January 19, 2007

ISS’ Watchlist of Proxy Season Activities

Last week, ISS posted its 2007 Proxy Season Watchlist. Highlights from the Watchlist so far include:

– There are 99 pending proposals on majority vote to elect directors versus 94 that came to a vote in 2006.

– There are 39 pending proposals on linking pay-to-performance versus 17 that came to a vote in 2006.

– There are 40 pending proposals to report on or disclose political contributions versus 28 that came to a vote in 2006.

Supreme Court to Review Pleading Standard in Private Securities Actions

From Wachtell Lipton: The US Supreme Court last week granted review in an important case that should resolve a split of authority concerning the pleading standard in private securities fraud actions. The standard was established by Congress in the Private Securities Litigation Reform Act of 1995 to combat abusive securities “strike suits,” and it requires that a securities complaint for damages “state with particularity facts giving rise to a strong inference”t hat the defendant acted with “scienter,” i.e., fraudulent intent. In virtually every securities fraud action, the defendants will likely move to discuss the complaint on the ground that the allegations doe not give rise to such an inference. If the court sustains the complaint, defendants must either settle or endure the massive expenses and risks of discovery and trial.

The case being reviewed by the Supreme Court is Makor Issues 7 Rights Ltd. V. Tellabs, 437 F.3d 588 (7th Cir. 2006), in which the United States Court of Appeals for the Seventh Circuit held that a securities fraud complaint should survive “if it alleges facts from which, if true, a reasonable person could infer that the defendant” acted with scienter. Id. at 602 (emphasis added). In making that determination, the court may not, according to Tellabs, evaluate inferences more consistent with innocence than with fraud. This approach is markedly more lenient for plaintiffs than the standards applied in other Circuits, which require the district court to consider all plausible inferences. The Seventh Circuit, however, reasoned that a district court could not consider competing inferences without potentially invading the constitutional role of the jury.

The Supreme Court decision promises to be a landmark in the federal securities laws. The “strong inference” standard is central to the congressional effort to eliminate abusive standards that prevailed prior to 1995. That effort has been frustrated by a multitude of approaches between and within the various circuits, and has led to forum-shopping, uncertainty, and inconsistent outcomes. From a defendant’s standpoint, the Seventh Circuit’s decision in Tellabs not only adds to this confusion, but takes a significant step backwards to the pre-PSLRA era. The Supreme Court has directed that briefing be completed by March 20, 2007, making it reasonably likely that a decision will be rendered this term.

We Live in a Complicated Society

The best part about working from home is that I don’t have to shave years off my life driving in rush hour traffic. I can leave my machete at home. I loved this WSJ article which laid out a number of websites where those without machetes can instead embarrass our fellow humans into behaving better, including: