underwriter

SEC Expands its Focus in the Municipal Bond Market, Bringing First-Ever Charges Against an Underwriter for Pricing Violations Related to Primary Offerings

Coming on the heels of the SEC’s first wave of settlements with underwriters as part of its Municipalities Continuing Disclosure Cooperation (“MCDC”) initiative, the agency has brought yet another precedent-setting enforcement action against an underwriter in the municipal bond market.  On August 13, 2015, the SEC brought a settled enforcement action against the brokerage firm Edward Jones, in which the firm agreed to pay more than $20 million to settle charges that it overcharged customers in connection with the sale of municipal bonds in the primary market.  Edward Jones settled without admitting or denying the SEC’s findings.

READ MORE

Lesser-Known SEC Rule Compels Dismissal of Securities Act Claims

Relying on a lesser-known U.S. Securities and Exchange Commission rule, the Southern District of New York dismissed over forty underwriter and director defendants from a securities action against General Electric Co. on April 18, 2012.  Shareholders alleged that GE made false statements in connection with a $12 billion secondary stock offering in 2008, including misrepresentations about its ability to sell commercial paper.  GE, which was mostly financed by 30-day commercial paper, encountered difficulties in funding its operations after the collapse of Lehman Brothers in September 2008.

District Judge Denise Cote ruled that older statements incorporated by reference into the offering documents were modified and superseded by subsequent statements under SEC Rule 412, and that statements made by GE in its Forms 10-K between 2004 and 2007, expressing confidence in its commercial paper position, could not be relied upon to state a Securities Act claim.  Citing SEC Rule 412, Judge Cote found that the 2008 offering’s prospectus supplement warned of potentially impaired access to the commercial paper market, and thus “directly modif[ied] and replace[d] the earlier statements” of GE.  Judge Cote also rejected lead plaintiff’s argument that the newer statements were merely standardized “boilerplate.”

The ruling modified a January 2012 opinion from District Judge Richard Holwell in one of his last opinions before retiring from the bench.  Upon reassignment of the matter Judge Cote granted defendants’ pending motions for reconsideration of the January opinion with respect to all surviving claims under the Securities Act and Exchange Act.  Judge Cote’s ruling did not dispose of the entire action, keeping intact the Exchange Act claims against GE and its chief financial officer for alleged misstatements about the quality of the company’s loan portfolio.

In re: General Electric Co. Securities Litigation, case number 1:09-cv-01951, United States District Court for the Southern District of New York.