June 19, 2006

Nasdaq Proposes to Modify Director Independence Cure Period

Last week, the SEC issued a Nasdaq proposal that would lengthen – in certain circumstances – the cure periods available to listed companies that lose an independent director or an audit committee member that causes the company to fall out of compliance with Nasdaq’s director independence rules (ie. a majority of the board must be independent and there must be at least three independent directors on the audit committee).

Under current rules, a company must cure any deficiency by the earlier of the next annual shareholders meeting or within one year of the event that caused the deficiency. The Nasdaq proposal would change the cure periods so that a company would have at least have 180 days from the date of a deficiency event to cure the deficiency.

Companies can’t rely yet on this proposed rule change, but the Nasdaq proposal states that, upon SEC approval of the rule change, Nasdaq will allow any company still within the prior cure period to use the new minimum 180-day cure period from the date of the deficiency, even if the deficiency occurred before the date of SEC approval.

Conducting Due Diligence: Through the Eyes of the Associate

The first installment of’s M&A Boot Camp for this summer is now available: “Conducting Due Diligence: Through the Eyes of the Associate.” Join Deborah Bentley Herzog and Mike Woodard of McGuire Woods for an entertaining session that teaches the basics of what you need to know about conducting due diligence, with an emphasis on what issues and traps associates should seek to spot and resolve.

If you are not a member, try a no-risk trial as we just launched our half-price “Rest of 2006” rate – believe it or not, a license for a single user is only $100 and there are similar reduced rates for offices with more than one user!

[Congrats to my boss, Jesse Brill, for being named one of the “100 Most Influential People in Finance” in this Treasury & Risk Management article for his executive pay reform efforts! I don’t think many lawyers would ever imagine landing on a finance list…]

“Passive Voice Press Releases” and the “Vigorous Defense”

Last month, I blogged about “passive voice press releases” by noting an entry from Adam Savett, a plaintiff’s lawyer. The following is some of his latest work: You’ve seen them discussed separately, but now we have them together. A complaint about a so-called “passive voice press release” and a vigorous defense proclamation by a defendant.

Passive voice press releases are those issued by law firms that have not yet filed a complaint. They typically announce that a securities class action “has been filed.” This is distinguished from the active voice releases, which state things such as “[the firm] filed a complaint” or “[the firm] has filed a complaint.”

The practice is most often pointed out by one of the firms that filed a complaint, not by the defendant corporation, as we have here. Earlier this week, InfoSonics Corporation issued a press release, stating:

“While at least seven law firms have publicly disseminated press releases over the past few days implying that they have filed lawsuits against InfoSonics Corporation, the Company’s preliminary investigation has revealed that two lawsuits seeking class action status have been filed (by three of the firms that issued press releases this week). The remaining four law firms that implied in their press releases that they also filed lawsuits had not done so at the time of their releases and the Company has no knowledge that they have since filed actual lawsuits.”

This is the classic passive voice press release issue, discussed by The 10b-5 Daily here and here and by Securities Litigation Watch here and here.

InfoSonics couldn’t resist the lure of the vigorous defense language having read in these pages earlier in the week about a recent successful use of that phrase, and went on to state:

“The Company believes its actions raised in the lawsuits were appropriate and intends to vigorously defend them.”

Now if only we could find a passive voice press release that indicated the law firm intended to “vigorously pursue” the claims that they have not yet alleged.