TheCorporateCounsel.net

One of the reasons for the popularity of this blog is because it is one of the very few that covers corporate finance law. Perhaps it’s because litigators love to talk more, but there are far more securities litigators blogging than financiers. Boy, do those litigators love a Supreme Court case – particularly one as tantalizing as Stoneridge, which was decided yesterday by SCOTUS. And in record time, the law firm memos started rolling in – we are posting them in the “Aiding & Abetting” section of the “Securities Litigation” Practice Area; here is a copy of the court opinion.

Here is a case summary from Dave: The theory of “scheme liability” as a basis for recovery against third parties in securities class actions bit the dust yesterday, with the Supreme Court’s 5-3 ruling in Stoneridge Investment Partners v. Scientific-Atlanta. Ultimately, as stated in the majority opinion delivered by Justice Kennedy, the Court concluded that “the private right of action [under Section 10(b) and Rule 10b-5] does not reach the customer/supplier companies because the investors did not rely upon their statements or representations.” In his dissent, Justice Stevens states that the majority’s view of reliance “is unduly stringent and unmoored from authority.”

Without scheme liability, plaintiffs will find it difficult to reach secondary actors involved in a fraud such as customers, suppliers – or perhaps even investment bankers – since the Supreme Court’s Central Bank decision cut off the ability to sue those third parties as aiders and abettors. Stoneridge represents yet another decision in a line of recent Supreme Court rulings that are hostile to plaintiffs and more favorable to business.

And for more detailed analysis, check out these litigation bloggers:

– “SCOTUS Blog”
– “D&O Diary Blog”
– “Truth on the Market”
– “Race to the Bottom”
– “Ideoblog”
– “Jake Zamansky’s Blog”

My Ten Cents: Policies Barring Executives from the Web

A few months ago, Whole Foods took the step to amend and restate the company’s code of business conduct to bar top executives and directors from posting messages about Whole Foods, its competitors or vendors on any online forums (broadly defined to include blogs) that aren’t sponsored by the company (unless approved by the board’s nominating and governance committee). The restated code prohibits comments on third-party Web sites so executives will “avoid the actual and perceived improper use of company information. It not only bars postings that are anonymous, but also those under the person’s real name. The bar applies to “company leadership,” which includes directors, executive team members and regional vice presidents. The restated code (scroll to page 13) was disclosed in this Form 8-K.

I understand why the company took such an action, given the revelations that the CEO posted anonymous messages about the company and its competitors from 1999 through 2006 – and the SEC’s and market’s reactions to such revelations. But I hope that no companies would feel the need to follow Whole Food’s “lead” here, because common sense should rein in company leaders from posting anonymous messages of the type made by the company’s CEO (ie. misrepresenting oneself) and this is one area not crying out for yet another corporate policy.

In fact, I believe Whole Food’s policy is too broad and would limit the company’s leadership to engage in the important online “conversation.” Ironically, Whole Foods is one of the few companies currently contributing to that conversation since it has allowed blogging by its leaders (at least the CEO; here is his blog). In today’s world, the importance of being allowed to learn from like-minded individuals can’t be overstated and the easiest way to do to engage them is through the Internet, either by e-mail or the Web.

One of the more influential books on my career is “The Cluetrain Manifesto,” which essentially foretold the social networking/Web 2.0 craze that is here to stay. When the book was published in the late ’90s, I saw the authors present here in DC at a local “Netpreneurs” event, complete with a guy in a Gorilla suit and beach balls being bounced above the crowd. Ah, those glorious ’90s when I still had hair…

C’Mon, Step Up and Predict the Future

– Broc Romanek