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WilmerHale brings unparalleled experience to matters involving the securities markets. NEVADA With more than 225 lawyers, our securities practice includes numerous former SEC officials, including former Directors of the Divisions of Enforcement, Market Regulation and Investment Management, as well as a former Regional Director of the Pacific Regional Office and a Deputy Director of the Division of Corporation Finance. Our team also includes former officials from the OREGON Commodity Futures Trading Commission, Federal Reserve Board, US Department of Justice, FBI and US Attorneys’ Offices.

Our approach is collaborative. Combining our diverse expertise into pragmatic solutions, WASHINGTON together we have: ■ Counseled clients in hundreds of matters before the DOJ, SEC, FINRA, NYSE, AMEX, state regulators and Congress, in the past five years alone

■ Defended more than 300 securities and market conduct class actions in the last decade WILMERHALE ON THE WEST COAST ■ Defended enforcement actions alleging financial reporting and disclosure violations, market 350 South Grand Avenue, Suite 2100, Los Angeles, California 90071 +1 213 443 5300 (t) WEST COAST SECURITIES LITIGATION & SEC ENFORCEMENT REPORT 2007 2008 manipulation, insider trading, and broker-dealer and investment management misconduct 1117 California Avenue, Palo Alto, California 94304 +1 650 858 6000 (t) ■ Conducted some of the most complicated and high-stakes internal investigations in corporate history, including those on behalf of directors of Enron, Qwest, WorldCom and UnitedHealth ■ Assisted financial services industry participants—including leading mutual fund groups, investment banks, broker-dealers, investment advisers and hedge funds—in navigating a range of sophisticated corporate compliance and regulatory issues

The results described herein are for informational purposes only and are not intended as predictors or guarantees of similar results in other matters.

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Wilmer Cutler Pickering Hale and Dorr llp is a Delaware limited liability partnership. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers regulated by the Solicitors’ Regulation Authority. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. This material is for general informational purposes only and does not represent our legal advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all relevant legal developments. Prior results do not guarantee a similar outcome. © 2008 Wilmer Cutler Pickering Hale and Dorr llp Attorney Advertising 08_028 VER 03/08 15000 nationwide, it is becoming cheaper SEC Enforcement Enforcement Snapshot substantial enforcement activity, reflecting financial services firms, investment to settle in the Ninth Circuit. Last the high concentration of such issuers fraud schemes and microcap fraud have In 2007, the SEC began sending formal letters year the median West Coast settlement Active SEC Enforcement Presence ■ SEC enforcement on the West in California and other western states. always been—and remain—at the core notifying companies that ($6 million) fell to its lowest point since With well over 100 attorneys, accountants Coast remained active in 2007. of the SEC’s enforcement program. they are no longer under 2004, and was 40 percent lower than the and investigators in Los Angeles and San Stock Option Investigations ■ The SEC brought enforcement investigation. national median ($9.6 million, the highest Francisco, the SEC’s enforcement staff By the end of 2007, California issuers The Future is Subprime actions against 136 individuals. since 2004). In our view, the comparatively remained aggressive throughout 2007, accounted for slightly more than half As the subprime market collapsed, the 2007 was a dangerous year for the roughly 1,600 public companies Cases involved misconduct at against future securities violations. These lower cost of West Coast class actions bringing enforcement actions that alleged of all stock options–related restatements, SEC launched a number of investigations, 72 public companies, 39 broker- individuals paid penalties ranging from and the many corporate officers and directors and other securities market participants is not surprising. Taken as a group, the misconduct at 72 public companies and including four of the five largest ones. concentrating in particular on Southern dealers and investment advisers, $15,000 to $540,000 (median of $75,000), recent wave of California cases appears 39 broker-dealers and investment advisers. California and, of course, Wall Street. in the western United States—Alaska, Arizona, California, Hawaii, Idaho, Montana, and 7 accounting firms. with several also agreeing to “disgorge” weaker than those filed in New York and These investigations encompass every California saw amounts well into the seven figures. About Nevada, Oregon and Washington. The US Securities and Exchange elsewhere, and—as in the past—negotiated Litigation Snapshot link in the chain of the subprime market, one third of those settlements resulted of corporate settlements reflect the financial condition 21% from mortgage lenders to investment Commission continued its vigorous scrutiny ■ Dramatic 56% jump in class actions 31% 4 of 5 in bars on an individual’s ability to serve of the defendant issuer and/or the 10% largest restatements banks, with a focus on valuation, in the West—representing roughly as a public company director or officer. malfeasance (real or perceived), often in conjunction with federal criminal prosecutors. in options cases disclosure and sales practices. By the magnitude of the market loss. one quarter of all securities class 38% nationwide. end of 2007, federal criminal prosecutors The past year also saw a sharp increase in securities class actions, actions nationwide. Challenges in Resolving Cases Favorable dismissal rates may have— and state and local authorities had also once again making public companies in the Ninth Circuit—and in California, ■ Industries affected SEC investigations are typically long and indeed, should have—encouraged ■ Investors sued 44 public The SEC and the US Department of joined the fray. Many of these matters by securities enforcement expensive, and resolving them in a timely in particular—the . We looked back plaintiffs’ lawyers to scale back their companies in the Ninth Circuit: Justice brought a number of highly will prove to be massive in scope and most vulnerable in the nation (federal court actions) manner has always been a challenge. In expectations by settling earlier and for less 35 in California, 6 in Washington, publicized cases, both civil and criminal, extraordinarily complex—meaning we to understand why regulatory and private litigation risks were so great last year, Technology 31% 2007, there appeared to be a significant than in years past. (Plaintiffs’ lawyers do 2 in Nevada, and 1 in Arizona. and moved to focus their efforts after expect that subprime-related investigative Financial Services 38% bottleneck at the SEC for those seeking and in the process found some cause for optimism in 2008. not, however, seem to be discounting their initially casting a wide net. Although activity will continue intensively (if ■ California issuers were at higher Life Sciences 10% to settle or otherwise resolve investigations. own compensation—fee awards are still numerous investigations are still not accelerate) throughout 2008. risk than those nationwide, Other 21% We expect this trend to continue in 2008, pending, the SEC has placed a high running around 25 percent of the recovery and technology companies saw further complicating negotiations with ■ Federal court judgments entered priority on concluding the bulk of these Settlement Trends achieved for the investor clients, a payday significantly more litigation activity against 6 companies, with civil The vast majority of SEC cases are resolved the SEC. In a welcome development, collateralized debt obligations, and other The only two securities class actions tried roughly on a par with nationwide averages.) than any other sector. options-related matters in 2008. Securities Litigation penalties ranging from $75,000 through settlement. Although the SEC last year the SEC formalized a policy structured products. Plaintiffs’ lawyers last year were in the Ninth Circuit. An of notifying those under investigation Marked Increase in Class Actions Stock Option Litigation to $28 million. One of the most noteworthy trends in continues to seek stiff sanctions in its exploited the broad market downturn Oakland jury handed the defendants a when it had closed the file (as opposed Investors sued 44 public companies in the The plaintiffs’ bar aggressively moved this area was the aggressiveness with settlements, the eye-popping amounts during the fourth quarter, filing lawsuits victory in JDS Uniphase Corp. Sec. Litig., 34% ■ Federal court judgments entered to simply going silent). A number of West in 2007, a striking 56 percent increase to leverage restatements and government 36% which corporate boards moved to of several years ago are now much less that attributed industry-wide investment while a Phoenix jury did the opposite by against 37 individuals, with civil West Coast issuers received closing over 2006, reversing what some had hoped enforcement actions relating to stock conduct independent investigations and common. The SEC’s demands have been losses to “fraud.” The upswing in filings awarding $280 million to the plaintiffs in 15% 15% penalties ranging from $15,000 letters, which lifted the cloud of was a permanent post-Enron decline in options issues into class and derivative to terminate executives based on some tempered to some degree, reflecting both was also likely driven by increased capacity Apollo Group Inc. Sec. Litig. In addition, the to $540,000 (median of $75,000). uncertainty that hangs over companies securities class actions. More cases were litigation—with mixed results. Ninth purported evidence of misconduct, long at the dozen-plus law firms that bring most Court of Appeals reversed a defense verdict ■ ■ Industries affected ■ 13 individuals received orders before any government enforcement action and individuals under investigation. brought against US issuers in the Ninth of these class actions. Having concluded in Miller v. Thane Int’l, sending it back to Circuit courts have been far less receptive 2007 saw 13 orders barring by securities litigation barring them from serving as public occurred. Never before have we seen so Circuit than anywhere else, accounting the analyst research and market timing a California district court for a new trial. to these cases than have courts in other Technology 36% individuals from serving company directors or officers. many casualties, so quickly. We estimate Looking Ahead in 2008 for nearly one quarter of all class actions cases brought years earlier, the plaintiffs’ These rare class action trials mean little regions. Since September, class actions Financial Services 15% as public company Several individuals agreed to that more than 50 C-level and other senior brought nationwide. Last year, a California- lawyers sought to replenish their case in the big picture. Not only do last year’s against Amkor Technologies (Arizona), Life Sciences 15% directors or officers. As the year continues, we expect “disgorge” amounts well into the executives (and several outside directors) based issuer was sued about every 10 inventory in 2007 by casting a wider net. wins and losses cancel each other out, it Apple and Hansen Natural (California) Other 34% to see the following: seven figures. have parted ways from West Coast issuers days and was 63 percent more likely to is unlikely that filing rates or settlement have been thrown out, while courts a philosophical shift and the growing ■ Median settlement cost fell to for reasons related to stock options. ■ be sued than the average domestic issuer. Many Dismissals, Rare Trials prices will change in 2008 because a in New York and New England have realization that its settlement expectations Accelerated resolution of stock $6 million in the western United Last year more class actions were dismissed allowed similar cases to go forward. All told, cases were brought against may exceed the sanctions it could obtain options–related SEC investigations small number of lawsuits went to trial. States—the lowest since 2004, What Else besides Stock Options? (29) than settled (18) in the Ninth Circuit. 136 individuals and involved 118 in a litigated proceeding. But the SEC and shareholder cases A California public and 40% below national median Although options-related investigations We expect the favorable dismissal/ Favorable Settlement Trend West Coast issuers successfully defended businesses on the West Coast. still wields considerable leverage, and company was ($9.6 million). dominated the headlines for much of last ■ Increased pace and expanded settlement ratio to continue throughout The 18 class actions that settled in 2007 a larger number of shareholder derivative this fact—plus the high economic and year, the SEC pursued a number of other scope of subprime market 2008, in part because a number of the provide cause for optimism. At the same actions; by year end, courts had dismissed ■ Most cases settled between The financial services industry attracted other costs of litigation—means that 63% enforcement priorities in 2007, which investigations more likely to be sued recently filed complaints appear primed for time that settlement costs are skyrocketing 14 such cases and allowed only two 3 and 4 years after filing the most scrutiny, not surprising in light settlement remains the best option for we expect to remain largely unchanged than the average early dismissal. The continued willingness to proceed. A handful of technology (median 3.7 years). of the SEC’s role as primary regulator for most defendants. Last year, companies ■ Greater SEC focus on Foreign in 2008. These include cases arising domestic issuer. of West Coast courts to toss out these cases issuers opted to settle eight derivative broker-dealers and mutual fund advisers. based on the West Coast paid civil penalties Corrupt Practices Act and insider The median West Coast ■ Plaintiffs’ attorneys again were from the subprime crisis, insider trading trading cases confirms our view that last year’s spike in or class actions, including those filed by Many of these cases arose from inspections ranging from $75,000 to $28 million to settlement dropped well paid—fees ranged from violations, the Foreign Corrupt Practices Why the surge in filings? The subprime shareholders of McAfee, Rambus and by the SEC’s field examiners, who conduct resolve SEC charges, while almost 40 filings was the product of opportunistic to $6 million—nearly $280,000 to $4 million, with an Act, and the municipal securities market. ■ Moderate increase in class action crisis precipitated lawsuits against a Vitesse. We expect this trend to continue compliance reviews of regulated financial corporate officers, directors and other lawyers in a falling stock market, and not average fee award of $1.7 million In addition, public company disclosure filings, including challenges to cost number of financial services firms and as the SEC and Department of Justice’s services firms. The technology and market participants found closure by an indication that corporate malfeasance 40% and a median award of $980,000. and accounting cases, misconduct by accounting, reserves, and MD&A others involved with mortgage loans, is on the rise. below the national median. investigations begin to wind down. life sciences industries once again saw consenting to federal court injunctions nationwide, it is becoming cheaper SEC Enforcement Enforcement Snapshot substantial enforcement activity, reflecting financial services firms, investment to settle in the Ninth Circuit. Last the high concentration of such issuers fraud schemes and microcap fraud have In 2007, the SEC began sending formal letters year the median West Coast settlement Active SEC Enforcement Presence ■ SEC enforcement on the West in California and other western states. always been—and remain—at the core notifying companies that ($6 million) fell to its lowest point since With well over 100 attorneys, accountants Coast remained active in 2007. of the SEC’s enforcement program. they are no longer under 2004, and was 40 percent lower than the and investigators in Los Angeles and San Stock Option Investigations ■ The SEC brought enforcement investigation. national median ($9.6 million, the highest Francisco, the SEC’s enforcement staff By the end of 2007, California issuers The Future is Subprime actions against 136 individuals. since 2004). In our view, the comparatively remained aggressive throughout 2007, accounted for slightly more than half As the subprime market collapsed, the 2007 was a dangerous year for the roughly 1,600 public companies Cases involved misconduct at against future securities violations. These lower cost of West Coast class actions bringing enforcement actions that alleged of all stock options–related restatements, SEC launched a number of investigations, 72 public companies, 39 broker- individuals paid penalties ranging from and the many corporate officers and directors and other securities market participants is not surprising. Taken as a group, the misconduct at 72 public companies and including four of the five largest ones. concentrating in particular on Southern dealers and investment advisers, $15,000 to $540,000 (median of $75,000), recent wave of California cases appears 39 broker-dealers and investment advisers. California and, of course, Wall Street. in the western United States—Alaska, Arizona, California, Hawaii, Idaho, Montana, and 7 accounting firms. with several also agreeing to “disgorge” weaker than those filed in New York and These investigations encompass every California saw amounts well into the seven figures. About Nevada, Oregon and Washington. The US Securities and Exchange elsewhere, and—as in the past—negotiated Litigation Snapshot link in the chain of the subprime market, one third of those settlements resulted of corporate settlements reflect the financial condition 21% from mortgage lenders to investment Commission continued its vigorous scrutiny ■ Dramatic 56% jump in class actions 31% 4 of 5 in bars on an individual’s ability to serve of the defendant issuer and/or the 10% largest restatements banks, with a focus on valuation, in the West—representing roughly as a public company director or officer. malfeasance (real or perceived), often in conjunction with federal criminal prosecutors. in options cases disclosure and sales practices. By the magnitude of the market loss. one quarter of all securities class 38% nationwide. end of 2007, federal criminal prosecutors The past year also saw a sharp increase in securities class actions, actions nationwide. Challenges in Resolving Cases Favorable dismissal rates may have— and state and local authorities had also once again making public companies in the Ninth Circuit—and in California, ■ Industries affected SEC investigations are typically long and indeed, should have—encouraged ■ Investors sued 44 public The SEC and the US Department of joined the fray. Many of these matters by securities enforcement expensive, and resolving them in a timely in particular—the . We looked back plaintiffs’ lawyers to scale back their companies in the Ninth Circuit: Justice brought a number of highly will prove to be massive in scope and most vulnerable in the nation (federal court actions) manner has always been a challenge. In expectations by settling earlier and for less 35 in California, 6 in Washington, publicized cases, both civil and criminal, extraordinarily complex—meaning we to understand why regulatory and private litigation risks were so great last year, Technology 31% 2007, there appeared to be a significant than in years past. (Plaintiffs’ lawyers do 2 in Nevada, and 1 in Arizona. and moved to focus their efforts after expect that subprime-related investigative Financial Services 38% bottleneck at the SEC for those seeking and in the process found some cause for optimism in 2008. not, however, seem to be discounting their initially casting a wide net. Although activity will continue intensively (if ■ California issuers were at higher Life Sciences 10% to settle or otherwise resolve investigations. own compensation—fee awards are still numerous investigations are still not accelerate) throughout 2008. risk than those nationwide, Other 21% We expect this trend to continue in 2008, pending, the SEC has placed a high running around 25 percent of the recovery and technology companies saw further complicating negotiations with ■ Federal court judgments entered priority on concluding the bulk of these Settlement Trends achieved for the investor clients, a payday significantly more litigation activity against 6 companies, with civil The vast majority of SEC cases are resolved the SEC. In a welcome development, collateralized debt obligations, and other The only two securities class actions tried roughly on a par with nationwide averages.) than any other sector. options-related matters in 2008. Securities Litigation penalties ranging from $75,000 through settlement. Although the SEC last year the SEC formalized a policy structured products. Plaintiffs’ lawyers last year were in the Ninth Circuit. An of notifying those under investigation Marked Increase in Class Actions Stock Option Litigation to $28 million. One of the most noteworthy trends in continues to seek stiff sanctions in its exploited the broad market downturn Oakland jury handed the defendants a when it had closed the file (as opposed Investors sued 44 public companies in the The plaintiffs’ bar aggressively moved this area was the aggressiveness with settlements, the eye-popping amounts during the fourth quarter, filing lawsuits victory in JDS Uniphase Corp. Sec. Litig., 34% ■ Federal court judgments entered to simply going silent). A number of West in 2007, a striking 56 percent increase to leverage restatements and government 36% which corporate boards moved to of several years ago are now much less that attributed industry-wide investment while a Phoenix jury did the opposite by against 37 individuals, with civil West Coast issuers received closing over 2006, reversing what some had hoped enforcement actions relating to stock conduct independent investigations and common. The SEC’s demands have been losses to “fraud.” The upswing in filings awarding $280 million to the plaintiffs in 15% 15% penalties ranging from $15,000 letters, which lifted the cloud of was a permanent post-Enron decline in options issues into class and derivative to terminate executives based on some tempered to some degree, reflecting both was also likely driven by increased capacity Apollo Group Inc. Sec. Litig. In addition, the to $540,000 (median of $75,000). uncertainty that hangs over companies securities class actions. More cases were litigation—with mixed results. Ninth purported evidence of misconduct, long at the dozen-plus law firms that bring most Court of Appeals reversed a defense verdict ■ ■ Industries affected ■ 13 individuals received orders before any government enforcement action and individuals under investigation. brought against US issuers in the Ninth of these class actions. Having concluded in Miller v. Thane Int’l, sending it back to Circuit courts have been far less receptive 2007 saw 13 orders barring by securities litigation barring them from serving as public occurred. Never before have we seen so Circuit than anywhere else, accounting the analyst research and market timing a California district court for a new trial. to these cases than have courts in other Technology 36% individuals from serving company directors or officers. many casualties, so quickly. We estimate Looking Ahead in 2008 for nearly one quarter of all class actions cases brought years earlier, the plaintiffs’ These rare class action trials mean little regions. Since September, class actions Financial Services 15% as public company Several individuals agreed to that more than 50 C-level and other senior brought nationwide. Last year, a California- lawyers sought to replenish their case in the big picture. Not only do last year’s against Amkor Technologies (Arizona), Life Sciences 15% directors or officers. As the year continues, we expect “disgorge” amounts well into the executives (and several outside directors) based issuer was sued about every 10 inventory in 2007 by casting a wider net. wins and losses cancel each other out, it Apple and Hansen Natural (California) Other 34% to see the following: seven figures. have parted ways from West Coast issuers days and was 63 percent more likely to is unlikely that filing rates or settlement have been thrown out, while courts a philosophical shift and the growing ■ Median settlement cost fell to for reasons related to stock options. ■ be sued than the average domestic issuer. Many Dismissals, Rare Trials prices will change in 2008 because a in New York and New England have realization that its settlement expectations Accelerated resolution of stock $6 million in the western United Last year more class actions were dismissed allowed similar cases to go forward. All told, cases were brought against may exceed the sanctions it could obtain options–related SEC investigations small number of lawsuits went to trial. States—the lowest since 2004, What Else besides Stock Options? (29) than settled (18) in the Ninth Circuit. 136 individuals and involved 118 in a litigated proceeding. But the SEC and shareholder cases A California public and 40% below national median Although options-related investigations We expect the favorable dismissal/ Favorable Settlement Trend West Coast issuers successfully defended businesses on the West Coast. still wields considerable leverage, and company was ($9.6 million). dominated the headlines for much of last ■ Increased pace and expanded settlement ratio to continue throughout The 18 class actions that settled in 2007 a larger number of shareholder derivative this fact—plus the high economic and year, the SEC pursued a number of other scope of subprime market 2008, in part because a number of the provide cause for optimism. At the same actions; by year end, courts had dismissed ■ Most cases settled between The financial services industry attracted other costs of litigation—means that 63% enforcement priorities in 2007, which investigations more likely to be sued recently filed complaints appear primed for time that settlement costs are skyrocketing 14 such cases and allowed only two 3 and 4 years after filing the most scrutiny, not surprising in light settlement remains the best option for we expect to remain largely unchanged than the average early dismissal. The continued willingness to proceed. A handful of technology (median 3.7 years). of the SEC’s role as primary regulator for most defendants. Last year, companies ■ Greater SEC focus on Foreign in 2008. These include cases arising domestic issuer. of West Coast courts to toss out these cases issuers opted to settle eight derivative broker-dealers and mutual fund advisers. based on the West Coast paid civil penalties Corrupt Practices Act and insider The median West Coast ■ Plaintiffs’ attorneys again were from the subprime crisis, insider trading trading cases confirms our view that last year’s spike in or class actions, including those filed by Many of these cases arose from inspections ranging from $75,000 to $28 million to settlement dropped well paid—fees ranged from violations, the Foreign Corrupt Practices Why the surge in filings? The subprime shareholders of McAfee, Rambus and by the SEC’s field examiners, who conduct resolve SEC charges, while almost 40 filings was the product of opportunistic to $6 million—nearly $280,000 to $4 million, with an Act, and the municipal securities market. ■ Moderate increase in class action crisis precipitated lawsuits against a Vitesse. We expect this trend to continue compliance reviews of regulated financial corporate officers, directors and other lawyers in a falling stock market, and not average fee award of $1.7 million In addition, public company disclosure filings, including challenges to cost number of financial services firms and as the SEC and Department of Justice’s services firms. The technology and market participants found closure by an indication that corporate malfeasance 40% and a median award of $980,000. and accounting cases, misconduct by accounting, reserves, and MD&A others involved with mortgage loans, is on the rise. below the national median. investigations begin to wind down. life sciences industries once again saw consenting to federal court injunctions nationwide, it is becoming cheaper SEC Enforcement Enforcement Snapshot substantial enforcement activity, reflecting financial services firms, investment to settle in the Ninth Circuit. Last the high concentration of such issuers fraud schemes and microcap fraud have In 2007, the SEC began sending formal letters year the median West Coast settlement Active SEC Enforcement Presence ■ SEC enforcement on the West in California and other western states. always been—and remain—at the core notifying companies that ($6 million) fell to its lowest point since With well over 100 attorneys, accountants Coast remained active in 2007. of the SEC’s enforcement program. they are no longer under 2004, and was 40 percent lower than the and investigators in Los Angeles and San Stock Option Investigations ■ The SEC brought enforcement investigation. national median ($9.6 million, the highest Francisco, the SEC’s enforcement staff By the end of 2007, California issuers The Future is Subprime actions against 136 individuals. since 2004). In our view, the comparatively remained aggressive throughout 2007, accounted for slightly more than half As the subprime market collapsed, the 2007 was a dangerous year for the roughly 1,600 public companies Cases involved misconduct at against future securities violations. These lower cost of West Coast class actions bringing enforcement actions that alleged of all stock options–related restatements, SEC launched a number of investigations, 72 public companies, 39 broker- individuals paid penalties ranging from and the many corporate officers and directors and other securities market participants is not surprising. Taken as a group, the misconduct at 72 public companies and including four of the five largest ones. concentrating in particular on Southern dealers and investment advisers, $15,000 to $540,000 (median of $75,000), recent wave of California cases appears 39 broker-dealers and investment advisers. California and, of course, Wall Street. in the western United States—Alaska, Arizona, California, Hawaii, Idaho, Montana, and 7 accounting firms. with several also agreeing to “disgorge” weaker than those filed in New York and These investigations encompass every California saw amounts well into the seven figures. About Nevada, Oregon and Washington. The US Securities and Exchange elsewhere, and—as in the past—negotiated Litigation Snapshot link in the chain of the subprime market, one third of those settlements resulted of corporate settlements reflect the financial condition 21% from mortgage lenders to investment Commission continued its vigorous scrutiny ■ Dramatic 56% jump in class actions 31% 4 of 5 in bars on an individual’s ability to serve of the defendant issuer and/or the 10% largest restatements banks, with a focus on valuation, in the West—representing roughly as a public company director or officer. malfeasance (real or perceived), often in conjunction with federal criminal prosecutors. in options cases disclosure and sales practices. By the magnitude of the market loss. one quarter of all securities class 38% nationwide. end of 2007, federal criminal prosecutors The past year also saw a sharp increase in securities class actions, actions nationwide. Challenges in Resolving Cases Favorable dismissal rates may have— and state and local authorities had also once again making public companies in the Ninth Circuit—and in California, ■ Industries affected SEC investigations are typically long and indeed, should have—encouraged ■ Investors sued 44 public The SEC and the US Department of joined the fray. Many of these matters by securities enforcement expensive, and resolving them in a timely in particular—the . We looked back plaintiffs’ lawyers to scale back their companies in the Ninth Circuit: Justice brought a number of highly will prove to be massive in scope and most vulnerable in the nation (federal court actions) manner has always been a challenge. In expectations by settling earlier and for less 35 in California, 6 in Washington, publicized cases, both civil and criminal, extraordinarily complex—meaning we to understand why regulatory and private litigation risks were so great last year, Technology 31% 2007, there appeared to be a significant than in years past. (Plaintiffs’ lawyers do 2 in Nevada, and 1 in Arizona. and moved to focus their efforts after expect that subprime-related investigative Financial Services 38% bottleneck at the SEC for those seeking and in the process found some cause for optimism in 2008. not, however, seem to be discounting their initially casting a wide net. Although activity will continue intensively (if ■ California issuers were at higher Life Sciences 10% to settle or otherwise resolve investigations. own compensation—fee awards are still numerous investigations are still not accelerate) throughout 2008. risk than those nationwide, Other 21% We expect this trend to continue in 2008, pending, the SEC has placed a high running around 25 percent of the recovery and technology companies saw further complicating negotiations with ■ Federal court judgments entered priority on concluding the bulk of these Settlement Trends achieved for the investor clients, a payday significantly more litigation activity against 6 companies, with civil The vast majority of SEC cases are resolved the SEC. In a welcome development, collateralized debt obligations, and other The only two securities class actions tried roughly on a par with nationwide averages.) than any other sector. options-related matters in 2008. Securities Litigation penalties ranging from $75,000 through settlement. Although the SEC last year the SEC formalized a policy structured products. Plaintiffs’ lawyers last year were in the Ninth Circuit. An of notifying those under investigation Marked Increase in Class Actions Stock Option Litigation to $28 million. One of the most noteworthy trends in continues to seek stiff sanctions in its exploited the broad market downturn Oakland jury handed the defendants a when it had closed the file (as opposed Investors sued 44 public companies in the The plaintiffs’ bar aggressively moved this area was the aggressiveness with settlements, the eye-popping amounts during the fourth quarter, filing lawsuits victory in JDS Uniphase Corp. Sec. Litig., 34% ■ Federal court judgments entered to simply going silent). A number of West in 2007, a striking 56 percent increase to leverage restatements and government 36% which corporate boards moved to of several years ago are now much less that attributed industry-wide investment while a Phoenix jury did the opposite by against 37 individuals, with civil West Coast issuers received closing over 2006, reversing what some had hoped enforcement actions relating to stock conduct independent investigations and common. The SEC’s demands have been losses to “fraud.” The upswing in filings awarding $280 million to the plaintiffs in 15% 15% penalties ranging from $15,000 letters, which lifted the cloud of was a permanent post-Enron decline in options issues into class and derivative to terminate executives based on some tempered to some degree, reflecting both was also likely driven by increased capacity Apollo Group Inc. Sec. Litig. In addition, the to $540,000 (median of $75,000). uncertainty that hangs over companies securities class actions. More cases were litigation—with mixed results. Ninth purported evidence of misconduct, long at the dozen-plus law firms that bring most Court of Appeals reversed a defense verdict ■ ■ Industries affected ■ 13 individuals received orders before any government enforcement action and individuals under investigation. brought against US issuers in the Ninth of these class actions. Having concluded in Miller v. Thane Int’l, sending it back to Circuit courts have been far less receptive 2007 saw 13 orders barring by securities litigation barring them from serving as public occurred. Never before have we seen so Circuit than anywhere else, accounting the analyst research and market timing a California district court for a new trial. to these cases than have courts in other Technology 36% individuals from serving company directors or officers. many casualties, so quickly. We estimate Looking Ahead in 2008 for nearly one quarter of all class actions cases brought years earlier, the plaintiffs’ These rare class action trials mean little regions. Since September, class actions Financial Services 15% as public company Several individuals agreed to that more than 50 C-level and other senior brought nationwide. Last year, a California- lawyers sought to replenish their case in the big picture. Not only do last year’s against Amkor Technologies (Arizona), Life Sciences 15% directors or officers. As the year continues, we expect “disgorge” amounts well into the executives (and several outside directors) based issuer was sued about every 10 inventory in 2007 by casting a wider net. wins and losses cancel each other out, it Apple and Hansen Natural (California) Other 34% to see the following: seven figures. have parted ways from West Coast issuers days and was 63 percent more likely to is unlikely that filing rates or settlement have been thrown out, while courts a philosophical shift and the growing ■ Median settlement cost fell to for reasons related to stock options. ■ be sued than the average domestic issuer. Many Dismissals, Rare Trials prices will change in 2008 because a in New York and New England have realization that its settlement expectations Accelerated resolution of stock $6 million in the western United Last year more class actions were dismissed allowed similar cases to go forward. All told, cases were brought against may exceed the sanctions it could obtain options–related SEC investigations small number of lawsuits went to trial. States—the lowest since 2004, What Else besides Stock Options? (29) than settled (18) in the Ninth Circuit. 136 individuals and involved 118 in a litigated proceeding. But the SEC and shareholder cases A California public and 40% below national median Although options-related investigations We expect the favorable dismissal/ Favorable Settlement Trend West Coast issuers successfully defended businesses on the West Coast. still wields considerable leverage, and company was ($9.6 million). dominated the headlines for much of last ■ Increased pace and expanded settlement ratio to continue throughout The 18 class actions that settled in 2007 a larger number of shareholder derivative this fact—plus the high economic and year, the SEC pursued a number of other scope of subprime market 2008, in part because a number of the provide cause for optimism. At the same actions; by year end, courts had dismissed ■ Most cases settled between The financial services industry attracted other costs of litigation—means that 63% enforcement priorities in 2007, which investigations more likely to be sued recently filed complaints appear primed for time that settlement costs are skyrocketing 14 such cases and allowed only two 3 and 4 years after filing the most scrutiny, not surprising in light settlement remains the best option for we expect to remain largely unchanged than the average early dismissal. The continued willingness to proceed. A handful of technology (median 3.7 years). of the SEC’s role as primary regulator for most defendants. Last year, companies ■ Greater SEC focus on Foreign in 2008. These include cases arising domestic issuer. of West Coast courts to toss out these cases issuers opted to settle eight derivative broker-dealers and mutual fund advisers. based on the West Coast paid civil penalties Corrupt Practices Act and insider The median West Coast ■ Plaintiffs’ attorneys again were from the subprime crisis, insider trading trading cases confirms our view that last year’s spike in or class actions, including those filed by Many of these cases arose from inspections ranging from $75,000 to $28 million to settlement dropped well paid—fees ranged from violations, the Foreign Corrupt Practices Why the surge in filings? The subprime shareholders of McAfee, Rambus and by the SEC’s field examiners, who conduct resolve SEC charges, while almost 40 filings was the product of opportunistic to $6 million—nearly $280,000 to $4 million, with an Act, and the municipal securities market. ■ Moderate increase in class action crisis precipitated lawsuits against a Vitesse. We expect this trend to continue compliance reviews of regulated financial corporate officers, directors and other lawyers in a falling stock market, and not average fee award of $1.7 million In addition, public company disclosure filings, including challenges to cost number of financial services firms and as the SEC and Department of Justice’s services firms. The technology and market participants found closure by an indication that corporate malfeasance 40% and a median award of $980,000. and accounting cases, misconduct by accounting, reserves, and MD&A others involved with mortgage loans, is on the rise. below the national median. investigations begin to wind down. life sciences industries once again saw consenting to federal court injunctions ALASKA

ARIZONA

CALIFORNIA

HAWAII WilmerHale recognizes its corporate recognizes responsibility environmental to stewardship. WilmerHale

IDAHO

Experience Matters MONTANA

The results described herein are for informational purposes only and are not intended as predictors or guarantees of similar results in other matters.

wilmerhale.com ■ Beijing ■ Berlin ■ Boston ■ Brussels ■ London ■ Los Angeles ■ New York ■ Oxford ■ Palo Alto ■ Waltham ■ Washington

ARIZONA

CALIFORNIA

HAWAII WilmerHale recognizes its corporate recognizes responsibility environmental to stewardship. WilmerHale

IDAHO

Experience Matters MONTANA

The results described herein are for informational purposes only and are not intended as predictors or guarantees of similar results in other matters.

wilmerhale.com ■ Beijing ■ Berlin ■ Boston ■ Brussels ■ London ■ Los Angeles ■ New York ■ Oxford ■ Palo Alto ■ Waltham ■ Washington