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Jury Issues Verdict to the SEC, Finds CEO Liable for Deceptive Accounting Schemes
Securities and Exchange Commission v. John P. Miller
Civil Action No. 1:04-cv-1655-AJB,
U.S. District Court for the Northern District of Georgia, 09/05/2008
Holding: The Securities and Exchange Commission ("SEC") has announced that on September 5, 2008, a jury in the U.S. District Court for the Northern District of Georgia issued a verdict to SEC on securities fraud and other charges against John P. Miller, the former Chief Executive Officer, President, and Chairman of the Board of Master Graphics, Inc., a publicly traded printing company based in Memphis, that is now defunct. Specifically, the jury found that Miller violated: (1) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5); and (2) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1). Additionally, the jury found that Miller aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act. Given these jury findings, the district court will schedule a subsequent hearing to decide what remedies, if any to impose against defendant. More...
Apple, Steve Jobs to Settle Stock Options Backdating Charges for $23M
In re Apple Computer Inc. Derivative Litigation
No. 5:06-cv-04128-JF,
U.S. District Court for the Northern District of California, 09/08/2008
Holding: The U.S. District Court for the Northern District of California approved the settlement entered into by Apple Computer, Inc. ("Apple") and several of its officers and directors relating to stock options backdating cases. In addition to paying $14 million, defendants likewise agreed to pay $7.3 million in attorney's fees and $300,000 in costs to plaintiffs in the federal actions, as well as $1.2 million in attorney's fees and $50,000 in costs to plaintiffs in the state cases. Defendants also agreed to institute certain governance changes within the company. In addition to Apple, the defendants in this case were: Chief Executive Officer Steve Jobs; former Chief Financial Officer Fred D. Anderson and Chief Financial Officer Peter Oppenheimer; Chief Operating Officer Timothy D. Cook; former General Counsel Nancy Heinen; Senior Vice President Ronald B. Johnson and former Senior Vice Presidents Mitchell Mandich, Jonathan Rubinstein and Avadis Tevanian Jr.; and Board members William V. Campbell, Millard S. Drexler, Arthur D. Levinson and Jerome B. York. More...
CA Court Enters Judgment Against British Trader for $3.9M in Petco Insider Trading Suit
Securities and Exchange Commission v. Taher Suterwalla
No. 06-CV-1446 DMS (LSP),
U.S. District Court for the Southern District of California, 09/12/2008
Holding: In this insider trading suit, the U.S. District Court for the Southern District of California on September 12, 2008 entered a final judgment against Taher Suterwalla, a resident of the United Kingdom, in connection with his unlawful trades in the shares of stock of Petco Animal Supplies, Inc. ("Petco"). The case concerned allegations that Suterwalla profited illegally when, in the weeks leading up to the July 14, 2006 announcement that Petco had agreed to be purchased by two private equity firms, he purchased and sold Petco call options and spread bets on the price of Petco securities. Without admitting or denying the allegations of the Securities and Exchange Commission's ("SEC") complaint, Suterwalla agreed to disgorge $3,082,520 in profits gained as a result of the conduct alleged in the complaint, with prejudgment interest thereon in the amount of $327,367.90, and to pay a civil penalty in the amount of $484,100. In addition, Suterwalla consented to the entry of an order that permanently enjoins him from violating the anti-fraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. More...
MA Hedge Fund Manager Ordered to Pay $2.53M For Deceptive Investment Scheme
SEC v. Lydia Capital, LLC et al.
No. 07-CV-10712-RGS,
U.S. District Court for the District of Massachusetts, 09/12/2008
Holding: The U.S. District Court for the District of Massachusetts entered a final judgment by consent against hedge fund manager Evan K. Andersen, of Boston, Massachusetts, in connection with a civil injunctive action filed in April 2007 by the Securities and Exchange Commission ("SEC") against Andersen, his business partner Glen Manterfield, and Lydia Capital, LLC (“Lydia”), a registered investment adviser based in Boston, Massachusetts, the SEC said in an official announcement. The final judgment in particular permanently enjoined Andersen from violating the anti-fraud provisions of the Securities Exchange Act of 1934, and of the Investment Advisers Act of 1940. The judgment further held Andersen liable for $2.35 million in disgorgement of profits gained as a result of the conduct alleged in the amended complaint, plus prejudgment interest of $0.18 million, for a total of $2.53 million. The district court, however, waived payment of all of Andersen’s disgorgement and prejudgment interest obligations except for $1.80 million, and did not impose a civil penalty, based on his financial condition. Andersen consented, without admitting or denying the allegations, to the entry of the judgment. The SEC’s case against Lydia and Manterfield remained pending. More...
Bay Area Investment Adviser and Real Estate Dev't Company Owner to Pay Penalties for Investment Scam
SEC v. Mark Joseph Peterson Boucher and Gary Paul Johnson
No. CV 08-4088,
U.S. District Court for the Northern District of California, 08/27/2008
Holding: Mark J. P. Boucher, a Portola Valley investment adviser and publisher of an investment newsletter, and Gary Paul Johnson, part owner of a Southern California real estate development company, settled charges filed by the Securities and Exchange Commission ("SEC") that they misled clients into investing in two failed real estate development companies. In particular, Boucher, without admitting or denying the allegations in the SEC's complaint, agreed to a permanent injunction from further violations of Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder ("Exchange Act"), and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Boucher will also pay a $100,000 civil penalty. In addition, Boucher has consented to the institution of public administrative proceedings against him in which he will be barred from serving as an investment adviser with a right to reapply after five years. On the other hand, Johnson, without admitting or denying the allegations, likewise agreed to a permanent injunction from further violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Johnson also consented to an order requiring him to disgorge more than $1.8 million in ill-gotten gains and approximately $700,000 in prejudgment interest, and to pay a civil penalty of $120,000. More...
Securities Law Commentaries
Following are Securities Law Commentaries elaborating on the significance of the most important of the Securities Law Summaries.
Teamsters Local 445 v. Dynex: “Corporate Scienter” Possible Without Naming Names
Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc.
Posted: 09/19/2008
Commentary: In its highly anticipated opinion in Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2nd Cir. 2008), the Second Circuit affirmed that a securities fraud plaintiff can plead corporate scienter without specifically identifying the culpable corporate officer or director whose individual scienter could be imputed to the corporation. The plaintiff need only plead facts sufficient to establish a “strong inference” that someone in the corporation whose acts could be imputed to the corporation acted with the requisite scienter. However, the court warns that the standard for making such a pleading is very high, requiring heightened specificity. More...
Related summary: Second Circuit: Securities Class Suit Failed to Plead Corporate Scienter Against Dynex and Merit
The Dissent in Jones v. Harris Associates – Defending Gartenberg, Requesting Review (Re: The August 8, 2008 Opinion)
Jones v. Harris Associates
Posted: 08/26/2008
Commentary: The renowned legal minds of 7th Circuit judges Frank Easterbrook and Richard Posner have clashed again, this time over the validity and applicability of the Gartenberg approach to claims of excessive mutual fund management fees. Judge Easterbrook, currently chief judge of the 7th Circuit, served on the panel that issued a per curiam opinion in Jones v. Harris Associates, 527 F.3d 627 (7th Cir. 2008) on May 19, 2008. In that case, the judicial panel dismissed the Gartenberg standard that has been relied upon by courts, practitioners and fund managers for more than 25 years. More...
Related summary: Circuit Court Turns Down Appeal against Harris Associates, Refusing to Put a Cap on Mutual Fund Advisory Fees
Jones v. Harris Associates: The Market (Not the Courts) Should Set Fund Advisor Fees
Jerry N. Jones v. Harris Associates, L.P.
Posted: 07/16/2008
Commentary: Jerry N. Jones v. Harris Associates, 527 F.3d 627 (7th Cir. 2008), was one of about a dozen cases brought in 2003 and early 2004 based on the “excessive fee” provisions of the Investment Company Act of 1940. In the case, a group of individual investors claimed that Harris Associates, manager of the Oakmark funds, charged excessive fees to individual investors in violation of the Act. The Seventh Circuit Court of Appeals affirmed the lower court’s judgment dismissing the claims against Harris Associates, holding that the market, not the judiciary, should determine manager fees. The mutual fund industry celebrates the decision, which will likely make it harder for investors to challenge funds’ investment-advisory fees as excessive. More...
Related summary: Circuit Court Turns Down Appeal against Harris Associates, Refusing to Put a Cap on Mutual Fund Advisory Fees
Seventh Circuit Looks at Corporate Scienter and Scheme Liability Rules in Pugh v. Tribune Co.
Pugh, et al. v. Tribune Company, et al.
Posted: 05/21/2008
Commentary: At the heart of these two consolidated cases is the clear, admitted, egregious fraud perpetrated by employees of a subsidiary of the Tribune Company. The plaintiffs in both cases (a securities case and an ERISA case) tried to extend liability for those fraudulent acts up through the corporate ranks of the Tribune Company, arguing that higher-ups knew or should have known of the fraud while it was happening. Unfortunately for the plaintiffs, their allegations were based primarily on conclusory statements, speculative inferences and tenuous links. Their cases were dismissed with prejudice early in the litigation, and the 7th Circuit affirmed those dismissals, as discussed below. There has been, and still is, a split among jurisdictions as to the proper standard for proving corporate scienter for purposes of corporate liability under Section 10(b) of the 1934 Act. In Pugh, the 7th Circuit dismisses the collective scienter approach relied upon by a minority of courts and applies the more traditional, majority rule requiring individual scienter by officials who contributed to the public statements at issue in some meaningful way. Also, notably, in Pugh, the 7th Circuit became the first federal court to apply the U.S. Supreme Court’s ruling regarding scheme liability in Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., 128 S.Ct. 761 (2008). More...
Related summary: Seventh Circuit Dismisses Circulation Fraud Suit Filed Against Tribune Co.
When Sales of Interest in a Venture Equal Sales of Securities under Federal Law: Consolidated Case
Consolidated Management Group, LLC., et al. v. Department of Corporations
Posted: 05/19/2008
Commentary: The analysis and conclusions reached by the California appellate court in Consolidated Management Group v. Dept. of Corporations, ___ Cal. Rptr. 3d___, 2008 WL 1850310 (Cal. App. 1st 2008), are not necessarily new. But rarely has an opinion so thoroughly and effectively laid out the prevailing law and its application. In Consolidated, the California appellate court analyzes two issues: 1) whether federal law preempts the California Department of Corporations’ authority to issue a desist and refrain order against the appellants, and 2) whether the interests being sold by the appellants were “securities” for purposes of being covered by the applicable laws. More...
Related summary: CA Appellate Court Rules Against Consolidated, Upholds Desist Order
