The Second Circuit ruled today that a “meaningfully close personal relationship” is not required for insider-trading liability where a tipper discloses inside information as a gift or in exchange for some other type of nonpecuniary personal benefit. The requisite personal benefit exists “whenever the information was disclosed ‘with the expectation that [the recipient] would trade on it’ . . . and the disclosure ‘resemble[s] trading by the insider followed by a gift of the profits to the recipient,’ . . . whether or not there was a ‘meaningfully close personal relationship’ between the tipper and the tippee.” Continue Reading
The Chancellor of Delaware’s Court of Chancery yesterday urged the Delaware Supreme Court to revise Delaware law on preclusion in shareholder derivative actions. The court’s July 25, 2017 decision in In re Wal-Mart Stores, Inc. Delaware Derivative Litigation recommended that the Supreme Court adopt a rule that a judgment in one derivative action cannot bind the corporation or its stockholders in another derivative action unless either (i) the first action has survived a motion to dismiss because a pre-suit demand on the corporation’s board of directors would have been futile or (ii) the board has given the plaintiff authority to proceed on the corporation’s behalf by declining to oppose the derivative suit. In other words, preclusion would not apply unless the stockholder in the first case had been empowered by either a court or the board to assert the corporation’s claims. Continue Reading
The Second Circuit held today that putative securities class actions involving transactions in non-U.S.-listed securities require careful scrutiny to determine whether the class members’ claims can be litigated on a classwide basis. The court’s ruling in In re Petrobras Securities (No. 16-1914) will likely increase the difficulty of certifying securities class actions arising from transactions in non-U.S.-listed foreign securities.
On June 26, the U.S. Supreme Court ruled that the pendency of a securities class action does not allow individual class members to opt out of the class and file separate actions under the Securities Act of 1933 more than three years after the relevant securities offering took place. The Court’s decision in California Public Employees’ Retirement System v. ANZ Securities, Inc. – which likely applies as well to securities-fraud suits under the Securities Exchange Act of 1934 – establishes that statutes of repose such as the three-year statute in the Securities Act (and the five-year statute in the Exchange Act) are designed to limit defendants’ liability and cannot be tolled based on equitable considerations.
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.
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
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