Corporate Governance

SEC v. Cuban: Cuban's Appellate Brief

Posted on April 22, 2010
On March 26, 2010, Mark Cuban ('Cuban') filed an appellate brief in the Fifth Circuit Court of Appeals replying to the Securities and Exchange Commission's ('SEC') appeal of the Northern District of Texas' dismissal of the insider-trading case against him...

Intelligent Digital Systems, LLC v. Visual Management Systems, Inc.: Seller?s Choice of Payment in the Form of Fixed Stock Conversion Ruled Not a Security

Posted on April 21, 2010
In Intelligent Digital Systems, LLC v. Visual Management Systems, Inc., No. CV 09-974, 2010 WL 431472 (E.D.N.Y. Jan. 28, 2010), the District Court for the Eastern District of New York held a sale of assets agreement ('Note') allowing for payment in the form of Visual Management Systems, Inc...

The Race to the Bottom Covers the ABA Business Law Section Spring Meeting

Posted on April 21, 2010
The American Bar Association Business Law Section will host its Spring Meeting in Denver, Colorado starting today.  Since this blog calls Denver home, the student contributors will post on the program throughout the week and weekend.  We welcome the Business Law Section and thank it for giving the Race to the Bottom access to this unique event.

Paulson's Role in Selecting the Reference Portfolio

Posted on April 20, 2010
Want to know exactly what role Paulson played in the selection of the portfolio, at least according to the Wells Statement submitted by Golden?  (The Wells was posted on the web site of the Financial Times).  Here it is, in Goldman's own words: Goldman Sachs started the portfolio selection process by providing Paulson with a database of RMBS securities and a spreadsheet listing securities that fit Paulson?s requirement that the portfolio be restricted to 2006-vintage subprime RMBS that were rated Baa2 by Moody?s Investor Service and approximately BBB by Standard & Poor?s...

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SEC v. Goldman: A Divided Commission and an Unfortunate Leak

Posted on April 20, 2010
By now it should be assumed that in controversial cases, what happens at the closed meeting of the Commission will unfortunately leak to the press.  This has been the case with SEC v. Goldman.  It turns out that the decision to approve the case was made on a 3-2 vote, at least according to the WSJ...

SEC v. Goldman Sachs & Co: The Facts

Posted on April 20, 2010
On April 16, 2010, the Securities and Exchange Commission ('SEC') filed charges against Goldman Sachs & Co. ('Goldman') and one of its vice presidents, Fabrice Tourre ('Tourre'), alleging a violation of federal securities laws by making materially misleading statements in connection with a synthetic collateralized debt obligation structure known as ABACUS 2007-AC1...

SEC v. Goldman: The Failure of the Market and the Need for Substantive Reform (The Role of Paulson & Co)

Posted on April 19, 2010
One thing is clear, however this case comes out.  Paulson & Co. was not a bad actor (despite suggestions to the contrary in the press), at least based on the facts set out in the complaint, and it was appropriate that the Commission did not charge the Hedge Fund...

SEC v. Goldman: The Failure of the Market and the Need for Substantive Reform

Posted on April 19, 2010
By now, everyone not otherwise comatose has heard about the case brought by the SEC against Goldman Sachs.  Certainly the market heard, dropping on the fear that the case makes financial reform harder to ward off.  See Obama pushes bank reform, lashes out at GOP, Reuters, April 17, 2010 ("Bank shares and the broader stock market fell on fears the civil lawsuit could make it more difficult for the financial industry to ward off reform...

SEC v. Goldman: The Failure of the Market and the Need for Substantive Reform

Posted on April 19, 2010
What does this tell us about the market for derivatives?  Regulation is necessary. First, it is a myth to think that sophisticated investors can operate without some layer of regulatory protection, whether substantive or disclosure oriented.   Mere knowledge of the reference securities is not enough...

SEC v. Goldman: The Failure of the Market and the Need for Substantive Reform (The Materiality Issue)

Posted on April 19, 2010
Like any case, the resolution may turn on the ability to prove the facts alleged in the complaint.  Beyond issues of proof, we raise two possible legal issues:  Materiality and the Rogue Trader defense.  Materiality is probably defined as something that would be important to a reasonable investor...

SEC v. Goldman: The Failure of the Market and the Need for Substantive Reform (The Rogue Trader Defense?)

Posted on April 19, 2010
The other issue is the liability of the firm.  The complaint mentions Goldman repeatedly but only references a single employee, Fabrice Tourre.  Moreover, the complaint indicates that the transaction was the handicraft of Tourre.  As the complaint notes:   Tourre was principally responsible for ABACUS 2007-AC1...

Getting the Vote out Strategy in the Proxy Context

Posted on April 18, 2010
Its now widely known that posting proxy materials (the statement and annual report) results in a decline in voting by retail investors.  This is not unexpected.  While most shareholders presumably have access to the Internet, a much smaller percentage are comfortable and facile with conducting business on the web...

Standard Investment Chartered v. FINRA: A Defeated Challenge to Absolute Immunity

Posted on April 17, 2010
In Standard Investment Chartered, Inc., v. FINRA, No. 07 Civ. 2014 (JSR) (S.D.N.Y. Mar. 1, 2010), Standard Investment Chartered, Inc., ('Standard') and Benchmark Financial Services ('Benchmark'), allege officials in the National Association of Securities Dealers ('NASD') made material misrepresentations in the proxy statement for the consolidation of NASD & the regulatory division of NYSE into FINRA...

People of the State of New York v. Bank of America Corp, Kenneth Lewis, & Joseph Price ? Examining the Martin Act & Securities Enforcement in New York State (Part II)

Posted on April 16, 2010
Over the past ten years, the New York State Attorney General has utilized the Martin Act to pursue individuals and corporate entities for acts underlying notorious corporate fraud allegations, including the telecom bubble of the late 1990s, AIG's accounting scandal of the mid-2000s, and Bernard Madoff's Ponzi scheme...

Robotti & Co. LLC v. Liddell: Shareholder Dilution and the Duty of Loyalty

Posted on April 16, 2010
In Robotti & Co. v. Liddell, No. 3128-VCN (Del. Ch., Jan. 14, 2010), the Delaware Court of Chancery held that the plaintiff, Robotti & Co L.L.C. ('Robotti') failed to sufficiently state a claim of director self-dealing during an Offering.  Mark Liddell, Robert Brooks, David Houston, Mikey Liddell, and Dan Noles were directors for Gulfport Energy Corporation ('Gulfport'), and at the time of the offering, CD Holding, L...

The BRIC Project ? Brazil -- BOVESPA?s Novo Mercado: Modern and Meaningful Corporate Governance in Brazil (Part 6)

Posted on April 15, 2010
Throughout the BRIC Project posts regarding Brazil, we have focused mainly on Bovespa's three-tiered scheme of voluntary listing standards of corporate governance.  This post will center on the tenants of the Novo Mercado.  The Novo Mercado (New Market) is the strictest tier of the São Paulo Stock Exchange's (BOVESPA) three-tiered scheme of corporate governance listing requirements...

The BRIC Project -- Brazil -- The Novo Mercado: A Giant Step For Corporate Governance, A Small Step For Brazil (Part 7)

Posted on April 15, 2010
As mentioned in previous posts, in December of 2000, the Sao Paolo Stock Exchange, Bovespa, initiated a three-tiered scheme of corporate governance listing rules known as Level 1, Level 2, and Novo Mercado (New Market).  The scheme is broadly known as the Novo Mercado, the strictest of the three tiers...

United States v. Joseph Nacchio: Order Denying Motion to Reconsider & Vacating April 21 Hearing

Posted on April 15, 2010
In an order issued today, April 15, 2010, Judge Krieger denied an emergency motion filed by Mr. Nacchio's attorneys requesting that the court reconsider its order of April 13, 2010 requiring Mr. Nacchio to appear in court prior to his resentencing hearings...

The BRIC Project -- Brazil -- A Nation In Flux, An Economy On The Move, And The Slowly Rising Tide Of Corporate Governance (Part 4)

Posted on April 14, 2010
This blog recently began the 'BRIC Project.' Through this project, we will introduce readers to Brazil, Russia, India, and China – the BRIC nations – and the prominent features of their corporate governance and regulatory landscapes. Brazil is Latin America's largest economy, and the eighth largest economy in the world according to the World Bank...

United States v. Joseph Nacchio: Order requires Nacchio to appear for an Advisement Hearing prior to Resentencing Hearings

Posted on April 14, 2010
On Tuesday, April 13, 2010, Judge Krieger issued an order in response to Joseph Nacchio's ('Mr. Nacchio') request to waive his appearance at his re-sentencing hearings.  Our post on Mr. Nacchio's request as well as the United States Attorney's ('Government') objection to that request can be found here...

The BRIC Project -- BRAZIL -- BOVESPA?s Corporate Governance Level 1 & Level 2 Listing Requirements (Part 5)

Posted on April 14, 2010
In the previous Brazil post, we introduced Brazil's largest - and the world's third largest - stock exchange, BOVESPA, or the São Paulo Stock Exchange.  Since compliance with the Brazilian Securities Market Commission's (CVM) corporate governance standards is only voluntary, Bovespa's three-tiered scheme of listing requirements now plays the most significant role in setting progressive corporate governance standards in Brazil...

United States v. Joseph v. Nacchio: Notice to Waive Mr. Nacchio?s Appearance & the Government?s Opposition

Posted on April 13, 2010
This blog covered the Joseph Nacchio ('Nacchio') criminal trial from the courtroom, and in that tradition, attended the February 10, 2010 rehearing.  At the conclusion of the hearing, the court instructed Nacchio's attorney to file a motion if Mr...

SEC v. Medical Capital Holdings, Inc.: Misrepresentations of Corporate Health

Posted on April 13, 2010
SEC v. Medical Capital Holdings, Inc., No. SACV 09-0818 DOC, 2010 WL 809406 (C.D. Cal. Feb. 24, 2010) involved allegations by the SEC of fraud in the context of an offering for notes, alleging violations of both Rule 10b-5 under the Exchange Act and Section 17(a) of the 1933 Act...

United States v. Joseph Nacchio: Notice to Waive Mr. Nacchio?s Appearance & the Government?s Opposition

Posted on April 13, 2010
This blog covered the Joseph Nacchio ('Nacchio') criminal trial from the courtroom, and in that tradition, attended the February 10, 2010 rehearing.  At the conclusion of the hearing, the court instructed Nacchio's attorney to file a motion if Mr...

People of the State of New York v. Bank of America Corp, Kenneth Lewis, & Joseph Price ? Examining the Martin Act & Securities Enforcement in New York State (Part I)

Posted on April 12, 2010
On February 4, 2010, New York State Attorney General Andrew Cuomo filed a civil complaint against Bank of America ('BofA'), its former CEO and Chairman of the Board of Directors, Kenneth Lewis, and its former CFO, and now president of Consumer, Small Business and Card Banking for BofA, Joseph Price (collectively the 'Defendants')...

Selectica v. Versata: 5% Poison Pills

Posted on April 12, 2010
In Selectica, Inc. v. Versata Enter., Inc., No. 4241-VCN, 2010 WL 703062 (Del. Ch. Feb. 26, 2010), Selectica, Inc. ('Selectica') sued Versata Enter., Inc. ('Versata') and Trilogy, Inc. ('Trilogy')  seeking declaratory relief.  The Chancery Court applied the Unocal test and held Selectica's Board of Directors acted reasonably and that adopting the 'NOL Pill,' 'Reloaded Pill,' and 'Exchange' were proportionate responses to Trilogy's threatened takeover...

Jed Donaldson Posts on the Race to the Bottom

Posted on April 12, 2010
The Race to the Bottom would like to welcome and introduce Jed Donaldson, a student contributor from The University of Richmond School of Law.  Jed is our first student contributor from outside the University of Denver Sturm College of Law.  Along with writing for this blog, Jed has an article in the forthcoming issue of the Florida State School of Law's Business Review entitled "You Can Come Under the TART, But First ...

Selectica v. Versata Enterprises: The Irrelevance of Shareholder Discrimination (Part 6)

Posted on April 10, 2010
So what will be the impact of Selectica?  The analysis that a pill set at 5% is not preclusive provides incentive for companies to make use of this threshold.  Moreover, the analysis, essentially concluding that the low threshold made proxy contests more difficult but was not preclusive, would actually apply to pills set at an even lower threshhold...

Selectica v. Versata Enterprises: The Irrelevance of Shareholder Discrimination (Part 5)

Posted on April 09, 2010
Trilogy argued, among other things, that the board's behavior in adopting the poison pill amounted to "bias in favor of certain shareholders and animus toward Trilogy" and that "preserving the NOLs was merely an excuse proffered by the Board in order to freeze out Trilogy...

Justice Stevens and the Loss to Investors/Shareholders

Posted on April 09, 2010
Justice Stevens just announced that he was stepping down.  A great deal of focus will be on his views in the area of individual rights.  But it is quite clear that investors and shareholders just lost a significant ally.  In particular, he has been the strongest voice on the Court objecting to the conservative majority's activist approach towards restricting the reach of securities fraud actions...

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