INSIDE THIS ISSUE
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
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.
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.
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
Scott+Scott attorney Amanda Lawrence recently
competed in the 2011 Ford Ironman World Championship 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,
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
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)
+ 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
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
+ 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
“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.
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
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