Paul F. Rugani

Partner

Orange County

prugani@orrick.com

Read full biography at www.orrick.com

Financial institutions, accounting firms, and public companies turn to Paul Rugani to advise them in connection with their most significant exposures. Paul has helped his clients achieve victories through motion practice, at trial, and on appeal. And his advocacy for clients before government regulators has successfully minimized or avoided potential enforcement action.

Legal 500 touts Paul as a recommended attorney for Securities Litigation, observing that he is “among the most creative and strategic lawyers” who always has “an eye on the end game.”  Paul achieved American Lawyer Litigator of the Week recognition as part of a team that achieved a ground-breaking New York Court of Appeals victory that substantially reduced financial exposure in RMBS repurchase litigation.

Leader of Orrick's Securities Litigation practice and deputy leader of the Firm's Financial Services Litigation practice, Paul has extensive experience representing clients in securities class actions, shareholder derivative lawsuits, commercial contractual disputes and other complex litigation matters at both the trial and appellate levels, as well as in connection with internal, government and regulatory investigations. Paul also counsels domestic and foreign accounting firms on matters related to state CPA licensing and state board regulation.

Posts by: Paul Rugani

New York Extends Common Interest Privilege Protection to Non-Litigation Communications

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Ordinarily, when a communication between an attorney and her client is disclosed to a third party, that communication loses its privileged status.  The common interest privilege operates as an exception to that rule that allows the privilege to extend to communications with certain third parties.  For the common interest doctrine to apply, the communication must be in furtherance of a legal interest that is shared by the client and the third party.  Historically, New York courts additionally required that the communication relate to legal advice regarding pending or prospective litigation.  On December 4, 2014, in a landmark decision, a New York appellate court did away with this additional requirement.

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Are Bank Branches in New York the Gateway to Seizure of Foreign Assets: The New York Court of Appeals Reconsiders the Separate Entity Rule

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On September 16, 2014, the New York Court of Appeals heard oral argument on a certified question from the Second Circuit in Motorola Credit Corp. v. Standard Chartered Bank, an important case concerning the application of New York’s “separate entity rule” to foreign banks that maintain a branch in New York.

When someone obtains a judgment in New York, he may enforce that judgment by serving a restraining notice on a bank that holds the judgment debtor’s assets. Once the bank receives that notice, it may not distribute the funds to any person other than the sheriff. The judgment creditor may also sue for a court order requiring the bank to turn over the judgment debtors’ assets. READ MORE →

SEC Bats 0-for-2 on Insider Trading

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A California federal jury sided against the U.S. Securities and Exchange Commission on Friday, June 6, finding the founder of storage device maker STEC Inc. not guilty on insider trading charges.  This is the second insider trading loss in a week for the SEC, following a May 30 defeat in which a New York federal jury rejected insider trading allegations against three defendants, including hedge fund manager Nelson Obus.

In STEC, the SEC alleged that founder Manouchehr Moshayedi made a secret deal with a customer to conceal a drop in demand in advance of a secondary offering.  According to the complaint, Moshayedi knew that one of STEC’s key customers, EMC Inc., would demand fewer of STEC’s most profitable products than analysts expected.  The SEC alleged that he then made a secret deal that allowed EMC to take a larger share of inventory in exchange for a steep, undisclosed discount.

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Delaware Supreme Court Tells Controlling Shareholders “If You Look Out For Your Minority, We’ll Look Out For You”

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On March 14, 2014, the Delaware Supreme Court unanimously affirmed an important Delaware Court of Chancery decision issued in 2013 that offered a roadmap to companies and their directors on how to obtain the protections of the deferential business judgment rule when entering into a change-in-control transaction with a controlling stockholder.  As we discussed previously, in In re MFW Shareholders Litigation, then-Chancellor (now Chief Justice) Strine held as a matter of first impression that the deferential business judgment rule – as opposed to the more onerous “entire fairness” – standard of review should apply to a merger with a controlling stockholder where (i) the controller conditions the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee acts with care; (v) the minority vote is informed; and (vi) there is no coercion of the minority.
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For Whom the Whistle Tolls in 2014

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Momentum for the SEC’s Dodd Frank whistleblower program is growing, and 2014 can be expected to bring continued expansion of the program and the number and types of whistleblower actions initiated by the SEC.  The SEC’s annual report to Congress reported that 3,238 whistleblower tips were received in 2013, up almost 10% from 2012, and awards to whistleblowers who provide information to the SEC are increasing as more substantive tips are received.

An investigation by the SEC into a whistleblower tip can take several years to culminate in an enforcement action, so the last year likely saw just the beginning of a wave of enforcement actions.  Despite the fact that over 6,000 tips have been received through 2013, the SEC has issued only six separate awards to tipsters.  Those awards have ranged from $125,000 to a record $14 million, representing 10 to 30 percent of the overall funds recovered by the SEC in these whistleblower cases. READ MORE →

The Volcker Rule: Great Expectations for Regulating Risk

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Wall Street

On Tuesday, December 10, five federal regulatory agencies, the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller and the Commodity Futures Trading Commission, jointly released the long awaited and hotly contested “Final Rules Implementing the Volcker Rule.”   The Rules and supplement, together more than 900 pages long, are already generating comment and controversy for their complexity and severity—or lack thereof, depending on who you ask.  The Rules become effective on April 1, 2014 with final conformance expected by July 21, 2015.

A Product of Hard Times

Paul Volcker, an economist, former Federal Reserve Chairman and former chairman of the Economic Recovery Advisory Board, initially proposed a (seemingly) simple rule restricting certain risk-taking activity by American banks in a 3-page letter to President Obama in 2009.  Speculative activity, for example, proprietary trading, was believed to have contributed to the “too big to fail” position that the nation’s largest banks found themselves in at the height of the Financial Crisis in 2008 and 2009.  The Volcker rule thus proposed prohibiting banks from engaging in short-term proprietary trading on their own account.  It also proposed limiting the relationships that banks could have with hedge funds and other private equity entities.  Not long after its proposal, the rule was made into law in Section 619 of the 2010 Dodd-Frank Wall Street Reform Act, to take effect upon the issuance of implementing regulations.   READ MORE →

Route 506: The General Solicitation Highway

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People Walking

A new route to soliciting direct securities investments has opened.  For the first time in 80 years, start-ups and small businesses can broadly advertise and broadly solicit to raise money for private offerings.  Changes to SEC Rule 506, which took effect September 23, 2013, allow companies to avoid complex and costly public offerings and instead search for investors via the Internet, newspaper, social media, direct mail, and other media.  The change is the result of the JOBS Act, which required the SEC to permit general solicitation for certain private placements that are exempt from the registration requirements of Section 5 of the 1933 Act.

To travel this route, investors must be “accredited,” defined in the new rule as having a net worth of over $1,000,000 or at least $200,000 in annual income.  While the accreditation has long been required for private placements, issuers were permitted to sell to non-accredited investors who qualified as sophisticated purchasers.  Businesses who raise funds under the new rule must now take additional “reasonable steps” to ensure all investors are accredited.  Rule 506(c) provides a non-exclusive list of means to satisfy this “reasonable steps” requirement.  Issuers may use investor’s tax forms, bank statements, credit reports, and certifications from accountants, brokers, and investment advisors to ensure accreditation – assuming that investors are willing to deliver copies of such documents to issuers.  There may be other means not specified that would also be acceptable also.  Issuers will want to keep careful records about how they accredit investors, because they will bear the burden to establish their exemption from the registration provisions of the Securities Act.  If an issuer cannot do so, it may be subject to liability for general solicitation in connection with an unregistered offering in violation of the federal securities laws. READ MORE →

Purchase Timing a Wall to Facebook Derivative Litigation Despite Unenforceability of Forum Selection Clause

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Four derivative lawsuits against Facebook’s directors relating to alleged disclosure issues surrounding the company’s initial public offering have a new status: Dismissed. Last month, Judge Robert Sweet of the Southern District of New York dismissed the suits on standing and ripeness grounds, finding that IPO purchasers have no standing to pursue claims related to alleged misconduct that took place before the IPO. The dismissed derivative suits were “tag-along” actions that largely parroted allegations made by investors in a parallel securities class action also pending before Judge Sweet, and had sought to hold Facebook’s directors liable for damages the company might incur as a result of the securities class action.

In dismissing the suits, Judge Sweet held that plaintiffs who buy stock in an IPO lack standing to pursue derivative claims based on alleged misstatements in an IPO registration statement. As Judge Sweet explained, in order to have standing to sue derivatively on behalf of a company, a plaintiff must have owned stock in the company at the time of the alleged misconduct. The registration statement that the plaintiffs allege to have been misleading, however, was finalized and filed with the SEC two days before the IPO. Judge Sweet rejected plaintiffs’ attempts to create standing by arguing that the wrong continued through the date of the IPO because the directors did not correct the allegedly misleading statements by that date. READ MORE →

The Final Geithner Tally: TARP Bailout Pays Big Dividends For Taxpayers

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As U.S. Secretary of Treasury Timothy Geithner steps down, Treasury released a January 18, 2012 update on the Troubled Asset Relief Program (“TARP”). This most recent update highlights an often misunderstood reality — Geithner’s signature program was a smashing success. As to the bailout of the too-big-to-fail banks and AIG, the truth is that TARP has generated tens of billions of dollars in profit for American taxpayers.

The hallmark of Treasury’s work during Mr. Geithner’s tenure has been its administration of the TARP. Although created in 2008 under the previous Secretary, Henry Paulson, Mr. Geithner has had responsibility for enlarging and steering TARP since January 2009. TARP came under significant criticism for use of taxpayer funds to bail out banks from diverse constituencies, spawning both the “Occupy” movement and contributing to the 2010 Republican takeover of the House of Representatives. Nevertheless, Mr. Geithner and the Treasury Department argued that TARP ultimately would produce a profit for the government. Four years later, that forecast has proven correct, at least with respect to funds provided to financial institutions, as many TARP investments have generated tens of billions of dollars in profit for American taxpayers.

The Capital Purchase Program (“CPP”) has been the primary driver of federal profits. The CPP made funds available for the Treasury Department to purchase mortgages, mortgage-backed securities, and preferred stock from financial institutions. Treasury disbursed nearly $205 billion under the CPP and, according to the Treasury’s January 18, 2012 TARP update, already has received over $220 billion in total cash back, a return of over 7%. This profit was mainly the result of dividends and gains received through Treasury’s ownership of bank stock and other assets. READ MORE →

Task Force Targets Bear Stearns; Other Banks in the Crosshairs

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After being formed to great fanfare in January 2012, the Residential Mortgage-Backed Securities Working Group, part of President Obama’s Financial Fraud Enforcement Task Force, stayed largely silent for eight months. No longer. With its October 1 filing of what could be a $87 billion lawsuit against Bear Stearns successor J.P, Morgan—as well as not-so-subtle hints of more lawsuits to come—the RMBS Working Group made its presence felt with a bang, not a whimper.

The lawsuit is unique among RMBS cases in that it does not focus on alleged misrepresentations or omissions made in connection with individual RMBS deals. Instead, the RMBS Working Group, acting through co-chair Eric Schneiderman, New York’s Attorney General, is taking on Bear Stearns’ entire RMBS business over a multi-year period. The complaint focuses on alleged defects in Bear Stearns’ due diligence process, accusing Bear Stearns of disregarding due diligence results showing the allegedly poor quality of the loans underlying its securitizations and of ignoring its own employees’ requests to correct perceived deficiencies in its due diligence process. The complaint also charges Bear Stearns with failing to comply with its stated post-closing obligations, including by not taking adequate steps to ensure that loan originators repurchased problematic loans from the RMBS trusts. Bear Stearns allegedly arranged side deals with the originators for confidential cash payments at a fraction of the contractual repurchase price, thus securing recovery for itself without passing it on to investors. The suit seeks a variety of remedies, including “restitution of all funds obtained from investors”—potentially all of the $87 billion in RMBS allegedly sold by Bear Stearns during the relevant period.
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