Tag: Kevin LaCroix

The Fabulous Fab Rule

Don’t write emails so provocative that they wind up reproduced on the front page of the Wall Street Journal.

With many fund managers having to register under the Investment Advisers Act, they will now be subject to more extensive record-keeping requirements. That means more emails will be saved for a longer period of time.

Those questionable emails will preserved for litigants and federal regulators to see, long after you hit the delete button in Outlook.

E-mails from Goldman Sachs Group Inc. director Fabrice Tourre are the center of the case saying Goldman misled investors. In one he wrote, “The whole building is about to collapse anytime now,” according to the complaint. “Only potential survivor, the fabulous Fab.”

(I need to give credit to Kevin LaCroix of The D&O Diary for the new name for this rule: The Essential Lessons of the “Faithless Servant”.)

Here is another great email quote from the Fabulous Fab:

“When I think that I had some input into the creation of this product (which by the way is a product ofpure intellectual masturbation, the type of thing which you invent telling yourself: “Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price ?”) it sickens the heart to see it shot down in mid-flight. .. It’s a little like Frankenstein turning against his own inventor;)”

The other detrius that ended up in front of the Senate Subcommittee on Investigations were the email love letters from Fab to his girlfriend. Another reminder to keep personal email off the company’s network and company time.

Sources:

Bits and Pieces on Compliance

Here are a few stories and items that caught my eye this week, but I have not had time to build-out to a full post: The FCPA Enforcement Report of the First Quarter of 2009 from The FCPA Blog

We count seven Foreign Corrupt Practices Act enforcement actions since the start of the year, including indictments, pleas and settlements, along with one newly disclosed investigation. Four of the enforcement actions involve individuals, and four relate to KBR. By this time last year, there had been just a couple of new enforcement actions (2008 finished with eleven organizations and twenty-six individuals being either charged with new FCPA offenses, settling enforcement actions, or having charges amended, reinstated or affirmed). Here’s this year’s rundown so far: . . .

Profiles in Power: The 20 most influential general counsel in America from the National Law Journal

In this inaugural publication of The National Law Journal’s Most Influential General Counsel, we have highlighted 20 attorneys whose leadership has proven strong — and even creative — during the turmoil in the legal industry.

OIG Recommends Action on Reg D Issues, Form D Changes from Melissa Klein Aguilar of The Filing Cabinet

The Securities and Exchange Commission should take steps to better ensure compliance with Regulation D, to act when it finds non-compliance, and should make better use of Form D information. That’s according to a March 31 report by the SEC’s Office of Inspector General, which reviewed Corporation Finance’s process for assessing whether companies appropriately use Reg D, the rule that allows exemptions from federal registration under the Securities Act of 1933 for limited offerings of securities.

Mass. Regulator Accuses Madoff Feeder Fund of “Fraud” by Kevin LaCroix of The D&O Diary

In an April 1, 2009 administrative complaint (here), Massachusetts Secretary of the Commonwealth William Francis Galvin accused Madoff feeder fund Fairfield Greenwich Advisors and its Bermuda affiliate of “complete disregard of its fiduciary duties to its investors” and of “flagrant recurring misrepresentations” that “rise to the level of fraud.”

Landmark Agreements Clear Path for Government New Media

Answering President Obama’s call to increase citizen participation in government, the U.S. General Services Administration is making it easier for federal agencies to use new media while meeting their legal requirements. For the past six months, a coalition of agencies led by GSA has been working with new media providers to develop terms of service that can be agreed to by federal agencies. The new agreements resolve any legal concerns found in many standard terms and conditions that pose problems for federal agencies, such as liability limits, endorsements, freedom of information, and governing law.

YouTube Edu – Law Law School Lectures on YouTube

The 2008 Year in Review from Securities Docket

This panel joined Securities Docket’s Bruce Carton to look back at the most important and interesting developments in 2008, and offer their predictions for 2009.

Kevin started off noting that the number of securities class action lawsuits in 2008 is a 33% increase over last year and the highest since 2004. He sees the increase as a result of the credit crisis, starting with the sub-prime loan programs and them spreading.

Kevin predicted that 2009 will see even more securities class action lawsuits.

Tom focused on SEC enforcement actions. He started with the Siemens FCPA case. He then mentioned the Faro Technologies case involving payments in China (Admin File No. 3-13059, June 5, 2008). Last he mentioned the UnitedHealth Group option back-dating case. Of course the big case is the Madoff scandal.

Tom expects to see a big re-shaping of the SEC and its enforcement division.

Francine looked at auditor litigation. Either the public accountants fell down while acting as the watchdogs against fraud on the public or that it is that they were also duped by management. The Big 4 has escaped sub-prime exposure so far but will likely get hit in Madoff. She sees BDO Seidman as having significant exposure from the Banco Espiritu Santo judgment. All of the Big 4 are subject to wage/overtime suits. Deloitte has sued their former vice chairman for insider trading.

Francine predicts that a Big 4 firm will take a significant hit for failing to make a “going concern” opinion prior to a big failure.

Walter sees the federal government’s bailout amplifying the effect of the financial markets meltdown. This was not just a Wall Street problem; it is now a taxpayer problem. Walter also expects to see more criminal prosecutions against individuals. He points out that the cutting edge risk methods blew up. CDSs and CDOs caused explosive damage. Also low-tech methods failed. The personal relationships of Madoff still failed investors. peopel are looking for lessons as to whether more regulations would have prevented the financial meltdown.

Walter predicts another AAA rated firm will have its executives indicted or be revealed as insolvent.

Bruce sees the Madoff case as the biggest development in 2008. He also sees the SEC getting worked over by Congress. The SEC admitted that they ignored credible evidence about Madoff.

Bruce predicts 90% of big law firms will begin to use Twitter for public relations.

A public vote found that Tom’s prediction was most likely to happen (41%) with Kevin following close behind (40%).

Cornerstone Research 2008 Review of Securities Class Action Filings

Cornerstone Research released their Cornerstone Press Release: 2008 Activity Is at Its Highest Level Since 2004 (.pdf)

  • D&O Diary commentary by Kevin M. LaCroix
  • WSJ Law Blog: Securities Suits Up in 2008, But Might They be Uphill Battles?

    • Does Your D&O Policy Cover Criminal Investigations?

    Kevin M. LaCroix of The D&O Diary weighs in on coverage of criminal investigations: D&O Insurance: Corporate Criminal Investigations. He references a December 2008 article by Patricia Bronte of  Jenner & Block entitled D&O Coverage for Corporate Criminal Investigations (.pdf).

    The main issue is how your policy defines “criminal conduct.” Some policies defines it with “commenced by the return of an indictment.” That definition leaves out a lost money spent trying to avoid (or avoiding) indictment and responding to an investigation.

    Securities Litigation and the FCPA

    last week the Ninth Circuit handed down a decision in a securities litigation case related to FCPA violations in Glazer Capital Management LP v. Magistri.

    Glazer’s claims arose after InVision Technologies, Inc. (InVision) announced, in March 2004, that it had entered into a merger agreement with General Electric (GE). Several months later, in July 2004, InVision issued a press release, casting doubt on the merger because of the discovery of potential violations of the Foreign Corrupt Practices Act of 1997(FCPA), 15 U.S.C. § 17dd-1. Although the proposed merger ultimately was consummated, the July 2004 announcement resulted in an immediate drop in InVision’s share price. A class action complaint was filed by InVision shareholders and Glazer was appointed lead plaintiff.

    The suit was largely based on three alleged misstatements in the merger agreement attached to the 10-K filed to announce the transaction. The merger agreement has representations that InVision was in compliance with all applicable law, in compliance with the books and record provisions of the FCPA and that the company had no knowledge of any FCPA violations. The merger agreement was signed by the President/CEO and the COO of the company.

    One element of securities litigation is to show the element of scienter, that is the the required state of mind for the violation. In this case, that the defendant intended to commit the fraud. There is a concept of “collective scienter” where the intent of the company is imputed on the individual.  In this case, the court found that since the CEO and COO are the ones that signed the merger agreement the plaintiff needs to prove that one of those two new that the statements were not correct.

    As Kevin M. LaCroix of the D & O Diary points out:

    [I]n the InVision case, “the surreptitious nature of the transactions creates an equally strong inference that the payments would have deliberately kept secret – even within the company.” Obviously, payments of this kind invariably are of a surreptitious nature and of a kind that would be kept secret, even within the company. The implication is that in order for a securities claim alleging FCPA-related disclosures to survive the initial pleadings stage, the claimants may have to plead that the company officials who prepared the company’s public disclosures were aware of the improper activities.