LAW 540 SECURITIES REGULATION: ENFORCEMENT PROCEDURES AND ISSUES

Transcription

1 LAW 540 SECURITIES REGULATION: ENFORCEMENT PROCEDURES AND ISSUES Fall 2011 Professor Gregory G. Faragasso Professor Brad Bennett Thursdays 6:20 to 8:10 Room 313 SYLLABUS This course will examine the enforcement of the federal securities laws from the perspectives of the SEC, defense counsel, and The Financial Industry Regulatory Authority (FINRA). The required weekly reading will consist of recent enforcement cases or rulemaking, related statutes and rules, law review articles and other commentary. We will distribute most of this material by PDF. If anyone wishes to purchase a hard copy of the material, please advise us and we will make it available in the bookstore. Most classes will begin with a short discussion of recent developments. As things occur during the semester, we may supplement the reading materials described below with additional PDFs and handouts in class. We may also periodically secure the services of guest instructors to address specific topics. We will offer you the option of taking the course as either a paper course or examination course. (Note, however, that those who choose the paper option will also have to take the short-answer portion of the examination, which asks students to very briefly identify certain basic concepts/entities/individuals which were discussed in some depth during class.) Your paper or examination will count for the majority of your grade. However, class participation is strongly encouraged and will also count toward your final grade. Because of the importance of class participation, we will strictly enforce the school's attendance policy. Failure to meet the deadlines for submission of first drafts or final papers will lower your final grade. You are welcome to use your laptops in class, as long as laptop use does not interfere with your ability to contribute to the class discussion. Please contact either of us at one of the above numbers or addresses if you have any questions, concerns or comments. We also appreciate the courtesy of knowing if you will not be able to attend a particular class. 1. Thursday, August 25 Course Overview We will discuss the mission of the SEC and the role of self-regulatory organizations, private plaintiffs and defense counsel in securities law enforcement. Other topics will include the general statutory framework governing enforcement actions and the resource, policy and political considerations relevant to the SEC s Enforcement Division and FINRA s Enforcement Department.

2 SEC Enforcement Manual, October 6, 2008, pp. 1-36, available on-line at FINRA Enforcement Department 2011 Presentation Notes Handout 2. Thursday, September 1 The SEC Investigative Process The genesis and development of an informal inquiry/formal investigation. We will discuss the SEC s investigative authority and various investigative techniques, including subpoenas compelling the production of documents and the testimony of witnesses, telephone interviews, and chronologies. We will also discuss the rights of witnesses, the manner in which the SEC enforces its subpoenas, the SEC s internal deliberative process, and ways in which the Enforcement Division coordinates its actions with the SEC s other divisions and offices and the SEC s cooperation with and referrals to or from selfregulatory organizations such as the NASD and the various stock exchanges. We will also briefly discuss the Enforcement Division s formal recommendations to the Commission and the various types of enforcement actions. SEC Enforcement Manual, October 6, 2008, pp Securities Act Release No (Sept. 27, 1972) (the Wells release) SEC Form 1662 ( Supplemental Information for Persons Requested to Supply Information Voluntarily or Directed to Supply Information Pursuant to a Commission Subpoena ) 3. Thursday, September 8 Market Intelligence, the Internet and Whistleblowers This class will be led by the head of the SEC s Office of Market Intelligence. We will explore the use of the internet as a vehicle for both securities enforcement and illegal conduct. We will also discuss the SEC s new whistleblower program, among other things. Guest instructor: Tom Sporkin, Chief, SEC Office of Market Intelligence. Exchange Act Section 10(b) and Rule 10b-5 Securities Act Sections 5 and 17 A Very Brief Encyclopedia of Securities Fraud, Business Law Today, March/April 2007, pp SEC v. Berliner, (S.D.N.Y. April 24, 2008) In the Matter of Kenneth Terrell, et al., Exchange Act Rel. No (March 2, 2000)

3 In the Matter of Jonathan Lebed, Exchange Act Rel. No (September 20, 2000) In the Matter of Mark S. Jacob, Litigation Rel. No (August 31, 2000) 4. Thursday, September 15 Financial Fraud Part I Overview of Enforcement Division s role in ensuring that public corporations accurately report their financial results and fully disclose material information relating to the performance of the corporation. We will discuss the creation of financial statements, the role of the independent auditor in financial reporting, and the importance of accurate financial statements to investors. [We may be able to secure the services of a forensic accountant to assist us in this class.] Financial Statements Fraud The Basics Staff Accounting Bulletin 99 (materiality) Financial Fraud Investigations Outline 5. Thursday, September 22 Financial Fraud Part II The difference between accounting mistakes and deliberate efforts to defraud the investing public. Topics will include the requisite mental state for fraud, i.e., scienter, individual and corporate responsibility for financial fraud, the likelihood for criminal prosecution, and the range of sanctions typically imposed in financial fraud cases. In the Matter of Livent Corp., Exchange Act Rel. No (Jan. 13, 1999) Litigation Rel. No (January 13, 1999) SEC v. Jerald Banks, Litigation Rel. No (August 12, 1999) In the Matter of Sensormatic Electronics Corp., Exchange Act Rel. No (Mar. 25, 1998) 6. Thursday, September 29 Gatekeepers An expanded discussion of the role of the in-house and outside attorneys, internal accountants, independent auditors, audit committee of the board, officers and directors in financial reporting.

4 SEC v. Collins, 07 CV (S.D.N.Y. December 18, 2007) In the Matter of Google and Drummond, Admin. Proc. File (January 13, 2005) In the Matter of Isselmann, Admin. Proc. File (September 23, 2004) In the Matter of Hall and Meyer, Admin. Proc. File (December 14, 2009)) Standards of Professional Conduct for Attorneys, 17 C.F.R et seq. 7. Thursday, October 6 Hot Enforcement Topics The sub-prime meltdown, the Foreign Corrupt Practices Act, and responsibilities of regulated entities to ensure the integrity of their operations. SEC v. Bernard Madoff, 08 CV (S.D.N.Y. December 11, 2008) Lay-Person s Guide to the FCPA SEC v. Armor Holdings, July 13, 2011: In the Matter of Ball Corporation, March 24, 2011: SEC v. Halliburton Company, Civ. Action No. 4: (SD Tex. February 11, 2009) SEC v. Bank of America, 09 CV 6829 (S.D.N.Y. August 9, 2009) and Memorandum Order (September 14, 2009) 8. Thursday, October 13 Insider Trading The elements of the offense of insider trading, including the two basic theories of liability: the misappropriation theory and the classical theory. We will also discuss the liability of tippers and the lesser standard of liability for insider trading in the context of a tender offer. We will discuss other informational advantages between market players, such as selective disclosure to analysts by corporate officers, and the SEC s efforts to level the playing field. Dirks v. SEC, 463 U.S. 646 (1983) US v. O Hagan, 117 S.Ct (1997) 9. Thursday, October 20 Insider Trading, Part II

5 Insider Trading Investigation Packet SEC v. Galleon Management, et al. 09 CV 8811 (S.D.N.Y. November 5, 2009) SEC v. Cuban, 3-08CV2050-D (Memorandum Order and Opinion, July 7, 2009) 10. Thursday, October 27 Criminal Aspects of Securities Enforcement This class will address the difficulties and advantages created when SEC investigations proceed in tandem with a criminal investigation of the same conduct. Topics will include the investigative techniques available to the criminal authorities; the benefits of cooperation to the target of the investigation; the effect of immunity from prosecution; assertions of the Fifth Amendment privilege against self-incrimination; the effect of the Federal Sentencing Guidelines; the additional charges (such as money laundering, perjury, obstruction, false statements, bank fraud, wire fraud, mail fraud and tax fraud) available to criminal authorities; and the receptiveness of judges and juries to securities fraud cases. "White Collar Crime, Blue Collar Tactics", Brad Bennett To Tell or Not to Tell: Weighing the Benefits and Pitfalls of Self-Reporting Corporate Wrongdoing, Bennett and Brauer Remarks of Deputy Attorney General Mark R. Filip, August 28, Thursday, November 3 Remedies Part 1 Discussion of the various remedies available to the SEC, including injunctions, ceaseand-desist orders, officer and director bars, administrative sanctions, civil penalties, disgorgement, Section 21(a) reports and stop orders. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ( Remedies Act ) Pub. L. No , 104 Stat. 931 (1990) Senate Report No. 337, 101st Cong., 1st Sess., 18 (1990). 12. Wednesday, November 10 Remedies Part II and Wells Submissions

6 Continued discussion of various remedies available. We will also discuss the treatment of good soldiers and the possible rewards for cooperation. Discussion of the settlement process and the preparation and utility of a Wells submission. Report of Investigation Pursuant to Section 21(a) of the Securities and Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Exchange Act Rel. No (October 23, 2001) SEC Enforcement Manual, pp SEC v. UnitedHealth Group Inc., Litigation Release No / December 22, Thursday, November 17 SEC Testimony Workshop Using a hypothetical fact pattern provided in class, each student will play the role of an SEC enforcement attorney taking the investigative testimony of a witness in an insider trading investigation. Each witness will be represented by defense counsel. Testimony Techniques Outline 14. Thursday, December 1 SEC Testimony Workshop (continued) Completion of testimony workshop. Discussion/feedback on common testimony problems, techniques used by questioner and defense counsel, witness/counsel control, and general concerns about making a useful record.