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

Category Archives: Corporate Governance

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Shining a Light on the Corporate Transparency Act: FinCEN’s Rules for Beneficial Ownership Reporting

On January 1, 2021, Congress enacted the Corporate Transparency Act as part of the Anti-Money Laundering Act of 2020 to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.” FinCEN issued the final rule on Beneficial Ownership Information Reporting Requirements on September … Continue Reading

First-of-its-Kind Crypto Insider Trading Conviction

In the first insider trading case involving cryptocurrencies, a crypto trader was convicted of insider trading in federal district court and recently sentenced to 10 months in prison. The defendant, Nikhil Wahi, pleaded guilty in the U.S. District Court for the Southern District of New York to illegally trading on information tipped by his brother, … Continue Reading

Second Circuit Questions Use of Criminal Insider-Trading Statute Without Proof of Receipt of Personal Benefit

The Second Circuit held yesterday that a government agency’s nonpublic, pre-decisional regulatory information does not constitute “property” for purposes of the federal insider-trading and wire-fraud statutes.  The decision in United States v. Blaszczak (2d Cir. Dec. 27, 2022) (“Blaszczak II”) effectively vacated convictions under those statutes for defendants who had traded on nonpublic, market-moving information that had … Continue Reading

SBF Prosecution Raises Novel Issues for Asset Forfeiture and Victim Restitution

The crimes charged against SBF are simple — old-fashioned fraud through a Ponzi scheme.  His conviction seems inevitable. For the government, the challenging part of this case will be the forfeiture proceedings.  Under the Mandatory Victim Restitution Act (MVRA), federal prosecutors have an affirmative obligation to use their “best efforts” to see that crime victims are … Continue Reading

District Court Declines to Dismiss NFT “Insider Trading” Indictment against Former OpenSea Employee

In late October, a New York district court refused to dismiss the Department of Justice’s (DOJ) indictment against defendant Nathaniel Chastain, who was charged with wire fraud and money laundering relating to his using insider knowledge to purchase non-fungible tokens (NFTs) prior to them being featured on OpenSea, an online NFT marketplace, and later selling … Continue Reading

Dis-Honest: Judge Allows Lawsuit against Jessica Alba Company to Move Forward

A judge in the United States District Court for the Central District of California has allowed a lawsuit against actress Jessica Alba’s child and personal care company Honest to move forward. The case is the latest in a series of investor-led actions against companies that shareholders claim have used COVID-19 and associated disruptions to mislead … Continue Reading

Delaware Supreme Court Allows Use of “Reliable” Hearsay to Support Books-and-Records Demand

The Delaware Supreme Court held yesterday that a stockholder seeking to inspect corporate books and records may use “reliable” hearsay to establish the propriety of the purpose of the inspection demand. The decision in NVIDIA Corp. v. City of Westland Police and Fire Retirement System (July 19, 2022) does not appear to break new ground on … Continue Reading

Divided Delaware Supreme Court Decision Highlights Issues About Director Independence in Derivative Actions

The Delaware Supreme Court recently affirmed a Court of Chancery ruling granting a Special Litigation Committee’s motion to terminate a shareholder derivative action that had survived a motion to dismiss. The split decision in El Pollo Loco (June 28, 2022) highlights whether a director can be considered independent – especially as a member of a Special … Continue Reading

Tractor Supply Gets Lift from Court with Diversity Suit Dismissal

Earlier this spring, yet another lawsuit alleging a company failed to adequately promote diversity was dismissed for a failure to properly allege demand futility. In City of Pontiac Police & Fire Ret. Sys. v. Jamison, the plaintiff, a shareholder of Tractor Supply Company, had alleged that the company and members of its Board falsely stated … Continue Reading

No Influence: Court Dismisses Claim Based on CEO’s Raucous Influencer Parties

Earlier last month, Judge Vince Chhabbria of the United States District Court for the Northern District of California dismissed a novel complaint that the court noted stretched the bounds of when directors of a company could reasonably be held accountable for the actions of its executives. Notwithstanding the case’s amusing subject matter, the decision applies … Continue Reading

Ninth Circuit Upholds Delaware-Forum Bylaw That Precludes Assertion of Federal Proxy Claim

The Court of Appeals for the Ninth Circuit affirmed the dismissal of a shareholder derivative action in light of an exclusive-forum bylaw requiring assertion of derivative claims in the Delaware Court of Chancery, even though the case included a federal claim that was subject to exclusive federal jurisdiction and could not have been litigated in … Continue Reading

Court Invalidates California Board-Diversity Statute

A California court invalidated a state law requiring that boards of directors of public companies based in California include members from under-represented groups, including persons of several races and ethnic groups and those who identify as gay, lesbian, bisexual, or transgender.  The April 1, 2022 decision in Crest v. Padilla, No. 20ST-CV-37513, by Judge Terry Green of … Continue Reading

SEC Proposes Broad New Climate Change Disclosure Requirements

Last week, the U.S. Securities and Exchange Commission proposed a set of sweeping new rules requiring public companies to disclose climate-related risks in their registration statements and periodic reports.  Under the proposed rules, public companies would have to disclose the actual and potential impacts of climate change on their business, management and governance processes to … Continue Reading

Key Takeaways from Recent Court Rulings on Corporate Board Oversight

Corporate boards are subject to a duty of oversight, as part of their duty of loyalty to their company. As outlined by Delaware’s famously stringent Caremark standard, pleading a violation of that duty is often difficult. However, the Delaware Court of Chancery has issued several recent opinions addressing duty of oversight claims where they held the … 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.  … Continue Reading

Another Diversity Suit Stifled

Last week, yet another federal court dismissed a shareholder derivative suit that claimed a company had failed to diversify its corporate leadership team.  Shareholders had alleged that Opko Health Inc., a Miami-based medical company, failed to nominate or appoint minorities to the board and executive management team despite public statements celebrating the company’s diverse staff.… Continue Reading

L Brands Settles Derivative Suits

On July 30, 2021, L Brands, the parent company behind Victoria’s Secret and Bath & Body Works, settled a rash of derivatives actions which had alleged “toxic” workplace conditions and “a culture of misogyny” at the company.  We previously detailed the allegations in this space as part of our ongoing review of shareholder attempts to … Continue Reading

Pinterest Diversity Suits Multiply

Late last month, a new batch of plaintiffs filed a stockholder derivative suit against Pinterest, Inc., in Delaware Chancery Court, making similar allegations to those made in a pair of cases filed in the Northern District of California in 2019. The plaintiffs allege that Pinterest executives ignored and failed to correct systemic race and gender … Continue Reading

Second Circuit Upholds Insider Trading Conviction, Finding Sufficient Confidentiality Duty and Personal Benefit

The Second Circuit yesterday affirmed the insider trading conviction of the principal of a potential acquiror who, in breach of a nondisclosure agreement with a potential target company, had provided a tippee with nonpublic information about an impending acquisition of the target. The decision in United States v. Chow held that: The nondisclosure agreement (“NDA”) between … Continue Reading

So Nice They Did It Twice: SEC Continues to Examine ESG Disclosure Requirements

On Monday, the SEC asked for public comments on a new, standardized ESG disclosure framework that would require issuers to disclose certain climate and other ESG-related risks. The comment request—which encapsulates public and private company disclosures—includes 15 questions with the goal of providing a “consistent, comparable, and reliable” framework to allow investors to use ESG … Continue Reading

The “ABC’s” of ESG

In 2020, trillions of dollars flooded ESG funds, and many analysts are expecting this trend to continue in 2021. BlackRock, the largest asset manager in the world, plans to have $1.2 trillion in ESG assets in the next 10 years, and an estimated one-third of all U.S. assets under management are already sustainably invested.  Given the … Continue Reading
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