investor friendly legislation proposal 2010
DESCRIPTION
This stack discusses recent Supreme Court decisions and their impact on investor rights and discusses bills introduced in Congress and other modest proposals for new laws to tilt the balance back to investors. Written in 2010, none of the remedies came to pass.TRANSCRIPT
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Investor Friendly Legislation--2010
Reed R. KathreinPeter E. Borkon
Hagens Berman Sobol Shapiro [email protected] [email protected]
510-725-3000
Hannah G. Ross Bernstein Litowitz Berger
& Grossman LLP [email protected]
212-544-1411
www.hbsslaw.com www.blbglaw.com
Hagens Berman
Reed Kathrein has litigated over 100 securities fraud cases in his 33 years of practice. He has worked behind the scenes in influencing all major legislation in this area including the PSLRA, SLUSA and Sarbanes-Oxley.
Peter Borkon has litigated a more than a dozen securities and derivative cases since 1996, and has evaluated numerous cases for institutional clients. He often serves as an adjunct professor at Hastings College of Law.
Hagens Berman has a diversified practice representing investors and consumers against corporate defendants. It has been selected for the Plaintiffs Hot List by the National Law Journal for three years in a row. The founder, Steve Berman has been referred to as only one of two shareholder attorneys “that matter.” HB offers it’s portfolio monitoring service, helping public and Taft Hartley pension funds fulfill their fiduciary duty to their constituents, at no cost.
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Bernstein Litowitiz
Hannah Greenwald Ross is involved in a variety of the firm’s litigation practice areas, focusing in particular on securities fraud, corporate governance, shareholder rights and other complex commercial matters. She has extensive experience as a civil and criminal litigator, and represents the firm’s institutional investor clients as counsel in a number of major pending securities actions.
Founded over a quarter century ago, Bernstein Litowitz Berger & Grossmann LLP ("BLB&G") prosecutes class and private actions nationwide on behalf of individual and institutional clients. Widely recognized as one of the leading law firms worldwide advising institutional investors on issues related to corporate governance, shareholder rights, and securities litigation (Chambers, The National Law Journal, Global Pensions, Riskmetrics, Legal 500), BLB&G provides a comprehensive suite of asset protection services, including portfolio monitoring, to help public pension funds fulfill their fiduciary obligations
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Why Care About Investor Legislation
Access to Courts
Access to Evidence
Deterrence
Market Stabilization
Transparency
Recovery for Funds
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United States Supreme Court Justices
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Restore Claims Against Those Who Aid In Defrauding Investors
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Aiders and Abettors
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Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994).
Central Bank did not speak, but knew and substantially assisted in the fraud by delaying an appraisal.
Congress did not intend to allow aiding and abetting claims under Section 10(b).
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Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., 552 U.S. 148 (2008) S. Ct.
Defendants actually and knowingly assisted in sham transactions that misrepresented the financial results of a public company.
Defendants had no duty to the investors of another company, nor did they make any public statements about the transactions.
Hence, investors did not rely on their conduct when making their investment decisions!!!!
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The Problem
• Accountants, bankers and lawyers actively participated in and or enabled fraud in Enron, Worldcom, Refco and the Bernard Madoff Ponzi scheme.
• Main fraudster goes bankrupt• No assets to recover without the aiders and
abettors on the hook. • No disincentive to not participate
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The Remedy
“Liability for Aiding and Abetting Securities Violations Act of 2009″ (S. 1551)
“…any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided.”
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Restore Notice Pleading
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Conley v. Gibson, 355 U.S. 41 (1957)
A complaint only needs "a short and plain statement of the claim" that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.
Liberal opportunity for discovery and the other pretrial procedures provide facts needed to narrow the issues.
Notice pleading is guided the simple notion of Rule 8(f) that “all pleadings shall be so construed as to do substantial justice.”
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Bell Atlantic Corp. v. Twombly (2007) and Ashcraft v. Iqbal (2009)
Complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.”
Must plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully.
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The ProblemWhat is plausible? Even in Iqbal Justices could not agree.
Iqbal’s claims found implausible because high-ranking officials “tend not to be personally involved in the specific actions of lower-level officers down the bureaucratic chain of command” ???
A court must proceed “on the assumption that all the allegations in the complaint are true (even if doubtful in fact)”) (Souter)
Well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable.
Rule 12(b)(6) does not countenance . . . dismissals based on a judge’s disbelief of a complaint’s factual allegations.
– sole exception where allegations defy reality as we know it:– claims about little green men, or the plaintiff’s recent trip to Pluto, or
experiences in time travel.
Court can structure discovery to prevent unwarranted inferences. (Breyer)
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Impact on Investor Cases
• In past courts have held that fraud was implausible since accountants (and others) would not want to risk their reputations. This argument will be resurrected for all professionals, etc.
• Will increase pleading standards for Section 11 and 12 claims which do not require detailed pleading.
• Will give defendants greater ability to argue that the fraud did not cause the loss at the pleading stage for judges who are not well versed in markets and economics.
• Will cause great discrepancy in outcomes of motions to dismiss based on the judge.
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Notice Pleading Restoration Act of 2009--Senate Bill 1504
Except as otherwise expressly provided by an Act of Congress or by an amendment to the Federal Rules of Civil Procedure which takes effect after the date of enactment of this Act, a Federal court shall not dismiss a complaint under rule 12(b)(6) or (e) of the Federal Rules of Civil Procedure, except under the standards set forth by the Supreme Court of the United States in Conley v. Gibson, 355 U.S. 41 (1957).
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Justices of the United States Supreme Court---Overturned
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Prevent Manipulation of Disclosures to Hide Damages (Clarify Loss Causation)
•limit motions on loss causation to summary judgment or trial, or
•make lack of loss causation an affirmative defense for defendants to plead or prove.
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Permit Some Limited Discovery Prior to Motions to Dismiss
•good cause,•SEC investigations,•extrinsic evidence of fraud or •production to government.
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Provide Protections to Confidential Witnesses
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Adopt a Uniform 2 and 5 Year Statute of Limitations
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Talking Points
Claims under federal law such as antitrust, securities law, discrimination law, and product defect litigation, where the plaintiff knows they are injured, but the detailed facts of defendants' actions can not be known without discovery.
Impact is to deny plaintiffs with meritorious claims access to
the federal courts and any legal redress for their injuries.
Litigating resources of our executive branch and administrative agencies are stretched thin such that the enforcement of federal antitrust, securities, consumer protection, civil rights, and other laws that benefit the public falls increasingly to private litigants.
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Message to Congress
• These cases are important to safeguard and protect the pensions of our members.
• Please support these legislative changes!
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Summary
1. Restore Claims Against Those Who Aid In Defrauding Investors.
2. Restore Notice Pleading.
3. Prevent Manipulation of Disclosures to Hide Damages (Clarify Loss Causation)
4. Permit Some Limited Discovery Prior to Motions to Dismiss
5. Provide Protections to Confidential Witnesses
6. Adopt a Uniform 2 and 5 Year Statute of Limitations
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Contact Information
Reed R. KathreinPeter E. Borkon
Hagens Berman Sobol Shapiro [email protected] [email protected]
510-725-3000
Hannah G. Ross Bernstein Litowitz Berger
& Grossman LLP [email protected]
212-544-1411