INSIDE THIS ISSUE
• Scott+Scott Recovers $4.77 Million For Akeena Solar, Inc. Investors In Stock Fraud Class
Action
• New U.S. Consumer Financial Protection Bureau Initiates Its Nonbank Supervision
Program
• The SEC, Post-Financial Crisis: Too Few Successes?
• Conferences And Educational Seminars
Scott+Scott Recovers $4.77 Million For Akeena Solar,
Inc. Investors In Stock Fraud Class Action
In
December 2011, the U.S. District Court for the Northern District of California
granted final approval of a $4.77 million settlement of a securities fraud
class action against Akeena Solar, Inc., chief executive officer Barry
Cinnamon, and chief financial officer Gary Effren. The settlement pertains to purchases of
Akeena common stock between December 26, 2007, and March 13, 2008.
Plaintiffs
alleged Cinnamon and Effren violated the securities laws—artificially driving
up the company’s share price. The scheme
allowed Cinnamon to sell $5.6 million of Akeena stock to fund his divorce
settlement. Plaintiffs demonstrated that
the October 2007 stipulated settlement in Cinnamon’s divorce proceedings
required that he pay his former spouse millions of dollars by January 31, 2008,
or risk turning over Akeena stock worth substantially more for her bankers to
sell on the open market.
In
order to increase the market value of Cinnamon’s stock prior to his sales in
early January 2008, on December 26, 2007, the defendants announced Akeena had
obtained a substantial increase in its line of credit with Comerica Bank. The Company’s stock price increased from
$6.84 per share to $8.10 per share. But
the plaintiffs showed the agreement was nothing but a cash collateralization
agreement requiring that Akeena maintain a cash balance—dollar for dollar—of
every dollar of the “line of credit.”
Thereafter,
on January 2, 2008, the defendants announced Akeena had signed a lucrative
licensing contract with solar-leader Suntech, whereby Suntech would purchase
10-14MW of solar panels from Akeena and sell them throughout Asia—purportedly
paying Akeena a handsome licensing fee on each one. That announcement fueled a further 40%
increase in the company’s stock price to $11.45 per share. In reality, the plaintiffs alleged the
Suntech agreement did not legally bind Suntech to purchase anything from
Akeena.
Immediately
following these false statements, while Akeena’s stock price was soaring,
Cinnamon sold hundreds of thousands of Akeena shares. As the market learned the truth, the
company’s stock price plummeted, causing millions of dollars in investor
losses.
The
lawsuit was first initiated in May 2009.
In May 2010, the Honorable James Ware, now Presiding Judge of the
Northern District of California, denied the defendants’ motion to dismiss the
complaint in its totality. In March
2011, Judge Ware certified the class of investors and appointed two lead
plaintiffs to represent the class.
The
case is Hodges v. Akeena Solar, Inc.,
case number 5:09-cv-02147, in the U.S. District Court for the Northern District
of California.
In
December 2011, CardioNet, Inc. (NASDAQ: BEAT), agreed to pay purchasers of its
common stock in (or traceable to) its March 25, 2008 initial public stock
offering and its August 5, 2008 secondary stock offering, $7.25 million to
settle claims the offering documents used to conduct the offerings contained
false and misleading information.
CardioNet, Inc. is a wireless medical technology company with a focus on
the diagnosis and monitoring of cardiac arrhythmias. The Scott+Scott lawyers who represented West
Palm Beach Police Pension Fund consider this a great result for investors, and
on January 13, 2011, California Superior Court Judge Joan M. Lewis
preliminarily approved the settlement.
Plaintiff
alleged the registration statements and prospectuses used to conduct the
offerings were false and misleading and were made in violation of the federal
securities laws. Plaintiff alleged the
statements and prospectuses concealed and/or misstated that prior to the
offerings, CardioNet had been: (1) reporting improperly obtained revenues, (2)
implementing aggressive sales tactics, (3) understating its reimbursement risk,
(4) concealing negative communications with its regulators, and (5) overstating
CardioNet’s future sales and profit margin growth potential.
In
September 2011, Judge Lewis denied the defendants’ demurrers to the complaint
in their entirety, finding the case stated viable legal claims and set the
matter for trial in June 2012.
Following
lengthy negotiations, the parties reached a settlement in December 2011. The parties’ preliminary settlement agreement
is subject to certain conditions, including court approval of a final
settlement agreement at a hearing set in May 2012.
New U.S. Consumer Financial Protection Bureau
Initiates Its Nonbank Supervision Program
The Consumer Financial Protection Bureau
(“CFPB”) has recently launched the nation’s first federal nonbank supervision
program. The program will be an extension of the CFPB’s bank supervision
program that began July 2011 and will ensure that banks and nonbanks follow
federal consumer financial laws.
The CFPB, which began operation on July
21, 2011, is primarily responsible for enforcing the federal laws regulating
consumer protection. Created by the
Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in
response to the late-2000s recession and financial crisis, the CFPB is tasked
with the responsibility to “promote fairness and transparency for mortgages,
credit cards, and other consumer financial products and services.” The CFPB’s jurisdiction includes banks,
credit unions, securities firms, payday lenders, mortgage-servicing operations,
foreclosure relief services, debt collectors, and other financial services
companies. On January 4, 2011, former
Ohio Attorney General Richard Cordray was appointed as the first director of
the CFPB.
At a recent public hearing organized by
the CFPB in Birmingham, Alabama, Cordray announced that CFPB examiners are
scrutinizing a handful of banks and businesses that make high-cost loans. This announcement follows the CFPB’s recent
expansion of its bank supervision program to “nonbanks,” defined as businesses
that offer or provide consumer financial products or services but do not have a
bank, thrift, or credit union charter.
At the hearing, Cordray made no distinction between established
financial institutions, including Wells Fargo and U.S. Bank, and nonbank payday
lenders such as EZ Money and AmeriCash Advance, which are widely criticized for
making high-cost, short-term loans to the most desperate borrowers.
There are
thousands of nonbanks with products that form a significant portion of the
consumer financial marketplace and affect millions of Americans each year. The
size and scope of nonbanks vary based on products. For example, according to studies and
industry sources, nearly 20 million consumers use payday loans, roughly 200
million Americans rely on credit reporting agencies to report their credit
histories accurately, 14% of consumers have one or more debts in collections,
and nonbank lenders originated almost 2 million new mortgages in 2010. Prior to
Dodd-Frank, there was no federal program to supervise nonbanks. Generally, the
primary tool used to address issues with nonbanks was “after-the-fact” law
enforcement.
“This is an
important step forward for protecting consumers,” Cordray said in a statement
on the CFPB’s website. “Holding both banks and nonbanks
accountable to consumer financial laws will help create a fairer, more
transparent market for consumers.”
Among other things, the CFPB will assess
whether nonbanks are conducting their businesses in compliance with federal
consumer financial laws, such as the Truth in Lending Act and the Equal Credit
Opportunity Act. CFPB examiners will
conduct interviews with personnel and observe the business’s operations. One
important component that examiners will be looking for is the nonbank’s
internal ability to detect, prevent, and remedy violations that may harm consumers.
The CFPB’s nonbank supervision program
will be coordinated with state regulators. The CFPB has already begun to work
with the states by developing, in cooperation with the Conference of State Bank
Supervisors, a Memorandum of Understanding (“MOU”) to share information between
the CFPB, state regulators, and state regulatory associations. To date,
regulators in 42 states and Puerto Rico, representing 45 regulatory agencies,
have joined the MOU. Five state regulatory associations have also signed the MOU,
including the American Association of Residential Mortgage Regulators and the
National Association of Consumer Credit Administrators.
The SEC,
Post-Financial Crisis: Too Few Successes?
In
the three years after the 2008 financial crisis, the Securities and Exchange
Commission (“SEC”) has had a mixed record on policing financial markets. Critics point out that the SEC has not
prosecuted many of the individuals or companies that brought about the crisis
and has shied away from complex cases.
Supporters respond that the SEC nevertheless has been actively fighting
a variety of wrongful conduct.
During
2009 and 2010, the SEC reorganized its Division of Enforcement, leading to a
record 735 enforcement actions in the fiscal year ending September 30,
2011. However, those actions brought in
less than $3 billion in penalties and disgorgement, which is just a fraction of
the damages sustained by financial fraud victims.
The
most high-profile case involving the SEC last year was the prosecution of Raj
Rajaratnam for trading on confidential information. The investigation was based on the
unprecedented use of wiretaps. In all, the
SEC brought about 50 insider trading actions and over 80 financial fraud
actions with a particular emphasis on wrongful conduct by investment advisers
and broker dealers. The defendants in
many of those actions were relatively small players.
The
SEC also came under fierce attacks for its tendency to let companies that have
engaged in misconduct too easily off the hook.
The Honorable Jed Rakoff, U.S. District for the Southern District of New
York, refused to approve a settlement between the SEC and Citigroup. Judge Rakoff explained that while the
proposed settlement would have resulted in Citigroup paying a nine figure
penalty, it did not require Citigroup to admit to any wrongful conduct. This made it difficult to determine whether
the SEC conducted a thorough investigation prior to settling the charges. Judge Rakoff also noted that many companies
that enter into such settlements with the SEC continue to engage in the conduct
for which they have been prosecuted, and the SEC rarely brings further enforcement
actions against them.
Critics
suggest that much financial fraud goes undiscovered due to the SEC’s lack of
enforcement resources and political allegiances. Indeed, many victims do not have their
injuries addressed. Private enforcement
of the securities laws, however, bridges the gap. Scott+Scott has worked to secure recoveries
for victims of financial fraud and has been willing to take on the largest,
most well-funded adversaries.
Post-financial crisis, Scott+Scott has engaged in groundbreaking
litigation in mortgage-backed securities, which played a pivotal role in the
collapse of those securities. The Firm
has also prosecuted claims against a number of the banks that bundled the toxic
loans that underlie many mortgage-backed securities. These cases are just part of Scott+Scott’s
securities practice, and are illustrative of the Firm’s unique ability to
identify and protect investors’ interests.
Conferences And Educational Seminars
+February 8-10, 2012
National
Association of Public Pension Attorneys (NAPPA) 2012 Winter Seminar Meetings
The Dupont Circle Hotel
Washington, DC
The
NAPPA organization is a practical and valuable resource for attorneys in the
public pension arena. Educational
seminars provide peer-to-peer interaction in several practice areas, as well as
up-to-date information regarding pertinent litigation and legislation.
+February 15-17, 2012
Opal
Financial Group in Conjunction with the Louisiana Trustee Education Council
(LATEC) Investment Education Symposium
Astor Crowne Plaza
New Orleans, LA
LATEC
encourages and facilitates the education of its members in all matters related
to their duties as the holders of trust assets.
LATEC develops and conducts educational programs and networking
opportunities designed to foster and maintain the level of expertise demanded
of fiduciaries under applicable law so that they may better serve their members
and respective funds.
Opal
Financial Group coordinates conferences for entities such as public funds,
family offices, foundations, Taft-Hartley funds and endowments.
+February
16-21, 2012
National Labor and Management Conference (NLMC)
35th Annual Conference
The Westin
Diplomat Resort and Spa Conference Center
Hollywood, FL
The NLMC has been described as
the best labor-management meeting in the country. The six-day event offers seminars for labor
and management in the following areas: fiduciary and legal, pension fund
investment, health and welfare, as well as general topics, including prevailing
wage, labor shortages, and safety issues.
More than 400 attendees participate in the annual forum representing
union leadership, senior corporate management, trustees, fund administrators,
labor lawyers, fund counsel, and advisors, as well as labor relations
professionals. The program content is
developed by a distinguished group of business executives, labor leaders, public
officials and academics. The meeting agenda
is designed to promote peer interaction and networking opportunities.
+February 23, 2012
National Association of Securities
Professionals (NASP) 2012 Wall Street Hall of Fame Gala Dinner and Induction
Ceremony
The Ritz Carlton
New York, NY
NASP is a non-profit association of
professionals who have achieved recognition in the industry as asset managers,
public finance consultants, plan sponsors, and other finance professionals.
This year’s inductees include the Honorable Thomas P. DiNapoli, New York State
Comptroller, and Gregory Floyd, New York City Employees Retirement System
Trustee, and City Employees Union Local 237 - International Brotherhood of
Teamsters President.
+February 16,
2012
Bloomberg LINK Portfolio Manager Mash-up
Union Square
Ballroom
New York, NY
Bloomberg
LINK produces invitation-only, in-person gatherings among the who’s who in
influential communities. Top portfolio
managers from competing asset management firms will discuss, debate, and defend
funds and asset allocations.
Government Finance Officers’ Association
Conferences
+February 2,
2012
Connecticut GFOA
Hartford
Marriott Rocky Hill
Rocky
Hill, CT
+February
29-March 2, 2012
Alabama GFOA
Embassy
Suites Huntsville Hotel and Spa
Huntsville,
AL
+February 29-March 2, 2012
California
Society of Municipal Finance Officers
Disneyland Hotel
Anaheim, CA
“Arbitrary power is most easily established on the ruins of Liberty abused
to licentiousness.”
George Washington, U.S. President, born February 22, 1732
Circular to the States, June 8, 1783
Scott + Scott LLP is a nationally recognized law firm headquartered in Connecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.
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