Corporate Defense and Disputes

Important developments in U.S. securities law, white collar criminal defense, regulatory enforcement and other emerging issues impacting financial services institutions, publicly traded companies and private investment funds

Dutch Court Denies Approval of Collective Settlement Unless Changes Are Made as to Allocation of Compensation and Fees

The Amsterdam Court of Appeal denied approval of the €1.204 billion collective settlement of former Fortis (now Ageas) shareholders’ claims unless the parties agree to restructure the allocation of the settlement amount among class members and the compensation for the organizations that filed the proceeding. The court’s June 16, 2017 decision does not undermine the use of the Dutch Act on Collective Settlement of Mass Claims (the “WCAM”) to resolve transnational disputes, but it constrains the ways in which parties can allocate the settlement amount and pay attorneys’ fees.

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Senate Considers Potential Changes to ECPA to Ease Access to Electronic Data Across Borders

Terrorist attacks, most recently in London and Manchester, England, have raised the pressure on law enforcement and lawmakers in countries like the U.K. and the U.S., to proactively intercept and interrupt terrorist communications. On May 24, members of the Senate Judiciary Committee’s Subcommittee on Crime and Terrorism addressed practical issues regarding warrants for overseas data in a hearing titled “Law Enforcement Access to Data Stored Across Borders.”  Continue Reading

SEC Continues to Use Advanced Data Analytics to Investigate Insider Trading

The SEC has continued to pursue a number of insider trading cases this year, both large-scale and small. Some of those matters involved trades that yielded relatively small amounts of profits: $40,000-$60,000. Why does the enforcement division spend resources on these smaller cases? First, they serve as a reminder that violations can be identified, even if trades are relatively small. And the cases are relatively easy to prove when a connection to an insider source can be readily identified. More importantly, these cases demonstrate that the SEC is uncovering new leads through data analysis.

It is worth noting that the FY 2018 budget recently published by the White House proposes eliminating the SEC’s annual $50 million “Reserve Fund,” created under Dodd-Frank and used to advance the SEC’s technological resources. Although the budget is unlikely to be passed in its current form, cutting this fund may affect the SEC’s funding to mine and analyze large data sets.  Continue Reading

We Know What You Really Meant: Utah Court Holds that SEC Can Bring Extraterritorial Enforcement Action Based on Conduct or Effects in United States

A federal court in Utah recently held that the Securities and Exchange Commission may bring an enforcement action based on allegedly foreign securities transactions involving non-U.S. residents if sufficient conduct occurred in the United States. Continue Reading

Non-Use Agreement Need Not Precede Disclosure of Confidential Information

A Pennsylvania federal court held yesterday that an agreement not to use confidential inside information for trading purposes need not precede the receipt of that information in order to create liability under the misappropriation theory of insider trading. The ruling in SEC v. Cooperman (E.D. Pa.) appears to be the first decision to address the “novel issue” of “[w]hether liability under the misappropriation theory of insider trading may be premised on a post disclosure agreement” not to trade on or otherwise use inside information.

This decision, if followed by other courts, could give the Government greater leeway in pursuing claims against persons who allegedly agreed not to trade on material, nonpublic information received from corporate insiders. The decision allows such claims to proceed even if the Government cannot specify when the alleged agreement was made, as long as the agreement preceded the actual trading. Continue Reading

Watch the Napkin: First Circuit Affirms Insider-Trading Conviction

In what appears to be the first appellate decision since the Supreme Court’s December 2016 ruling in Salman v. United States, the U.S. Court of Appeals for the First Circuit affirmed an insider-trading conviction based on a tip of material, nonpublic information. The February 24, 2017 decision in United States v. Bray held that the jury had sufficient evidence to conclude that, in soliciting and receiving a trading tip surreptitiously written on a pub-room napkin, the tippee had known that the tipper had provided the information in breach of his duty of confidentiality and in expectation of a personal benefit.

However, the court also made clear that a tippee cannot be criminally convicted for insider trading if he merely “should have known” of the tipper’s breach of duty. The court further held that a “willful blindness” or “conscious avoidance” standard cannot be based on mere negligence (at least in a criminal case). Continue Reading

Race to Courthouse in Shareholder Derivative Actions Could Raise Due-Process Issues

The Delaware Supreme Court requested further consideration of the federal due-process issues that might arise where a court is asked to hold that a shareholder derivative action is precluded because a prior derivative action was dismissed based on the first plaintiff’s failure to make a demand on the company’s board before filing suit. The Court’s January 18, 2017 decision in California State Teachers’ Retirement System v. Alvarez squarely focuses on an issue that has been raised several times in the Delaware Court of Chancery: whether federal due-process principles prevent the actions of a named plaintiff in a derivative action from binding other shareholders unless and until a court holds that the plaintiff has authority to sue on behalf of the corporation.

The ultimate resolution of this question could affect the strategy decisions confronting plaintiffs and defendants when multiple shareholder derivative actions are filed in two or more forums. Continue Reading

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