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

S.D.N.Y Dismisses Dodd-Frank Whistleblower Action

On February 5, 2018, U.S. District Court for the Southern District of New York granted Defendant Khan Funds Management America, Inc.’s Rule 12(b)(6) motion to dismiss a whistleblower retaliation claim under Dodd-Frank on the grounds that Plaintiff failed to state a claim upon which relief could be granted. Read the full post on Proskauer’s Whistleblower Defense blog.

SEC Staff Announces 2018 OCIE Examination Priorities

Last week, the staff of the SEC’s Office of Compliance Inspections and Examinations (OCIE) recently released its sixth annual examination priorities announcement. The alert lays out general issues industry can expect OCIE to focus on during the administration of the agency’s examination program in 2018. While reflecting a renewed emphasis of SEC Chair Jay Clayton on investment products and services offered to retail investors, the announcement contains information relevant to all entities subject to SEC oversight.

Read the full text of the client alert.

Delaware Supreme Court Confirms Preclusive Effect of Dismissal of Derivative Actions Based on Lack of Demand Futility

On January 25, 2018, the Delaware Supreme Court held that the dismissal of a shareholder derivative action for lack of demand futility can preclude other derivative actions as long as the plaintiff in the dismissed case adequately represented the corporation’s interests. The Court’s decision in California State Teachers’ Retirement System v. Alvarez – a suit brought on behalf of Wal-Mart Stores, Inc. – refused to adopt the Delaware Court of Chancery’s recommendation that, as a matter of federal due process, a judgment in one derivative action should not 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.

Read the full text of this alert.

Second Circuit Holds That Tipper/Tippee Liability Can Arise from a Gift of Inside Information Even Without a Close Personal Relationship

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

Delaware Chancellor Urges Revision of Preclusion Principles in Derivative Actions

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

Second Circuit Requires Increased Scrutiny of Securities Class Actions Involving Off-Exchange Transactions

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.

Read the full text of the client alert.

We previously blogged about other decisions in the Petrobras litigation herehereherehere and here.

Supreme Court Holds That Securities-Law Statutes of Repose Are Not Subject to Class-Action Tolling

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.

Read the full text of the client alert.

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