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Richard Spinogatti is a senior counsel in the Litigation Department. Rich has more than 40 years of experience in federal and state courts in New York and other jurisdictions across the nation. In addition to litigating, trying cases, and arguing appeals at all levels, he has advised national and international clients in connection with internal investigations and represented them in civil and criminal investigations, in administrative proceedings before federal, state and local government agencies, and before industry regulatory organizations.

Through his extensive representation of international, national, regional and local accounting firms, Rich has developed a broad knowledge of accounting, auditing and related professional services, and the complex regulatory structure governing the accounting profession. Rich is frequently called upon to consult with accountants and other professionals in pre-litigation contexts to avoid or minimize exposure risks. He has lectured and taught seminars for partners and employees of accounting firms on subjects ranging from accountants' liability to litigation support.

SEC logoMay defendants charged in SEC administrative proceedings challenge the constitutionality of those proceedings in federal district court? The determination of whether district courts have subject matter jurisdiction over such challenges has become the critical prelude in the ongoing controversy over the SEC’s seemingly arbitrary use of its “home court” alternative to pursue claims and remedies against violators of the federal securities laws.

Dodd Frank gives the SEC the power to impose civil penalties in cease-and-desist proceedings before an administrative law judge (ALJ) against any person who violates federal securities laws. Previously, the SEC could only bring such cases in federal court, except against persons associated with regulated entities. Now, the SEC has the ability, and complete discretion, to prosecute these claims and seek the same relief administratively or in district court. Administrative proceedings create significant disadvantages for defendants who face accelerated hearing schedules and lack important procedural rights they would have the ability to assert in district court.

Seal_of_the_Supreme_Court_of_Delaware_svgThe Delaware Supreme Court will address the standard for pleading that an independent director has breached fiduciary duties in connection with a controlling shareholder buyout. The issue was certified for interlocutory appeal in a pair of recent Delaware Chancery Court cases. In re Cornerstone Therapeutics Stockholder Litigation, No. CIV.A. 8922-VCG (Del. Ch. Sept. 10, 2014) (Glasscock, V.C.); In re Zhongpin Stockholders Litigation, No. CV 7393-VCN (Del. Ch. Nov. 26, 2014) (Noble, V.C.).

In Cornerstone and Zhongpin, minority shareholders sued after the controlling shareholder of a publicly-traded company attempted a going-private transaction. In both cases, the board of directors formed a special committee of independent directors to negotiate with the controller; however, neither deal was conditioned, at the outset, on approval of a majority of the minority shareholders. In both cases, the corporate charter contained a provision enacted pursuant to Delaware General Corporation Law 102(b)(7), which exculpated directors from liability for breach of the duty of care.

Yesterday, U.S. District Judge Andrew L. Carter, Jr. rejected the argument by the U.S. Attorney’s Office for the Southern District of New York to limit the Second Circuit’s decision in United States v. Newman to classical insider-trading cases.  Judge Carter’s order, vacating four insider-trading guilty pleas in United States v. Conradt, represents another setback for U.S. Attorney Preet Bharara in the wake of the Second Circuit’s landmark decision in Newman—a case that we’ve written about here and here.

In Conradt, the government alleged that Trent Martin, a research analyst at a financial services firm, had received material, non-public information from an attorney working on a merger between two publicly traded technology companies.  According to the government, Martin then passed information about the merger to his roommate Thomas Conradt, a stock broker at a securities trading firm, who shared the information with three co-workers—Daryl Payton, David Weishaus and Benjamin Durant.

With several billions of dollars ultimately at stake, the Second Circuit has affirmed that Section 546(e) of the Bankruptcy Code, a safe-harbor protecting certain securities-related payments from bankruptcy “claw backs,” barred Irving Picard, Trustee of Bernard L. Madoff Investment Securities, LLC (“BLMIS”), from asserting all but a limited category of avoidance and recovery claims. In re Bernard L. Madoff Inv. Sec. LLC, No. 12-2557 (L) (2d Cir. Dec. 8, 2014). The affected claims are premised on transfers made by BLMIS more than two years prior to the commencement of its liquidation proceeding, and allegedly preferential transfers made within 90 days of the commencement of the liquidation proceeding. Unless overturned by an en banc panel or the United States Supreme Court, the Second Circuit’s ruling will result in the dismissal of such claims in hundreds of the adversary proceedings commenced by the BLMIS Trustee.

On December 10, 2014, the Second Circuit reversed insider trading convictions of two former hedge fund managers, holding that, to sustain a conviction for insider trading, the government must prove a tippee who trades on the basis of material non-public information had knowledge that the tipper not only disclosed confidential inside information, but also that he did so in exchange for a personal benefit.  United States v. Newman, Index Nos. 13‐1837‐cr (L), 13‐1917‐cr (con) (2d Cir. Dec. 10, 2014).

The ruling emphasizes that tippee liability “derives only from the tipper’s breach of a fiduciary duty, not from trading on material, non-public information,” a corporate insider has committed no breach of fiduciary duty “unless he receives a personal benefit in exchange for the disclosure,” and a “tippee is liable only if he knows or should have known of the breach.” (While the court’s opinion uses the phrase “knows or should have known” several times, the court’s apparent articulation of its holding uses a knowledge requirement, not “should have known.”)

Introduction written by Tanya Dmitronow and Julia Pizzi. Full analysis written by Sarah Gold and Richard Spinogatti.

Although they often involve overlapping issues, shareholder derivative lawsuits are fundamentally different from securities class actions. While the object of a securities class action is to hold the company (and, perhaps, its

The attorney-client privilege is the oldest privilege recognized by Anglo-American jurisprudence, and its origins can be traced to ancient Rome. It is critical to encouraging frank and full communications between clients and their attorneys, thereby promoting the public interest in legal compliance and the proper administration of justice. The attorney-client