This week, the U.S. Court of Appeals for the Tenth Circuit will hear a case with far-reaching consequences, literally, for the U.S. Securities and Exchange Commission's enforcement activity. In SEC v. Traffic Monsoon LLC, the commission is asking the court to hold that the principal anti-fraud provisions of the federal securities laws apply extraterritorially in commission enforcement actions and administrative proceedings so long as the alleged misconduct satisfies the “conduct and effects test,” a test the Supreme Court dispatched in 2010. If the commission has its way, more aggressive overseas enforcement activity could be in store, even for misconduct not connected to a domestic securities transaction. In this article, we evaluate the legal and policy issues Traffic Monsoon raises.
When can a company’s silence support a Rule 10b-5 claim? The U.S. Supreme Court will consider that question next term in Leidos Inc. v. Indiana Public Retirement System. The case is generating buzz because it could expand the universe of omissions actionable under the judicially created private right of action for securities fraud.
The Supreme Court has long held that “[s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5.” And such a duty to disclose only arises where necessary to make a statement already made not misleading, thus allowing companies to “control what they have to disclose … by controlling what they say to the market.” On March 27, 2017, in Leidos, Inc. v. Indiana Public Retirement System, the court granted certiorari to determine whether, in the absence of any need to correct a prior statement, there exists a separate disclosure duty under Item 303 of SEC Regulation S-K that is actionable under Section 10(b) of the Securities Exchange Act and Rule 10b-5. In Leidos, the U.S. Court of Appeals for the Second Circuit held, contrary to two other circuits, that Item 303, which pertains to disclosure of so-called “soft” information like trends or uncertainties, does create such a disclosure duty.
If you are a public company, or audit one, three recent SEC auditor independence cases deserve your attention. Auditor independence cases typically arise from financial, employment or business ties between an auditor and a client or their personnel. The recent cases, however, arose from what the SEC called "inappropriate close personal relationships."
Stephen J. Crimmins, James K. Goldfarb and Sharon A. O'Shaughnessy write: Public company audit committee members might be forgiven for sweating potential SEC scrutiny of late. We examine the SEC's focus on audit committee members as gatekeepers, review three recent enforcement actions to highlight conduct that attracts the staff's attention, and suggest certain safeguards that might help mitigate the chance of an SEC investigation or charge.
The class action bar eagerly awaited the U.S. Supreme Court’s January opinion in Campbell-Ewald Co. v. Gomez. At issue was what happens when a defendant makes a settlement offer or Rule 68 offer of judgment that would give the lead plaintiff full relief on his or her individual claims, but the lead plaintiff does not accept the offer. Does an unaccepted offer of full relief mean, as the defendant-petitioner argued, that a case or controversy no longer exists concerning the lead plaintiff’s individual claims, thereby divesting the district court of Article III jurisdiction, mooting the case and, in turn, mooting the putative class action? Or does the case simply continue because the court may not force a plaintiff to accept a settlement, as the plaintiff-respondent argued? The court had the potential to clarify a defendant’s ability to dispatch individual and class claims early, even when the lead plaintiff won’t take “yes” for an answer, to use the chief justice’s colorful quip.