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NY District Court Rejects Pension Fund's Bid to Gain Class Rep Status, But Certifies Backdated Stock Option Class Suit Versus Monster Worldwide
In Re Monster Worldwide Inc. Securities Litigation
No. 07 Civ. 2237,
U.S. District Court for the Southern District of New York, 07/15/2008
Holding: In this backdated stock option fraud suit against employment web site parent company Monster Worldwide, Inc., the U.S. District Court for the Southern District of New York denied the motion of Steamship Trade Association-International Longshoremen’s Association Pension Fund to be accorded class representative status for failure to meet the requirements of the law. According to the district court, the basic requirement for appointment as class representative was that the representative must have an awareness of the "basic facts underlying the lawsuit" and be unlikely to "abdicate his obligations to fellow class members." Here, the pension fund's co-chairman Horace Alston failed to meet that standard when he displayed barely any knowledge of the action at deposition. The district court was thus prompted to conclude that the pension fund could not remotely be relied upon to protect the interests of the class against the possibly competing interests of the attorneys. No such inadequacy was apparent, however, in the case of the other lead plaintiff, Middlesex County Retirement System, which was therefore approved as class representative. The district court likewise granted the plaintiffs' motion for class certification, stating that defendant Monster provided no direct evidence that any putative class member actually knew about option backdating at Monster before the scandal became public. More...
CA District Court Issues Summary Judgment to SEC, Imposes Sanctions Against Indigenous Global and Its CEO
SEC v. Indigenous Global Development Corporation, et al.
Civil Action No. C-06-5600-JCS,
U.S. District Court for the Northern District of California, 06/30/2008
Holding: The U.S. District Court for the Northern District of California of California issued a summary judgment against Indigenous Global Development Corporation (“IDGC”) and its former Chairman and CEO on claims that they misled investors about the company's expected revenues and its sources of financing. Specifically, the order found IGDC and Deni G. Leonard liable for fraud in connection with the purchase and sale of IGDC securities. According to the district court, undisputed evidence established that Leonard and IGDC made a series of statements, in press releases and SEC filings, about various natural gas purchases and financing deals. Because they were made in press releases and filings with the Securities and Exchange Commission (“SEC”), they satisfied the requirement that the statements must be made in connection with the purchase and sale of securities. On the basis of these findings, the district court enjoined Leonard from violations of securities laws; required him to pay disgorgement of $249,793.68 (representing the proceeds from his sales of IGDC stock to the public during the course of his fraud) plus prejudgment interest of $37,586.84; imposed a monetary penalty of $249,793.68; prohibited Leonard from serving as an officer or director of any public company; and also prohibited Leonard from involvement in the offering of any penny stock. More...
Second Circuit: Securities Class Suit Failed to Plead Corporate Scienter Against Dynex and Merit
Local 445 Freight Division Pension Fund v. Dynex Capital Inc., et al.
No. 06-2902-cv,
U.S. Court of Appeals for the Second Circuit, 06/26/2008
Holding: In this appeal, the U.S. Court of Appeals for the Second Circuit overturned a district court's ruling that plaintiff-appellee Local 445 Freight Division Pension Fund was able to adequately plead scienter in its securities fraud complaint. The district court earlier dismissed fraud charges against top officers of financial services companies Dynex Capital, Inc. ("Dynex") and Merit Securities Corp. ("Merit"), but found that a strong inference of scienter was demonstrated against these corporate defendants-appellants. On appeal, the Second Circuit rejected the notion that a failure to show scienter on the part of individual officers should likewise give rise to a finding of no-scienter against corporate defendants in a securities case. Congress has imposed strict requirements on securities fraud pleading, but the Second Circuit did not believe they have imposed the rule that in no case can corporate scienter be pleaded in the absence of successfully pleading scienter as to an expressly named officer. Nonetheless, the Second Circuit ruled in favor of Dynex and Merit, stating that plaintiffs-appellees failed to allege the existence of misleading information given out to investors, and the existence as well of a motive to mislead. The Second Circuit thus remanded the case with instructions to dismiss as to Dynex and Merit with leave to replead. More...
Ninth Circuit Finds Director of Fidelity National Traded on Confidential Information about Planned Buy-out
Securities and Exchange Commission v. J. Thomas Talbot
No. 06-55561,
U.S. Court of Appeals for the Ninth Circuit, 06/30/2008
Holding: The Ninth Circuit ruled that defendant-appellee J. Thomas Talbot, a member of the Board of Directors ("Board") of Fidelity National Financial, Inc. ("Fidelity"), traded on confidential information about the impending acquisition of LendingTree, Inc. ("LendingTree"), a company where Fidelity holds a 10 percent interest. Talbot bought and sold LendingTree stocks after being informed during a Board meeting about such acquisition. In this regard, he misappropriated information from Fidelity, a source to which he owed a fiduciary duty arising from a relationship of trust and confidence by virtue of his position on its Board. Fidelity was the rightful owner of the information that was both nonpublic and confidential. This conduct, assuming the information on which Talbot traded was material, fell squarely within the range of conduct the Supreme Court contemplated in a previous case. But the Ninth Circuit could not say that the district court clearly erred in determining that the information on which Talbot traded was not material as a matter of law, given the genuine issues of material fact, particularly as to what information was actually conveyed to the Board. On this basis, the Ninth Circuit remanded the case for further proceedings. More...
NY Supreme Court, Appellate Division: NYSE Ex-Chief Grasso Can Finally Keep His $190M Pay Package
People of the State of New York v. Richard A. Grasso
401620/04,
New York State Supreme Court, Appellate Division, 07/02/2008
Holding: Richard A. Grasso, the former Chairman and CEO of the New York Stock Exchange (NYSE), is finally able to keep his entire $190 million compensation package after the New York State Supreme Court, Appellate Division, ruled that the Attorney General lost the authority to pursue money claims against him. The Appellate Division specifically held that the Attorney General can no longer maintain an action to recover the allegedly excessive compensation under the state’s Not For-Profit Corporation Law (N-PCL) when the NYSE, a not-for-profit corporation, merged into and was succeeded by a for-profit entity, the NYSE LLC. Under this statute, the Attorney General does not have the power to exercise the broad regulatory and enforcement authority over for-profit entities. To allow the Attorney General to continue the money claims would simply benefit the new private owners of the NYSE, and would not serve to vindicate the public interest. In a lone dissent, Justice Angela Mazzarelli said the change in corporate status had no effect whatsoever upon causes of action that were pending against the not-for-profit corporation. More...
Securities Law Commentaries
Following are Securities Law Commentaries elaborating on the significance of the most important of the Securities Law Summaries.
Magnolia Capital Advisors v. Bear Sterns Teaches How to Make A Colorable Denial of An Agreement to Arbitrate
Magnolia Capital Advisors, Inc. v. Bear Sterns & Co. and Bear Stearns Securities Corp.
Posted: 05/14/2008
Commentary: In the case Magnolia Capital Advisors Inc. v. Bear Stearns, the 11th Circuit Court reversed a decision of the Northern District of Florida to order the parties to arbitration pursuant to their purported agreement. The 11th Circuit found that Magnolia had met the requirements set forth by court precedent and 9 USC § 4 to challenge the enforcement of the arbitration agreement, thus compelling the district court to hold a trial on the issue of the agreement’s enforceability before compelling arbitration. Because the district court failed to hold such a trial, the 11th Circuit reversed the district court’s decision and remanded the case for that trial. The requirements to challenge the enforcement of an arbitration agreement and compel a trial under 9 USC § 4 are not new. However, there have not been that many reported cases where a plaintiff has actually succeeded in meeting those requirements. The Magnolia case is instructive, therefore, in demonstrating the type of evidence a plaintiff can submit to make a “colorable denial” of the arbitration agreement. More...
Related summary: Circuit Court Remands Bear Stearns Fraud Case for Trial
Makor: “Strong Inference” of Scienter – A New Standard, But No New Results
Tellabs, Inc. v. Makor Issues & Rights, Ltd.
Posted: 10/19/2007
Commentary: The Tellabs tale really has two parts – part one is a Supreme Court decision, which ultimately remanded the case back to the 7th Circuit to apply its ruling, and part two is the subsequent 7th Circuit decision. The Supreme Court decision in Tellabs Inc. v. Makor Issues & Rights Inc., 127 S.Ct. 2499, 2511 (2007), set forth a new standard for proving scienter in cases alleging violation of Section 10(b) of the Securities Exchange Act of 1934, but many analysts questioned the wisdom of a standard they said would require the court to engage in a “mini-trial” even before discovery. Those concerns were given legs in the 7th Circuit’s opinion on remand – the court essentially came right out and found fraud against the corporate defendant before the case had really even begun. More...
Related summary: Supreme Court Vacates 7th Circuit Judgment in Tellabs v. Makor, Orders Remand
Roth v. Jennings Seeks to Address Issue of What Constitutes a Group in Applying Section 16(b) of the Exchange Act
Roth v. Jennings
Posted: 10/19/2007
Commentary: In Roth v. Jennings, 489 F.3d 499 (2nd Cir. 2007), the Second Circuit Court revisited the issue of pleading a “group” 1 for purposes of Section 13(d) of the Securities Exchange Act of 1934. The court reversed a district court’s dismissal of a plaintiff’s Section 16(b) claim seeking disgorgement of short-swing profits. The appellate court said that the district court had improperly given too much weight to the defendants’ disclaimers of their “group” status in SEC filings and had misconstrued the final sentence of Section 16(b), which states that the section does not apply if the short-swing trader is not a “beneficial owner” at both ends of the purchase-sale transaction. More...
Related summary: Second Circuit Affirms in Part and Vacates in Part District Court's Ruling in Roth v. Jennings
Ring: Establishing a Fine Distinction of What Is a Covered Security under SLUSA
Ring v. AXA Financial, Inc.
Posted: 08/29/2007
Commentary: While the cases of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006), Lander v. Hartford Life & Annuity Life Ins. Co., 251 F.3d 101 (2d Cir.2001), SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65 (1959) (“VALIC”), and Fisher v. Kanas, 2007 WL 1352713 (E.D.N.Y.), 487 F.Supp.2d 270 may have heightened the bar for filing class action lawsuits before state courts involving a “purchase and sale” of a “covered security” both as defined under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), the instant case of Ring v. Axa was a deviation from this line of cases, as the Court of Appeals established a fine distinction of what is a “covered security” and what is not within the meaning of the SLUSA. More...
Related summary: Second Circuit Remands Ring v. AXA, Reverses District Court's Ruling
Fisher v. Kanas Continues Line of Cases That Puts Limit on the Right to Initiate Class Action Suits
Fisher v. Kanas
Posted: 08/23/2007
Commentary: This case is a continuation of a line of jurisprudence that seeks to impose a strict limitation on the right of stockholders to initiate class action law suits in state courts. More...
Related summary: NY District Court Dismisses Class Action Suit in Fisher v. Kanas
