In our previous post, Under Armour Inc. Pulls Sales Forward, SEC and Stockholders Push Back, we discussed Under Armour Inc.’s recent settlement with the SEC, under which Under Armour agreed to pay $9 million for alleged violations of federal securities laws. While that settlement marked the end of a two year investigation into Under Armour’s “pull forward” practices, it also was the basis on which a U.S. District Court permitted similar (but not identical) shareholder claims against Under Armour to proceed.
All-Seeing Bylaws Help Block Diversity Suit
The rash of shareholder derivative actions alleging violations of fiduciary duties tied to companies’ diversity measures are continuing to take a beating in the Northern District of California. We previously posted about the dismissal on forum selection clause grounds of a derivative action brought in that court by a shareholder of The Gap, Inc. alleging the company’s directors and officers failed to instill meaningful diversity within its leadership. We also reported on a similar suit brought against Facebook, which was dismissed because, among other reasons, the forum selection clause in Facebook’s certificate of incorporation provided that the exclusive forum for derivative actions was the Delaware Court of Chancery.
Under Armour Inc. Pulls Sales Forward, SEC and Stockholders Push Back
As the culmination of an SEC investigation into Under Armour Inc.’s “pull forward” practice leads to charges, Under Armour agrees to cease and desist and settles for $9 million.
Following an investigation dating back to 2015, the SEC claimed Under Armour misled investors by not disclosing the reason for its growth in revenue and what that meant for the business. The SEC charged Under Armour with violations of “antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933, as well as certain reporting provisions of the federal securities laws.”
Shareholders Cannot Sue Corporate Officers for Forward-Looking Projections that Don’t Pan Out, Ninth Circuit Affirms
It is illegal under the Securities Exchange Act to make false or misleading statements to the investing public about material facts. At the same time, corporations and their officers must be able to make statements about the company’s future plans, projections, and aspirations without fear of opening themselves up to claims of securities law liability should the company’s achievements fall short of its ambitions. The Private Securities Litigation Reform Act, therefore, has carved out a “safe harbor” for certain forward-looking statements, including forward-looking statements accompanied by meaningful cautionary language, and forward-looking statements made by someone who does not know the statement to be false or misleading.
Second Circuit Upholds Insider-Trading Conviction and Clarifies Scope of Requisite Fiduciary Relationship
The Second Circuit yesterday affirmed the insider-trading conviction of a doctor who, in breach of a confidentiality agreement, had traded on nonpublic information about a drug trial in which he had been participating. The decision in United States v. Kosinski (2d Cir. Sept. 22, 2020) held that:
- A person can
Supreme Court Hearing Raises Questions About Private Rights of Action Under § 14 of Securities Exchange
One of the more intriguing rulings of this Supreme Court Term is the Court’s one-sentence order yesterday dismissing as improvidently granted the writ of certiorari issued in Emulex Corp. v. Varjabedian (No. 18-459). The Court had taken the case to review a Circuit split on the liability standard under § 14(e) of the Securities Exchange Act, which regulates tender offers. Along the way, however, the petitioner argued that a private right of action does not exist at all under § 14(e) – an issue that had not been raised in the lower courts. That issue occupied a large portion of the oral argument held on April 15, 2019, with the parties and the Justices exploring whether the Court should entertain the previously unraised issue and, if so, what the outcome should be.
Third Congressional Proposal to Define Insider Trading
On March 25, 2015, U.S. Representative Jim Himes introduced the Insider Trading Prohibition Act. The bill is the latest in a series of efforts to define insider trading following the Second Circuit’s decision last year in United States v. Newman. We have blogged previously about similar legislation introduced by U.S. Senators Jack Reed and Bob Menendez and U.S. Representative Stephen F. Lynch.
The Himes bill would create a new Section 16A of the Securities Exchange Act. The new section would make it illegal for a person to trade securities on the basis of material, non-public information that the person knows (or recklessly disregards) was wrongfully obtained. The bill would also make it illegal for a person whose own trading would be illegal to wrongfully communicate material, non-public information to another person when it is reasonably foreseeable that the other person is likely to trade on it or pass it on to others.