As previously discussed here, in 2015, the Delaware Court of Chancery issued a number of decisions calling for enhanced scrutiny of “disclosure-only” M&A settlements that involve no monetary benefits to a shareholder class. For example, the recent decision in In re Riverbed Technology, Inc. Stockholders Litigation expressly eliminated the “reasonable expectation” that a merger case can be settled by exchanging insignificant supplemental disclosures (and nothing more) for a broad release of claims. In In re Trulia, Inc. Stockholder Litigation, the Chancery Court demonstrated that its “increase[ed] vigilance” in this area is genuine, rejecting a disclosure-only M&A settlement and finding that the supplemental disclosures did not warrant the broad release of claims.
Kevin Askew, a partner in Orrick’s Los Angeles office, is a securities litigator. He represents companies, officers and directors in securities class actions, shareholder derivative suits, and other complex business litigation matters. Kevin also has substantial experience representing financial institutions, issuers and individuals in connection with SEC investigations and enforcement actions.
Kevin has litigated matters in state and federal courts around the country, in arbitration, in administrative proceedings, and on appeal.
Kevin has also devoted a significant portion of his time to pro bono matters. Public Counsel’s Immigrants’ Rights Project awarded Kevin its 2016 Pro Bono Award in recognition of his representation of an asylum seeker in a long-running matter.
Kevin has published articles on securities-related topics in the Daily Journal, the National Law Journal, Bloomberg BNA, and other publications.
Posts by: Kevin Askew
In what is now the third interlocutory appeal in the course of class certification proceedings spanning more than a decade, the case of Erica P. John Fund, Inc. v. Halliburton Co. will head back to the United States Court of Appeals for the Fifth Circuit, with perhaps another trip to the Supreme Court to follow. The Fifth Circuit’s eventual decision on this latest interlocutory appeal could clarify—at least in the Fifth Circuit—just how far a defendant in a securities class-action can go in presenting indirect evidence of (a lack of) price impact to defeat class certification.
Coming on the heels of the SEC’s first wave of settlements with underwriters as part of its Municipalities Continuing Disclosure Cooperation (“MCDC”) initiative, the agency has brought yet another precedent-setting enforcement action against an underwriter in the municipal bond market. On August 13, 2015, the SEC brought a settled enforcement action against the brokerage firm Edward Jones, in which the firm agreed to pay more than $20 million to settle charges that it overcharged customers in connection with the sale of municipal bonds in the primary market. Edward Jones settled without admitting or denying the SEC’s findings.
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.
For the first time in the nearly five years since Dodd-Frank went into effect, the SEC last week took action against a company over concerns that the company was preventing its employees from potentially blowing the whistle on illegal activity. The action is significant because the SEC was targeting seemingly innocuous language in a confidentiality agreement and there were no allegations that the company, KBR, Inc., was otherwise breaking the law.
Last week, a New York federal judge struck another blow to prosecutorial efforts to secure insider trading convictions in tipper-tippee cases. As discussed in detail here, the U.S. Attorney’s Office for the Southern District of New York suffered a high-profile defeat in an insider trading case last month, when the Second Circuit issued its decision in U.S. v. Newman, No. 13-1837, 2014 WL 6911278 (2d Cir. Dec. 10, 2014). In Newman, the Second Circuit found that prosecutors in tipper-tippee cases must prove both that the tipper (the individual disclosing inside information in breach of a duty) received a personal benefit in exchange for the disclosure, and that the tippee (the individual receiving and trading on the information) knew about the tipper’s receipt of that benefit. In the wake of Newman, U.S. Attorney Preet Bharara and others expressed concerns that the decision could limit future insider trading prosecutions.
In a long-awaited opinion issued on August 15 in Parkcentral v. Porsche, the Second Circuit limited the extraterritorial reach of the U.S. securities laws, affirming the dismissal of securities claims brought by parties to swap agreements that were entered into in the United States but were based on the price of foreign securities. Although the Parkcentral opinion offers an important interpretation of the Supreme Court’s 2010 opinion in Morrison v. National Australia Bank, the Second Circuit declined to set forth a bright-line rule for determining when a securities fraud claim based on domestic transactions in foreign securities is sufficiently “domestic” to be subject to U.S. securities laws, thereby leaving the door open to future litigants to confront this issue in securities cases involving foreign elements.
In Morrison, the Supreme Court found that Section 10(b) of the Exchange Act does not apply extraterritorially based on a lack of congressional intent to overcome the strong presumption against the extraterritorial application of domestic laws. In so holding, the Court rejected a long line of Second Circuit cases that allowed the application of Section 10(b) to claims involving foreign securities so long as the claims involved either significant conduct in the U.S. or some effect on U.S. markets or investors. The Supreme Court reasoned that the Second Circuit’s so-called “conduct test” and “effects test” improperly extended the geographic reach of the U.S. securities laws beyond Congress’s intent, and would interfere with foreign countries’ own securities regulations. Instead, the Court adopted a new “clear test,” holding that Section 10(b) applies only to claims based on: (1) “transactions in securities listed on domestic exchanges” or (2) “domestic transactions in other securities.”
On June 18, 2014, Judge Victor Marrero of the U.S. District Court for the Southern District of New York approved the SEC’s no-admit, no-deny consent decrees in its insider trading case against CR Intrinsic Investors, LLC and affiliated entities. In approving the decrees, however, the court called on the SEC to take a “wait and see” approach in cases involving parallel criminal actions arising out of the same transactions alleged in its complaint.
The decision follows the much-anticipated opinion in SEC v. Citigroup Global Markets (“Citigroup IV”), in which the Second Circuit vacated Judge Rakoff’s order refusing to approve a no-admit, no-deny consent decree between the SEC and Citigroup. The Second Circuit found that district courts are required to enter proposed SEC consent decrees if the decrees are “fair and reasonable,” and if the public interest is not disserved. A court must focus on whether the consent decree is procedurally proper, and cannot find that a proposed decree disserves the public based on its disagreement with the SEC’s use of discretionary no-admit, no-deny settlements.
Last week, Scottrade Inc. became the latest entity to admit wrongdoing in connection with settling SEC charges. In a January 29, 2014 administrative order, the brokerage firm not only agreed to a $2.5 million penalty, but also admitted that it violated federal securities laws when it failed to provide the SEC with complete and accurate “ blue sheet” trading data. This settlement marks the fourth such admission since the Commission’s June 2013 modification to its “no admit/no deny” settlement policy.
Most civil law enforcement agencies – including the SEC – generally do not require entities or individuals to admit or deny wrongdoing in order to reach a settlement. The SEC regularly utilizes this “no admit/no deny” policy, finding it an effective tool to facilitate settlements. In June 2013, however, the Commission announced a revision to this longstanding policy, indicating that it would require public admissions of wrongdoing in selected cases, including those involving “egregious” fraud or intentional misconduct, as well as those involving significant investor impact or that are otherwise highly visible. Since then, the Commission has obtained admissions in three previous settlements. READ MORE
In a recent speech to the Securities Enforcement Forum, SEC Chair Mary Jo White fleshed out the Commission’s plan to pursue all violations of federal securities laws, “not just the biggest frauds.” She also addressed the looming question of whether this approach makes the best use of the agency’s limited resources.
Chair White compared the SEC’s strategy of pursuing all forms of wrongdoing, no matter how big or small, to the “broken window” theory of policing, which was largely credited for reducing crime in New York City under Mayor Rudy Giuliani. According to the “broken window” theory, a broken window which remains unfixed is a “signal that no one cares, and so breaking more windows costs nothing.” On the other hand, a broken window which is fixed indicates that “disorder will not be tolerated.” Chair White postulated that the same theory applies to the US securities markets: minor violations that go ignored may lead to larger violations, and may foster a culture where securities laws are treated as “toothless guidelines.” Characterizing the SEC as the investors’ “cop,” she declared that the SEC needs to be a “strong cop on the beat,” understanding that even the smallest securities violations have victims. READ MORE