March 25, 2015

SCOTUS’ Omnicare: Pleading Standard for Section 11 Clarified

We’ll be posting the oodles of memos on yesterday’s Omnicare decision by the Supreme Court in our “Securities Litigation” Practice Area. Here’s a recap from this Proskauer memo (& see this Cooley blog):

The U.S. Supreme Court ruled today that a statement of opinion in a registration statement cannot be actionable as a misstatement of fact under § 11 of the Securities Act of 1933 if the issuer actually believed the opinion expressed. However, the statement of opinion can be actionable on an omissions theory if the registration statement omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion and if those omitted facts conflict with what a reasonable investor would have expected from a contextual reading of the statement of opinion. The decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund could lead to additional litigation about whether statements of opinion are actionable, but the Court imposed some important constraints on investors’ ability to assert § 11 claims predicated on statements of opinion.

SEC Chair White Addresses Status of Rulemakings (Vaguely)

Yesterday, SEC Chair White testified about the SEC’s budget before the House Financial Services Committee. Although the testimony included a rundown on pending – and upcoming – rulemakings, there really wasn’t much in the way of when things will actually happen (and no mention of crowdfunding), as reflected by this excerpt:

Corporation Finance, along with other Commission staff, continues to work to implement provisions of the Dodd-Frank Act relating to executive compensation matters and payments by resource extraction issuers. In addition, the staff is currently conducting the review of the accredited investor definition as it relates to natural persons as mandated by Section 413 of the Dodd-Frank Act.

Check out my blog about pressure that 58 House Dems are putting on the SEC to adopt the pay ratio rules. And this article notes the SEC has spent $2.75 million so far to write, enforce and litigate the conflict mineral rules…

Status: SEC Enforcement’s Ability to Get Defendants to Admit Guilt

Related to SEC Chair White’s speeches over the past few years about the criteria that the SEC will consider, this NY Times article gives a nice recap of how the SEC’s Enforcement program has been doing in getting defendants to admit guilt when settling an action. Here’s an excerpt:

The program represented a seismic shift in approach, but in practice it is still in its early stages. After two years, the S.E.C. has generated admissions of culpability in 18 different cases involving 19 companies and 10 individuals. Given the hundreds of settlements struck by the S.E.C. over this time, it is clear that most of the time defendants are still being allowed to settle without admitting to or denying the agency’s allegations.

S.E.C. officials say this age-old practice saves it from having to bring — and possibly lose — a case in court, allows the agency to return money to victims more quickly and conserves resources for other investigations. Nevertheless, S.E.C. enforcement officials say they believe the policy change has sent a crucial message. “Requiring admissions adds a powerful tool in appropriate cases, and it has been extremely successful and positive,” Mr. Ceresney said in a recent interview. “In cases where we have obtained admissions, it adds accountability, and that has been very important.” In determining what kinds of cases are likely to be subject to such treatment, the S.E.C. has given itself wide latitude.

Meanwhile, following up on my blog from a few days ago about the battle over ALJ use, SEC Enforcement Director Ceresney defended the SEC’s use of administrative law judges in a hearing of the House Financial Services Committee (see this SIFMA summary of the hearing and this article)…

– Broc Romanek