James Kramer is Co-Chair of the White Collar, Investigations, Securities Litigation & Compliance group. His practice focuses on defending companies, officers and directors in shareholder class actions, derivative suits and regulatory proceedings.
He is acknowledged by Chambers as a "Leader in their field" for Securities Litigation and has also been acknowledged as one of "America's Leading Litigators" by Benchmark.
Jim has extensive experience representing companies and individuals in securities class actions, derivative actions, merger and acquisition related litigation, SEC enforcement proceedings and other complex commercial litigation. In addition, he has extensive experience representing board committees in internal investigations, including SEC and SRO-related investigations.
He regularly advises companies on corporate governance, fiduciary duty and disclosure issues. He is a frequent lecturer on issues involving securities matters and class action litigation.
- In re NVIDIA Securities Litigation. Obtained a precedent-setting victory in the Ninth Circuit on behalf of firm client NVIDIA Corporation. In a published decision, the Ninth Circuit affirmed the dismissal of a securities class action alleging that NVIDIA failed to disclose defects in its products in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5.
- Livingston v. 23andMe. Achieved two significant victories on behalf of the client in a consumer class action including a motion to compel arbitration and a clause construction award.
- Bundy v. IronPlanet. Represented a 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.
- SEC v. Mercury Interactive, Inc. Represented the former GC of Mercury in an SEC enforcement action alleging backdating of stock options. Matter was resolved on a non-fraud basis prior to trial.
- In re Sequans Securities Litigation. Obtained dismissal at the pleading stage of a putative securities class action asserting claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 against the company and certain of its officers in connection with the company’s public offering.
- SEC v. Berry. Represented former GC of two publicly traded companies in an SEC enforcement action alleging backdating of stock options. Matter was resolved on a non-fraud basis prior to trial.
- In re Ikanos Communications Securities Litigation. Obtained dismissal at the pleading stage of a putative securities class action asserting claims under the Securities Act of 1933 against the company and certain of its officers
- In re 3dfx Bankruptcy Litigation. Jim was part of a trial team that recently obtained a ruling completely favorable to client NVIDIA Corporation in complex M&A/creditor’s rights dispute in U.S. Bankruptcy Court for the Northern District of California.
- 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 against the company and certain of its officers and directors.
- In re Agile Software Derivative Litigation. Obtained dismissal at the pleading stage of a complaint asserting derivative option back-dating claims and direct breach of fiduciary duty merger and acquisition claims relating to Oracle Corporation’s acquisition of Agile.
- In re Acer/Gateway M&A Litigation. Jim was part of a team that defeated plaintiffs’ attempts to enjoin Acer’s acquisition of Gateway Computers.
- In re Watchguard Corporation. Obtained dismissal at the pleading stage of a complaint asserting breach of fiduciary duty and claims against Watchguard and certain of its officers and directors in connection to the sale of the company to private equity purchasers.
- Represent the Special Committee of the board of directors of a technology company in its investigation of past stock option grant practices and the related SEC investigation.
- Represent the Audit Committee of the board of directors of a technology company in its investigation into insider trading and revenue recognition issues.
- Represent the Special Committee of the board of directors of an international media company in its investigation of past stock option grant practices and the related SEC investigation.
- In re Intermix Securities Litigations. Obtained dismissal of federal and state complaints alleging claims in connection with NewsCorp.’s acquisition of Myspace.com on behalf of VantagePoint Venture Partners.
The Financial CHOICE Act (or “CHOICE Act 2.0”), which would significantly narrow the SEC’s ability to bring enforcement actions and make it more challenging for it to prevail in such actions, is inching its way towards becoming law. On May 4, 2017, the Financial Services Committee passed the Act and it is now slated to be introduced to the House in the coming weeks. As part of the push by the current administration to deregulate, this bill aims to repeal key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including those directed towards the SEC. Although the Act has a long way to go before it is enacted, many of its provisions would have far-reaching consequences and would change the way the SEC operates as we know it.
Should the CHOICE Act 2.0 become law, the following are some of the more important effects it would have on the SEC’s enforcement abilities:
On February 9, 2017, the Supreme Court of Delaware summarily affirmed the Court of Chancery’s decision in In re Volcano Corp. Stockholder Litigation which had dismissed plaintiffs’ complaint on defendants’ 12(b)(6) motion to dismiss.
Plaintiffs, former stockholders of Volcano Corporation, had brought an action against defendants for breaches of fiduciary duty arising from the all-cash merger between Volcano and Philips Holding USA Inc. The parties had disputed what standard of review the Court of Chancery should apply: the Revlon test, as plaintiffs claimed, because Volcano’s stockholders received cash for their shares, or the irrebuttable business judgment rule, as defendants argued, because Volcano’s stockholders were “fully informed, uncoerced, and disinterested” when they approved the merger by tendering a majority of Volacano’s shares into a tender offer. As the Court of Chancery explained, if a business judgment rule is irrebuttable, plaintiffs could only challenge the transaction on the basis of waste. Thus, plaintiffs also argued in the alternative that if the business judgment rule did apply, it should only be a rebuttable presumption.
Last week brought more bad news for private blood testing company Theranos Inc., as San Francisco-based Partner Fund Management L.P. (“PFM”) launched a suit claiming that it was duped into making a $96.1 million investment in Theranos in February 2014. The complaint, filed in Delaware Court of Chancery, alleges common law fraud, securities fraud under California’s Corporations Code, and violations of Delaware’s Consumer Fraud Act and Deceptive Trade Practices Act, among other things, against Theranos, its Chief Executive Officer, Elizabeth Holmes, and its former Chief Operating Officer, Ramesh Balwani.
In a 2-1 decision, the Seventh Circuit has joined the Delaware Court of Chancery’s call for enhanced scrutiny of “disclosure-only” M&A settlements that involve no monetary benefits to shareholders. As previously discussed here, M&A litigation, typically alleging breach of fiduciary duty by directors and insufficient disclosures, often ends in settlement, with defendants agreeing to provide supplemental disclosures in exchange for broad releases of claims, while plaintiffs’ counsel “earns” large attorneys’ fees for providing the class with the “benefit” of the agreed-upon disclosures. In In re Walgreen Company Stockholder Litigation (“In re Walgreen Co.”), the Seventh Circuit rejected such a settlement, endorsing the standard for approval of disclosure-only settlements articulated by the Delaware Court of Chancery in In re Trulia, Inc. Shareholder Litigation (“In re Trulia”). In In re Trulia, the Court of Chancery held that disclosure-only settlements in M&A litigation will meet with disfavor unless they involve supplemental disclosures that address a “plainly material misrepresentation or omission” and any proposed release of claims accompanying the settlement encompasses only disclosure claims and/or fiduciary duty claims regarding the sale process.
On June 9, 2016, the Securities and Exchange Commission (‘SEC”) awarded the second largest whistleblower bounty – $17 million – granted under the Dodd-Frank whistleblower rules to date. Previously, the highest whistleblower awards were a $30 million award in September 2014 and a $14 million award in October 2013. The $17 million award comes on the heels of $26 million in whistleblower awards given to five anonymous individuals over the last month alone. These awards serve as a warning to companies that the SEC takes its whistleblower program seriously and will continue to encourage and reward company insiders for coming forward with information that leads to successful enforcement actions. As Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower – a department created by the SEC to give whistleblowers a place to submit their tips – said, “[W]e hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC.”
The Securities and Exchange Commission’s Office of the Inspector General (“OIG”) recently released findings from its extensive investigation into allegations of potential bias against respondents in SEC administrative proceedings. The OIG report comes at a time when the fairness of the SEC’s in-house administrative forum is under scrutiny from both inside and outside of the agency.
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.”
On July 1, 2015, the United States for the District of Columbia sued the estate and trusts of the late Layton P. Stuart – the former owner of One Financial Corporation and its subsidiary One Bank & Trust– and the trust’s beneficiaries, for alleged fraud on the Treasury Department and its Troubled Asset Relief Program (“TARP”). This civil suit is the latest in a growing list of cases brought by the government to recover TARP funds that it alleges were fraudulently procured.
Even with the SEC’s home-court advantage in bringing enforcement actions in its administrative court rather than in federal court, the SEC will still criticize its own administrative law judges (“ALJ”) when an ALJ’s decision falls short of established legal standards. On April 23, 2015, the SEC found that an ALJ’s decision to bar Gary L. McDuff from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent or nationally recognized statistical rating organization was insufficient because it lacked enough evidence to establish a statutory requirement to support a sanctions analysis. The SEC then remanded the matter to the same ALJ – no doubt in an effort to encourage him to revise his initial opinion.
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.