News: Articles

In a welcome development for investors, the Securities and Exchange Commission is trying to force China-based affiliates of the “Big Four” accounting firms to disclose more information about their audits of clients who are later accused of fraud. The December 2012 SEC administrative action focuses on the auditors’ “work papers,” which until now they have refused to produce, citing Chinese laws aimed at protecting state secrets. The administrative action names as defendants the China-based affiliates of Deloitte Touche, Ernst & Young, PricewaterhouseCoopers, KPMG and that of a fifth firm, BDO International. These firms have so far resisted all efforts to discover their audit material, creating a major hurdle for U.S. investors suing Chinese-based companies trading on U.S. exchanges.

The number of new federal securities class actions brought last year fell by 19%, making 2012 the second-slowest year for new filings since 1997, according to a study issued last week by Cornerstone Research and Stanford Law School.

During her tenure as chairman of the U.S. Securities and Exchange Commission, Mary Schapiro restored the agency’s tarnished image and strengthened protections for shareholders. But she will leave behind much unfinished business for her successor, along with a deeply divided commission that remains under fire.

On November 14, 2012 the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) released their much anticipated Joint Guidance (the “Guide”) on the Foreign Corrupt Practices Act (“FCPA” or the “Act”), a 1977 law that outlaws bribery of foreign government officials and has been the focus of much attention by regulators, companies and shareholders in recent years. Although the Guide does not contain groundbreaking new information or significant policy changes, it does offer a useful summary of the state of the law. The Guide provides a discussion of the law itself, analysis of previous SEC and DOJ enforcement actions, a discussion of SEC and DOJ “guiding principles of enforcement,” and guidelines for creating effective corporate compliance programs. The Guide is a tool for those seeking to learn more about the law, as well as for professionals seeking to understand the SEC’s and DOJ’s approach to enforcement. Its issuance underscores the increasing importance of the FCPA in today’s global economy.

On Nov. 5, 2012, the United States Supreme Court heard oral arguments in its latest case to address issues of class certification, this time in the context of a securities fraud claim invoking the “fraud on the market” doctrine.

On Nov. 5, 2012, the U.S. Supreme Court heard oral arguments over whether class action plaintiffs must provide a trial court with admissible expert testimony sufficient to make a class-wide determination of damages in order to obtain class certification. While nominally dealing with an antitrust case, the Supreme Court’s eventual decision in Comcast Corp. v. Behrend,No. 11-864 could require trial courts to rule on the admissibility of damages models at class certification and may limit the viability of securities and other class actions by demanding that plaintiffs provide more than a plausible damages model before they can proceed on a class-wide basis.

U.S. pension funds will increasingly turn to foreign courts to recover money lost on securities purchased overseas, according to two new papers aimed at guiding institutional investors about best practices in securities litigation.