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SEC Enforcement: a Year in (P)Review by Elizabeth P December/January 2009 n Volume 6 n Issue 1 REPORT SEC Enforcement: A Year in (P)review BY ELIZABETH P. GRAY & JOSEPH M. AZAM Elizabeth P. Gray is a partner and Joseph M. Azam is an associate in the Litigation Department of the Washington, D.C. office of Willkie Farr & Gallagher LLP. Ms. Gray previously served as Assistant Director in the Securities and Exchange Commission’s Division of Enforcement and as well as counselor to SEC Chairman Arthur Levitt. Contact: [email protected] or [email protected]. We took risks, we knew we took them; things have come out against us, and there- fore we have no cause for complaint. One would be hard-pressed to find a FY 2008: Lasting Trends more apt description of the financial crisis of the past year. Oddly enough, however, Most any account of the Securities and these words were not gleaned from ac- Exchange Commission’s enforcement pro- counts of the current meltdown in the mar- gram in FY 2008 will include a recital of kets. Rather, they were discovered scrawled the Commission’s quantitative accomplish- 1 as a “Message to the Public” in the diary of ments for the year. With a record number of insider trading cases and a substantial famed British explorer Robert F. Scott after number of enforcement cases overall, the his ill-fated attempt to lead the first expedi- Commission’s notable’s successes were in tion to the South Pole in 1912. cases focused on insider trading and illegal In more ways than one, the recent finan- market transactions by high-level market cial crisis has invited a similar sort of an- participants. The Commission’s attempt ticipatory sculpting of history. From execu- CONTINUED ON PAGE 4 tives to enforcement authorities, there has been a rush to end up on the right side of Content HIGHLIGHTS history when the tumult finally comes to an end. This article tracks some of the more Delaware Court of Chancery Decisions Highlight salient developments in the area of securi- Importance of Paying Close Attention to ties enforcement over the past year and at- Advancement Language Securities Litigation tempts to forecast how these developments By William D. Johnston ............................................ 10 may continue in the year-to-come. In doing Executive Compensation in a Challenging so, it attempts to identify trends that may Economic Environment figure heavily in the priorities of enforce- By Michael J. Segal, Jeannemarie O’Brien, Adam J. ment authorities as the fallout from the fi- Shapiro, Jeremy L. Goldstein & David E. Kahan ..... 14 nancial crisis continues and the chorus of demands for an explanation and a plan to prevent a reoccurrence grows louder. Complete Table of Contents listed on page 2. 40737922 Securities Litigation Report Table of CONTENTS West Legalworks™ offers you more SEC Enforcement: A Year in (P)review By Elizabeth P. Gray & Joseph M. Azam .........................................1 With over 200 events annually, West From the EDITORS Legalworks gives you more opportunities By Joseph M. McLaughlin & Gregg Wirth ......................................3 to learn from our over 2,000 world-class Delaware Court of Chancery Decisions Highlight Importance of speakers and faculty. Choose from any Paying Close Attention to Advancement Language one of our events covering business of By William D. Johnston .................................................................10 law, practice of law, and other legal Executive Compensation in a Challenging Economic Environment and business topics. By Michael J. Segal, Jeannemarie O’Brien, Adam J. Shapiro, Jeremy L. Goldstein & David E. Kahan .........................................14 RiskMetrics 2009 Corporate Governance Policy Updates and Process ..............................................................................................16 See what we have in store for you. Visit us at westlegalworks.com/events. Editorial Board The Courts, Electronic Discovery, Joy A. KRUSE Linda MULLENIX & Plaintiffs’ Issues: Lieff Cabraser Heimann & Bernstein, LLP Professor of Law University of MANAGING EDITOR: ANDREW B.WEISSMAN San Francisco, CA Texas School of Law Austin, TX GREGG WIRTH Wilmer Cutler Pickering Hale & Dorr LLP Heather FOX Washington, DC SVP & Chief Underwriting Officer JOHN F. SAVARESE CHAIRMAN: ALAN SCHULMAN AIG Executive Liability Wachtell, Lipton, Rosen & Katz JOSEPH M. MCLAUGHLIN New York, NY New York, NY Simpson Thacher & Bartlett LLP, University of San Diego New York, NY San Diego, CA Jonathan M. HOFF SHERRIE R. SAVETT Lawrence BYRNE Cadwalader, Wickersham & Taft LLP Berger & Montague , P.C. Board OF EDITORS: White & Case LLP, New York, NY Philadelphia, PA Corporate Governance, Risk Management New York, NY KARIN KRAMER WARREN R. STERN & Professional Responsibility: JAMES BENEDICT Howrey LLP, Wachtell, Lipton, Rosen & Katz Jonathan C. DICKEY Milbank, Tweed, Hadley & McCloy San Francisco, CA New York, NY Gibson, Dunn & Crutcher LLP, New York, NY ROBert A.WALLNER Palo Alto, CA GRACE LAMONT Wayne M. CARLIN PricewaterhouseCoopers Milberg LLP New York, NY Regulation, the SEC, and the Wachtell, Lipton, Rosen & Katz New York, NY New York, NY Department of Justice: ALFRED J. LECHNER, JR. MICHAEL R. YOUNG PAUL H. Dawes White & Case LLP Willkie Farr & Gallagher LLP MARK RADKE New York, NY Dewey & LeBoeuf, LLP Latham & Watkins LLP, New York, NY Menlo Park, CA Washington, DC PAUL LOMAS Jordan ETH Freshfields Bruckhaus Deringer Morrison & Foerster LLP London San Francisco, CA Securities Litigation Report Please address all editorial, subscription, and other correspondence to the publishers at [email protected] West Legalworks For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Danvers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West’s Copyright Services at 610 Opperman Drive, Eagan, MN 55123, fax (651) 687-7551. Please outline the specific material involved, the number of copies you 195 Broadway, 9th Floor wish to distribute and the purpose or format of the use. New York, NY 10007 West Legalworks offers a broad range of marketing vehicles. For advertising and sponsorship related inquiries or for additional information, please contact Mike Kramer, Director of Sales. Tel: 212-337-8466. Email: [email protected]. © 2009 Thomson Reutersº This publication was created to provide you with accurate and authoritative information concerning the subject matter covered. However, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdication. The publisher is not engaged in rendering legal or other professional advice, and this publication One Year Subscription n 10 Issues n $597.00 is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional. (ISSN#: PENDING) Copyright is not claimed as to any part of the original work prepared by a United States Government officer or employee as part of the person’s official duties. 2 © 2009 THOMSON REUTERS/WEST December/January 2009 n Volume 6 n Issue 1 Like many institutional investors, Colorado’s From the EDITORS PERA, which oversees about $41 billion in assets, has installed a new policy to help decide when the fund will pursue litigation. PERA’s policy sets a minimum loss threshold and urges litigation in To Sue or Not to Sue, Institutional cases where the outcome may have a deterrent Investors Ponder the Question effect on future behavior. “With policies such as these in place, we can really examine if bringing NEW YORK—One of the most important litigation is the best use of PERA’s resources,” questions plaintiffs’ counsel can ponder is wheth- Smith said. er or not to pursue litigation against a company “A fund’s investment is an asset like anything on behalf of shareholders. So important is this else,” Smith said. “And an asset has to be man- question that lawyers representing several large aged and cared for.” And sometimes that means institutional shareholders (who might have to ex- legal pursuit of those who may have damaged the amine this question dozens of times each month), asset. gathered together recently to discuss it. In this issue… The December/January issue of At panel entitled, “To Litigate or Not?”—part Securities Litigation Report—the combined last of a conference here on Global Shareholder Activ- issue of 2008 and the first of 2009—takes a long ism held Dec. 4-6 and sponsored by plaintiff law look at the past year in SEC enforcement. Author firm Grant & Eisenhofer—institutional investors’ Elizabeth P. Gray of Willkie Farr & Gallagher counsel chewed over the ins and outs of bringing LLP examines the Securities and Exchange Com- litigation. mission’s enforcement record looking back over David Muir, chief counsel of the Los Angeles the past year and looking ahead to the coming County Employees Retirement Association (LAC- year. With insider trading making a comeback in ERA) said pursuing litigation can be a “fiduciary 2008 as a source of SEC enforcement action, and obligation” in some cases. “It’s getting harder regulators looking at possible criminal causes of and harder to not get involved (in litigation),” the current market meltdown, the coming year is Muir told the group. “It’s very dangerous to just likely to bring more enforcement efforts. sit back and not do something, or not pay atten- Also in this issue, author William D. John- tion to cases.” LACERA oversees more than $40 ston, of Young Conaway Stargatt &
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