INSIDE THIS ISSUE
• Proposed $8.5 Billion Bank Of America/Countrywide RMBS Settlement To Remain In Federal
Court
• Scott+Scott Proceeds In Case Against Canadian Oil Company
• Shareholder Votes On Executive Compensation Tell Boards To Curb Excesses
• AT&T’s Acquisition Of T-Mobile Delayed By Antitrust Challenges
• Scott+Scott Attorney Races In Ironman World Championship, Kailua-Kona, Hawaii
• Conferences And Educational Seminars
Proposed $8.5 Billion Bank Of
Parties challenging the fairness of the proposed
$8.5 billion Bank of America/Countrywide residential mortgage-backed securities
settlement—including a group of pension funds being represented by Scott+Scott—recently
received a favorable ruling that will make it far more likely investors will be
given the opportunity to fully vet the fairness of this historic settlement.
In an opinion issued on October 19, 2011, the
Honorable William H. Pauley III of the U.S. District Court for the Southern
District of New York determined that Bank of America’s and Countrywide’s
proposed $8.5 billion settlement should proceed in federal court. The settling parties had originally filed the
settlement in state court and hoped to obtain judicial approval of the
settlement under the more lenient standards set forth in Article 77 of the New
York Code. One month after the
settlement was filed in state court, however, a group of investors in
Countrywide’s mortgage-backed securities removed the case to federal court.
Bank of America and
Countrywide sought to have the case remanded back to state court, but after
fully briefing the issue, Judge Pauley determined that the case was governed by
the Class Action Fairness Act of 2005 (“CAFA”) and, accordingly, should stay in
federal court. The court noted that the
case involved: (1) a claim for monetary
relief, (2) involved 100 or more persons, and (3) presented common questions of
law or fact.
The court concluded that: “The
Settlement Agreement at issue here implicates core federal interests in the
integrity of nationally chartered banks and the vitality of the national
securities markets. A controversy
touching on these paramount federal interests should proceed in federal court. And Congress enacted CAFA to provide a
federal forum for such cases.” Order
at 21 (internal citations omitted).
The court’s ruling is
significant because Bank of America, Countrywide, and the other settling
parties must now show that the settlement satisfies the requirements of Rule 23
of the Federal Rules of Civil Procedure, which requires the settlement to be
fair and in the best interests of the entire class of investors who purchased
Countrywide’s residential mortgage-backed securities.
Rule 23 will also require the court to examine
the process leading up to the settlement, which was negotiated privately
between Bank of America, Countrywide, Bank of New York Mellon, and a select
group of institutional investors led by Goldman Sachs. The court’s ruling is a positive development
for pension funds and other institutional investors—including many of
Scott+Scott’s pension fund clients—that were not included in the settlement
negotiations and have not been given access to materials that purportedly
support the settlement that the parties reached in the case.
The matter is captioned Bank of
Scott+Scott Proceeds In Case
Against Canadian Oil Company
On September 16, 2011, the Honorable Jed S.
Rakoff of the U.S. District for the Southern District of New York has issued a
decision in the case of St. Lucie County Fire District Firefighter’s Pension
Trust Fund, et al. v. Oilsands Quest Inc., et al., No. 11-civ-1288, denying the motion to dismiss the case
filed previously by the defendants. With
the decision, Scott+Scott has been given the green light to proceed
aggressively in a case concerning incorrect announcements and inflation of false
hopes surrounding the discovery and extractability of oil.
Scott+Scott initially filed a complaint on
February 24, 2011, on behalf of a group of lead plaintiffs, investors in
Oilsands Quest, a Canadian company engaged in the business of extracting bitumen
from what are geologically termed “oilsands.”
On June 2, 2011, Scott+Scott filed an amended complaint in the
action. The complaint alleges that
officers and directors of the company effectively created a “modern day
goldrush” by touting the discovery of—and the company’s rights to—valuable
bitumen in the Canadian oil sand regions of Saskatchewan in order to grossly
inflate the value of Oilsands Quest Inc.
From the beginning, however, the defendants knew that the vast majority
of the company’s acreage could, in fact, contain no oil at all; and that for
those areas that did contain potential oil, it would not be possible to extract
it absent some new technology. As
alleged in the complaint, the company was expending funds for unused equipment
and performing meaningless “tests” such as sticking a large “curling iron” into
the ground to make it appear to investors that it was making progress. Once the truth about the lack of oil, lack of
technology, and certain accounting irregularities was slowly unearthed and
leaked, investors were left financially harmed.
Judge
Rakoff’s decision permits the case to proceed against the company, its named
officers and directors, and an oil and gas consultant used by the company to
estimate the amount of oil on its lands. As such, Scott+Scott instantly filed discovery
requests seeking documents and information from the defendants and will proceed
to take depositions and prepare the case for trial. As the case progresses, Scott+Scott will
continue to update the potential class of investors and the general public.
Shareholder Votes On Executive Compensation
Tell Boards To Curb Excesses
The global financial crisis of
2008-2009 galvanized a shareholder movement to limit executive
compensation. Congress recognized the
need to curb excessive executive compensation packages when it enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(“Dodd-Frank”).
Dodd-Frank was enacted to provide
for financial regulatory reform in order to protect investors and consumers
from dangerous Wall Street practices, including excessive executive
compensation and related corporate governance practices. Dodd-Frank addresses executive compensation
and corporate governance through the legislation’s “say-on-pay”
provisions. The Senate Report
accompanying the bill stated Dodd-Frank was enacted in response to the economic
crisis during which “corporate executives received very high compensation
despite the very poor performance by their firms.” S. Rep.
No. 111-176, at 133 (2010).
The say-on-pay law requires
publicly-traded companies to put executive compensation to an advisory vote of
the shareholders every three years. The
legislation also imposes an advisory shareholder vote on golden parachutes,
which are payments made to top executives when their employment is
terminated. In addition, the legislation
mandates independence requirements for members of a board’s compensation
committee.
Shareholder votes on executive
compensation and golden parachutes are advisory, meaning non-binding on the
board. However, such votes allow
shareholders to be heard regarding executive compensation and, indeed, that was
Congress’ intent.
Prior to Dodd-Frank, shareholders
could signal their discontent with executive compensation packages only through
voting against re-election of board members who sat on the compensation
committee. The say-on-pay vote is a more
targeted way for shareholders to express their views on compensation.
When Congress enacted the say-on-pay
provisions, it intended to give shareholders a greater voice in corporate
governance. The say-on-pay law gives
shareholders a mechanism for expressing their views on whether the
corporation’s executive compensation is in the best interests of
shareholders. Dodd-Frank contemplated
that the result of a say-on-pay vote would be a direct referendum on whether
the executive compensation paid by the board of directors to the top executives
of the corporation actually serves the best interest of the shareholders.
In January 2011, the say-on-pay
provision became mandatory, and by the end of 2011, all publicly traded
companies will be required to include advisory compensation votes on proxy
statements. So far, shareholders have
voted down executive compensation packages in 1.6% of say-on-pay votes. Shareholders have voted no when compensation
was increased over the prior year despite the company’s declining performance.
A boards’ failure to abide by
shareholders’ negative vote recommendations is potentially a breach of the
fiduciary duties directors owe to the company.
One of those duties is the duty of loyalty, which requires directors and
officers to act in good faith and in the best interest of the corporation. Board members may be acting disloyally, that
is, not in the best interest of the company or its shareholders, when they
award large pay increases in years when the company performs poorly. Sometimes awarding executives with bonuses
and pay increases also violates a company’s written compensation policy. In these situations, a negative shareholder
vote on compensation is direct evidence that the decision was against the best
interests of the company and shareholders, in violation of the high standards
boards are supposed to hold themselves to, in conducting the affairs of the
corporation.
AT&T’s Acquisition Of T-Mobile Delayed By Antitrust Challenges
Back in March,
AT&T Inc. announced that it had acquired T-Mobile USA Inc. from its German
parent company, Deutsche Telekom AG. If
completed, the $39 billion merger likely would create the nation’s largest
wireless carrier. The deal, however, was
met with resistance from antitrust and regulatory authorities in the
The overarching goal
of the federal antitrust laws is the promotion of competition. In order to achieve the goal of competition,
the federal government reviews potential mergers in order to prevent market
concentration. Companies are required to
notify the Federal Trade Commission (the “FTC”) and the Assistant Attorney
General of the DOJ of any contemplated mergers and acquisitions that meet a
certain threshold of commerce. To give
companies guidance, the DOJ and FTC release Horizontal Merger Guidelines that
sets forth the criteria that the agencies use when analyzing a potential merger
or acquisition.
AT&T touted the merger as being
pro-competitive and also released public statements arguing that the
acquisition would improve cell service and would create as many as 96,000 new
jobs. Antitrust authorities have
disagreed, however. In an August 31
press release, Deputy Attorney General James M. Cole stated: “The combination of AT&T and T-Mobile
would result in tens of millions of consumers all across the
Not only have government authorities sought to
block the merger, but also competitors such as Sprint Nextel Corp. and Cellular
South Inc. have filed briefs with the court arguing that the merger should be
prevented. There are some organizations wanting
to see the merger completed. According
to the Center for Public Integrity, a nonprofit news agency, at least two dozen
charities have written in support of the merger. These charities were recipients of large
AT&T donations, however, raising questions about their true motives.
The DOJ is also seeking to block a much smaller
acquisition by H&R Block Inc. of 2SS Holdings Inc., the maker of TaxACT
software products. This case is looked
at as a potential template of how the AT&T suit will proceed. “It doesn’t matter whether it’s a relatively
small transaction or a transaction involving billions of dollars, the law
should be applied the same way,” stated Joseph Wayland, the deputy head of the
DOJ antitrust division in the trial’s closing arguments.
Scott+Scott Attorney Races In Ironman World
Championship,
Scott+Scott attorney Amanda Lawrence recently
competed in the 2011 Ford Ironman World Championship in
In
order to participate in the World Championship, athletes must compete and place
highly in one of the other Ironman races held throughout the world, which draw
full fields of often close to 3,000 athletes.
Ms. Lawrence qualified to compete in the championship by racing in the 2011
Memorial Hermann Ironman in Woodlands,
On
October 8, 2011, Ms. Lawrence completed the World Championship race in
Conferences
And Educational Seminars
+ October 30 – November
2, 2011
International Foundation of
Employee Benefits Plans (IFEBP) 57th
The Annual Employee Benefits Conference provides four days of
education, roundtable discussions, and networking events. Taft-Hartley and Public Sector fund trustees,
administrators, business managers, and association leaders, as well as service
providers to the funds will be in attendance to learn the latest cost-saving
ideas, legislative and legal developments in the pension fund and financial
areas. Participants may earn continuing
education credit and certification.
+ November 1 – 3, 2011
Governance, Risk Management and
Compliance
Hilton
Various panels of experts will
address the best methods of compliance, and offer suggestions as to how to
effectively respond to ambiguous mandates.
Case studies will also outline key components of the Sarbanes-Oxley Act
and offer audit strategies for testing and forensic investigations.
+ November 14 – 15, 2011
American Society of Pension Professionals & Actuaries (ASPPA)
Northern
The ASPPA
+ November 15 – 17, 2011
International Brotherhood of Electrical Workers (IBEW) 2011 Annual
Membership Development Conference
More than 1,300 IBEW delegates representing 700,000 IBEW members
attended last year’s conference. The Annual
Membership Conference is produced using dynamic and innovative agenda
topics. Speakers’ presentations follow
an educational approach while updating all on current legislation affecting
unions.
+ November 15 – 18, 2011
State Association of
The
In these turbulent economic times, the members, beneficiaries, and
stakeholders of member systems want to be assured, more than ever, that their interests are
appropriately served by the fiduciaries they elected or appointed to the
governing boards, and that the management of the retirement systems is as professional
as ever. The SACRS conference provides
the trustees a venue for education and problem solving.
+ November 16 – 17, 2011
The Taxpayers Against Fraud Education Fund SEC Whistleblower Boot Camp
Embassy Row Hotel
The Taxpayers Against Fraud Education Fund (TAF) is a nonprofit public
interest organization dedicated to combating fraud against the federal government
through the promotion and use of the federal False Claims Act and its qui tam
provisions. The False Claims Act is the
single most important tool
November Union Events
+ November 2 – 3, 2011
AFL-CIO Convention, Metal Trades
Department 69th Convention
Bally’s
+ November 17 – 18, 2011
International Federation of
Professional & Trade Engineers
The Signature MGM Grand Hotel
Government Finance Officers’
Association Conferences
+ November 7 - 9, 2011
Westmark Fairbanks Hotel and
+ November 15 – 18, 2011
+ November 15, 2011
Aqua Turf Club
+ November 16 – 18, 2011
La
“Litigation is the pursuit
of practical ends, not a game of chess.”
--
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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