January 8, 2015

Securities Litigation: Top 5 Developments in 2014

Here’s an excerpt from this blog by Lane & Powell’s Doug Greene:

This year will be remembered as the year of the Super Bowl of securities litigation, Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398 (2014), the case that finally gave the Supreme Court the opportunity to overrule the fraud-on-the-market presumption of reliance, established in 1988 in Basic v. Levinson.

Yet, for all the pomp and circumstance surrounding the case, Halliburton II may well have the lowest impact-to-fanfare ratio of any Supreme Court securities decision, ever. Indeed, it does not even make my list of the Top 5 most influential developments in 2014 – developments that foretell the types of securities and corporate-governance claims plaintiffs will bring in the future, how defendants will defend them, and the exposure they present.

Topping my Top 5 list is a forthcoming Supreme Court decision in a different, less-heralded case – Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund. Despite the lack of fanfare, Omnicare likely will have the greatest practical impact of any Supreme Court securities decision since the Court’s 2007 decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007). After discussing my Top 5, I explain why Halliburton II does not make the list.

Meanwhile, check out Kevin LaCroix’s “The Top Ten D&O Stories of 2014.”

The Role of Directors for CD&As

In this podcast, Rich Fields of Tapestry Networks provides some insight into the role of directors in CD&As, including:

– What do directors see as the purpose of the CD&A?
– How involved are they in creating and finalizing the CD&A?
– Are there any particularly challenging CD&A drafting decisions directors are thinking about?
– Any practical tips for CD&A drafting season?

Others May Seek Swap Reporting Delay Like Southwest

Here’s news from this blog by Steve Quinlivan: Reuters has an interesting article about a no-action letter the CFTC issued to Southwest Airlines to permit a 15 calendar day delay in reporting oil derivative transactions. Southwest apparently convinced the CFTC that rapid reporting caused markets to move against it, interfering with its ability to hedge. According to the Reuters article, Southwest had long sought an exception, and it was the arrival of now CFTC Chair Tim Massad that apparently shook things loose. The article explains that the relief ultimately granted Southwest was narrower than what was originally sought.

So the question now becomes whether others will seek similar relief. It looks like anyone asking for relief would have a high hurdle to surmount. In the Southwest no-action letter the CFTC noted:

The Division understands that Brent and WTI crude oil swap and swaption market with trading tenors 2 years or longer has few transactions and/or few market participants.

Accordingly, a shorter reporting timeline may increase the risk that the parties’ identities and their business transactions will be released, which may hinder the liquidity providers’ ability to lay off risk. The liquidity providers, in turn, are likely to build that risk into their transactions by imposing additional costs on their counterparties. The Division understands that these contracts are traded by or with Southwest.

The Division further understands that if two commercial end-users trade these contracts with each other, one or both sides to the transaction might be left with residual trades to execute in order to match their desired risk profile with their position. Once information on the original trade is released to the public, it is likely to be difficult for the end-user to execute the remainder of its desired trades. This may increase the costs of hedging to Southwest.

– Broc Romanek