Advanced Securities Regulation: Issues and Concerns Facing Today s Securities Practitioners Course Syllabus Spring Semester 2012

Transcription

1 Adjunct Professors: Advanced Securities Regulation: Issues and Concerns Facing Today s Securities Practitioners Course Syllabus Spring Semester 2012 Bradley J. Bondi Partner Cadwalader, Wickersham & Taft [email protected] Thomas A. Sporkin Chief, Office of Market Intelligence Securities and Exchange Commission [email protected] John Polise Associate Director, Market Oversight Securities and Exchange Commission [email protected] The required reading is set forth in the syllabus or distributed by the professors. There is no required book to purchase. Class Day, Time, and Location: 8:00 p.m. to 9:50 p.m. Hazel Hall 222 Office Hours: Immediately following class or another time at request. Feel free to any questions. Course Description: This securities course will introduce students to a range of important areas of concern for today s securities lawyer including but not limited to: SEC enforcement investigation and process topics; the role of SEC Inspections, Dodd, Frank requirements, Sarbanes-Oxley requirements and ethical concerns; insider trading; the interaction between SEC enforcement actions, criminal proceedings, and private securities class action lawsuits; the role of the five Commissioners at the SEC; the impact of regulations and loopholes on securities offerings; regulated entity and regulated individual compliance issues; the challenge of regulating the markets, including market structure; and strategic considerations in representing entities versus individuals, particularly concerning cooperation credit and attorney-client privilege waiver issues. The course will discuss legal theories and the practical application of those theories in real world scenarios. The course will feature several prominent speakers in the field of securities law. Class participation is required. Although there are no class prerequisites for this class, a basic knowledge of securities law through an introductory course is recommended. We will supplement our lectures by having top practitioners in securities law come to class to lecture on developing topics.

2 Grading: A final exam will be administered that will test the students on the topics covered during the duration of the semester. Students may be tested on both topics covered in class and topics addressed in the reading assignments (text and articles). The final examination will count for approximately 95% of your grade. Class participation will count for approximately 5% of your grade (one grade adjustment). If you plan to miss a class for whatever reason (illness, family, job interview, personal reason), please one of us in advance and simply let us know that you will not be present. You do not need to provide a reason. Given the dynamic nature of the subject, the syllabus is subject to change upon reasonable notice. Visual or Audio Recording Class: Visual and/or audio recording of class is not permitted unless a student submits a written request and receives prior permission from the professors. Disclaimer: The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed during the course are our own personal views, and they do not necessarily reflect the views of the SEC, any Commissioners, or of our colleagues on the staff of the SEC. Closing Thoughts: We are passionate about the practice of law, and in particular securities law. We hope to instill that same passion in students through non-pressured, but lively, class discussions about cutting-edge issues in securities regulation. Our goal is to create a fun and stimulating learning environment in which friendly debate is welcomed graciously. This will not be your normal, everyday law school class. We hope that you will enjoy the class as much as we will enjoy teaching it. We welcome your comments on the class during the duration of the semester. If you have any constructive criticism, please us. Also, if you have read any articles that you think may be of interest to the entire class, please let us know. It is an honor and a pleasure to teach this class, and we hope this will be an intellectually rewarding and fun class for you. (Continued to next page)

3 Advanced Securities Regulation: Course Schedule and Reading Assignments: January 10 January 17 Introduction of Class; History of the SEC Enforcement Program We will discuss the mission of the SEC and the role of self-regulatory organizations, private plaintiffs and defense counsel in securities law enforcement. Other topics will include the general statutory framework governing enforcement actions and the resource, policy and political considerations relevant to the SEC s Enforcement Division. Required reading: Paul S. Atkins and Bradley J. Bondi, Evaluating the Mission: A Critical Review of the History and Evolution of the SEC Enforcement Program, 13 Fordham Journal of Corp. & Financial Law 367 (June 2008) Exchange Act Sections 6, 15A and 10(b) and Rule 10b-5 Securities Act Sections 5 and 17 Suggested/Optional reading: Basic v. Levinson, 485 U.S. 224 (1988) (skim headnotes) SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (skim headnotes) William McLucas, A Practitioner s Guide to the SEC s Investigative and Enforcement Process, 70 Temple Law Review 53 (Spring 1997) (skim) Paul S. Atkins and Bradley J. Bondi, Forbes Commentary, Needed: Independent Panel To Evaluate SEC Enforcement Program, Forbes.com (July 7, 2008), available at Role of gatekeepers (Up-the-ladder reporting; SOX certification; Foreign Corrupt Practices Act); SEC Investigative Process Part I. A discussion of the role of the in-house and outside attorneys, internal accountants, independent auditors, audit committee of the board, officers and directors in financial reporting. Speech by Stephen M. Cutler to the UCLA School of Law, September 20, 2004, entitled: The Themes of Sarbanes-Oxley as Reflected in the Commission s Enforcement Program, available at: SEC Release (adopting rules implementing Sox 307) A.B.A. Model Rule of Professional Responsibility 1.13 A.B.A. Model Rule of Professional Responsibility 4.3

4 SEC Investigative Process Part II; Parallel Criminal Actions The genesis and development of an informal inquiry/formal investigation. We will discuss the SEC s investigative authority and various investigative techniques, including subpoenas compelling the production of documents and the testimony of witnesses, telephone interviews, and chronologies. We will also discuss the rights of witnesses, the manner in which the SEC enforces its subpoenas, the SEC s internal deliberative process, and ways in which the Enforcement Division coordinates its actions with the SEC s other divisions and offices and the SEC s cooperation with and referrals to or from self-regulatory organizations such as the FINRA and the various stock exchanges. We will briefly discuss the Enforcement Division s formal recommendations to the Commission and the various types of enforcement actions. This class also will address the difficulties and advantages created when SEC investigations proceed in tandem with a criminal investigation of the same conduct. Topics will include the investigative techniques available to the criminal authorities; the benefits of cooperation to the target of the investigation; the effect of immunity from prosecution; assertions of the Fifth Amendment privilege against self-incrimination; the effect of the Federal Sentencing Guidelines; the additional charges (such as money laundering, perjury, obstruction, false statements, bank fraud, wire fraud, mail fraud and tax fraud) available to criminal authorities; and the receptiveness of judges and juries to securities fraud cases. January 24 SEC Enforcement Manual (Selected Pages) SEC Form 1662 ( Supplemental Information for Persons Requested to Supply Information Voluntarily or Directed to Supply Information Pursuant to a Commission Subpoena ) SEC v. Dresser Industries, Inc., 628 F. 2d 1368 (D.C. Cir. 1980) United States v. Stringer, 521 F.3d 1189 (9th Cir. 2008) Insider Trading; Outsider Trading; and PIPE cases. The elements of the offense of insider trading, including the two basic theories of liability: the misappropriation theory and the classical theory. We will also discuss the liability of tippers and the lesser standard of liability for insider trading in the context of a tender offer. We will discuss other informational advantages between market players, such as selective disclosure to analysts by corporate officers, and the SEC s efforts to level the playing field. Dirks v. SEC, 463 U.S. 646 (1983) U.S. v. O Hagan, 117 S. Ct (1997) SEC v. Berry, C (N.D. Ca. Aug. 28, 2007)

5 January 31 Doroshko (District Court or 2d Cir. Opinion) Mark Cuban case (involving a PIPE offering) The Internal investigation and The Role of the Private Attorney Practicing Before The Commission This class will discuss will address the responsibilities of a private attorney practicing before the Commission, including the duty to protect attorneyclient privileged communications and attorney work product. Upjohn Co. v. United States, 449 U.S. 383 (1981) Federal Rule of Civil Procedure 26(b)(3) In re Grand Jury Subpoena, 415 F.3d 333 (4th Cir. 2005) American College of Trial Lawyers, Recommended Practices For Companies and Their Counsel in conducting Internal Investigations, February 2008 Internal Investigations and The Defense of Corporations in the Sarbanes- Oxley Era, by Robert S. Bennett, Alan Kriegal, Carl S. Rauh, and Charles F. Walker, The Business Lawyer, November 2006 Suggested/Optional Reading: In re Initial Public Offering Sec. Litig., 2008 WL (S.D.N.Y. Feb. 14, 2008) February 7 United States v. Schwimmer, 892 F. 2d 237 (2d Cir. 1989) A.B.A. Model Rule of Professional Responsibility 1.13 (Re-read) A.B.A. Model Rule of Professional Responsibility 4.3 (Re-read) A.B.A. Model Rule of Professional Responsibility 1.16 A.B.A. Model Rule of Professional Responsibility 1.9 Financial Accounting Fraud; Restatements Overview of Enforcement Division s role in ensuring that public corporations accurately report their financial results and fully disclose material information relating to the performance of the corporation. The difference between accounting mistakes and deliberate efforts to defraud the investing public. We will discuss the creation of financial statements, the role of the independent auditor in financial reporting, and the importance of accurate financial statements to investors. Topics will include the requisite mental state for fraud, i.e., scienter, individual and corporate responsibility for financial fraud, the likelihood for criminal prosecution, and the range of sanctions typically imposed in

6 February 14 February 21 February 28 financial fraud cases SEC Staff Accounting Bulletin 99 (materiality) In the Matter of Livent Corp., Exchange Act Rel. No (Jan. 13, 1999) Litigation Rel. No (January 13, 1999) SEC v. Jerald Banks, Litigation Rel. No (August 12, 1999) In the Matter of Sensormatic Electronics Corp., Exchange Act Rel. No (Mar. 25, 1998) Financial Statements Fraud The Basics (hard copy to be provided) Wells Process/ Role of the Commission Discussion of the settlement process and the preparation and utility of a Wells submission. Securities Act Release No (Sept. 27, 1972) (the Wells release); Paul S. Atkins and Bradley J. Bondi, Evaluating the Mission: A Critical Review of the History and Evolution of the SEC Enforcement Program, 13 Fordham Journal of Corp. & Financial Law 367 (June 2008) (Selected Pages) Issues in Corporation Finance: Duty to Disclose and No-Action Letters This class will discuss issues related to the preparation and disclosure of information by the issuer. We will discuss when a duty to disclose arises. Rule 8-K of the Securities Exchange Act of 1934 Regulation S-K (skim) Regulation S-X (skim) Select SEC No-Action Letters (tbd) Cooperation (criminal and civil) and waiver issues - Seaboard, SEC Cooperation Initiative, SEC Whistleblower provisions, Filip, Penalty State., DOJ Sentencing Guidelines We will discuss the possible rewards for cooperation and the issues relating to the government extracting information from a corporation. SEC Whistleblower rules Section 21(a) Report and Commission Statement on Cooperation ( Seaboard Report ) Statement of the Securities and Exchange Commission Concerning Financial Penalties, available at:

7 DOJ Sentencing Guidelines for an Organization (Selected Pages) Suggested/Optional Reading: Rule 502 of the Federal Rules of Evidence Principles of Prosecution of Business Organizations, Paul J. McNulty (December 12, 2006) ( McNulty Memo ) Week of March 7 DAG Filip letter to Senators Leahy and Specter re McNulty memo and privilege Urgenson, Bondi, and Chiou, When is Discretion the Better Part of Valor? Determining Whether To Disclose Criminal Conduct to the DOJ and SEC, Business Crimes Bulletin, Vol. 14, No. 5, January Remarks by Commissioner Paul Atkins to the Federalist Society Lawyers Chapter of Dallas, Texas (Jan. 18, 2008), available at SEC Brings Enforcement Action Against Banc of America Securities for repeated Document production Failures During a Pending Investigation, Rel (skim) The OTC market: Scams and Schemes in small cap securities and the SEC s approach March 14 March 20 March 27 SPRING RECESS Listed Markets: The Form and Operation of Capital Markets This class will provide an overview of capital market structure. We will build upon the concept of gatekeeper liability from January 19 th and discuss its application to regulated market professions such as broker-dealers and registered exchanges. We will review various developments in market structure including the impact of Regulation NMS and topical issues such as high frequency trading. We will discuss the self-regulatory model and whether this is an effective model in the 21 st century.. Concept Release on Equity Market Structure: New products, new registrants, new strategies and the likely impact of Dodd Frank provisions The class will discuss the regulation of derivatives, such as securities based swaps and examine new entities required to register under the Exchange Act, including Swap Dealers, Swap Execution Facilities, and Swap Data Repositories. The second part of the class will introduce the students to various strategies of equity trading, including High Frequency and Algorithmic models.

8 Watch 60 minutes piece on High Frequency Trading Watch 60 minutes piece on Bucket Shops Watch Frontline piece on Brooksley Born April 3 April 10 SEC Remedies - Issuer/Regulated Entity/Individual Discussion of the various remedies available to the SEC, including injunctions, cease-and-desist orders, officer and director bars, administrative sanctions, civil penalties, disgorgement, Section 21(a) reports and stop orders. Securities Exchange Act Section 27 Securities Exchange Act Section 29 Paul S. Atkins and Bradley J. Bondi, Evaluating the Mission: A Critical Review of the History and Evolution of the SEC Enforcement Program, 13 Fordham Journal of Corp. & Financial Law 367 (June 2008) (Selected Pages) Suggested/Optional Reading: The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 ( Remedies Act ) Pub. L. No , 104 Stat. 931 (1990) Senate Report No. 337, 101st Cong., 1st Sess., 18 (1990) Ralph Ferrara and Philip S. Khinda, Overview of an SEC Enforcement Proceeding Special Topics in Private Securities Litigation This class will address the latest issues in securities litigation and the current state of the law. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 366 (2005) Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc. (2008) Commissioner Paul S. Atkins, Stoneridge and the Rule of Law, The Wall Street Journal (Jan. 25, 2008), available at Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct (2007) (skim headnotes) Suggested/Optional Reading: Section 20 of the 34 Act In re Apple Computer Litigation, 886 F.2d 1109 (1989) Truth on the

9 April 17 Market case Credit Suisse Securities LLC v. Billing, 127 S. Ct (2007) (skim) Last Class; In-Class Review of the Semester; Evaluations Food and Drinks Provided. Please submit any review questions by by 5:00 p.m. on Sunday, April 12. TBA FINAL EXAMINATION