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Securities Archives

More than $30 million awarded to securities fraud whistleblower

Under the Dodd-Frank Act, whistleblowers can receive sizable awards for notifying the Securities and Exchange Commission (S.E.C.) of securities fraud. The first payout -- close to $50,000 -- was made in 2012, and the whistleblower program continues to be effective. The S.E.C. is authorized to award between 10 and 30 percent of a sum collected by the government as a result of information provided by a whistleblower.

D.C. Circuit Court Upholds Dismissal of Verizon FCA Suit

In this qui tam action, Relator, Stephen Shea ("Shea"), alleged that Verizon Communications, Inc. ("Verizon") overbilled the United States General Services Administration ("GSA"), in violation of the False Claims Act ("FCA"). Judge Gladys Kessler of the United States District Court for the District of Columbia ruled that Shea, who has previously brought a qui tam case against Verizon, was prevented from bringing this second case against the company by the "first-to-file" rule.1 The first-to-file rule holds that if a person brings an action under the FCA, no other person or entity may intervene other than the Government to "bring a related action based on the facts underlying the pending action."2 The District Court held that this rule does, in fact, apply "to the same relator who later files a second related action."3 The D.C. Circuit Court agreed.

Second Circuit Favors Porsche in Application of Morrison Rule

In Parkcentral Global Hub v. Porsche, Automobile Holdings SE, et al., No. 11-397-cv, the United States District Court for the Second Circuit Court of Appeals held that the plaintiff did not state a securities action against Porsche Automobile Holdings SE ("Porsche") because none of the relevant conduct was domestic and the Securities and Exchange Act does not apply extraterritorially. The plaintiffs argued that Porsche violated Section 10(b) of the Securities and Exchange Act by acquiring stock in Volkswagen AG ("VW") while simultaneously denying that it wanted to acquire VW. When Porsche owned 74% of VW, the price of VW stock rose, causing the plaintiffs to lose significant sums due to security swaps they engaged in that referenced VW's price.1

Chase Bank Settles TCPA Class Action Suit for $34 Million

Judge Gary Feinerman of U.S. District Court for Northern District of Illinois has approved a settlement between Chase Bank ("Chase") and a class of mortgage customers that received automated messages regarding their loans from the bank without their express consent. There are two subclasses: the first that received phone calls and the second that received either voice alerts or text messages from Chase.  Despite the settlement, the bank continues to deny any wrongdoing.

Former Tax Lawyer Faces Tough Battle Against Vanguard Group

He was a tax lawyer for the biggest mutual fund group in the U.S., though he says the company's tax strategy was illegal. In a whistleblower lawsuit filed in New York, Vanguard Group Inc. is accused of a number of wrongful practices, including fraudulently failing to report a "Contingency Reserve" of $1.5 billion and sending salespeople and marketers throughout the country without keeping proper records for taxes. According to the suit, state and federal governments have lost in excess of $1 billion as a result of Vanguard's illegal tax practices.

Court: Dodd-Frank Doesn't Protect Whistleblowers Outside U.S.

Four years ago, when the Dodd-Frank Act was signed into law, a program was started to protect whistleblowers from retaliation if they report securities violations. Whistleblowers can also receive monetary awards for providing information to the Securities and Exchange Commission. However, a recent ruling by a federal appeals court draws into question whether tipsters from overseas are afforded the same protections afforded to whistleblowers in the U.S.

SEC Approves FINRA Proposal Regarding Expungement

If there is a complaint against a broker or a brokerage firm, that information is normally made public through BrokerCheck, a service provided by the Financial Industry Regulatory Authority ("FINRA").  However, brokerage firms often include expungement of information from the public record as a bargaining point when settling disputes with investors.  The Securities Exchange Commission ("SEC") does not want expungement to be a point of discussion when bargaining for a settlement because it can negatively affect public investors' access to information.1  The new SEC Rule 2081 no longer allows expunging a broker's wrongdoing from the record.  The Commission, which established Rule 2081 from a proposal by the Financial Industry Regulatory Authority (FINRA) believes that the rule will benefit all investors and regulators.       The issue regarding expungement came to the forefront when the Public Investors Arbitration Bar Association produced a study showing that expungement requests were granted in 97% of settled cases.2  This occurred because brokerage firms wanting to protect their image would bargain with complaining investors, offering them more money in exchange for expungement from the public record of the complaint against the firm.  The investors would normally accept more money in exchange for expungement because their personal financial gain was, typically, more important to them than public record of their complaint.  Allowing wholesale expungement of complaint information, however, hurts future investors that are looking for a brokerage firm that is trustworthy and has a positive history with clients.  Arbitrators presiding over settlements were previously not concerned about expungement as a part of an agreement.  Because brokerage firms would usually never make explicit to arbitrators that expungement was a condition of the settlement, arbitrators would often ignore it.  The SEC and FINRA have ensured that arbitrators now inquire as to whether expungement is part of a settlement.3  While substantially curtailed, expungement is still allowed in a limited number of cases, namely those where "the expunged information is unfounded and has no meaningful regulatory or investor protection value."4Some believe that the new rule is not ideal, and that it may have negative consequences.  For example, Robert Banks Jr., a plaintiff's attorney, argues that the new rule will not curb the number of expungement requests or how many are eventually accepted.5  Other counter-arguments include the likelihood of higher costs for all parties involved - because settlements will be more difficult to reach - and the argument that investors will receive smaller settlements overall since brokerage firms can no longer bargain for expungement of information by offering more money.6The SEC and FINRA believe that Rule 2081 will force expungement to be decided only on the investors' dispute and will stop its use as a bargaining chip to avoid the merits of the investors' complaint.  Rule 2081 is brand new and no one knows how it will work just yet, but the SEC is hopeful that the investing public will be better served by increased information.

In re Toyota Motor Corporation Securities Litigation

This securities litigation arises from allegations that the price of Defendants' stock was artificially inflated as a direct result of Defendants' material representations, omissions, and concealment regarding the unintended acceleration condition in Toyota vehicles. Defendants filed a Motion for Partial Judgment on the Pleadings ("Motion"), arguing that Plaintiffs had not adequately alleged loss causation for several of the statements made by Toyota's corporate spokesperson, Bill Kwong. The statements at issue, which appeared in several newspaper articles, generally pertained to representations by Defendants that the unattended acceleration issue was caused by driver error and media-induced publicity, including the following: