On October 12, 2017, the United States made permanent its lifting of a longtime general embargo on trade and investment with Sudan. As a result, U.S. individuals and companies are now generally free to engage in transactions involving Sudan, the Government of Sudan or many formerly sanctioned Sudanese persons without a license from the Department of the Treasury’s Office of Foreign Assets Control (OFAC). While this presents opportunities for new business in Sudan, any U.S. person considering business relating to Sudan should be aware of the legal restrictions that remain in place and the risks associated with such an undertaking.
For almost two decades, Executive Orders (EOs) by Presidents Bill Clinton (EO 13067) and George W. Bush (EO 13412), along with the Sudanese Sanctions Regulations (SSR), have generally prevented U.S. persons from conducting transactions involving the Government of Sudan or certain sanctioned Sudanese persons, importing goods or services of Sudanese origin, exporting any goods or services to Sudan, or performing any contract “in support of an industrial, commercial, public utility, or governmental project in Sudan,” among other things. This trade and investment embargo was prompted by findings that the Government of Sudan was engaged in support for international terrorism, efforts to destabilize its neighboring countries, and myriad human rights violations.
On January 13, 2017, President Obama issued EO 13761, which observed that the dangerous and unstable situation in Sudan that had prompted sanctions by his predecessors “has been altered by Sudan’s positive actions over the past 6 months.” In particular, the order praised Sudan for “a marked reduction in offensive military activity, culminating in a pledge to maintain a cessation of hostilities in conflict areas in Sudan, and steps toward the improvement of humanitarian access throughout Sudan, as well as cooperation with the United States on addressing regional conflicts and the threat of terrorism.” The order, which was one of President Obama’s final acts in office, called for a conditional return of U.S. trade and investment transactions with Sudan with permanent revocation of sanctions after a six-month monitoring period and approval by certain U.S. agencies. Consistent with this order, OFAC issued a temporary general license on January 17, 2017, authorizing transactions that were previously prohibited by the aforementioned sanctions. As it turns out, the January 17 general license marked the end of the main set of sanctions against Sudan. READ MORE
Even with the SEC’s home-court advantage in bringing enforcement actions in its administrative court rather than in federal court, the SEC will still criticize its own administrative law judges (“ALJ”) when an ALJ’s decision falls short of established legal standards. On April 23, 2015, the SEC found that an ALJ’s decision to bar Gary L. McDuff from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent or nationally recognized statistical rating organization was insufficient because it lacked enough evidence to establish a statutory requirement to support a sanctions analysis. The SEC then remanded the matter to the same ALJ – no doubt in an effort to encourage him to revise his initial opinion.
A decision is expected shortly in the highly publicized so-called confidential witness “scandal” involving the Robbins Geller Rudman & Dowd law firm. Judge Suzanne B. Conlon of the United States District Court, Northern District of Illinois, will decide whether to impose sanctions on the plaintiffs’ firm for its conduct regarding a confidential witness in the City of Livonia Employees’ Retirement System v. Boeing Company case, No. 1:09-cv-07143 (N.D. Ill.). The decision could have a lasting impact over the use of confidential witnesses in securities fraud complaints.
Judge Conlon will decide this matter following the Seventh Circuit’s remand in late March 2013 on the narrow issue of whether to impose Rule 11 sanctions for (1) providing multiple assurances to the court that the confidential source in their complaint was reliable even though none of the lawyers had spoken to the source or (2) failing to investigate after plaintiffs’ investigators expressed qualms about the confidential source. (Previous blog post here). In remanding the case, the Seventh Circuit ruled that making “representations in a filing that are not grounded in an inquiry reasonable under the circumstance or are unlikely to have evidentiary support after a reasonable opportunity for further investigation or discovery violate Rule 11.” City of Livonia Empls.’ Ret. Sys. v. Boeing Co., 711 F.3d 754, 762 (7th Cir. 2013). READ MORE
Plaintiffs’ counsel beware: to avoid Rule 11 sanctions you might actually have to talk to “confidential witnesses” yourself and corroborate their statements before citing them in a securities fraud complaint.
That is one major takeaway from the Seventh Circuit’s March 26, 2013 opinion in City of Livonia Employees’ Retirement System v. The Boeing Company, et al. In that case, Judge Posner singled out plaintiffs’ counsel for making “confident assurances in their complaints about a confidential source . . . even though none of the lawyers had spoken to the source and their investigator had acknowledged that she couldn’t verify what (according to her) he had told her.” Slip op. at 16. Citing multiple cases in which the same firm, Robbins Geller Rudman & Dowd LLP, had “engaged in similar misconduct” and noting that “recidivism is relevant in assessing sanctions,” Judge Posner remanded to the district court for further proceedings on Rule 11 sanctions.
The appeal came from the district court’s grant of a renewed motion to dismiss in Boeing’s favor after discovery into the CW’s statement revealed significant inconsistencies with the complaint’s allegations. The allegations, briefly, were that Boeing made false statements about the progress of Boeing’s flagship aircraft, the Dreamliner. In April and May 2009, with the Dreamliner’s maiden test flight (or “First Flight”) scheduled for June 30, 2009, the Dreamliner failed several “stress tests” that raised doubts about the First Flight’s timing. Boeing remained optimistic about the scheduled First Flight, though, and made disclosures to that effect in May and June. But one week before the anticipated First Flight, the Company disclosed that it had failed the tests and that the First Flight had been canceled, delaying final delivery of the plane to customers. Following the disclosure, Boeing’s stock price fell 10% over two days of trading.
On May 15, 2012, the Ninth Circuit Court of Appeals affirmed the decision of the district court finding in favor of the Securities Exchange Commission (“SEC”) on allegations that Carl Jasper, the former Chief Financial Officer of Maxim Integrated Products, Inc., violated various provisions of the securities laws in connection with the company’s stock options backdating scheme. SEC v. Jasper, Case No. 10-17064 (9th Cir. May 15, 2012). The court found that for ten consecutive quarters, Maxim granted backdated options with an exercise price equal to the lowest price of Maxim stock for each quarter. READ MORE