On Tuesday, in my Financial Crisis seminar, we discussed the types of securities claims that have been filed by investors in mortgage-backed securities.  I opened by telling my students that one of the critical takeaway points is the importance of civil procedure.  The substance of the law matters, sure, but (as I posted when discussing class action standing), cases are won and lost on procedural grounds.

Case in point: Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, which was argued before the Supreme Court on Monday.  (Transcript here.)  Omnicare concerns the question of opinion-falsity in the context of claims under Section 11 of the Securities Act of 1933. 

Section 11 of the Securities Act imposes strict liability on issuers who include false statements of material fact in registration statements.  In a case called Virginia Bankshares, Inc. v. Sandberg, the Supreme Court held that even expressions of opinion may count as “material facts” for the purposes of the securities laws – such as, for example, a proxy statement that recommends a merger as “fair” to shareholders.  In Omnicare, the Supreme Court will decide what, exactly, it means for a statement of opinion to…

(demonstrating that variety isn’t always a good thing)

Well, Halloween was yesterday, but the chocolate-y remains will last for … at least another 5 3 2 hours.  Which brings me to this article on how, despite increases in chocolate prices, sales of chocolate continue to rise:

Chocolate candy sales for last Halloween hit $217 million, up 12 percent from the year before, the consumer market research firm Packaged Facts reported in September. For all of 2013, the American market for chocolate grew 4 percent, to $21 billion in sales. But chocolate lovers took a hit this summer, when Hershey and Mars announced price increases of 8 percent and 7 percent…  But don’t expect higher prices to dampen sales, analysts said….

Chocolate makers have also adopted a marketing strategy that is increasingly driving sales: the variety bag, a single package filled with several different types of bars. Mars said sales of the variety bag it introduced a few years ago (with Milky Ways, Three Musketeers and such) grew by 14.5 percent in 2012, accounting for 54 percent of its total Halloween sales growth, and have remained strong.

Scientists who research how our brains respond to food have another term for variety:

…

Minor Myers and Charles Korsmo have a new paper that compares fiduciary duty merger litigation to appraisal litigation to determine whether fiduciary duty claims add any value for shareholders. 

After scrutinizing takeover challenges between 2004 and 2013, they find that the larger the deal, the more likely it is to be targeted in a fiduciary duty class action.  By contrast, whether there is a smaller merger premium – regardless of deal size – does not appear to be correlated with class action litigation.  Appraisal litigation, however, works differently; plaintiffs who bring appraisal claims tend to do so when the merger premium is low, regardless of deal size.

They also found that fiduciary suits are not associated with an increase in merger consideration.  I.e., they do not generate statistically significant benefits to shareholders.

Myers and Korsmo conclude from this that fiduciary duty class actions are not usually based on merit, and that such actions are brought for their nuisance value.  They recommend changes to the structure of fiduciary litigation, such as allowing investors who acquire stock after the deal announcement to serve as lead plaintiff, and switching to an opt-in model.

But there’s a wrinkle that comes in the form of…

The Columbia Journalism Review blog reports:

Since 2008, one particular federal government agency has aggressively investigated leaks to the media, examining some one million emails sent by nearly 300 members of its staff, interviewing some 100 of its own employees and trolling the phone records of scores more.  It’s not the CIA, the Department of Justice or the National Security Agency.

It’s the Securities and Exchange Commission. …

All that effort was for naught. Despite the time and resources that have been poured into them, none of the SEC’s eight investigations in the past six years have uncovered the leakers.…

The article further points out that the SEC’s pursuit of leakers has ramped up in the wake of the financial crisis, and it has no problem with leaks (if you call them “leaks”) when the leaks make the agency look good.

The SEC’s argument is that it needs to protect against the release of market moving information, and I’m quite sympathetic to that point, but the leaks involved here seem to be at least in part about concealing internal problems or dissension within the agency.  

Considering how at least two Commissioners have recently spoken out about their…

One of the most complex issues in Section 10(b) litigation concerns loss causation, i.e., the question whether the fraud ultimately resulted in a loss to the plaintiffs.

The reason loss causation is so complex is because companies rarely simply admit to wrongdoing, out of the blue.  Most of the time, the “truth” behind the fraud – whatever that truth may be – is revealed gradually or indirectly.   The first revelations concerning an accounting fraud, for example, might simply be a drop in earnings, as the company tries to “make up” for past premature revenue recognition without admitting to wrongdoing.  A company might announce a slowdown in product sales without ever admitting that it had previously lied about the product’s features.  A key officer might resign without explanation.  And very often, the first rumblings of a problem come from the announcement of a government investigation – without any further details – that may or may not ultimately culminate in an enforcement action.

In response to any of these announcements, the company might experience a stock price drop, even though the market either is unaware of the possibility of fraud or uncertain as to whether a fraud exists and/or its scope.  In such situations, can the fraud be said to have “caused” a loss?

In a pair of decisions by the Fifth and Ninth Circuits, it appears that whether such early warning signals constitute “loss causation” depends very much on what happened later.

[More under the cut]

As I previously posted, this semester I’m co-teaching a seminar with an old law school friend, Tanya Marsh (well, seminar-ish – we ended up with 17 students) on the financial crisis.

A couple of weeks ago, I dedicated a class to the concept of “regulation by deal” – inspired Steven Davidoff Solomon and David Zaring’s article with that title.  We talked about how Treasury and the Fed used dealmaking approaches to save individual firms, and thus the economy as a whole, and the corporate law issues that the government’s approach raised (lots of great inspiration also came from Marcel Kahan and Edward Rock’s When the Government is the Controlling Shareholder).  I assigned excerpts of the Regulation by Deal article, as well excerpts from the complaint filed by Fannie & Freddie shareholders, the AIG complaint, and the SIGTARP report on AIG’s payments to counterparties.  We also talked about the mergers between JP Morgan and Bear Stearns, and between Bank of America and Merrill Lynch.

Well, it was lucky timing, because that class – by sheer happenstance – was scheduled just before the AIG trial began, and then earlier this week, the Fannie & Freddie complaint was dismissed. …

Today, the Supreme Court DIG’d (dismissed as improvidently granted) the cert petition in the Section 11 case of IndyMac, which means we will not, at least for now, get resolution on the issue of whether American Pipe tolling applies to statutes of repose.

To be honest, I’m really not surprised.  The DIG was apparently in response to an announcement of a settlement of most of the IndyMac claims, but that’s a bit odd, since the parties all agreed that the settlement left alive enough claims to render the case not moot (specifically, the plaintiffs’ claims against Goldman Sachs would proceed if the plaintiffs prevailed before the Supreme Court). 

But as I previously posted, I think IndyMac was in an awkward procedural posture to begin with. Not because the split wasn’t real, but because the entire issue regarding the statute of repose was necessarily intertwined with prior unsettled issues regarding class action standing and the scope of Rule 15c.  Frankly, I can’t help but wonder if the Justices saw the settlement as an excuse to get rid of a bad grant, and they grabbed it.

That just leaves one, and possibly two, Section 11 cases for the