Class Action Notices Via Email
Okay, so it's not securities-related, but the recently issued Notice of Pendency of Class Action and Proposed Settlement in the Paypal litigation is noteworthy in that it is being circulated, among other ways, by email. A screen shot of these emails can be viewed here.
Presumably, Paypal has its accountholders' (who are the members of the class) email addresses through its registration process for new accounts, and is using that list to distribute the notice. It is difficult to see, however, how email notice, which has obvious cost benefits over paper notice, could be used in securities class actions short of establishing some kind of "shareholder email clearinghouse" that could be drawn upon for all shareholder litigation. Does anyone have ideas on how email notice could be used in the securities litigation context?
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July 28, 2004 |
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The Joys of Being a Public Company
Do you think salesforce.com is pining for the good old days when it was a private company yet? First, as discussed in this post from early June, salesforce.com was forced to postpone its planned IPO because of concerns over "gun-jumping," i.e., actions that arouse public interest in an issuer or in the securities of an issuer in advance of a public offering. Now, just over a month after going public on June 21, the company has been sued in this securities class action lawsuit alleging that the Prospectus failed to disclose that salesforce.com management was expecting earnings to decline in FY 2005.
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July 23, 2004 |
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SEC Finds No Suspicious Trading in Advance of Sept. 11 Attacks
The SEC announced yesterday that following an extensive investigation it began the day after the Sept. 11 terrorist attacks on the U.S., it had found no evidence suggesting that anyone who had advance knowledge of the September 11 attacks traded on the basis of that information. The SEC stated that in the course of its investigation, it examined more than 9.5 million securities transactions that took place during the weeks preceding September 11; reviewed trading in securities and derivative products of 103 companies in six industry groups with trading in seven markets; and reviewed trading in 32 exchange traded funds and broad and narrow indices.
As discussed in this Chicago Tribune article, reports emerged shortly after the terrorist attacks that in the days leading up to Sept. 11, "some traders placed unusually large bets for stock prices to fall at several firms, particularly for the parent companies of United and American Airlines, whose planes were hijacked and used in the attacks. That prompted speculation that some people who knew about the attacks also had sought to make a quick buck." The article notes that immediately following Sept. 11, shares of UAL dropped 43 percent and shares of AMR fell 39 percent, and that potential profits from the UAL options trading alone were more than $4 million.
According to the SEC's investigation, which was incorporated in the just-released report of the bipartisan 9/11 Commission, each trade had "an innocuous explanation." The commission report stated that a U.S. institutional investor "with no conceivable ties to Al Qaeda" bought 95 percent of UAL put options on Sept. 6 as part of a trading strategy that also saw it buy shares of AMR, and a sharp climb in AMR put options volume on Sept. 10 resulted from a recommendation in an options-trading newsletter.
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July 20, 2004 |
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Martha Stewart Hires Prison Consultant
Now here's a growth industry....Sunday's Washington Post has this must-read article about what "every smart white-collar criminal" is doing these days before reporting to prison--hiring a prison consultant. Indeed, Martha Stewart has reportedly hired Herbert J. Hoelter, "one of the best-known consultants in the business" who runs an operation in Baltimore called the National Center on Institutions and Alternatives.
Among the key services and points of advice dispensed by such consultants:
--making formerly powerful clients understand that Bureau of Prisons rules do not allow them to conduct business from prison and that their contact with the outside world will be severely restricted (e.g., no trying to close deals in prison; no access to email)
--advising clients to take care of all dental and medical needs before going to prison (shoe designer Steve Madden reportedly petitioned a judge for a short delay in the start of his sentence so he could get a root canal, fill some cavities and have surgery to fix a deviated septum)
--planning for the fact that prisons do not permit inmates to keep even basic things like their address books. According to one lawyer, "whatever you go in with, they're going to take away from you. I have clients write themselves a letter that will arrive that day or the day after, to write down all the names and addresses of their friends."
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July 19, 2004 |
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Profiling the Corporate Fraudster, Part II
A study earlier this year by KPMG (discussed in this post) found that the "profile" of the most typical corporate fraudster was a male director or senior manager between the ages of 36 and 45, who has worked in the finance department of a public company for more than 10 years. Apparently we can now add "workaholic" to that profile.
According to this article, a new anti-fraud guide due to be released today by Ernst & Young warns that "employees who work excessive hours, refuse to delegate and fail to take up their full holiday entitlement are more likely to commit fraud." In the article, Eamonn Rice, head of Ernst & Young Financial Services in Scotland, explains that
"If there are people who never take a break, and never let anyone into their field of work, there is an increased risk of fraud."When someone is away from their work, there are other people who take things over for them. This gives an insight into how that person works and gives you more chance to see what is going on.
"If there are people who are reluctant to let people close to their work it should perhaps arouse suspicions."
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July 13, 2004 |
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Reg FD Lightning Strikes Siebel Systems...Again!, Part II
Siebel Systems, the only company to date to have been sued twice by the SEC for alleged violations of Reg FD, is coming out swinging this time around. The company recently announced in this press release that after having been "engaged for over a year in an ongoing dialogue with the SEC regarding their allegations" and after "an extensive internal review, the Company concluded that no violation of Regulation FD occurred. Additionally, despite the Company's repeated requests, the SEC has not provided any credible evidence that the Company believes supports the SEC's allegations." Siebel added that it "believes it has meritorious defenses to the lawsuit and is prepared to pursue resolution of this matter through the normal course of civil litigation."
As discussed in this article in the San Francisco Business Times, this case, if it continues to trial, will be significant in that "it's the first time an FD case has been heard in federal court and the first time an individual has been charged with failing as information gatekeeper."
The article quotes Susan Muck, a partner at Fenwick & West who defended Siebel against the SEC's first Reg FD charge in 2002, as stating that the ambiguity and novelty of Reg FD makes the case highly unpredictable: "It's covers not just what is said, but what's implied. For example, if you give bad news, but with a smile on your face, the analyst could interpret that as the bad news isn't as bad as it seems," she said. "It's a very difficult claim and there's no precedent, so no one really knows how it's going to turn out in court." (Indeed, as discussed in this post last year, the SEC has stated that Reg FD violations may result from conduct that may be "a combination of spoken language, tone, emphasis, and demeanor.").
Scott Friestad, Assistant Director in the SEC's Division of Enforcement, was quoted in the article as stating that "these violations are penalty-worthy ... and with (Siebel) already subject to a commission order, we would argue that the penalty should be significant.... It's out of our hands. It's for the judge to decide."
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July 12, 2004 |
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FBI After Phony SEC Examiner
Institutional Investor magazine reports that the FBI is investigating a male individual claiming to be an SEC examiner who recently called six or seven hedge funds and asked questions about the funds' business. According to the article,
Kathryn McGrath, partner at Crowell & Moring in Washington, and a former SEC lawyer, said that in more than 17 years at the SEC she had never experienced this type of infraction. McGrath said that impersonating a federal official is a criminal act and one that would probably result in prison time--even for a first time offender. "These days, to pull off that impersonation the person is going to have to act unreasonable," McGrath added.
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July 8, 2004 |
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Former Enron CEO Kenneth Lay Indicted, Pleads Not Guilty
The WSJ reports that former Enron Corp. CEO Kenneth Lay was indicted today and pleaded not guilty to federal charges that he was involved in a scheme to deceive the public, company shareholders and government regulators about the energy company that he founded. In addition, the SEC also filed civil fraud charges against Lay, accusing him of making false and misleading statements and insider trading.
A copy of the indictment is available here and a copy of the SEC's civil complaint is available here. Both actions are pending in the U.S. District Court for the Southern District of Texas, Houston Division.
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