January 22, 2015

Academic Gang War! 34 Professors Protest Grundfest/Gallagher Paper

The sporadic occasion of law firms coming together to issue a white paper on a topic that could use consensus perhaps has spread to the academic world. Except the professors don’t seek a consensus view – they seek a retraction. This statement from 34 senior corporate professors urge SEC Commissioner Gallagher and Professor Grundfest to withdraw their allegations against Harvard and the Shareholder Rights Project (see my latest blog about this battle). I wonder if this banding of professors will become a new trend…

Poll Results: The Longest 10-K Filed in 2014? 2000 Pages

Recently, I ran this poll asking you to guess how many pages were in the longest Form 10-K filed during 2014 – the page count included exhibits. About 20% got the correct answer: Hertz Global Holdings’ 10-K filed on March 19th, weighing in at just under 2,000 pages (47% guessed too low; 33% too high). There are many other interesting stats about filings made last year in this blog from…

Legal Opinions for Registration Statements: SEC Enforcement Activity

This blog by Allen Matkins’ Keith Bishop is interesting. The blog is about a recent SEC enforcement action against a lawyer for allegedly issuing a false legal opinion in support of registration statements filed by multiple shell companies. Here’s an excerpt from the blog:

The opinion doesn’t say that the lawyer investigated and examined the issuer (as the SEC’s order alleges) – it says that she examined “such records . . . as I have deemed relevant and necessary to examine for the purposes of this opinion.” The SEC’s charging order also omits the following language from the attorney’s opinion: “In expressing this opinion I have relied, as to any questions of fact upon which my opinion is predicated, upon representations and certificates of the officers of the Company.”

This is significant because the crux of the SEC’s order appears to be that the issuers did not actually receive any consideration for the issuance of shares. In issuing “fully paid” opinions, lawyers typically rely upon certificates. See, e.g., Legal Opinions in Business Transactions, Corporations Committee of the State Bar of California Business Law Section (May 2005, rev. Oct. 2007) (“To confirm ‘full payment’ an opinion giver generally obtains an officers’ certificate to the effect that the Company has received the consideration called for by the directors in approving the issuance of the shares.”). The SEC’s order, however, does not allege that the attorney failed to obtain an officer’s certificates in support of her opinions. If she did obtain certificates, is the SEC claiming that attorneys have an obligation to investigate factual matters contained in certificates upon which the attorney expressly states that she relied? “Vor dem Gesetz steht ein Türhüter“

However, I was far more distressed to see the following statement in the SEC’s announcement because it completely misapprehends the responsibilities of lawyers in private practice: “Attorneys and auditors have a serious obligation as gatekeepers to protect the integrity of our markets, and the individuals we’ve charged in this case failed the investing public in their roles,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.”

Attorneys are most emphatically not gatekeepers – they are advisors to, and advocates for, their clients. See A Washington Fable For Our Time.

– Broc Romanek