February 2012 Newsletter


•   Scott+Scott Recovers $4.77 Million For Akeena Solar, Inc. Investors In Stock Fraud Class Action

•   West Palm Beach Police Pension Fund Recovers $7.25 Million From CardioNet, Inc. For Investors In Two Public Stock Offerings Conducted In 2008

•   New U.S. Consumer Financial Protection Bureau Initiates Its Nonbank Supervision Program

•   The SEC, Post-Financial Crisis: Too Few Successes?

•   Conferences And Educational Seminars

•   On The Record

(Flashlit version) 


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.

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West Palm Beach Police Pension Fund Recovers $7.25 Million From CardioNet, Inc. For Investors In Two Public Stock Offerings Conducted In 2008

            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.

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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.

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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.

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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

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On The Record


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

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Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents 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.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: drscott@scott-scott.com + UK Tel: 0808.234.1396