TheCorporateCounsel.net

From Kevin Miller of Alston & Bird: In a recent decision – Louisiana Muncipal Police Employee’s Retirement System v. Countrywide Financial Corp. – Vice Chancellor Noble of the Delaware Chancery Court addressed “what would appear to be the outer limits of the minimal quantum of evidence a shareholder must adduce in order to demonstrate a credible basis to suspect corporate wrongdoing that would constitute a proper purpose to inspect corporate books and records under 8 Del. C. § 220.”

The only evidence presented to support LAMPERS allegation of corporate misconduct was a statistical correlation suggesting the possibility of backdating or springloading of certain stock options granted to executive officers of Countrywide Financial. The question before the Court was not whether the backdating or springloading of stock options had occurred, but whether LAMPERS had established a credible basis, by “presenting “some evidence,” from which the court could infer possible issues of corporate misconduct warranting further inquiry through a limited inspection of corporate books and records.”

The court expressed concern that by finding in favor of the plaintiff solely on the basis of a mere statistical correlation that it risked “opening a floodgate of demands from shareholders seeking to inspect the books and records of Delaware corporations on the basis of spurious or contrived statistical correlations purporting to suggest the possibility of corporate wrongdoing.” The court emphasized that indiscriminate “fishing expeditions” cannot be tolerated in Section 220 actions, that each case is fact specific and must be individually analyzed to avoid abuse of the Section 220 process.

Ultimately the court concluded that “although statistics alone must not be enough to establish the ultimate issues underlying these cases, i.e., that corporate wrongdoing in fact occurred, the Court discerns no compelling reason why a statistical correlation, if adequately supported by a sound, logical methodology and competent expert testimony, cannot constitute “some evidence” of possible corporate wrongdoing sufficient to permit a shareholder limited access to a narrowly circumscribed set of corporate books and records.”

Nevertheless, the court found that the statistical evidence presented by LAMPERS was just barely sufficient to carry the minimal burden imposed by Delaware law and only permitted a limited inspection of Countrywide Financial’s books and records. We have posted a copy of the opinion in our “Books & Records” Practice Area.

Europe’s “Big Bang”

As described in this article from the Economist, the “Markets in Financial Instruments Directive” took effect yesterday and effectively creates a common market for share, commodities and derivatives trading across 30 countries in Europe. The new rules should have a big impact as it reduces the hold of national stock exchanges over share trading and throws open the field to newer electronic exchanges and even big investment banks.

Required Reading? Nah…

A member found this old memo among his papers and sent it along – it’s scary to see a sampling of your writing from your youth, particularly when its dated before there was widespread use of personal computers. I wonder if the SEC Historical Society has this among it’s gems…

– Broc Romanek