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

Seventh Circuit Reverses Dismissal of Derivative Action Based on Forum Clause as Applied to Federal Claim

A recent Seventh Circuit decision in Seafarers Pension Plan v. Bradway may complicate defendants’ ability to use forum-selection bylaws as a basis for dismissal of derivative suits pleading claims under the Securities Exchange Act of 1934. Continue Reading

SEC Defeats Motion to Dismiss Insider-Trading Complaint Alleging Novel “Shadow Trading” Theory

The SEC prevailed on a motion to dismiss a closely watched lawsuit alleging that the defendant had engaged in insider trading based on news about a not-yet-public corporate acquisition when he purchased securities of a company not involved in that deal.  The January 14, 2022 decision in SEC v. Panuwat (N.D. Cal.) marks the first time a court has considered the theory of “shadow trading,” which involves trading the securities of a public company that is not the direct subject of the material, nonpublic information (“MNPI”) at issue.

The Panuwat decision does not appear to break new ground under the misappropriation theory of insider trading in light of the particular facts alleged.  But the “shadow trading” theory warrants attention because, on other sets of allegations, it can have wide-ranging ramifications for traders. Continue Reading

California Federal Court Holds U.S. Securities Laws Inapplicable to Unsponsored, Unlisted ADR Transaction Preceded by Purchase of Common Stock Outside the U.S.

The U.S. District Court for the Central District of California held on January 7, 2022 that the federal securities laws do not apply to U.S. transactions in unlisted, unsponsored American Depositary Receipts (“ADRs”) for a foreign issuer’s shares where the ADR purchases depended on prior purchases of the underlying common stock on a foreign exchange.  The decision in the long-running Stoyas v. Toshiba Corporation case illustrates the importance of investigating the factual circumstances underlying purchases of unlisted ADRs even if securities claims based on those transactions might survive a motion to dismiss, as they had done here. Continue Reading

Post-SPAC Nikola Settles SEC Inquiry, Agrees to Pay $125 Million

Nikola Corporation stormed onto the electric vehicle scene in 2016 offering concepts for zero-emission vehicles. While the SEC does not set emission standards, they have long had standards for omissions – and Nikola is being left with a nine-figure bill. Continue Reading

Gensler Speaks Out on SPACs, Notes Similarities with Traditional IPOs and Hints at Future SEC Action

SEC Chair Gary Gensler made news again last week with a series of statements regarding SPACs, noting their similarities with traditional IPOs and hinting at future regulatory action aimed at these investment vehicles.

In a December 9, 2021 speech before the Healthy Markets Association Conference, Chair Gensler addressed SPACs and how the SEC staff believes they can interact with three key SEC objectives:  eliminating information asymmetries, protecting against misleading information and fraud, and mitigating conflicts of interest. Continue Reading

House of Representatives Looks into SPACs, Focused on Protecting Investors

On November 16, 2021, the House Financial Services Committee cleared two proposals geared towards protecting investors and holding accountable offerors in connection with SPAC transactions. Continue Reading

Qualcomm Escapes Diversity Suit

Another diversity-based derivative suit was dismissed this week by a federal district court, joining a list of decisions that have rejected similar shareholder allegations.

This most recent decision, from the District of Delaware, dismissed claims alleging Qualcomm Inc. had allowed unlawful and discriminatory practices to exist within its executive ranks.  Though the complaint was initially filed in the Southern District of California, Qualcomm’s Bylaws contain a forum-selection provision designating Delaware as the exclusive forum for derivative litigation, and thus the case was transferred to Delaware in March 2021. Continue Reading

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