Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending June 17.
Seventh Circuit Slams Plaintiffs' Lawyers in Sears Lawsuit
Joe Palazzolo, WSJ Law Blog
The Seventh Circuit Court of Appeals, in no uncertain terms, spiked a derivative lawsuit filed against the board of Sears Holdings on Wednesday, ruling that it “serves no goal other than to move money from the corporate treasury to the attorneys' coffers.” The lawsuit claimed that two members of Sears's board have directorships at other companies that compete with Sears, in violation of antitrust law.
The two investors who filed the lawsuit – Robert F. Booth Trust and Ronald Gross — did so without first demanding that the board fix the situation, presumably by booting the directors. This bit is important. Delaware, where Sears is incorporated, usually allows investors to sue derivatively only after a demand for action. Sears made that argument in federal district court, but it sank.
If, Just Hypothetically, Rajat Gupta Was Insider Trading, How Bad Would That Be?
Matt Levine, Dealbreaker
So let's overcorrect and declare him guilty and move right into sentencing. A while back I put up a chart that used some basic inputs and rudimentary knowledge of the sentencing guidelines to predict how insider traders would be sentenced, and it worked okay. In particular, it gave Raj Rajaratnam just over 10 years in jail; a judge gave him 11.*
Since then there have been more Galleon convictions and sentences, none of which are wildly out of line with predictions. There was also Garett Bauer and Matthew Kluger, the “thuggish” insider trader who got a record-setting sentence for their 17-year, $37mm insider trading scheme. Here's an update of the chart for Rajat Gupta's consideration.
Seeing Red Flags Where None Exist
Michael W. Peregrine, DealBook
Next month will be the 10th anniversary of the Sarbanes-Oxley Act. Ahead of this governance milestone, there have been numerous allegations of executive misconduct, excessive risk-taking, lax internal controls, unqualified directors and misuse of client money. In each instance, the inference is clear: if the leadership had not missed clear signals, scandals could have been averted. Though such “20/20 hindsight” has never been more prevalent, it is detrimental to ensuring that board members do their jobs.
Lost the Vote? Deny the Money
New York Times Editorial
The proposed cuts are the latest in a long series of efforts by Republicans to keep the government from tempering even the most economically dangerous desires of business. Having failed to prevent the enactment of Dodd-Frank and the new Consumer Financial Protection Bureau, they are imposing their will with what may be their most effective weapon — choking off the air supply of regulators by limiting the money they can spend. These agencies had already been hesitant to impose a real crackdown; the cuts will make the situation worse.
The appropriations bills will have to be negotiated with the Senate, but House leaders have often shown a willingness to let agencies and even the entire government shut down if such negotiations do not go their way.