Category: Securities

In “Spring-Loaded” Options Case, Court Finds Failure to Disclose Board’s “Unclean Heart” Does Not Violate Federal Securities Laws But Allows Common Law Fiduciary Duty Claims to Proceed Against Directors Approving Options 0

In “Spring-Loaded” Options Case, Court Finds Failure to Disclose Board’s “Unclean Heart” Does Not Violate Federal Securities Laws But Allows Common Law Fiduciary Duty Claims to Proceed Against Directors Approving Options

In a far-reaching opinion addressing a host of issues relating to the granting of so-called “spring-loaded” stock options to a corporation’s board of directors, the District of New Jersey dismissed a claim under Section 14(a) of the Exchange Act because federal securities laws do not require the corporation to disclose in its proxy statement that the options were part of a “spring-loading” scheme. But the court allowed common-law breach of fiduciary duty claims to proceed against the directors who served on the board’s compensation committee under the entire-fairness doctrine.

Second Circuit Clarifies the Pleading Standard for “Substantial Assistance” in SEC Enforcement  Cases Against Aiders and Abettors 0

Second Circuit Clarifies the Pleading Standard for “Substantial Assistance” in SEC Enforcement Cases Against Aiders and Abettors

In SEC v. Apuzzo, the Second Circuit Court of Appeals recently lowered the pleading standard for aiding and abetting of securities fraud in SEC enforcement actions by reversing the District Court’s finding that proximate causation of the ultimate harm was required to establish substantial assistance. When evaluating aiding and abetting claims, courts previously extended the proximate cause requirement that applies in litigation between private parties to SEC enforcement proceedings. The SEC’s complaint in Apuzzo outlined the details of a complex, but calculated, fraud scheme. The defendant-appellee, Joseph Apuzzo, was the CFO of an equipment manufacturer — Terex Corporation.






Second Circuit Holds That a Post-Disclosure Stock Price Rebound Does Not Per Se Preclude Damages for Alleged Federal Securities Fraud 0

Second Circuit Holds That a Post-Disclosure Stock Price Rebound Does Not Per Se Preclude Damages for Alleged Federal Securities Fraud

Recently, the Second Circuit vacated a District Court’s dismissal of a securities fraud action brought by Acticon AG, shareholder of China North East Petroleum Holdings Ltd. (“NEP”), for failure to plead economic loss—a necessary element to maintain a private damages action under § 10(b) of the Securities Exchange Act of 1934 (“§10(b)”). Acticon had multiple opportunities to, but did not, sell its NEP shares at a profit after NEP’s disclosure of the alleged fraud. The Court held that economic loss is not conclusively negated at the pleadings stage where the price of a security recovers shortly after a disclosure of alleged fraud. Significantly, in drawing all reasonable inferences in favor of the plaintiff under NEP’s 12(b)(6) motion, the Court explained that a rise in the price of a stock following a corrective disclosure requires an inquiry into whether the security rose for “reasons unrelated to [the] initial drop,” and thus introduces factual questions and competing theories of causation that would be inappropriate to resolve on a motion to dismiss.






The SDNY’s Recent Application of Janus 0

The SDNY’s Recent Application of Janus

In the few months since the Supreme Court announced the bright line rule of Janus Capital Group, a number of courts have applied the rule, giving us a better picture Rule 10b-5 liability post-Janus. The Supreme Court held in Janus that, for purposes of Rule 10b-5, the maker of a statement is “the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” The Court analogized to the relationship between a speechwriter and a speaker: a speechwriter may draft a speech, but the content is within the control of the speaker who delivers it. Thus, the Court found that the investment adviser to a mutual fund was not liable for alleged misrepresentations in the fund’s prospectuses under Rule 10b-5, because the fund, and not the manager, was the maker of the statements.