William J. Foley

Partner

New York

wfoley@orrick.com

Read full biography at www.orrick.com

William Foley is a Partner in the New York Office and a member of the Securities Litigation, Investigations and Enforcement team.

His practice focuses on the representation of financial institutions, investment advisors and other public and privately-held companies in corporate and securities litigation, and other complex business litigation matters. In particular, he has wide-ranging experience representing clients in stock-drop class actions, shareholder derivative actions, M&A and hostile takeover disputes, and complex contractual and business tort cases before federal and state courts and the Delaware Court of Chancery.

Posts by: William Foley

FCPA Violators Beware—SEC to Double Down on Enforcement

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The SEC has signaled plans to double down on its FCPA enforcement efforts and speed up FCPA investigations. On November 9, 2017, Steven Peikin, Co-Director of the SEC’s Enforcement Division, delivered a speech at New York University School of Law to commemorate the 40th anniversary of the FCPA and the 20th anniversary of the Organisation for Economic Co-Operation and Development Anti-Bribery Convention. In his speech, Peikin stressed the importance of the FCPA to the Commission’s enforcement mission and noted that the Commission will continue its commitment to FCPA enforcement. Pointing out that the Commission has brought 106 FCPA-related actions against individuals and corporations since forming its designated FCPA Unit in 2010, Peikin highlighted the Commission’s success in fostering a more predictable and uniform approach to FCPA enforcement and domestic and international partnerships in fighting corruption.

Peikin stressed the importance of collaborating with international colleagues in the fight to “eradicate[e] corruption and bribery” and pointed to recent global settlements, including the settlement with Telia (reported here), as examples of successful cross-border coordination and cooperation. Citing deterrence and investigation efficiencies as key benefits of global coordination, Peikin noted that he expects “the trend of the Enforcement Division working closely with foreign law enforcement and regulators in anti-bribery actions to continue its upward trajectory in the coming years.” READ MORE →

On the Chopping Block: The Effort to Repeal the CFPB’s New Rule on Consumer Class Actions

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On July 19, 2017, the Consumer Financial Protection Bureau (“CFPB”) published a new rule that has the potential to significantly increase the number of class action lawsuits brought by consumers against their financial services providers.  Although consumer advocates applaud the rule, critics argue that the rule will lead to an explosion of frivolous lawsuits.  Congress, for its part, is currently taking steps to stop the rule from ever taking effect.

The rule would no longer allow a financial services provider to use mandatory arbitration clauses to stop its consumers from bringing class action lawsuits against that provider. Mandatory arbitration clauses require that disputes between parties to a contract must be resolved by privately appointed arbitrators rather than the courts, with few exceptions.  According to the CFPB, financial services providers have used arbitration clauses in consumer contracts to block class action lawsuits, forcing each consumer to pursue individual claims.  A CFPB study from March 2015 further claims that mandatory arbitration clauses are harmful to consumers because companies avoid paying full relief to all those harmed and are therefore not sufficiently deterred from engaging in the misconduct moving forward. READ MORE →

Supreme Court Unanimously Limits the SEC’s Ability to Seek Disgorgement

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This week, the United State Supreme Court finally resolved a circuit split and unanimously held that SEC actions seeking to disgorge ill-gotten gains are subject to a five-year statute of limitations on civil fines, penalties or forfeitures under 28 U.S.C. § 2462.  This decision is expected to dramatically reduce the SEC’s ability to collect disgorgement in enforcement actions.

The decision arose out of an SEC enforcement action brought in 2009 that alleged between 1995 and 2006, Charles Kokesh, a New Mexico-based investment adviser, misappropriated $35 million from two investment advisory companies he owned and controlled, thereby squandering the money of tens of thousands of small investors. Kokesh was ultimately found liable at trial and the trial court ordered him to disgorge the entire $35 million he was found to have misappropriated plus interest, and pay a civil monetary penalty.  Kokesh subsequently challenged the disgorgement order before the U.S. Court of Appeals for the Tenth Circuit, arguing that the SEC’s claim for disgorgement was subject to the five year statute of limitations period codified in Section 2462, and therefore the $35 million disgorgement amount should be significantly reduced by eliminating any ill-gotten gains received prior to 2004—five years prior to the initiation of the SEC enforcement action.  A three judge circuit court panel of the Tenth Circuit unanimously disagreed, and upheld the disgorgement order on the basis that disgorgement is not a “penalty” or “forfeiture” as defined in Section 2462, but rather was “remedial” and “does not inflict punishment” because it leaves the wrongdoer “in the position he would have occupied had there been no misconduct.”  On this basis, the Tenth Circuit held that Section 2462’s limitations period was inapplicable to disgorgement. READ MORE →

Changing the Game, Again: Supreme Court Could Limit SEC’s Authority to Seek Disgorgement

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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 →

Gordon v. Verizon: New York Parts Company with Delaware

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People at a Table

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 →

Salman v. U.S.: Supreme Court Resolves Insider Trading Split

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On December 6, 2016, the United States Supreme Court affirmed an insider trading conviction in a case where the “insider” obtained no direct pecuniary benefit from the disclosure.  Justice Samuel Alito, writing for a unanimous court, held that a recipient of insider information may still be criminally liable where the insider initially gave the information to a trading relative or friend and thereby received a “personal benefit.”  The court heard oral arguments in October.

Salman v. United States concerned the prosecution of Bassam Salman, a recipient of insider tips from Michael Kara, his brother in law, who in turn received insider information from his brother, Maher Kara.  Salman knew that Michael, who also traded on the information, was getting tips from Maher, a Citigroup banker working on various health care deals.  Maher, the “tipper,” never received any financial or other concrete benefit in the exchange, but testified that he suspected Michael was trading on the information he provided and there was evidence the brothers had a close relationship. READ MORE →

(Proxy) Voting Made Easy?

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The SEC recently proposed amendments to the proxy voting rules to require parties in a contested election to use universal proxy cards that would include the names of all board of director nominees. This proposed change would eliminate the two “competing slates” cards and allow shareholders to vote for their preferred combination of board candidates, as they could if they voted in person.

The new rules would apply to all non-exempt votes for contested elections other than those involving registered investment companies and business development companies, would require management and dissidents to provide each other with advance notice of the names of their nominees, and would set formatting requirements for the universal proxy cars. As with any newly proposed SEC rule, there will be a comment period of 60 days to solicit public opinion.

Interestingly, the Commission’s vote to adopt the newly proposed rules was a split decision, with Commissioner Piwowar issuing a strongly worded dissent. According to Commissioner Piwowar, the proposed universal proxy rules “would increase the likelihood of proxy fights at public companies,” and would allow special interest groups to “use their increased influence to advance their own special interests at the expense of shareholders.” He also noted that under the new rules, dissidents are only required to solicit holders of shares representing a majority of those entitled to vote, meaning that many retail investors will not receive either the dissident’s proxy statement or disclosures about the dissident’s nominees.

Too Good to Be True: Fraudulent Self-Promotion Lands “Prodigy” in Hot Water with SEC

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In June 2014, the Office of Investor Education and Advocacy at the Securities and Exchange Commission issued an alert cautioning that investment newsletters are often “used to carry out schemes designed to deceive investors.” In particular, the SEC advised investors to be “highly suspicious” of newsletter “promises” of “high investment returns” and to contact the SEC to report potential securities fraud in newsletters and other promotional materials.

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CDX Holdings, Inc. v. Fox: Chancery Court’s Decision Is Affirmed, But Dissent Blasts Use of “Hindsight Bias” Analysis

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On June 6, 2016, the Supreme Court of Delaware affirmed a decision of the Chancery Court finding that corporate directors and officers involved in a sales transaction breached a contract with option holders to fairly value their options (see here for a thorough explanation of the Chancery Court decision, and in particular, the Court’s criticism of the retained financial advisers that provided a valuation analysis).  The Supreme Court decision also included a disproportionately lengthy dissent condemning both the Chancery Court’s findings and its reliance on “social science studies” to reach them.

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Recent SEC Enforcement Actions and Public Commentary Demonstrate the Commission’s Continued Focus on Internal Control Failures

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We have previously written about how, over the past few years, the SEC and other regulatory agencies have devoted substantial resources to investigations regarding allegations that public companies have inadequate internal controls and/or a system for reporting those controls.  See here, here and here.  That effort shows no signs of waning.  As recently as March 23, 2016, the SEC announced a settlement with a multi-national company due in part to the internal controls failures at two foreign subsidiaries.  On March 10, 2016, the SEC announced a settlement of claims against Magnum Hunter Resources Corporation in connection with alleged internal control failures.  And, on February 17, 2016, the SEC announced a settlement of claims against a biopesticide company, Marrone Bio Innovations, based on the company having reported misstated financial results caused in part by internal control failures.[1]

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