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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The Ripple Effects of U.S. v. Newman Continue: SEC Lifts Administrative Bar on Downstream Insider Trading Tippee and Tipper Requests that Third Circuit Vacate SEC Settlement

The ripple effects of the Second Circuit’s landmark insider trading decision, United States v. Newman, 773 F.3d 438 (2d Cir. 2014), were felt again last week.  On Tuesday, February 23, 2016, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) ruled that Former Neuberger Berman Analyst Sandeep “Sandy” Goyal, whom the SEC previously barred from the securities industry after he pled guilty to insider trading, could participate in the industry again. The SEC’s rare decision to lift an administrative bar order resulted from Newman, (previously discussed at length here), which led to Goyal’s criminal conviction being vacated and the civil claims against him being dropped by the SEC.  Newman raised the bar for what prosecutors in tipper/tippee insider trading cases have to show by holding that tipper/tippee liability requires the tipper to receive a “personal benefit” amounting to a quid pro quo or pecuniary benefit in exchange for the tip and the tippee to know of that benefit.  Despite the SEC’s decision to drop the administrative bar against Goyal in light of Newman, as recently as SEC Speaks on February 19-20, 2016, SEC Deputy of Enforcement Stephanie Avakian affirmed that insider trading cases “continue[] to be a priority” for the Commission.   Nonetheless, the ripple effects of Newman continue to call the government’s ability to successfully bring both criminal and civil cases into question.

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Merrill Lynch v. Manning: SCOTUS to Decide Scope of Federal Jurisdiction in Certain Securities Cases

On December 1, 2015, the Supreme Court heard argument in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning.  In that case, the Court will resolve the split in the Circuits as to whether Section 27 of the Securities Exchange Act of 1934 (“the ’34 Act”) provides federal jurisdiction over claims that are asserted under state law but are based on violations of regulations adopted under the ’34 Act.

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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

Better Keep Your Opinions to Yourselves for Now: Second Circuit Doubles Down in Deutsche Bank Ruling in Advance of Supreme Court Review of Omnicare

On July 16, 2014, a three-judge Second Circuit panel affirmed the dismissal of a securities class action against Deutsche Bank AG and several underwriters.  The case was brought on behalf of investors who purchased approximately $5.5 billion in preferred Deutsche Bank shares in 2007, and who alleged that defendants misled them about the bank’s exposure to mortgage-backed securities and other risks in a registration statement filed in October of 2006.  Plaintiffs alleged that the registration statement omitted details about Deutsche Bank’s business, including that the company failed to properly record provisions for RMBS, commercial real estate loans and exposure to monoline insurers.

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Supreme Court Narrows the Scope of SLUSA Preemption, Green-Lighting State Law Class Action Claims Alleging Ponzi Scheme

On February 26, 2014, the U. S. Supreme Court (“the Court”) held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not preclude Stanford Ponzi scheme plaintiffs’ state-law class action claims because the claims did not involve covered securities.  The 7-2 majority opinion in Chadbourne & Parke, LLC v. Troice was written by Justice Breyer, joined by Justices Kagan, Sotomayor, Ginsburg, Scalia and Chief Justice Roberts.  Justice Thomas concurred, and Justices Kennedy and Alito dissented.

The Court’s decision is significant because it resolves a long-standing circuit split over the interpretation of the “in connection with” requirement in SLUSA.  As a result of the decision, plaintiffs may increasingly bring state law claims based on investment vehicles that are not covered securities themselves but whose performance implicates or is backed by covered securities.  Investment managers and entities that market such investments, as well as lawyers and accountants, may face an increased risk of liability as a result of this decision. Read More

Shareholder Plaintiffs Score a Class Certification Win from SCOTUS

On Wednesday, the Supreme Court issued its decision in Amgen, Inc. v. Connecticut Retirement Plans. In a 6-3 decision authored by Justice Ginsburg, the Supreme Court handed a win to plaintiffs in securities fraud class actions, holding that plaintiffs do not have to prove materiality at the class certification stage. The decision marks a departure from some of the Court’s more recent class action rulings, which seemed to narrow class action litigation. Justices Scalia, Thomas and Kennedy dissented.

In their complaint, plaintiff shareholders alleged that Amgen and its executives misled investors about the safety and efficacy of two anemia drugs, thereby violating Section 10(b) and Rule 10b-5. During class certification, Amgen argued that Rule 23(b)(3) required that plaintiffs needed to prove materiality in order to ensure that the questions of law or fact common to the class will “predominate over any questions affecting only individual members.” Both the district court and the Ninth Circuit Court of Appeals rejected Amgen’s argument. The Supreme Court followed suit, affirming the Court of Appeal’s judgment and holding that proof of materiality is not a prerequisite to class certification in securities fraud cases. Read More