January 4, 2006

Chairman Cox Names New General Counsel

Not surprising if you read the LA newspapers (which have rumored this pick for some time), SEC Chairman Cox named a partner from his former law firm yesterday as the SEC’s new general counsel. Brian Cartwright, a partner at Latham & Watkins, will start his new job on January 23rd – and his tenure will slightly overlap with the outgoing general counsel, Giovanni Prezioso, who will leave in the next month or so.

Here is the SEC’s related press release, which touts Brian’s managerial experience at Latham as well as notes that he is a former astrophysicist. Note that Brian has a corp fin/transactional background – most of the SEC’s general counsels have a litigator’s background.

Following on the astrophysicist theme, you gotta love the WSJ’s Law Blog’s headline of “Brian Cartwright’s Really Smart.” Hmm, now that I think about it – does that mean that the SEC needs more scientists? Maybe a biologist to head the Division of Investment Management and a physicist for Market Reg? An astrologer for Chief Accountant?

Kidding aside, as Chairman Cox selects personnel for the remaining vacant top spots, the “Alan Beller Watch” is sure to intensify…

Securities Lawsuits Drop During 2005

As noted in this Tuesday WSJ article, Stanford University Law School and Cornerstone Research just released their 2005 Securities Class Action Filings Report. The Report tracks securities class action lawsuit activity and presents an overview of the trends in litigation for the year. A full copy of the report is available on Stanford’s Clearinghouse site as well as with other litigation trend studies posted in our “Securities Litigation” Practice Area.

The following highlights some of the key findings of the Report:

1. The overall number of class actions filed in 2005 decreased more than 17%, falling from 213 filings to 176. This year’s number is also 10% below the average from 1996-2004.

2. The “Disclosure Dollar Loss,” which is the amount of market capitalization companies lost upon announcement of a lawsuit, decreased 33%, from $147 billion in 2004 to $99 billion in 2005.

3. There was a substantial increase in the number of lawsuits alleging misrepresentations in financial reporting, increasing from 78% in 2004 to 89% in 2005, and false forward-looking statements, from 67% in 2004 to 82% in 2005.

Stanford Professor Joe Grundfest and Dr. John Gould of Cornerstone suggest that the end of the boom and bust cycles of the US equities market – and the improved governance in the wake of the Enron and WorldCom frauds may be two of the primary reasons for the marked declines in filings. Bill Lerach is quoted in the WSJ article as noting the increase in financial fraud filings was because cases alleging financial misstatements have a better chance of surviving in court.

January Eminders is Up!

The January issue of our monthly newsletter is posted. Enjoy!

Some New Year Commentary on the Accounting Profession

In our “Accounting Overview” Practice Area, we have posted an interesting speech from the current chairman of Ernst & Young, Jame Turley, given a month ago. Lynn Turner notes “Mr. Turley highlights the benefits that SOX has provided and urges against watering down the legislation. He notes the shortcomings in the past of the profession and need for humility in light of that. He then goes on to say the firms are too big to fail and should be protected against a catastrophic loss by the government.

Mr. Turley also notes the Chamber of Commerce has formed a Commission on the Regulation of the U.S. Capital Markets in the 21st Centruy for the purpose of examing the legal and regulatory framework so as to “modernize” the capital markets. Its report is due in 2007. He also raises the issue of the need for more forward looking and non-financial disclosure, what I call “Key Performance Indicators” or KPIs.

The speech does a very good job of teeing up some of the more important discussions that will no doubt take place in the next couple of years regarding the accounting profession. It is also interesting to note that the very same accounting firms – who argued before Justice and the FTC that they out to be permitted to consolidate, merge and become more concentrated – are now arguing that having done so, they should be given protection from events that might cause the few of them left to fail.”