"Securities Fraud Squared" -- Can Announcement of Settlement of a Securities Class Action Itself Be Securities Fraud?

Everything is securities fraud squared

Every bad thing a public company does is securities fraud, and this sure seemed like fraud, so shareholders naturally sued. Ultimately Valeant — which is now called Bausch Health Companies — agreed to about a $1.2 billion class-action settlement. But this settlement did not entirely take care of the claims. Some shareholders opted out of the settlement and pursued their own lawsuits separately, and one of those lawsuits will go to trial soon.

Here is a press release from a law firm claiming that, when the settlement was announced in 2020, Bausch disclosed that there were shareholders who opted out, but it “never disclosed the identification of the investors or the quantum of their damages.” Eventually, the theory goes, that information came out, and investors realized that Bausch was in more trouble than they thought, because those cases were real cases brought by big shareholders for large claimed damages. Therefore, the theory goes, the stock dropped.

Get it? Announcing the settlement of a securities fraud class action was itself securities fraud, and the lawyers want to bring a new securities fraud class action accusing Bausch of doing securities fraud about its old securities fraud class action. Everything is securities fraud, even settling a securities fraud case.

Does the ‘Quiet Disbanding’ of SEC Enforcement’s ESG Task Force Mean Anything?

As Cooley’s Cydney Posner covers in her great PubCo blog, Bloomberg Law reported that the SEC’s Enforcement Division “quietly disbanded” its “Climate and ESG Task Force.” The task force had 22 members and lasted about three years.

Does this mean anything? Nope, not really. As Cydney notes, the SEC issued a statement that the “strategy has been effective, and the expertise developed by the task force now resides across the Division” – meaning that there is no longer a need for a task force when anyone in Enforcement can handle this type of case.

Key Takeaways from SEC Fraud Charges Against the CEO, CFO, and Audit Committee Chair of Kubient

Earlier this month, the SEC brought accounting fraud charges in the U.S. District Court for the Southern District of New York against the CEO, CFO, and Audit Committee Chair of Kubient, a company that purported to use AI services to detect fraud in digital advertising. The charges focused on the CEO’s scheme to inflate the company’s revenues in connection with its IPO and subsequent stock offering, and the concomitant failures by the CFO and Audit Committee Chair to investigate and report the CEO’s misconduct to the company’s outside auditors.

The SEC’s fraud charges against the CFO and Audit Committee Chair are significant. While recognizing that the accounting fraud scheme was “initiated” by the CEO, an SEC official noted in the agency’s accompanying press release that the case “should send an important signal to gatekeepers like CFOs and audit committee members that the SEC and the investing public expect responsible behavior when critical issues are brought to their attention.” This client alert analyzes the SEC’s case and provides key takeaways for officers and directors in the context of financial reporting issues.

Binance Exec Tigran Gambaryan Jailed in Nigeria Was Almost Detained on a Previous Visit: Wife

“This is an obvious case of holding somebody hostage to punish a business they have a problem with,” said U.S. Rep. Rich McCormick, (R-GA) in whose district the Gambaryan family lives. “He’s just being treated absolutely horribly and he is an American citizen, and that should be taken very seriously by our government. America has a tremendous amount of leverage over the country.

“All cards should be on the table,” McCormick said on the podcast. Gambaryan faces money laundering charges. Binance is facing a tax-evasion trial in the country, which is demanding $10 billion in penalties for enabling some $26 billion of untraceable funds. This and other alleged facilitation of illegal capital outflows by the crypto industry at large purportedly led to the Nigerian naira weakening to record lows against the dollar.

“He is being held as a hostage, as leverage, to make Binance pay or to find a scapegoat for Nigeria’s own inability to manage its national currency,” Greenberg said. Gambaryan’s wife Yuki said, “They can pursue any legal actions whatever to solve this issue they’re having with Binance. But they just don’t need Tigran there.”

D&O Risk and Insurance in a Post-Chevron World

To modify an old saying: “Nothing is certain but death, taxes…and corporate opposition to government regulations.”

Over the decades, companies and interest groups have frequently challenged government regulations in court—and they are successful about 30% of the time.

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While companies and interest groups have had considerable success throttling the acceleration of the regulatory state in recent years, government agencies still had the benefit of a dusty Reagan-era doctrine known as Chevron deference. That is, until June 2024, when the Supreme Court sent Chevron down to the junkyard of history like a rusty old Datsun.

What implications will the demise of Chevron deference have on regulatory and litigation risk for directors and officers? What about impacts to insurance? Let’s discuss.