Rob Stern, a partner in the Washington, D.C., and New York offices, has extensive experience litigating civil and government enforcement actions on behalf of financial services institutions, Fortune 100 companies and officers and directors of public companies.
Rob also has represented numerous companies and individuals before the Securities and Exchange Commission and in FINRA arbitrations.
Rob has been nationally recognized as a leader in securities litigation by Legal 500 and SuperLawyers. Rob has been involved with many of the most complex and challenging securities class actions over the past 20 years. Rob also has particular expertise litigating mortgage-backed securities and structured products claims, accounting fraud matters as well as claims involving derivative instruments. He routinely represents financial institutions, residential mortgage originators, and mortgage servicers in civil litigation and regulatory enforcement matters. He also is a faculty member for the Practicing Law Institute’s Securities Litigation program.
Prior to joining Orrick, Rob was a partner at O’Melveny & Myers LLP.
Civil Securities and Financial Services Litigation
- Lead counsel for subprime
mortgage originator in connection with exposure arising out of the origination
and securitization of subprime and Alt-A mortgages.
- Successfully defended a
government-sponsored entity in securities class action, ERISA litigation, and
shareholder derivative suits alleging failure to adequately disclose subprime
and Alt-A mortgage exposure.
- Successfully defended a
government-sponsored entity in securities class action, ERISA litigation, and
shareholder derivative suits filed after company announced $9 billion
restatement of earnings.
- Secured complete dismissal of a
class action challenging a $4 billion cash tender offer in connection with the
sale of a worldwide provider of Web-based software solutions and services to the
- Successfully defended a Fortune
50 investment bank in securities class action, shareholder derivative suits, and
FINRA arbitrations arising out of illiquidity in the auction-rate securities
markets. Obtained a complete dismissal of the class action and numerous
successful arbitration results.
- Lead counsel for former Audit
Committee Chairman in shareholder derivative litigation arising out of the
Company’s payments to the AUC and criminal plea. Obtained dismissal without
- Lead counsel for former CFO of
major automotive parts supplier in securities class action and shareholder
derivative litigation based on allegations of accounting fraud. Achieved a
favorable resolution of all liability.
- Represented former Chairman and CEO of Fortune
100 Internet Media company in securities class action, shareholder derivative,
and shareholder opt-out litigation. Achieved a favorable resolution of all
- Represented former Enron CEO in
securities class action and shareholder derivative litigation around the country
filed in the wake of the energy giant’s bankruptcy.
- Represented former WorldCom
director in securities class action and shareholder opt-out litigation around
the country. Achieved a favorable resolution of all liability.
- Represented major financial
institution in In re Initial Public Offering Securities
and Antitrust class action litigation.
SEC Enforcement Experience
- Represented Fortune 50 financial institution in enforcement matter arising out of illiquid structured products with very favorable resolution.
- Successfully represented a Fortune 500 mortgage servicer in an enforcement matter with no action taken.
- Represented Fortune 50 financial institution in multiple enforcement actions with favorable resolutions achieved.
- Represented Fortune 500 consumer services company in enforcement action with favorable resolution.
- Represented major subprime mortgage originator in subprime enforcement action and achieved very favorable resolution.
- Represented CFO of major automotive parts supplier in enforcement action with favorable resolution achieved.
- Represented former Chairman and CEO of major Internet media company in enforcement proceeding with no action taken.
Startups need funding, and most startups want to raise money with as little legal red tape as possible. But when a startup takes investment money, it is issuing securities, and federal securities laws generally require a company – or “issuer” – to register the offering and sale of any securities with the Securities Exchange Commission (“SEC”). The bad news is that most early-stage companies don’t have the legal resources to comply with the SEC’s registration and reporting requirements. The good news is that Congress and the SEC recognize this and so have created certain exemptions from the registration requirement.
The most commonly used exemptions derive from Sections 4(a)(2) and 3(b)(1) of the Securities Act of 1933. Section 4(a)(2) exempts issuer transactions “not involving any public offering,” while Section 3(b)(1) authorizes the SEC to create additional exemptions. The SEC adopted Regulation D (“Reg D”) in 1982 to clarify and expand the exemptions available under these two sections. The SEC further expanded Reg D in 2013 following passage of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”).
Until this year, Reg D included three rules – Rules 504, 505, and 506 – that provided specific exemptions from registration. Rules 504 and 505 exempted certain offerings up to $1 million and $5 million, respectively. Rule 506 spelled out two “safe harbors” – 506(b) and 506(c). If an offering met the conditions of either of Rule 506’s “safe harbors,” it would be deemed a transaction “not involving any public offering” and would be exempt under Section 4(a)(2). READ MORE
On Wednesday July 12, 2017, in his first public speech as Chairman of the SEC, SEC Chairman Jay Clayton laid out a set of eight priorities that will guide his SEC Chairmanship. He said his priorities are consistent with and complimentary to the seven “core principles” set forth in President Donald Trump’s February 3, 2017 executive order regarding the regulation of the U.S. financial system.
The overarching themes in Chairman Clayton’s speech are that he is focused primarily on capital formation, modernizing the trading and markets system, and he favors a disclosure and market-based approach to federal securities regulation . Given the kind words for former Chair Mary Jo White and multiple references of areas of agreement, it is difficult to determine how much of a shift one can expect from the Commission under Chairman Clayton. Nevertheless, the following are a few key takeaways from the speech.
This week, the Supreme Court heard argument regarding whether the SEC’s actions to disgorge ill-gotten gains are subject to a five-year statute of limitations for “any civil fine, penalty, or forfeiture.”
The appeal stems from an SEC action alleging that between 1995 and 2006, Charles Kokesh, a New Mexico-based investment adviser, misappropriated a staggering $35 million from two investment advisory companies that he owned and controlled, squandering the money of tens of thousands of small investors. While Kokesh moved into a gated mansion and bought himself a personal polo court (complete with a stable of 50 horses), he allegedly concealed his massive ill-gotten earnings by distributing false proxy statements to investors and filing dozens of false reports with the Securities and Exchange Commission.
In 2009, the SEC brought a civil enforcement action against Kokesh in the District of New Mexico alleging violations of the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. The jury found violations of all three acts, and the district court ordered Kokesh to disgorge the $35 million he misappropriated (plus interest) and pay a $2.4 million civil monetary penalty for the “egregious” frauds he committed within the prior five years. While the district court ordered disgorgement of all of Kokesh’s ill-gotten gains since 1995, the civil monetary penalty it imposed was constrained by the five-year statute of limitations found in 28 U.S.C. § 2462, which applies to claims throughout the U.S. Code for “any civil fine, penalty, or forfeiture.” READ MORE
On February 2, 2017, the New York Appellate Division, First Department, issued a decision in Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 WL 442871 (1st Dep’t 2017), approving the settlement of litigation over an acquisition by Verizon Communications (“Verizon”) and articulating a new test to evaluate the fairness of such settlements. The Gordon decision signals that New York will remain a friendly venue to disclosure-based M&A settlements and may see increased shareholder M&A lawsuits as a result
As we have repeatedly written about (here, here and here), Delaware Chancery Courts have spent the past year attempting to curtail, or eliminate altogether, M&A litigation settlements where the sole remedy is enhanced proxy disclosures. Chancellor Bouchard’s landmark decision in In re Trulia Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016), rejected these “disclosure-only” settlements, finding that the “enhanced” disclosures produced by such settlements were not “material or even helpful” to stockholders. The Chancery Court bemoaned the proliferation of disclosure-only settlements in Delaware, and indicated that these types of settlements would be met by “continued disfavor” unless the supplemental disclosures are “plainly material,” i.e., they must “significantly alter the ‘total mix’ of information made available.”
In Trulia’s wake, the number of M&A suits filed in Delaware plummeted—declining by almost 75% in the first half of 2016—as plaintiffs’ counsel opted to file in federal court or states other than Delaware in the hope of finding more hospitable fora for “disclosure-only” resolutions. READ MORE
A recent petition for certiorari filed in the United States Supreme Court asks the Court to clarify what an aggrieved investor must plead to state a claim for securities fraud under the Securities and Exchange Act of 1934 (the “Exchange Act”). The petition focuses on the “loss causation” element, which requires plaintiffs to prove a direct causal link between the alleged fraud and the loss in value for which they seek to recover. In a typical fraud in-the-market case, plaintiffs allege loss causation by showing that they bought the defendant’s securities at prices artificially inflated by fraud, and then had those securities lose value after a “corrective disclosure” revealed the fraud to the public. If the Supreme Court decides to grant certiorari, it will have the opportunity to lift certain barriers to pleading loss causation in some jurisdictions.
Petitioners, three New England funds (“Funds”) that own stock in Health Management Associates, Inc. (“HMA”), seek to reverse the Eleventh Circuit’s decision that they failed to establish loss causation as a matter of law. The Funds alleged that HMA’s stock price fell precipitously following two disclosures to the market: (1) an announcement that the government had begun an investigation into HMA for fraud, and (2) an analyst report publicizing a whistleblower case filed by a former employee against HMA three months earlier. A panel for the Eleventh Circuit upheld the lower court’s decision that neither event could form the basis of a securities fraud claim. First, the panel held that the announcement of a government investigation could not raise an inference of loss causation at the pleading stage because there had been no finding of “actual wrongdoing.” Second, the panel held that the analyst report was not a “corrective disclosure” because it reported on a publicly-filed case that, although it hadn’t been reported on until then, was already disclosed to the market. READ MORE
On August 17, 2016, jurors in a New York federal court convicted Sean Stewart on criminal charges of conspiracy, securities fraud, and tender offer fraud after more than five days of deliberation. Stewart, a former investment banker for JPMorgan and Perella Weinberg Partners, was charged with leaking confidential information about health care mergers to his father, Robert Stewart, on at least five occasions over the course of four years. The case provides a victory to Preet Bharara, the United States Attorney for the Southern District of New York, after a series of setbacks in the form of unfavorable decisions in the aftermath of the Second Circuit’s decision in U.S. v. Newman, the repercussions of which have been covered extensively on this blog (see here, here). As the first conviction post-Newman, U.S. v. Stewart provides some insight into the kinds of facts that might support an insider trading charge in the Second Circuit going forward and is thus worthy of analysis.
On May 16, 2016, the United States Supreme Court handed down two decisions that may, in practice, limit the ability to access federal district courts. In Spokeo, Inc. v. Robins, No. 13-1339, 578 U.S. ___ (2016), the Supreme Court rejected the Ninth Circuit’s conclusion that statutory violations are per se sufficient to confer Article III standing, and, in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, No. 14-1132, 578 U.S. ___ (2016), the Court concluded that jurisdiction under Section 27 of the Securities and Exchange Act (Exchange Act) is limited to suits brought under the Exchange Act and state law claims that turn on the plaintiff’s ability to prove the violation of a federal duty.
In a memorandum released on April 18, 2016, the private blood-testing company Theranos – once valued at over $9 billion – announced that it is under investigation by the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Attorney’s Office for the Northern District of California, among other government agencies. The memorandum did not disclose the focus of the government investigations. Theranos’ announcement about the investigations comes on the heels of a series of October 2015 Wall Street Journal (“WSJ”) articles critical of the accuracy of the company’s blood-testing methods. The government investigations into Theranos are not surprising, particularly in light of recent remarks by SEC Chair Mary Jo White (“White”) at a March 31, 2016 address at Stanford University’s Rock Center for Corporate Governance, where White revealed the SEC’s focus on Silicon Valley’s privately held unicorns – private start-up companies with valuations exceeding $1 billion.