Gretchen Morgenson has another one of her outstanding articles, Earnings, But Without The Bad Stuff, in today's NY Times. The piece explores some unintended effects of the SEC's Regulation G, which "allows companies to use non-traditional metrics in financial reports, but only if they present generally accepted accounting measures [GAAP] alongside so that investors can compare the two." According to Morgenson, and Jack Cieselski of Charm City's R.G. Associates, more companies are using Regulation G to put forward "[m]anagement's recommended measures." This in turn spurs other companies to do the same in order to stay competitive. My gut response is: "So what?" As long as the company is disclosing fully accurate figures according to GAAP, what do I care if they want to present alternative numbers alongside? After all, companies are still prohibited from presenting false or misleading non-GAAP figures, and the SEC has gone after companies who do this.
Tag: Securities
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According to the New York Times (Deal Book), the Federal Housing Finance Agency has announced its own $4 billion dollar settlement with JPMorgan Chase, covering the bank's sale of mortgage-backed securities to Fannie Mae and Freddie Mac in the period (2005-2007) leading up to the financial crisis. FHFA's original suit alleged that JPMorgan Chase, and predecessor entities Bear Stearns and WAMU, sold mortgage-backed securities to Fannie and Freddie without sufficiently full disclosure of their risky nature. This FHFA settlement was supposed to be part of the broader $13 billion dollar tentative settlement that has been the subject of so much public speculation in the past week. Apparently FHFA got tired of waiting for the broader deal to be finalized. Here is the signed settlement agreement and FHFA press release, posted on FHFA's web site. Under the terms of this particular settlement agreement, JPMorgan Chase pointedly does NOT admit "any liability or wrongdoing whatsoever, including, but not limited to, any liability or wrongdoing with respect to any of the allegations that were or could have been raised in the Actions." Further, "[t]he Parties agree that this Agreement is the result of a compromise within the provisions of the Federal Rules of Evidence, and any similar statutes or rules, and shall not be used or admitted in any proceeding for any purpose including, but not limited to, as evidence of liability or wrongdoing by any JPMorgan Defendant." Deal Book reports that the broader non-FHFA portion of the $13 billion tentative settlement includes fine payments "to prosecutors in California." I had not heard this before today. Hard to believe that any fines will be paid to prosecutors by JPMorgan Chase unless such fines are part of a final agreement to shut down the ongoing federal criminal investigation being run out of California.
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The Justice Department has decided — properly, I believe — not to file criminal charges against former SEC general counsel David M. Becker for participating in SEC policymaking relating to the distribution of funds from the Madoff estate when he had a personal stake in the outcome, a matter we discussed over five weeks ago. See here. Although I believe Becker's failure to recuse himself on his own was an exercise in poor judgment, he did report the potential conflict to his ethics officer, who approved his participation, and SEC chairwoman Mary L. Schapiro, who apparently failed to question it. Hopefully, the SEC will not forget that errors in judgment should rarely, if ever, be actionable.
(goldman)
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Guest Blogger – Victor Vital
Much has been written about the new bounty-provisions in the Dodd-Frank bill passed this summer. SEC-regulated companies are bracing themselves for an uptick in enforcement actions stemming from whistle-blowers. Also legal commentators and the compliance community are very concerned about the new bounty provisions that they fear will incentivize whistle-blowers to bypass compliance programs that companies have spent considerable sums of money and effort creating, partly in response to government regulation.
Now enter WikiLeaks. WikiLeaks is the topic de jour, with its market-moving impact demonstrated by Bank of America’s 3% stock decline in response to speculation that it is an imminent target of WikiLeaks. (see WSJ story – here). Of interest to readers of this blog is whether WikiLeaks will cause the SEC and the CFTC to become even more aggressive than they may have previously planned to be in encouraging whistle-blowers to come forward and in rewarding those whistle-blowers. Given the government’s great consternation at WikiLeaks’ disclosures, it seems natural that the government might step up its efforts to encourage whistle-blowers to disclose original information of corporate misconduct through government-sanctioned channels. Just something to ponder.
Victor Vital is partner at Baker Botts L.L.P. whose practices focuses on white collar criminal defense and complext litigation matters.
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The opening panel of this conference was United States Sentencing Guidelines Developments and a View from the District Court Bench. Moderating this panel was Professor Frank Bowman. Judges Frederic Block (ED NY), Steven Merryday (MD Fl) and Robert Pratt (SD Iowa) offered their perspectives. Judge Pratt had some important advice for defense counsel – sentencing is fact intense and you need to bring out the facts. You need to make a record. My favorite line was when he said that there are a "number of opportunities to make the law more human."
The panel – Sentencing Issues in Securities Cases – had Henry "Hank" Asbill as the moderator. It's all about "loss" is the way it started. Listening to the speakers ( Mark Harris – Proskauser Rose, LLP; Michael Horowitz, Calwalder, Wickersam & Taft; Peter Spivack – Hogan & Hartson) it is clear that an expert is needed to assist in measuring loss. But as noted by one of the speakers, "[i]f you go down the expert road these are very complicated issues." Hank Asbill asked "[w]ere the guidelines based upon assumptions in the market?"
(esp)
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In the Third Circuit Court of Appeals decision, U.S. v. Schiff, the court stated:
"Frederick Schiff and Richard Lane were high-ranking corporate executives at the pharmaceutical giant Bristol-Myers Squibb ("Bristol"). They were criminally indicted for allegedly orchestrating a massive securities fraud scheme related to Bristol’s wholesale pharmaceutical distribution channels in the early 2000s, in violation of, inter alia, 15 U.S.C. § 78j(b) and Securities and Exchange Commission ("SEC") Rule 10b-5. The Government filed this interlocutory appeal in response to the District Court’s March 19, 2008 opinion that addressed several contested theories of liability as well as expert witness issues under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993).1 On appeal are two issues: (1) whether the DistrictCourt properly dismissed the Government’s theories of omission liability under Rule 10b-5 that attempted to hold Schiff accountable for omissions in quarterly SEC 10-Q filings based on his and Lane’s alleged misstatements in Bristol’s quarterly conference calls; and (2) whether the District Court abused its discretion in excluding the Government’s expert, following a Daubert hearing, who would have testified to Bristol’s stock price drop as evidence of Rule 10b-5’s materiality element. Because we agree that the Government’s omission liability theories are not viable, we affirm the District Court’s dismissal of these theories. As to the expert testimony, we conclude that the District Court’s ruling excluding the Government’s materiality expert was not an abuse of discretion." (footnote omitted)
A telling line from the decision –
"Throughout the pretrial proceedings, and even in this appeal, the Government has engaged in a game of musical chairs with their pursuit of changing legal theories under Rule 10b-5."
See also Jonathan Stempel, Reuters, Bristol-Myers ex-CFO wins ruling in criminal case
(esp)
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John Pacenti, Daily Business Review, law.com, Judge Denies UBS Whistleblower's Bid to Reduce Sentence
Chronicle of Higher Education,Former Louisville Dean Reportedly Will Plead Guilty to Federal Crimes (subscription)
Tampa Bay Business Jrl, Kevin J. Napper of Carlton Fields Named FBA President (Tampa Bay Chapter)
Andrew Longstreth, The American Lawyer, law.com, Rakoff Rejects BofA's 'Media Reports' Defense in SEC Case
Amir Efrati, WSJ Blog, DOJ Offers Guidance to Prevent Prosecutor Errors: But Will it Work?; Mike Scarcella, BLT Blog, DOJ Issues Discovery Guidance for Federal Prosecutors;
Susan Pulliam, WSJ, Galleon's Rajaratnam Paid Tipster, Filing Says
Peter J. Henning, NYTimes Dealbook Blog, In Galleon Cases, Timing Could Be Everything
Jenna Greene, BLT Blog, New Compliance Chief at SEC
(esp)
MattBray.net 