Securities Litigation

SEC as Investigator, Prosecutor and Judge: Defendant’s Right to Jury Trial

By Aditya Parolia, LLM Candidate 2016 | Posted on

The New York Times recently ran an article criticizing SEC’s filing of securities cases before its own judges—administrative law judges employed by the SEC. Last year, the Wall Street Journal weighed in against SEC being prosecutor and judge in its own cause. On a practical level, the criticism is that SEC is filing more cases before its judges to side step federal courts where it does not have a successful record of winning. On a doctrinal level, the SEC’s new policy is decried for being constitutionally suspect, being allegedly against the tenets of due process, equal protection and a right to jury trial.

The clamor against SEC’s new policy comes in the wake of numerous lawsuits pending before federal courts challenging the constitutional validity of adjudication by SEC judges. The criticisms seem to carry water in the light of the fact that SEC rarely loses before its judges. However, the arguments against adjudication by SEC judges have not withstood doctrinal scrutiny. It behooves us to ask: does the SEC have the power to file cases before its judges?

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Insider Trading: Is the Benefit to the Tipper Tangible?

By Erika K. Solanki, J.D. Candidate 2017 | Posted on

In December of 2014, a federal appeals court in Manhattan reversed the convictions of two hedge fund managers for insider trading in United States v. Newman. The court held the evidence was insufficient to sustain a guilty verdict for two reasons. First, the Government provided insufficient evidence of any personal benefit received by the alleged insiders, meaning there was not enough evidence to “establish the tipper liability from which defendants’ purported tippee liability would derive.” Second, the Government did not provide any evidence that “the defendants knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.” (more…)

Constitutionality of the SEC’s Growing Administrative Forum

By Shea Bettwy, J.D. Candidate 2016 | Posted on

The Securities and Exchange Commission (“SEC”) is increasingly favoring the administrative process over the court system for prosecuting securities cases, likely as a result of expanded powers included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. For example, in the administrative forum, the SEC now has the authority to prosecute all individuals – even those not associated with regulated entities – and can impose more fines than it could before. Russell Ryan, a partner at King & Spalding in Washington, pointed out that the SEC obtained a record $3.4 billion in monetary sanctions in 2013 and continues to bring multi-million dollar actions. Notably, the SEC recently added two administrative law judges to its staff, increasing the number of judges from three to five. Furthermore, in June, Enforcement Director Andrew Ceresney announced that the SEC will bring more insider trading actions through administrative proceedings.

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USSC Decides Securities Fraud Class Action Case

By Nahal Bahri, J.D. Candidate 2015 | Posted on

In Halliburton Co. v. Erica P. John Fund, Inc., the Supreme Court decided a much-awaited case regarding the ability of investors to file a class action suit against a company for fraud. The Court held that “investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock.”

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The Second Circuit Grants the S.E.C. Power Over Settlements

By Nahal Bahri, J.D. Candidate 2015 | Posted on

Earlier this month, the United States Court of Appeals for the Second Circuit made a decision that would give the S.E.C. greater authority to settle cases. This was the result of an earlier decision in 2011 by U.S. District Judge Jed S. Rakoff who “refused to approve a $285 million settlement between Citigroup and the S.E.C.”

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A Look at the Past, Present, and Expected Future of Insider Trading

By Roxana Guidero, J.D. Candidate 2016 | Posted on

As news of the insider trading probe into Phil Mickelson and Carl Icahn gains steam, insider trading is on the mind of (most) people.  On its website, the Securities and Exchange Commission (“SEC”) notes that “insider trading continues to be a high priority area for the SEC’s enforcement program” and  “in recent years, the SEC has filed insider trading cases against hundreds of entities and individuals.”[i]  As media is flooded with insider trading updates, a look at the past, present, and expected future of insider trading charges is warranted. (more…)

Inside the Courts: An Update From Skadden Securities Litigators

By Skadden, Arps, Slate, Meagher, and Flom LLP | Posted on

This quarter’s issue of Inside the Courts, Skadden’s securities litigation newsletter, includes summaries and associated court opinions of selected cases principally decided between late January and early May 2014. The cases address developing state and federal court trends in bylaws, class certification, fiduciary duties, insider trading, interpreting the U.S. Supreme Court’s Janus decision, PSLRA matters and applications of the securities laws to domestic and foreign corporations.

Click here to read more.

Appeals Court Assails “Too Easy” Insider Convictions

By Sreelekha Haridas Maruthur, LL.M. Candidate 2014 | Posted on

The outcome of an appeal pending in the U.S. Court of Appeals for the Second Circuit in Manhattan on the question of defining ‘tippee-liability’ for insider trading could become a turning point in the prosecution of insider trading cases. Assailing the jury instruction in the case, the Court of Appeals panel criticized the trial judge for making convictions for insider trading ‘too easy’ by not requiring proof that the defendant-appellants, who were remote tippees, knew that the tipper personally benefitted by disclosing the material nonpublic information.

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Aiding and Abetting the Breach of Fiduciary Duty: New York Commercial Division Decisions Illuminate Standards for Proper Pleading

By Christian R. Urresti, LL.M. Candidate 2014 | Posted on

The greatest minds of American jurisprudence have recognized the high responsibility of a fiduciary, which Justice Cardozo characterized as “the punctilio of an honor the most sensitive.” (Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928)).  The relationship involves more than protecting the vulnerable; it requires the fiduciary to act in the best interest of the beneficiary, rather than in the fiduciary’s self-interest. A fiduciary who fails so to act may find himself liable to the beneficiary, even in the absence of scienter or intent.  By the same token, just as the fiduciary may be liable for breaching his duty, or the “primary duty,” to the beneficiary, the common law has long recognized that one who assists a fiduciary’s breach of duty may be liable to the beneficiary. (Mertens v. Hewitt Assoc., 508 U.S. 248, 255 (1993) (stating that non-fiduciaries have common-law duty to beneficiaries not to assist in fiduciary’s breach)).

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Supreme Court To Reconsider “Fraud-on-the-Market” Presumption in Securities Fraud Class Actions

By Arnold and Porter LLP | Posted on

On March 5, 2014, the U.S. Supreme Court heard oral arguments in the much anticipated case of Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317. The Halliburton case presents a critical issue regarding the viability of maintaining a private securities fraud lawsuit as a class action: whether the plaintiffs are permitted to invoke the “fraud-on-the-market” presumption to establish that there are common issues of reliance sufficient to certify a class.

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