Mutual fund companies have traditionally argued that they are exempt from the whistleblower protections of the Sarbanes-Oxley Act (“SOX”) because the funds themselves do not have any employees. Massachusetts District Court Judge Douglas P. Woodlock soundly rejected that argument in a ruling issued March 31 and, in so doing, may have opened the door to a tidal wave of whistleblower suits against mutual fund companies.
 Continue Reading Recent Court Ruling Exposes Mutual Funds to Whistleblower Suits

The new healthcare laws signed by President Obama on March 23rd and 30th, and specifically the Patient Protection and Affordable Care Act (PPACA), includes a significant modification to the "in-office ancillary services" exception of the Stark Law.  Physicians who refer patients for MRI, CT or PET services, to an entity in which the referring physician has a financial interest, including the physician’s own office or medical group, must now provide written notice to the patient of the patient’s ability to utilize an alternative supplier. Additionally, the notice must include a list of alternative suppliers. This amendment not only applies to referrals to a separate entity, but it also applies to referrals within a group practice. 

All physicians and medical groups that have in-house MRI, CT, or PET imaging services (or that refer to an outside entity in which they have a financial interest) will need to make written financial disclosures to patients to comply with the new law in order to qualify for Medicare reimbursement. Failure to comply could result in civil monetary penalties of $10,000 per medical imaging procedure.Continue Reading New Healthcare Law Requires Financial Disclosures By Referring Physicians

In In re Omnicom Group, Inc. Securities Litigation, No. 08-0612-CV, 2010 WL 774311 (2d Cir. Mar. 9, 2010), the United States Court of Appeals for the Second Circuit affirmed the district court’s grant of summary judgment dismissing a securities fraud class action for failure to proffer sufficient evidence to support a finding of loss causation.  The Second Circuit held that plaintiffs failed to show that the decline in the issuer’s stock price occurred as a result of a disclosure of new information about the alleged fraud. At most, the investor losses arose from the negative press and investor concerns about possible accounting problems. As the Second Circuit stated, however, an issuer is not responsible under the securities laws for losses arising merely from “investors’ concerns that other unknown problems [are] lurking.
 Continue Reading In Omnicom Second Circuit Provides Guidance On What Type Of Information Will Justify Investor Reliance For Securities Fraud

With the increasing numbers of companies which were once thought to be giants of industry filing for bankruptcy, more opportunities to purchase major assets are becoming available to savvy buyers looking to expand their business or asset base. The Bankruptcy Code provides debtors with the ability to liquidate all or a part of their assets through court-supervised sales and buyers with the ability to obtain those assets at more favorable prices than they would pay if the sale were consummated outside of a bankruptcy.Continue Reading One’s Crisis is Another’s Opportunity: Section 363 Sales

In Securities & Exchange Commission v. Tambone, No. 07-1384, 2010 U.S. App. LEXIS 5031 (1st Cir. Mar. 10, 2010) (en banc), the United States Court of Appeals for the First Circuit, sitting en banc, vacated the three-judge panel’s prior holding and affirmed the district court’s dismissal of a Rule 10b-5 claim asserted by the Securities & Exchange Commission (“SEC”) against defendants James Tambone and Robert Hussey. In doing so, the First Circuit clarified what it means to “make” a statement under Rule 10b-5(b) promulgated under Section 10(b) of the Securities Exchange Act of 1934 (“1934 Act”).
 Continue Reading First Circuit, Sitting En Banc, Clarifies What It Means To “Make” A Statement Under SEC Rule 10b-5(b)

In Bixler v. Foster, No. 09-2138, 2010 WL 597477 (10th Cir. Feb. 22, 2010), the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of a class action lawsuit brought by minority shareholders of Mineral Energy and Technology Corporation (“METCO”) against its directors and lawyers. Plaintiffs alleged that defendants violated the civil Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968, for authorizing and facilitating the transfer of METCO’s assets to an Australian corporation. The Tenth Circuit held that, among other things, (1) plaintiffs lacked standing under RICO to assert shareholder derivative claims and (2) allegations of securities fraud did not establish predicate acts under RICO. This decision confirms that the civil RICO statutes generally are not available to shareholders and investors seeking redress for alleged ordinary corporate misconduct.
 Continue Reading Tenth Circuit Holds Corporate Shareholders Do Not Have Standing Under Rico To Sue Derivatively For Alleged Injuries To Corporation

In Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Management LLC, No. 07-5125-cv, 2010 WL 520896 (2d Cir. Feb. 16, 2010), the United States Court of Appeals for the Second Circuit vacated an order dismissing a securities fraud class action brought on behalf of investors against the manager of a family of mutual funds. The Court held, among other things, that the defendants’ alleged misrepresentations regarding transfer agent fees paid by the funds were material under the “total mix” materiality test. This decision provides guidance regarding disclosures to be made by mutual funds concerning the details of transfer fee arrangements.
 Continue Reading Second Circuit Vacates Dismissal Of Securities Fraud Claims Holding That Mutual Funds’ Alleged Misrepresentations Regarding Payment Of Transfer Agent Fees Were Material

In Hertz Corp. v. Friend, No. 08-1107, 2010 U.S. LEXIS 1897 (Feb. 23, 2010), the United States Supreme Court reversed the United States Court of Appeals for the Ninth Circuit’s holding that New Jersey-based Hertz Corporation (“Hertz”) was a citizen of the State of California for purposes of federal court diversity jurisdiction, rejecting the Ninth Circuit’s “business activities” test and instead adopting the corporate “nerve center” standard used by numerous other Circuits. In doing so, the Supreme Court established a single, uniform and clear interpretation of the phrase “principal place of business” for purposes of deciding a corporation’s citizenship status in disputes over whether diversity exists among parties to a lawsuit.
 Continue Reading United States Supreme Court Clarifies Standard For Determining Corporate Citizenship For Purposes Of Federal Court Diversity Jurisdiction