Reports

In-depth legal analysis of fraud issues by some of the country’s best practitioners. Subscribers to Financial Fraud Law have unlimited access to these comprehensive reports on the latest in fraud law litigation and best practices.

Insider Trading: Rejuvenated Enforcement Efforts Suggest a Fresh Look at Compliance and Supervision

“There is a basic principle that governs our capital markets, and that is that there is one set of rules, and everyone is expected to play by that one set of rules.  That principle gives investors confidence that the markets are fair. Insider trading is a corruption of that basic principle.”1 

— SEC Division of Enforcement Director Robert Khuzami
(November 5, 2009)
Since their arrival at the Securities and Exchange Commission (“SEC”) early in 2009, Chairman Mary Schapiro and Division of Enforcement Director Robert Khuzami have each emphasized the importance of an aggressive SEC enforcement role.  After an initial flurry of activity designed to stamp out Ponzi schemes in the wake of the Bernard Madoff revelations, the Division in late 2009 sharpened its focus on combating insider trading.  Read more


Business “Roll-Ups”: Beware of Possible Fraud Risks

A “Roll-Up” is the name generally used for the merger and acquisition strategy of combining several smaller businesses in the same sector into a larger operation.  The motivation for the acquirer, who is often referred to as the sponsor or consolidator, is straightforward and can be summarized into four steps:

1.    Pay a low multiple of earnings for the acquisitions
2.    Realize synergies and cost savings by bringing many similar businesses together
3.    Package and sell the consolidated group at a higher multiple and higher projected profit margin
4.    Generate a sizeable return on the investment Read more


Regulating the Gatekeepers: An Analysis of the Regulation and Accountability of Credit Rating Agencies

Credit rating agencies have long been an important part of the United States capital markets system; yet they have occupied a rather odd role as relatively unofficial and unaccountable agencies upon which significant reliance is often placed.  This article focuses on the criticisms faced by these agencies, both generally and, more specifically, as related to the mortgage-backed securities crisis.  The article focuses on an analysis of proposed regulations and treatments put forth to deal with these constant criticisms, focusing on SEC amendments and proposals as well as a recent bill passed by the United States House of Representatives Financial Services Committee.  Read more


Raising the Bar

This article highlights that publicly traded business corporations and their directors have lost the confidence and trust of many, leading to an onslaught of proposed federal legislation which, if enacted, will catapult the federal government into the role of primary regulator of those companies and directors, which heretofore have been regulated under state law. This article further suggests that to stem this tide of federal intervention in an area central to our private enterprise system, U.S. public company directors must act promptly in a concerted, clear and convincing way to restore their credibility.  Read more


The IRS Pre-Filing Agreement Program and Deducting Government Settlements

Government settlements, including those under the False Claims Act (“FCA”) and Environmental Protection Agency (“EPA”) Supplemental or Beneficial Environmental Projects (“SEP”), may or may not be deductible for Federal income tax purposes, depending on whether the amounts paid are attributable to compensatory damages, fees, interest, etc., or represent fines or similar penalties.  Section 162(a) of the Internal Revenue Code allows business deductions for compensatory damages, fees, interest and other amounts in defending lawsuits and claims.  Read more


The Supreme Court Considers the “Inquiry Notice” Standard in Federal Securities Fraud Cases

The Supreme Court heard oral arguments on November 30 in Merck & Co, Inc. v. Reynolds,1 a case in which the Court may clarify what constitutes discovery of facts supporting a federal securities fraud claim for purposes of the statute of limitations.  Specifically, the Court in Reynolds is poised to resolve a circuit split concerning whether the Third Circuit erred in holding, in accord with the Ninth Circuit but in contrast to most of the other Courts of Appeals, that “under the ‘inquiry notice’ standard applicable to federal securities fraud claims, the statute of limitations does not begin to run until an investor receives evidence of scienter without the benefit of investigation.”2  Read more


Growing Liability Risk to Foreign Financial Institutions from Tax Disclosure Cases

Federal prosecutors in the United States have decades of experience building big criminal cases.  They move methodically and rely on the induced cooperation of smaller targets, defendants whom the government believes have knowledge of others involved in the scheme.  These smaller targets — the little fish — are grabbed first and their cooperation is leveraged by virtue of their unenviable position: they can fight the government’s allegations and face the prospect of a lengthy prison sentence or, alternatively, they can cooperate against larger targets — the big fish — and be granted far more lenient treatment.  Human nature and prior experience have demonstrated that when faced with this choice, most defendants choose to cooperate with the government. Read more


When the Crimes Go Beyond Price-Fixing: How Fraud and Process Crimes Complicate the Defense

In today’s world, a defense lawyer needs to wear more than just his “antitrust cap,” and instead must be on the lookout for other potential criminal charges his client may face.  More than ever before, the Antitrust Division is involved in domestic and international multi-agency task forces where information sharing among various criminal authorities is commonplace.  The potential crimes a defendant may face include substantive Title 18 charges, such as fraud and conspiracy to violate the Foreign Corrupt Practices Act, as well as process charges, such as obstruction and perjury.  The addition of non-antitrust crimes also creates an interesting tension in the leniency process, particularly because the Antitrust Division cannot promise to protect against prosecution by other federal agencies for crimes that are not considered integral to the commission of the antitrust offense. Read more


Broadcom: Lessons from the Frenzy Over Stock Options Backdating

A federal judge in Santa Ana, CA, recently dismissed with prejudice federal criminal fraud charges against several Broadcom Corp. executives and essentially terminated one of the last of the stock options backdating cases brought by federal prosecutors.  As the dust settles on this case, there are lessons to be drawn from that one case and from the plethora of investigations the government commenced on the issue of stock options backdating. Read more


Recent Developments in Government Investigations of Financial Fraud

The recent acquittals in the trial of Ralph Cioffi and Matthew Tannin, the former Bear Stearns hedge fund managers who were charged with committing securities fraud, represented a milestone of sorts in the wave of regulatory and criminal investigations spawned by the deterioration of subprime mortgage-related assets.  Starting approximately a year and a half ago, federal, state, and local government agencies throughout the United States opened myriad investigations seeking to uncover the reasons (and possibly to apportion blame) for some of the losses experienced during the economic downturn.  Read more