Category Archives: Investigations and Enforcement

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Delaware Chancery Court Holds That Granting “Spring-Loaded” Stock Options to Executives Without Full Disclosure to Shareholders Violates Fiduciary Duties

In In re Tyson Foods, C.A. No. 1106-CC (Del. Ch. Aug. 15, 2007), Chancellor Chandler held that granting “spring-loaded” stock options to key directors and executives without full disclosure of the practice is a breach of the directors’ fiduciary duties.  In rejecting defendants’ motion for judgment on the pleadings dismissing the consolidated class action and … Continue Reading

Expanded Protections for Directors Navigating the Zone of Insolvency

In 1991, a decision of the Delaware Chancery Court helped popularize the term "zone of insolvency.”[1]  In the intervening 16 years, numerous courts and commentators have cited this decision as standing for the proposition that the directors of a Delaware corporation that is either insolvent or in the zone of insolvency owe fiduciary duties to … Continue Reading

High Court Confirms Private Securities Litigation Reform Act’s Heightened Requirements for Pleading Scienter

In Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) (link) (Westlaw citation: 2007 WL 1773208), the Supreme Court for the first time addressed the heightened requirements for pleading scienter enacted in the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  Rejecting a relaxed “reasonable inference” approach adopted by … Continue Reading

Supreme Court Rules That Federal Law Pre-empts State Law Securities Fraud Class Actions By Holders

On March 21, 2006, the Supreme Court in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006), ruled that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) pre-empts “covered class actions” purportedly brought under state law on behalf of persons who neither purchased or sold securities, but instead claim that … Continue Reading

Sentencing Guidelines Amended To Remove Requirement That Corporations Waive Privilege To Reduce Sentence

The federal sentencing guidelines were recently amended to remove a suggestion that corporations be required to waive the attorney-client privilege and attorney work product doctrine in order to receive a reduced sentence. Though welcomed by the business community, this revision does not affect previously issued guidance by the Department of Justice requiring prosecutors to consider … Continue Reading

Prosecutors And Regulators Continue To Pressure Corporations To Deny Indemnification To Management Targets

It is well recognized that the ability of a corporation to attract and retain quality directors, officers and employees depends in large part on the corporation’s willingness to indemnify such individuals for personal losses suffered as a result of claims relating to actions taken in their corporate capacity. For example, Section 145 of the Delaware General Corporation … Continue Reading

NASDAQ Steps Up Review Of SEC Filings

In March, Nasdaq advised Applied Materials (NMS-AMAT) that a member of its audit committee, Y.S. Liu, failed to meet Nasdaq’s independence requirements. Mr. Liu promptly resigned as a member of the committee. The basis upon which Mr. Liu was disqualified suggests that Nasdaq interprets independence strictly. Nasdaq’s action also suggests that it intends to monitor … Continue Reading

Delaware Court Limits Fraud Protection For Sophisticated Parties

A recent Delaware Chancery Court ruling, ABRY Partners v. F&W, reflects the tension between promoting freedom of contract, and protecting parties from fraud.  The court reiterated the principle that a contract cannot insulate a seller who either deliberately lies or knows that the entity being sold has lied.  The court also found, however, that between … Continue Reading

Titan Case Highlights Importance of FCPA Compliance and Accuracy of Representations and Warranties in Filed Contracts

Earlier this year, the SEC and DOJ settled parallel criminal and civil enforcement actions against Titan Corporation (“Titan”) under the Foreign Corrupt Practices Act (“FCPA”). Titan agreed to pay the largest FCPA penalty to date of $28.5 million. This case is a reminder that companies need to adopt and enforce FCPA compliance policies before the … Continue Reading

Document Retention Policies Remain Crucial in Wake of Supreme Court’s Andersen Ruling

On May 31, 2005, the United States Supreme Court reversed Arthur Andersen’s 2002 conviction for evidence tampering. That vindication does not alter the core lesson of the Andersen prosecution: a document retention policy must be drafted and implemented carefully to serve its purpose of protecting a company against a charge of evidence tampering. Prudent companies … Continue Reading
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