November 2012 Newsletter


•  Scott+Scott Partner Donald Broggi Speaks To PublicPension Trustees On Securities Fraud Monitoring

•  SEC Proposes New Dodd-Frank RulesFor $650 Trillion Swaps

•  Federal Trade Commission Files “Friend of the Court”Briefing in Pay-For-Delay Generic Drug Case

•  FTC Issues “Green” Guidelines On MarketingEco-Friendly Products

•  Conferences and Educational Events

•  On The Record


Scott+Scott Partner Donald Broggi Speaks To Public Pension Trustees On Securities Fraud Monitoring

Scott+Scott Partner Donald A. Broggi was a featured speaker at the Georgia Association of Public Pension Trustees’ 3rd Annual Conference in Macon, Georgia, on September 20, 2012.  Mr. Broggi gave a robust discussion on securities fraud litigation and the public pension trustees’ fiduciary duties that are triggered when their portfolios are impacted by newly filed and settled securities class action cases.  According to the Government Finance Officers Association, trustees need to have a process in place to stay apprised when new class action cases are filed that impact their fund, as well as ensure that they are filing proof of claim forms to collect their pro-rata share of securities litigation settlements.  Mr. Broggi discussed the significant amount of new cases filed each year, averaging 217 since the passage of the Private Securities Litigation Reform Act of 1995; the nearly $45 billion recovered in the last five years from settled class actions; and the various features and contours of the securities fraud statutes.  The presentation also focused on settlement procedures and class funds distributions.

Mr. Broggi is a partner in the Scott+Scott New York office, and has been a featured speaker at numerous public pension conferences, including the Michigan Association of Public Employee Retirement Systems and the Texas Association of Public Employee Retirement Systems, among others.  Mr. Broggi represents institutional investors across the United States, including Taft-Hartley and public employee retirement funds in securities fraud and antitrust matters.

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SEC Proposes New Dodd-Frank Rules For $650 Trillion Swaps

            In a 5-0 voice vote, the U.S. Securities and Exchange Commission (“SEC”) voted to propose new rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that would impose higher capital and margin requirements on the largest traders in the swaps market, estimated to be over $650 trillion.

            The Dodd-Frank Act, signed into law in July 2010, requires various government agencies, including the SEC, to promulgate proposals on capital and margin rules.  The swaps market is considered to be a contributing factor in the 2008 financial crisis and was one of the primary targets of the Dodd-Frank Act, which gave the SEC broad powers to bring greater transparency and safety to the derivatives market.

            These newly proposed SEC rules would establish new capital, margin, and customer fund segregation requirements for security-based swap dealers, including Goldman Sachs, Morgan Stanley, and JPMorgan Chase.  Dealers engaged in swap dealing would be required to hold a minimum of $20 million in net capital, plus an additional 8% of the total margin they collect.  This requirement is designed to make certain that dealers engaged in derivatives trading will have their capital requirements rise in proportion to the size of their business and the risks they are taking.

            The SEC believes that these higher capital requirements will reduce the likelihood that a financial firm with significant derivatives positions will collapse, as American International Group likely would have without government intervention.  Mary L. Schapiro, SEC Chairman, said, “[T]hese rules are intended to make the financial system safer, and the derivative markets fairer, more efficient, and more transparent.”  The SEC contends that requiring dealers to hold more capital will reduce the likelihood that a financial firm with significant derivatives positions will collapse.

            Critics suggest that such a rule would result in direct, significant costs on the effected dealers.  The SEC’s Chief Economist, Craig Lewis, warned that “overly restrictive requirements that increase the cost of trading by individual firms could reduce their willingness to engage in such trading, adversely affecting liquidity in the security based swaps market and increasing transaction costs.”

            The Dodd-Frank Act requires the SEC to coordinate its new rules with the U.S. Commodity Futures Trading Commission (“CFTC”) and the other relevant regulatory bodies.  In July 2012, the CFTC finalized new rules related to the swaps market.  Moreover, the Federal Deposit Insurance Corporation and the Federal Reserve have proffered similar rules. 

            The proposed SEC rules are over 500 pages long and include 1,224 footnotes.  Next in the rulemaking process, the SEC must afford the public a period to comment on the proposed rules.  The SEC has posited 542 potential questions to the public. 

            Considering their length and complexity, it is unlikely that the proposed rules will become law in the near future.  Nevertheless, the rules proposed by the SEC and other regulators promise to lead to greater transparency in the swaps market, benefitting shareholders, dealers, and the market overall.

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Federal Trade Commission Files “Friend Of The Court” Briefing in Pay-For-Delay Generic Drug Case

The U.S. Federal Trade Commission (the “FTC”) recently filed an amicus curiae brief in In re Lamictal Direct Purchaser Antitrust Litigation, No. 2:12-cv-00995-WHW-MCA (D.N.J.), an antitrust case involving the delay of market entry by generic versions of the brand-name drug Lamictal.  The motion was accompanied by the FTC’s brief which seeks to “assist the Court in its analysis of the economic realities” of the reverse payment settlement alleged in the case.

Under federal law, pharmaceutical companies that have obtained FDA approval to market prescription drugs are granted a period of legal market exclusivity for their newly patented brand-name products.  The exclusivity rewards drug manufacturers for the time and resources invested in researching and developing new products.  Once the period of exclusivity expires, however, other drug manufacturers can enter the market with generic equivalents and compete against the brand-name products with substantially lower prices.

Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”), 21 U.S.C. §355(j), generic drug manufacturers are permitted to file Abbreviated New Drug Applications (“ANDAs”) prior to the expiry of the brand-name drug’s patent or the end of the exclusivity period.  To encourage generic manufacturers to enter the market with lower priced products, Hatch-Waxman grants the first-filed ANDA applicant a 180-day exclusivity period in which to market and sell a generic equivalent.  The exclusivity period does not, however, apply to authorized generics.  Authorized generics are chemically identical to brand-name products and are marketed by the brand-name drug manufacturer under the same FDA approval.  Authorized generics are often released by brand-name drug manufacturers to abate competition from generic manufacturers.

ANDAs enable generic drug manufacturers to rely on much of the same scientific evidence and test results as contained in the original brand-name manufacturer’s New Drug Application.  To obtain ANDA approval and launch a competing generic in the market early, generic manufacturers must certify that the original patent for the brand-name drug has expired, the patent is invalid, or the patent will not be infringed by the proposed generic drug.  Upon certification, ANDA applicants are often sued for patent infringement by the brand-name drug manufacturer seeking to protect their monopoly on the manufacture and sale of the drug.  Since the passage of the Hatch-Waxman Amendments, many patent infringement suits have been resolved through settlement agreements in which the patent-holding brand-name drug manufacturer pays the generic drug manufacturer to postpone or abandon entry of their generic products into the market.  These settlement agreements are commonly referred to as “reverse payment agreements” and have come under considerable scrutiny by the FTC.

Sometimes the brand-name manufacturer makes a cash payment to the generic manufacturer in exchange for their agreement to delay the marketing of a generic equivalent.  In Lamictal, the plaintiffs allege that brand-name manufacturer SmithKline Beecham Corp., d/b/a GlaxoSmithKline (“GSK”), paid Teva Pharmaceuticals, an ANDA applicant seeking to market a generic version of Lamictal, by agreeing not to compete with Teva by producing an authorized generic.  Defendants asserted that this promise, termed a non-authorized generics commitment could not constitute a “payment” under the Third Circuit’s recent ruling in In re K-Dur Antitrust Litigation, No. 10-2077 (holding that a cash payment in exchange for an agreement to delay generic entry should be subject to antitrust scrutiny under a quick look rule of reason analysis).

The FTC’s amicus brief opposed the defendants’ proposition, arguing that the non-authorized generics commitment guaranteed Teva protection from generic competition on each of its generic Lamictal products for at least six months—a potentially “lucrative” commitment for Teva.  While not a cash payment, as in K-Dur, the actual substance of the agreement was a “quid pro quo for Teva to accept a later entry date than it otherwise would have.”  The FTC noted that the legal form of such agreements does not alter their “‘economic realities.’”  As a result, courts should look to the “actual substance of the agreements at issue” in subjecting them to antitrust scrutiny.

The FTC is in a unique position to advise the court on these issues.  The FTC has conducted numerous empirical studies involving the pharmaceutical industry, including a 2011 study analyzing the competitive implications of non-authorized generics commitments made in the resolution of patent infringement litigation.

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FTC Issues “Green” Guidelines On Marketing Eco-Friendly Products

On October 1, 2012, the U.S. Federal Trade Commission (the “FTC”) issued its final revisions to its Guides for the Use of Environmental Marketing Claims (the “Green Guides”).  The Green Guides were first issued in 1992 and last revised in 1998 to help marketers avoid making misleading environmental claims.  The 2012 revision includes 5,000 comments submitted to the FTC in response to its 2010 proposed revisions to the Green Guides.  Consumer advocacy groups hope that the revised Green Guides will reduce “greenwashing” claims whereby a product is promoted as being environmentally friendly when, in fact, only a small component of the product actually qualifies.

The Green Guides are not agency rules or regulations.  The Green Guides are meant to guide marketers as to what claims may violate §5 of the Federal Trade Commission Act (“the FTC Act”), which prohibits deceptive acts and practices in or affecting commerce.  Enforcement of the FTC Act lies exclusively in the power of the FTC.  Many states, however, have statutes modeled after the FTC Act prohibiting unfair and deceptive trade practices that are enforced by state attorneys general as well as private litigants.

One of the most significant aspects of the revised Green Guides is that it advises that marketers should not make unqualified, general environmental benefit claims. In other words, popular marketing claims such as “green” or “eco-friendly” should not be used unless accompanied by a qualifying statement.  The FTC found that many consumers were misled by such claims to believe that products bearing such labels have far-reaching environmental benefits that they do not have.  Therefore, such statements should be qualified by specifying a product’s environmental attributes, such as “eco-friendly: made with recycled materials.”

The revised Green Guides also contain a number of new sections, including guidance for recyclable and degradable claims and certifications and seals of approval.  Similar to general environmental claims, the Green Guides warn that marketers should not make unqualified certification or seal of approval claims because they are likely to convey that the product has general environmental benefits.  Rather, marketers should identify specific environmental benefits associated with the certification or seal of approval and disclose any connection it has to the certifying organization.

Furthermore, the revised Green Guides state that marketers may only make an unqualified statement that a product is “biodegradable” if it can be proven that the entire product or package will fully decompose within a year.  In an effort to provide accurate information to consumers residing in a variety of communities, the revised Green Guides state that non-qualified “recyclable” claims should only be made where recycling facilities for the product are available to at least 60% of consumers or communities where the item is sold.

Both consumers and businesses will benefit from the revised Green Guides.  The Green Guides should deter businesses from making unsubstantiated green claims that harm consumers and competing businesses that do not make unsubstantiated claims.  Consumers can expect to see more detailed representations regarding products’ purported green attributes on store shelves in the coming months.

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Conferences and Educational Events


+November 2, 2012

Connecticut Public Pension Forum (CPPF) Fall Meeting

The Water’s Edge

Westbrook, CT

The seminar will provide objective research on specific issues of common interest and create resources for public retirement systems.  Additionally, the seminar will provide a forum for discussion on national and state issues of interest to public retirement systems.


+November 11-14, 2012

International Foundation of Employee Benefit Plans (IFEBP) 58th Annual Conference

San Diego Convention Center

San Diego, CA

The four-day conference will provide more than 120 sessions 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 will be in attendance to learn the latest cost-saving ideas and legislative and legal developments in the pension fund and financial areas.  This year’s conference begins on Veteran’s day with the opening keynote speech given by Dr. Eric Greitens, former U.S. Navy Seal, Rhodes Scholar, Draper Richard Fellow, and CEO of the non-profit organization, The Mission Continues.


+November 13-16, 2012

State Association of County Retirement Systems (SACRS) Annual Fall Conference

Loews Hollywood Hotel

Hollywood, CA

The conference will provide trustees a venue for education and problem solving beneficial to managing county retirement systems.


+November 29-30, 2012

American Society of Pension Professionals & Actuaries (ASPPA) Cincinnati Pension Conference

Northern Kentucky Convention Center

Covington, KY

Attendees will obtain core and advanced operational and practical knowledge regarding notices, compliance, plan design, reporting and non-discrimination testing.


Government Finance Officers Association Conferences


+November 13, 2012

Connecticut GFOA

Aqua Turf Club

Plantsville, CT


+November 29-30, 2012

Wisconsin GFOA

Radisson Paper Valley Hotel

Appleton, WI

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On The Record

“The only title in our democracy superior to that of President is the title of citizen.”

Louis D. Brandeis, U.S. Supreme Court Associate Justice, born November 13, 1856.

Source of Quote Unknown


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.

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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: + UK Tel: 0808.234.1396