LEVICK Weekly - Oct 5 2012


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Citizens United - Are Shareholder Revolts in the Offing?
Citibank & Social Media - Succeeding Where Banks Fear to Tread
Data Security in the Digital Age
Adjusting Executive Compensation Plans
Bankruptcy & Restructuring


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LEVICK Weekly - Oct 5 2012

  1. 1. EDITION 11Weekly October 5, 2012Amgen:A Supreme CourtCase With ImmenseBusiness ImpactHow American Airlines Can Get Backon TrackAvoiding Food Label LitigationWhat’s Next in the Boardroom:Greg Little on Criminal & CivilLitigation and InvestigationsSEC Rulemaking on Conflict Minerals& the JOBS ActLEVICK in the News
  2. 2. Amgen: It’s one of those historic Supreme Court cases that, while it may inspire a great deal less public interest than Obamacare or Citizens United, will nonetheless have a long-reaching impact on American business. Importantly, it should also inspire new vigilanceA Supreme Court among business leaders even if, in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, the nineCase With Immense judges deliver a totally pro-defense ruling.Business Impact Here are the facts. The Connecticut Retirement Plans & Trust Funds brought an action against Amgen involving misrepresentations that the resentations therefore could not have affected the stock price. As one commentator wryly observed, “not all lies are important: You canRichard S. Levick, Esq. pharmaceutical giant purportedly made to fudge your weight if [HUD] is considering youOriginally Published on Forbes.com the FDA regarding the safety of two products. for a janitor’s position, but not if NASA is fit- (Those products stimulate production of red ting you for a space suit.” blood cells and reduce the need for blood And on Wednesday, for what it’s worth, Amgen transfusions.) Connecticut Retirement Plans & shares reached an all-time high. Trust Funds specifically alleged that the com- pany then misrepresented those FDA meetings The key principle that Amgen relied on was that to shareholders. The plaintiff moved to cer- the plaintiff must prove at the class certification tify a class of persons who purchased Amgen stage that the misrepresentations were materi- stock between April 22, 2004 and May 10, 2007, al. But Amgen lost in district court, certification when two of the FDA meetings occurred. was granted, and the Ninth Circuit agreed. Amgen opposed certification, arguing that the Common perceptions might deem materiality misrepresentations had no impact on share a matter for juries to decide. In fact, however, price. At the district court level, the company “the Supreme Court has said in Wal-Mart that asserted that the truth fully entered the market a plaintiff seeking class certification must ‘af- anyway via FDA announcements as well as firmatively demonstrate’ his or her compliance analyst reports disclosing all material infor- with the requisites for class certification under mation regarding the safety of the drugs in Rule 23” of the Federal Rules of Civil Proce- question. In other words, the alleged misrep- dure, as Paul Ferrillo advises. “Simply put, the
  3. 3. Weekly “case law says that the plaintiff has to prove Guide, a primer on recent securities fraud casethat the misstatement was material,” adds Fer- law written for both businesspeople and legal ...not all lies are important: You can fudge yourrillo, a counsel at Weil, Gotshal & Manges LLP. practitioners. “In fact, there’s a significant split weight if [HUD] is considering you for a janitor’s in the circuit courts that might have been theLikewise at issue is Amgen’s right to rebut such driver for the Supreme Court to agree to hear position, but not if NASA is fitting you for a space suit.”proof if and when it must ultimately be present- the case.”ed. A Solomonic outcome is not inconceivableshould the plaintiffs be required at day’s end to In addition to the separate approach taken byprove materiality but, once they’ve done so, the the Third Circuit, “the Second Circuit, directly For business, the worst-case scenario is, that this best case doesn’t carry its own longer-defense cannot then challenge that proof. Or contrary to the Ninth Circuit, requires a plain- obviously, that SCOTUS will affirm plaintiff’s term risks for business as well. Here the issuethe opposite is also possible: a SCOTUS ruling tiff to prove materiality at the time of class position entirely, an all-the-more daunting involves more than legal procedure. It speaksthat plaintiffs do not have to prove materiality certification in order to gain the benefit of ‘the outcome considering how few avenues there broadly to investor confidence and public trustbut defendants can, as Robert Carangelo puts it, fraud on the market presumption,’ and [it] currently exist to challenge class certifications in what a company says to its stakeholders, and“rebut the presumption that a company’s disclo- allows a defendant to rebut such proof with in an environment where a company’s expo- to how fully transparent those communicationssure was material to investors. contrary evidence.” (The fraud on the market sure in a single case can total billions. Such a are—beyond what the law requires. theory, enunciated by the Supreme Court in“Such an approach is already taken in the decision by the Supreme Court will deprive the landmark Basic Inc. v. Levinson, requires The very existence of this decisive case be-Third Circuit,” adds Carangelo, a partner at businesses of a significant legal recourse, open- that a defendant’s material misrepresentation speaks need for such enhanced vigilance andWeil, Gotshal who, with Ferrillo and associ- ing the floodgates for an ever greater number regarding a security traded in an open market a corporate will to openly and fully impart badates David J. Schwartz and Matthew Altemeier, of class actions. was relied on by investors who then suffered a news. The danger for companies of a totallyhave authored the seventh edition of The 10b-5 loss as a result.) The rest is predictable: to avoid the untenable pro-Amgen outcome is that they might become expense of defending these multiple class ac- just a wee bit more confident that, if push tions, corporations will settle earlier and for comes to shove, they’re shielded by procedural higher amounts. The plaintiffs will have im- rules or otherwise effective legal strategies. mense new leverage and, in turn, another bur- All lies may not be equally “important” and den will be imposed on an already-beleaguered some may indeed be totally immaterial. But it’s economy as large companies do whatever they a bad habit to get into. L must do to shoulder the additional cost. Richard S. Levick, Esq., President and CEO of LEVICK, The best case is equally obvious: the Supreme represents countries and companies in the highest-stakes Court reverses entirely and finds that a plaintiff global communications matters—from the Wall Street must prove materiality to gain the further bene- crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. fit of the fraud on the market presumption. The leverage then switches back to the defendant. However, if the worst-case scenario is awfully bad under any circumstances, I’m not so sure
  4. 4. WeeklyHow American Airlines Avoiding Food Labelcan Get Back on Track Litigation Martin HahnGene GrabowskiLEVICK Executive Vice President Gene Grabowski discusses the problems currently confronting Martin Hahn, a Partner in the law firm of Hogan Lovells US LLP, continues our examination ofAmerican Airlines and outlines what the carrier can do to regain passenger confidence. class action lawsuits filed against food and beverage companies alleged to have misled consumers with questionable labeling.
  5. 5. What’s Next in theBoardroom:Greg Lit tle on Criminal & CivilLitigation and InvestigationsRichard S. Levick, Esq.Originally Published on LEVICK Daily
  6. 6. WeeklyOver the next several weeks, LEVICK Daily exceeding $1 million. The monetary awards duct leading to investor losses. By pursuing to whether your company is truly committed towill share selected interviews from our are significant and can range from ten to negligence-based claims, the SEC will increase solving a perceived problem or perpetuating it.recent NACD Directorship article entitled 30 percent of the total amount of sanctions the number of potential targets to include If the investigation proceeds to the second“What’s Next? The Top Issues of 2013 and recovered. The whistleblower bounty program those who had no intent to deceive investors stage where the regulators and/or prosecutorsBeyond.” Today, we feature a discussion of has been described by the SEC as a “game but simply did not act in a reasonable man- believe a problem exists, the company shouldcivil and criminal litigation and investiga- changer.” That description could prove to be ner. If a business decision results in significant make an objective assessment as to whethertions with Gregory Little, a Partner in the an understatement. At its peak, the SEC has shareholder loss, there may be a tendency to that is the case and, if so, demonstrate whyNew York office of White & Case. announced it was receiving 7-9 tips per day. view all actions and disclosures surrounding that problem is an aberration in an otherwise That number likely will increase dramatically that decision as unreasonable. The bottom lineMr. Little is a trial lawyer who counsels strong compliance program. If the board con- once payments have actually been made and is the SEC will potentially be bringing moreclients on successfully avoiding, resolving, cludes that the regulators and/or prosecutors publicized. claims with a significantly reduced burden ofand winning litigation. He has broad commer- are wrong about whether the problem exists, proof. This new focus will reinforce the needcial litigation experience, with an emphasis on What trends stand out most to you in the the company should work closely with them to for robust compliance programs.SEC enforcement actions, securities litigation, area of SEC enforcement? explain why the conclusion is erroneous.and product liability. In addition to leading How can boards of directors best serve a Gregory Little: There are several trends that Finally, if the regulators/prosecutors are ap-high-stakes corporate litigation strategy and company in the midst of a civil or criminal stand out in the area of SEC enforcement that parently committed to moving forward withserving as national coordinating counsel for investigation? could directly impact directors. In the past an enforcement action, the company must beFortune 10 companies, Mr. Little has been lead several years, the SEC has been involved in a Gregory Little: In most investigations, there prepared to show it is committed to winning intrial counsel in over 45 trials in state and fed- number of high-profile insider trading cases. are three distinct phases that require three court. Even if the company ultimately decideseral courts nationwide. Many of the allegations involved evidence distinct approaches. In the beginning stages of to resolve the dispute, the willingness and abil-At the conclusion of the interview, you can of directors of public companies providing the investigation, every effort should be made to ity to pose a vigorous defense will enhance thefind LEVICK’s own communications best material nonpublic information to friends and demonstrate to investigators that the company negotiating posture of the company. Lpractices appended. business associates. Insider trading cases, of intends to be part of the solution —not part of This post is excerpted from Richard Levick’s recent NACD course, have been around for years. However, the problem. Whether it is the SEC, the DOJ, or a Directorship feature “What’s Next? The Top Issues of 2013How is Dodd-Frank implementation recent cases have demonstrated that the SEC is state attorney general, regulators and prosecu- and Beyond.” To read the full article and learn more aboutmost dramatically affecting director the most significant issues impacting boardrooms today, working more closely with the Department of tors are very quick to make a determination asliability issues? click here. Justice and taking full advantage of the DOJ’sGregory Little: There are many provisions in ability to bring criminal actions and seek en-Dodd-Frank that impact director liability. The hanced investigatory powers like wiretaps andprovision that has the most potential impact informants. BEST COMMUNICATIONS PRACTICES:is the SEC whistleblower bounty program. At the other end of the spectrum, the SEC hasThis program authorizes the SEC to pay mon- also announced a willingness to pursue civil 1. New whistleblower rules have changed the game. Boards must ensure that all employees know every channel by which they canetary awards to whistleblowers who provide report compliance issues internally, before they turn to the government. cases in which defendants are accused of neg-information that relates to violation of the ligence only. Traditionally, the SEC pursued 2. Companies are naturally reticent to aggressively communicate on compliance. But the more they do, the more they condition thefederal securities laws and results in sanctions individuals engaged in intentional miscon- marketplace, investors, and regulators to give them the benefit of the doubt should trouble arise. 3. When it becomes clear that an investigation will result in charges, boards must ensure that companies articulate their willingness to aggressively defend against dubious allegations. At the very least, they strengthen their position at the bargaining table by doing so.
  7. 7. Powershif ts: Weekly Washington & Wall Street SEC Rulemaking on Conflict Minerals & the JOBS Act NACD BoardVision Tuesday, October 16th 8:00am–9:30am At The Washington Post 1150 15th Street NW The FCS presents “Powershifts: Washington & Wall Street”—a breakfast discussion on pre-election perspectives—what will change and what won’t. This week’s edition of NACD BoardVision focuses on SEC rulemaking. Join Steve Kalan, associate publisher of NACD Directorship, and Brian Breheny, partner at Skadden Arps, as they discuss the conflict minerals rule, the JOBS Act, and resource extraction and disclosure. Featuring Senior Executives from: Citi, GE Capital, LEVICK, T. Rowe Price, The Washington PostFinancial Communications For more information and to purchase ticketsLitigation go to www.fcsinteractive.comCorporate & ReputationPublic Affairs SPONSORED BY:Crisis Sign Up Today
  8. 8. IN THE NEWS ArticlesComputerworld | Friday, October 5, 2012Steve Jobs is missed, but Apple’s stronger now than a year ago, analysts sayThe Arizona Republic | Thursday, October 4, 2012Goodykoontz: Partisan politics drives coverageChicago Tribune | Tuesday, October 2, 2012Labor strife at American Airlines has passengers wary of delaysThe Los Angeles Times | Friday, October 1, 2012Delays at American Airlines take a toll on the company, fliers VideoThe AgeApple CEO apologises for Maps app The Wall Street Journal Digits Live: PR Crisis Lessons from THE URGENCY OF NOW. Apple’s Map Apology