superior Court recently denied plaintiff’s attempt to delay Symantec’s SOP vote, finding no precedent for such an injunction. Yet new cases continue to come.

In Symantec, plaintiffs argued that proxy disclosures failed to provide enough information to allow shareholders to make an informed decision regarding executive compensation proposals. Plaintiffs argued that shareholders needed more detailed information, including an analysis conducted by the company’s compensation consultants and any compensation risk assessment undertaken by the company. Symantec v. Gordon, et al., Case No. 1-12-CV-231541 (Cal. Santa Clara County Superior Court). The Symantec Court disagreed.

The Symantec case suggests that judges will look to industry practices in evaluating the adequacy of disclosures on executive compensation. The court considered an expert opinion from a Stanford Professor (Robert Daines) surveying disclosures made by other companies in the industry. Professor Daines concluded that Symantec’s disclosures were at least as detailed as the industry standard. Lacking any factual support or legal precedent for such an injunction, the court denied the motion. Read More