M. Todd Scott

Senior Associate

San Francisco

tscott@orrick.com

Read full biography at www.orrick.com

M. Todd Scott is a Senior Associate in the Securities Litigation & Corporate Governance team. His practice focuses on defending companies and their officers and directors in securities class actions, shareholder derivative suits, mergers and acquisition litigation, and other shareholder-related disputes, and advising clients on corporate governance and disclosure matters.

Todd regularly advises companies and their boards on corporate governance best practices and fiduciary and disclosure duties, and has extensive experience in responding to shareholder litigation demands and other shareholder activism.

Before joining the firm, Todd was an associate at the San Francisco office of Clifford Chance US LLP. In his spare time, Todd is a musician, screenwriter and father to three fantastic kids.

Posts by: M. Todd Scott

CFTC Tightens Hold on Swap Participants

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On September 10, 2012, the CFTC issued rules mandating new record-keeping and registration requirements for swap dealers and major swap participants in the $700 trillion derivative global market. The rules were published in the Federal Register on September 11, 2012 and will take effect on November 13, 2012. The issuance finalizes rules adopted in a 5 to 0 CFTC vote on August 27, 2012. The rules were issued under Section 731 of the Dodd Frank Act, which amended the Commodity Exchange Act to require the adoption of standards relating to the confirmation, processing, netting, documentation, and valuation of swaps. Through these regulations, CFTC aims to effectively regulate swap dealers and major swap participants, and impose rigorous clearing and trade execution requirements on a previously unchecked derivatives market.

A swap is a derivative product in which counterparties exchange the cash flows of their financial instrument for the cash flows of the other party’s instrument. Swaps can include currency swaps, interest rates swaps, and, more recently, credit default swaps.

The final rules require swap dealers and major swap participants to timely and accurately confirm swap transactions by the end of the first business day following the date of execution. The rules also mandate portfolio reconciliation on a daily, weekly, and quarterly basis, and portfolio compression as a risk management tool. Furthermore, swap dealers and participants must now establish and enforce policies and procedures that are reasonably designed to ensure that each dealer and participant and its counterparties agree to all of the terms in the swap trading relationship documentation. The rules also require dealers and participants to agree with their counterparties regarding the methods, procedures, rules, and inputs for swap valuations. READ MORE →

Investment Advisors Would Pay For Some SEC Oversight

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Congress continues to struggle with the issue of proper oversight for investment advisors. Despite catastrophes like the Bernie Madoff scheme, SEC budget constrictions have resulted in only a handful of investment advisors being reviewed by the Commission each year (as compared to over half of all broker-dealers). Various bills have been floated to remedy the situation.

In April, the Investment Adviser Oversight Act of 2012 was introduced in the House. Proposed as an amendment to the 1940 Investment Adviser Oversight Act, the new act seeks to regulate investment advisors by requiring them to join a new self-regulatory organization (SRO) that would be funded by their membership fees. Though not explicitly set forth by the Act, the Financial Industry Regulatory Authority (FINRA) was expected to create and oversee the new governing SRO. READ MORE →

Supreme Court To Hear Amgen’s Appeal of Class Cert

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The Supreme Court will hear Amgen’s appeal in Amgen v. Connecticut Retirement Plans in the upcoming October term, the Court announced on Monday June 11. The lawsuit against Amgen alleges that the biotech company made misrepresentations about the safety of two anti-anemia drugs for US FDA-approved uses. In certifying the class, the Ninth Circuit held that plaintiff only needed to plausibly allege that Amgen’s misrepresentations were material based on a fraud-on-the-market theory for the class to be certified. Amgen’s appeal claims the district court must both require proof of materiality and allow Amgen to present evidence rebutting the fraud-on-the-market theory before certifying the class.

Madoff Fund Investors’ Exchange Act Claims Bite the Morrison Dust

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Courts have been making slow but steady progress in testing the limits of the 2010 Supreme Court case Morrison v. Nat’l Australian Bank Ltd., 130 S.Ct. 2869 (2010). In Morrison, the Court held the federal securities laws apply only to purchases or sales made “in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” Id. at 2888. The Second Circuit has held that the “purchase and sale” of a security occurs when “irrevocable liability” occurs and the parties are bound to the transaction. Absolute Activist Value Master Fund v. Ficeto, 677 F.3d 60 (2d Cir. 2012) READ MORE →

GAO Tells the SEC Its FINRA Oversight is B-A-D

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A recent report released by the Government Accountability Office (“GAO”) last week concluded that the SEC can improve its oversight of the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization charged with policing securities broker-dealers. The GAO’s criticism of the SEC is a politically hot issue because Congress is currently considering whether to shift authority for overseeing investment advisors from the SEC to FINRA—the subordinate organization the SEC is purportedly doing a poor job of overseeing.

The GAO report was a product of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required the GAO to study the SEC’s oversight of FINRA. In particular, the report examined (1) how the SEC has conducted its oversight of FINRA in the past; including FINRA rule proposals and the effectiveness of its rules; and (2) how the SEC plans to enhance its oversight of FINRA.

The report concluded that that while the SEC routinely inspects many of FINRA’s programs, it does not conduct any retrospective review, i.e., it does not review whether FINRA’s rules are actually effective.  In fact, the report concluded that the SEC does not even have a process for retrospective review.

Significantly, the GAO report also concluded that the SEC had conducted virtually no review of FINRA operations aimed at executive compensation and corporate governance issues. The SEC claimed it had purposefully overlooked compensation and governance operations because of competing priorities and resource constraints, and instead had focused its resources on FINRA’s regulatory departments, which the SEC perceived as programs with the greatest impact on investors.

Given these and other conclusions, the GAO recommended that the SEC “encourage FINRA to conduct retrospective reviews of its rules” as well as establish its own process for examining FINRA reviews. It further recommended that the SEC utilize a risk-management framework in developing its future oversight plans.

JOBS Act Eases Restrictions on Startup and Emerging Companies

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Earlier this month, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law.  The JOBS Act, which had strong bipartisan and business support, is aimed at stimulating economic growth by allowing U.S. and foreign startup and emerging companies to more easily raise capital and transition to public companies.

The JOBS Act works by reducing a number of regulatory burdens that were imposed by the 2002 Sarbanes-Oxley Act.  It directs the Securities and Exchange Commission to revise Rule 506 under the 1933 Securities Act to allow general advertising and solicitation for private placements, with no limit on the number of securities that are bought and sold, so long as they are sold only to accredited investors.  It also amends Rule 144A(d)(1) of the Securities Act, which allows private resales of securities to qualified institutional buyers (“QIBs”), to permit such securities to be generally advertised to persons other than QIBs—as long as they are only later sold to QIBs.  These changes have the effect of allowing firms to market themselves to a greatly expanded base of potential investors. READ MORE →

Supreme Court Sets Two Year Limit for Section 16(a) Insider Trading Claims

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The United States Supreme Court held on March 26th that the two-year statute limitation for Section 16 insider trading begins to run as the fraudulent trade is or should have been discovered by a shareholder plaintiff.  See Credit Suisse Securities LLC et al v. Simmonds.  This decision was yet another rebuke to the Ninth Circuit, which had previously held that the limitations period for a Section 16(b) claim could be tolled until the insider actually discloses his or her improper trade to the SEC and shareholders.

Defendant underwriters challenged the Ninth Circuit’s holding, calling it contrary to language of Section 16(b) that indicates the limitation period should begin to run as soon as an insider makes a profit from an illegal short-swing trade.  In an unanimous decision penned by Justice Scalia, the Court agreed, noting that if the filing of a Section 16(a) disclosure statement were necessary for Section 16(b) liability to attach, company insiders and underwriters who failed to file a 16(a) disclosure would forever face the possibility of claims under 16(b).  The Court held that “the potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general.”  The Court did not reach the larger question of whether Section 16(a) are subject to any equitable tolling and thus remanded the case to the Ninth Circuit for further consideration.

The Credit Suisse case is notable because it was one of 55 nearly identical actions filed over ten days in October 2007 by Vanessa Simmonds, then a 22-year old college student.  The cases all alleged Section 16(b) claims against the underwriters and other financial institutions who had participated in IPO’s during the late 1990’s and 2000.

SEC Now Awarding Cooperation Credit to Individuals

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The Securities and Exchange Commission announced last week that it was awarding “cooperation credit” to an individual for his “substantial assistance” in the Commission’s investigation of his wrongdoing.  Following on a similar announcement earlier last month, this is only the second time the Commission has credited an individual under its Cooperation Initiative.

The credit was announced as part of a settlement agreement with John Cinderey, a former vice-president at San Francisco-based United Commercial Bank.  Like other executives at Commercial Bank, Cinderey was charged with violations of Section 13 of the Exchange Act for misleading auditors during the financial crisis of 2008.  Cinderey, however, was able to settle the SEC’s claims against him without admitting or denying the allegations and without paying any fine (though he was given credit for a $40,000 civil penalty paid in another parallel case brought by the FDIC).

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