The defense bar recently won a significant victory in the battle to challenge the SEC’s expanded use of administrative proceedings, following the 2010 enactment of the Dodd-Frank Act, to seek penalties against unregulated individuals and entities. As we previously wrote in SEC’s Administrative Proceedings: Where One Stands Appears to Depend on Where One Sits and There’s No Place Like Home: The Constitutionality of the SEC’s In-House Courts, SEC administrative proceedings have recently faced growing scrutiny, including skepticism about whether the administrative law judges (ALJs) presiding over these cases are inherently biased in favor of the SEC’s Division of Enforcement. The Wall Street Journal recently reported that ALJs rule in favor of the SEC 90% of the time in administrative proceedings. Administrative proceedings have also been criticized for the ways in which they differ from federal court actions, including that respondents are generally barred from taking depositions, counterclaims are not permissible, there is no equivalent of Rule 12(b) motions to test the allegations’ sufficiency, and there is no right to a jury trial.
William F. Alderman
Bill Alderman, a partner in the San Francisco office, concentrates his practice on business litigation and dispute resolution. He has broad experience in matters involving federal and state securities, corporate governance, technology, trade secrets, business torts and international disputes. Mr. Alderman is additionally recognized for the results he has obtained in insurance coverage, employee benefits, and federal and state antitrust disputes. He commits a substantial part of his time to pro bono representation and to representation of the firm.
Representing clients in class and derivative actions, Mr. Alderman’s approach is to minimize his clients’ overall cost through careful strategic planning, dispositive motions and aggressive negotiation. Only three of the many securities class actions he has defended have resulted in any settlement payment by his client or its carrier. Of his more than 75 motions to dismiss securities class, mass or derivative actions since 1996, more than 90 percent were granted in their entirety (most with prejudice), while others were granted in part or led to a successful motion for summary judgment.
The following are some of Mr. Alderman’s more notable securities class, derivative and individual actions.
- Deckers Outdoor Corp. Securities Litigation. (C.D. Cal., D. Del., Santa Barbara Superior, Cal. Ct. App. 2012-2014). Mr. Alderman represented the company and its three top executives in defending two class actions and two derivative actions. All four actions were dismissed with prejudice on initial motions; dismissal in the derivative actions was affirmed on appeal.
- Deutsche Bank National Trust Co. v. Novation Companies, Inc. (N.Y. Supreme, 2012-present). Mr. Alderman represents an RMBS sponsor in the defense of an action by the trustee on behalf of FHFA seeking repurchase of loans in the trust.
- Woori Bank v. RBS Securities (S.D.N.Y. 2012). Mr. Alderman represented a CDO issuer in defense of an action by an institutional buyer; obtained dismissal with prejudice.
- National Credit Union Administration Board v. RBS Securities, Inc. et al. (D. Kan., 10th Cir., U.S. Supreme Court 2011-present). Mr. Alderman represents an MBS issuer in an action by the liquidation agent for a failed credit union/buyer.
- Cambridge Place Inv. Mgmt., Inc. v. Morgan Stanley, et al. (D. Mass, MA state court 2010-12). Mr. Alderman represented a sponsor of MBS offerings in two actions brought by an MBS investor; obtained dismissal on initial motion.
- In re 2007 NovaStar Financial, Inc. Sec. Litig. (W.D. Mo. 2007-08; 8th Cir. 2009). Mr. Alderman represented the company and three officers in defense of class actions alleging accounting errors in connection with subprime lending. Obtained dismissal with prejudice on initial motion; dismissal affirmed on appeal; related derivative actions settled without cost to client.
- New Jersey Carpenters Health Fund v. NovaStar Mortgage, Inc., et al. (S.D.N.Y., 2d Cir. 2009-present). Mr. Alderman represents a subprime mortgage lender and four of its officers in defense of a class action brought by buyers of interests in securitized mortgage pools against the lender, bond underwriters, and rating agencies. Obtained dismissal with leave to amend on initial motion and subsequent dismissal with prejudice; dismissal reversed on appeal.
- In re McKesson HBOC Securities Litigation; U.S. v. Hawkins; SEC v. Hawkins (N.D. Cal., S.F. Superior 1999-2005). Mr. Alderman represented the former CFO in defense of multiple civil, criminal and regulatory actions arising out of a US$9 billion one-day loss of market capitalization following restatement of earnings of an acquired company. He obtained an acquittal following a criminal trial, voluntary dismissal of an SEC action, and dismissal of various state and federal claims, with prejudice. Additional actions were settled without cost to client.
- In re Hewlett-Packard Company Consolidated Derivative Litigation (Santa Clara Superior 2006-08). Mr. Alderman represented the former general counsel in defense of derivative litigation relating to use of alleged pretexting to obtain confidential telephone records; settled without cost to client.
- In re: Gap Inc. Derivative Litigation (San Francisco Superior 2006-07). Mr. Alderman represented 34 present and former officers and directors in obtaining voluntary dismissal of derivative actions alleging stock option backdating.
- Gillam v. PG&E Corp. (N.D. Cal., 9th Cir. 2001-03). Mr. Alderman represented the parent of a major utility and its principal officers in obtaining dismissal, with prejudice, of a class action claiming multibillion-dollar overstatements of revenues and earnings in connection with California energy crisis. Dismissal of the case was affirmed on appeal.
- In re NovaStar Financial Sec. Litig. (W.D. Mo., Missouri and Maryland State Courts 2004-08). Mr. Alderman represented the company and various officers and directors in the defense of class and derivative actions brought by open market purchasers. All matters settled without cost to clients.
- In re Levi Strauss Sec. Litig. (N.D. Cal. 2004-08). Mr. Alderman represented the CEO, CFO and controller in defense of a class action on behalf of purchasers of more than US$1 billion in corporate bonds; case settled without cost to clients.
- Landau v. Bechtle (S.F. Superior 2004-2006). Mr. Alderman represented the directors of Charles Schwab Corporation in obtaining the voluntary dismissal of derivative actions relating to alleged market timing and late trading in mutual funds managed by a company subsidiary.
- In re Callidus Software Sec. Litig. (N.D. Cal. 2004-2006). Mr. Alderman represented the company, officers and directors in obtaining dismissal of class action alleging misleading projections.
- Operating Engineers v. IMPAC Medical Systems (N.D. Cal. 2004-05). Mr. Alderman represented the company and principal officers in obtaining voluntary dismissal of class action.
- Khader v. Affymetrix Corp. (N.D. Cal. 2003-04). Mr. Alderman represented issuer, directors and officers in obtaining dismissal of class action claiming misleading projections.
- In re Onyx Software Corp. Securities Litigation. (W.D. Wash. 2001-03). Mr. Alderman represented the company, directors and officers in the defense of class and derivative actions claiming improper revenue recognition in connection with restatement. Obtained dismissal of 10b-5 claim balance settled without payment by clients.
- In re Metricom Sec. Litig. (N.D. Cal., 9th Cir. 2001-2006). Mr. Alderman represented underwriters in obtaining dismissal, with prejudice, of class and individual actions for IPO and open-market purchasers; dismissal affirmed on appeal.
- In re Clarent Corp. Sec. Litig.; Ahlstrom v. Clarent (N.D. Cal., D. Minn. 2002-05). Mr. Alderman represented former CFO in defense of class and mass actions claiming improper revenue recognition in connection with restated financial statements. Obtained dismissal of 10b-5 claim; balance settled without payment by client.
- Herman v. Salomon Smith Barney (S.D. Cal. 2002-03). Mr. Alderman represented broker-dealer in obtaining dismissal, with prejudice, of a class action challenging alleged practices in sale of municipal bonds.
- Olson v. Salomon Smith Barney (N.D. Cal. 2002). Mr. Alderman obtained voluntary dismissal of class action challenging alleged practices in sale of municipal bonds.
- Behrens v. Cygnus Inc. (N.D. Cal. 2002). Mr. Alderman obtained voluntary dismissal on behalf of company, officers, and directors of class action claiming non-disclosure of material information.
- Autodesk Securities Litigation (N.D. Cal. 2000). Mr. Alderman represented the underwriter/analyst in obtaining dismissal of a class action involving open market trading.
- Lippitt v. Raymond James Financial (S.F. Superior, N.D. Cal., 9th Cir. 2001-04). Mr. Alderman represented broker-dealer in class action claiming that marketing of callable CDs is an unfair business practice. Following the denial of a motion to remand, Mr. Alderman obtained voluntary dismissal. The case settled after prior denial of remand was reversed on appeal.
- FPA Securities Litigation (S.D. Cal., 9th Cir. 1999-2005). In Madden v. Deloitte & Touche and Amin v. S.G. Cowen, Mr. Alderman represented the financial advisor in obtaining a dismissal, with prejudice, of mass actions arising out of acquisition of managed care medical corporations. Dismissal of the case was affirmed on appeal.
- Bergen Capital Trust I Securities Litigation (C.D. Cal. 1999-2002). Mr. Alderman represented the managing underwriters in defense of a class action involving a $300 million debt offering and open market trading, which was settled without payment by clients.
- Myers v. Merrill Lynch (N.D. Cal., 9th Cir. 1998-2001). Mr. Alderman represented the investment banking firm in defense of class action claiming that “penalty bids” imposed by underwriters to discourage flipping by IPO purchasers violate California unfair competition law and other laws. Mr. Alderman obtained dismissal, with prejudice, on his initial motion which was affirmed on appeal.
- In re Fritz Companies Securities Litigation (N.D. Cal., 9th Cir., S.F. Superior, California Court of Appeal and Supreme Court 1996-2003). Mr. Alderman represented the company and its directors in defense of class actions involving open market trading. Federal and state actions were dismissed with prejudice on initial motion. He also obtained a judgment from the California Supreme Court reinstating the dismissal of another state case on behalf of holders.
- In re Triteal Corp. Securities Litigation (S.D. Cal. 1997-99). Mr. Alderman represented the lead underwriters in the defense of class actions involving secondary offering and open market trading. The case settled without payment by clients.
- Chan v. Orthologic Corp. (D. Ariz. 1997-98). Mr. Alderman represented the lead underwriters in defense of a class action involving open market trading and obtained dismissal with prejudice on the initial motion.
- Steckman v. Hart Brewing, 143 F.3d 1293 (S.D. Cal., 9th Cir., San Diego Superior 1996-98). Mr. Alderman represented the lead underwriters in defense of a class action arising out of a US$50 million IPO and open market trading. He obtained dismissal, with prejudice, of the federal action on the initial motion and voluntary dismissal of state court actions. The dismissal was affirmed on appeal.
- In re KENETECH Securities Litigation (N.D. Cal. 1995-99). Mr. Alderman represented lead underwriters in defense of class actions arising out of a US$100 million IPO of common stock, US$100 million offering of preferred depositary shares and open market trading. He obtained dismissal of Section 11 claims by open market purchasers and summary judgment on remaining claims.
- In re Software Toolworks, Inc. Securities Litigation, 50 F.3d 615 (9th Cir. 1994), cert. denied, 516 U.S. 907 (1995). Mr. Alderman represented the Securities Industry Association as amicus curiae in support of the affirmance of summary judgment for underwriters on due diligence defense.
- In re Worlds of Wonder Securities Litigation, 814 F. Supp. 850 (N.D. Cal. 1993), aff’d in part, rev’d in part, 35 F.2d 1407 (9th Cir. 1994), cert. denied, 516 U.S. 868 (1995). Mr. Alderman represented the lead underwriters in defense of class actions alleging federal securities claims and common law claims arising out of a US$120 million IPO. He represented the sole underwriter in defense of a similar class action arising out of an US$80 million public offering of convertible debentures. In both cases, he defended against open market trading claims. Summary judgment for the underwriters was affirmed on appeal.
The following cases illustrate some of Mr. Alderman’s other areas of expertise in securities matters.
- Unfair Competition Litigation. Mr. Alderman has won more than 20 recent class and private attorney general actions under Section 17200 of the California Business & Professions Code on behalf of such clients as Citigroup, Salomon Smith Barney, Morgan Stanley and Verizon.
- Private Finance Litigation. In Z Auction v. Salomon Smith Barney (Los Angeles County Superior Court 1999-2001), Mr. Alderman represented the investment banker in defense of a US$1 billion claim for damages arising out of a private financing engagement and obtained dismissal of entire case with prejudice on demurrer.
- Merger and Acquisition Litigation. In Medtronic v. Dieck (Arbitration 1998-99), Mr. Alderman represented 10 former shareholders of an acquired company in defending a demand by the acquirer for rescission of US$72 million merger. He obtained summary judgment and an award of attorney’s fees from an arbitration panel.
- Customer Litigation. In Estate of Joslyn v. Estate of Cash (NASD arbitration 1999 - 2001). Mr. Alderman represented a broker-dealer in defense and favorable settlement of a claim that the customer suffered US$16 million in damages from unsuitable investments.
- Fiduciary Litigation. In Rutledge v. Smith Barney (D. Haw. 1998-99), Mr. Alderman represented the financial advisor in obtaining a dismissal with prejudice of ERISA and common law claims based on services to union trust funds.
- Intra-company Disputes. Mr. Alderman has represented numerous companies and/or shareholders in resolving disputes between majority and minority shareholders.
- Partnership Disputes. Mr. Alderman has represented numerous partnerships and their constituencies in disputes over partnership or general partner action.
- Tender Offer Litigation. Mr. Alderman has represented both offerors and offerees in federal and state litigation relating to corporate or partnership tender offers.
- Regulatory Investigations. Mr. Alderman has represented clients in numerous public and non-public investigations and informal inquiries by the SEC, NASD, NYSE, AMEX, PCX and FINRA: In 2004 and 2005, he represented clients in producing documents and/or testimony to the SEC in nine separate matters, without any having resulted in enforcement action.
- Advisory Litigation. In Nicolino v. Automated Security (Holdings) plc (Contra Costa Superior Court; Court of Appeal 1997-98), Mr. Alderman represented the financial advisor in obtaining the dismissal of a claim for alleged breach of acquisition agreement. Dismissal of the case was affirmed on appeal.
- Internal Investigations. Mr. Alderman has conducted internal investigations and represented special committees or audit committees for clients such as Salomon Smith Barney, Gap Inc., Restoration Hardware, Walt Disney Co., Onyx Software, Calypte Biomedical, Harper Group and Wells Fargo Bank.
We first heard about the SEC’s increased focus on high-frequency trading in June 2014 when the SEC announced its desire to promulgate new rules on high frequency trading to address the lack of transparency in dark pools and alternative exchanges and to curtail the use of aggressive, destabilizing trading strategies in vulnerable market conditions. However, the SEC and other regulators may not need to rely on new rules to regulate high frequency trading. The United States Commodity Futures Trading Commission special counsel Greg Scopino recently published an article in the Connecticut Law Review arguing that certain high frequency trading tactics violate federal laws against spoofing and wash trading.
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?
Earlier this month, Judge Victor Marrero of the Southern District of New York issued his opinion certifying a class of buyers of the common stock of a company created by a Chinese reverse merger. McIntire v. China MediaExpress Holdings, Inc., 2014 U.S. Dist. LEXIS 113446 (S.D.N.Y. Aug. 15, 2014). In doing so, he rejected defendants’ Daubert motion challenging the qualifications and methodology of plaintiffs’ expert witness on market efficiency, Cynthia Jones, and concluded that the market was efficient enough to support the Basic presumption of reliance and to permit class certification. Read More
Some things are better left unsaid. Especially, it seems, when they involve political intelligence shared by a congressional aide with a lobbyist linked to a political intelligence firm serving Wall Street traders.
The sharing of political-insider scoop has recently caused Congress to be subpoenaed for an insider trading investigation that will likely test recent legislation enacted to curb trading on non-public political information. The SEC subpoenaed Rep. David Camp (R., Mich.) for records, and the Justice Department subpoenaed Camp’s aide Brian Sutter, staff director of the House Ways and Means Committee’s healthcare subpanel, to testify before a federal grand jury. Read More
On March 5, 2014, the Supreme Court heard oral argument in the case Halliburton Co. v. Erica P. John Fund, Inc., Case No. 13-317, and we are certain our blog readers are eagerly awaiting the Court’s ruling. The case has potentially far-ranging implications for the survival of the Court’s landmark ruling in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), which relied on the efficient market hypothesis to create the fraud-on-the-market presumption of reliance on misrepresentations. This post provides background on the history of the Halliburton litigation and is the first in a series of posts that will analyze the arguments by the parties and amici, the Court’s ruling, and the potential implications for future litigation.
Plaintiff-Respondent Erica P. John Fund, Inc. is a not-for-profit group that supports the outreach work of the Archdiocese of Milwaukee. The Fund purchased stock in Halliburton Company and lost money when Halliburton’s stock price dropped following negative news regarding Halliburton’s (1) potential liability in asbestos litigation, (2) revenue accounting on fixed-price construction contracts, and (3) merger with Dresser Industries. The Fund sued Halliburton and its CEO David Lesar alleging that they had previously made fraudulent misrepresentations concerning those topics in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. 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
In a story right out of the movies, complete with “poison pills” and “white squires,” the SEC announced on March 13, 2014 that motion picture company Lions Gate Entertainment Corporation settled charges that it failed to disclose to investors a set of “extraordinary” corporate transactions designed to thwart takeover efforts by investor Carl Icahn.
The tale of intrigue and midnight board meetings can be traced to Icahn’s efforts, beginning in 2008, to acquire control of Lions Gate. Despite his eventually gaining beneficial ownership of nearly 40 percent of Lions Gate’s outstanding shares, the company rejected various demands from Icahn over the years, including a demand to appoint five of the twelve seats on the Board of Directors. In March, 2010, Icahn made a tender offer with a premium over the market price to entice shareholders to sell. To thwart Icahn’s tender offer, Lions Gate adopted a poison pill and began to look for ways to keep the company out of Icahn’s hands. Read More
Though investors might have assumed that the entire Securities and Exchange Commission was their advocate to begin with, on February 12th the agency announced that it had hired Rick Fleming to be its very first Investor Advocate in the recently created Office of the Investor Advocate (“OIA”).
In hiring Fleming, the SEC is implementing Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended the Securities Exchange Act of 1934 by creating, among other things, an Investor Advisory Committee, the OIA, and an ombudsman to be appointed by the Investor Advocate. Fleming comes to the SEC from his most recent job as Deputy General Counsel at the North American Securities Administrators Association where he advocated for state securities regulators in matters before Congress and the SEC. Fleming previously spent several years in Kansas state government, including some fifteen years in the state’s Office of the Securities Commissioner. Read More
Ever had one of those days where you think you’re acting with good faith, diligence, and care, and yet you still get sued by the FDIC? The directors and officers of the now defunct Buckhead Community Bank in Georgia find themselves in the government’s crosshairs and, unlike their D-and-O counterparts at public companies, a federal court in Georgia thinks it’s not so clear that they’ll be able to claim the protections of the business judgment rule to avoid the FDIC’s claim that they caused the bank to lose millions of dollars.
The background in this case reads like so many others in similar suits around the country. According to the FDIC, the bank implemented an “aggressive growth strategy” beginning in 2005 that resulted in a 240 percent increase in the bank’s loan portfolio through 2007, primarily from gains in the bank’s “high-risk real estate and construction loans.” The bank’s adversely classified assets grew from twelve percent to more than 200 percent of its tier-1 capital, and by December 2009 the bank had landed in FDIC receivership. The FDIC later sued the bank’s directors and officers in federal court alleging that they were negligent for repeated violations of the bank’s loan policy, underwriting requirements, banking regulations, and “prudent and sound banking practices.” Read More