Scott+Scott Attorney Mary K. Blasy Featured In California Lawyer‘s Securities Law Roundtable Discussion Of Breaking Securities Law Developments

The February 2011 issue of California Lawyer magazine included a Securities Law Roundtable Panel featuring Scott+Scott’s Mary K. Blasy alongside six other experts in the securities law field.  Ms. Blasy has prosecuted securities and shareholder derivative actions since 2000, and has recovered hundreds of millions of dollars for investors in class actions involving Martha Stewart Omnimedia, Sprint, Coca-Cola, and Reliance Acceptance, among others.

The Securities Roundtable Panel discussed a number of high profile class action cases coming before the Supreme Court—including Erica P. John Fund, Inc. v. Halliburton Co. (whether plaintiffs in securities fraud class actions must establish loss causation at the class certification stage) and Janus Capital Group, Inc. v. First Derivative Traders (whether a service provider who assisted a company in writing a prospectus that contained misstatements may be held liable under federal securities laws).  The Panel also discussed the Dodd-Frank Wall Street Consumer Reform and Consumer Protection Act’s whistleblower program and the impact of Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) (holding transaction must occur in the U.S. for court to have jurisdiction over federal securities law claims) on securities litigation.

 Ms. Blasy argued that the Fifth Circuit’s decision, Oscar Private Equity Inv. v. Allegiance Telecom Inc., 487 F.3d 261 (5th Cir. 2007), which the Supreme Court is reviewing in Halliburton, should be overturned.  The Fifth Circuit, unlike other circuits, allows defendants to factually rebut a plaintiff’s fraud-on-the-market presumption of reliance at class certification by making them prove loss causation.  She argued that Oscar is problematic because defendants can use facts known only to them to defeat class certification before plaintiffs are afforded discovery and because some judges want a mirror disclosure—a revelation that the false statement caused the price to decline instantaneously.  Ms. Blasy noted that without discovery it is difficult for an expert to align all or part of a price decline to a particular revelation. 

Further, the Panel discussed the Dodd-Frank Act’s whistleblower program.  The program allows whistleblowers to recover a percentage of funds recovered when they provide information to the SEC.  Some members of the Panel expressed concern that whistleblowers will skip internal company protocol and go directly to the government because of the financial incentives.  Ms. Blasy disagreed, stating that the prospect that the SEC may investigate, may prosecute, and may actually win may not be enough incentive for employees to come forward and risk their livelihood, as employees fear being blacklisted from their fields for providing information to the SEC. 

Finally, the Panel commented on the impact of Morrison on securities litigation.  In Morrison the Supreme Court established a “transactional test” to determine whether or not the U.S. has jurisdiction over securities claims—the transaction must have occurred within the U.S. Ms. Blasy explained that the court had before it a classic “F-cubed” situation: a foreigner buying a foreign issuer’s stock on a foreign exchange.  She explained that Morrison’s application to F-squared cases (where a U.S. citizen buys a foreign issuer’s stock on a foreign exchange) is beyond what the Supreme Court contemplated.  The bright-line rule should be based on the citizenship of the investor, not the exchange transacted on.

For more information, Ms. Blasy may be reached at mblasy@scott-scott.com or at(619) 233-4565.