Back in July 2008 I discussed an emerging tactic in the defense of SEC enforcement actions: to settle the case against you in all respects except for the issue of the SEC’s demand for an officer and director bar, and to litigate the bar issue.  In October 2007, for example, Frank McPike, former interim CEO of a company called Competitive Technologies, reached a creative agreement in the SEC’s case against him for allegedly participating in a scheme to manipulate the stock price of CT.  He settled the SEC’s case against him with the exception of the demand for a bar, which he took to trial.  McPike later prevailed at trial in April 2008, when the court declined to impose a bar.

A case decided yesterday shows that not all defendants adopting this strategy will have the same success, however.  Richard Selden was the former CEO of Transkaryotic Therapies (”TKT”), a publicly-traded biotechnology company.  In 2005, the SEC filed an enforcement action against Selden alleging that he made misleading statements about TKT’s flagship drug.  In July 2008, Selden agreed to settle most of the SEC’s case against him by agreeing to an injunction to pay a $125,000 civil penalty and $1,041,417 in disgorgement and prejudgment interest related to his sales of TKT stock.  Like McPike, Selden refused to settle the SEC’s demand for an officer and director bar, instead choosing to litigate the issue.

That issue was resolved yesterday when a federal court ruled that Selden “is presently unfit to serve as an officer or director of a public company” and barred Selden from acting in such a role for two years. It is unclear whether the two year bar is better for Selden than what he could have achieved in a settlement, but the case shows that defendants will not always avoid an O&D bar by taking the issue to court.