Tag: Rule 10b-5

Wells Fargo executives charged with disclosure of false and misleading KPIs and certifications

Earlier this month, the SEC announced settled charges against former Wells Fargo CEO and Chairman, John G. Stumpf, as well as charges against former head of Wells Fargo’s Community Bank, Carrie L. Tolstedt, alleging that they misled investors about the success of the Community Bank, Wells Fargo’s core business. (Wells had already agreed to pay $3 billion to settle charges from the SEC and the Department of Justice.) The SEC charged that they made misleading public statements about the company’s strategy and a key performance indicator, the “cross-sell metric,” and signed misleading certifications and sub-certifications as to the accuracy of these and other public disclosures. In the Order, Stumpf has agreed to settle the action against him for $2.5 million, but Tolstedt has not agreed to settle, and the SEC has filed a complaint against her in Federal District Court, seeking an officer and director bar, a monetary penalty and disgorgement. The Order and complaint highlight, once again, problems that can arise out of public disclosure of misleading key performance indicators. Moreover, the SEC’s allegations provide a cautionary tale about the responsibility of those signing certifications (and sub-certifications) regarding the accuracy of periodic reports to heed clear alarm bells and question sub-certifications where appropriate to do so.

SEC charges Nissan and former CEO with fraud for concealing compensation

Yesterday, the SEC announced settled fraud charges under Rule 10b-5 against Nissan, its former CEO Carlos Ghosn, and Gregory Kelly, a former director, related to the failure to disclose over $140 million to be paid to Ghosn in retirement.  (Here is the SEC’s Order and the complaint  against Ghosn and Kelly filed in the SDNY.)  Of course, you may be aware that Ghosn and the former director have been arrested by Japanese authorities and are awaiting trial, so these SEC charges were probably not the biggest glitch in their career paths.  Nevertheless, the SEC’s action does stand as a warning that the SEC remains on the lookout for efforts to hide or disguise compensation from required public disclosure, especially where CEO discretion regarding compensation is largely unconstrained.

SCOTUS finds primary securities fraud liability for disseminating statements made by others with intent to defraud

Last week, SCOTUS decided Lorenzo v. SEC, a case involving a claim that an investment banker was liable for securities fraud when, at the direction of his boss, he cut, pasted and disseminated to potential investors information that his boss had provided, even though the banker knew the information was false.  In a 2011 case, Janus Capital Group, Inc. v. First Derivative Traders, SCOTUS had held that, an “invest­ment adviser who had merely ‘participat[ed] in the draft­ing of a false statement’ ‘made’ by another could not be held liable in a private action under subsection (b) of Rule10b–5.”   (Rule 10b–5(b) prohibits the “mak[ing]” of “any untrue statement of a material fact.”)  In Lorenzo, the question before the Court was whether a person who did not “make” statements (that is, who did not have “ultimate authority” over the statements), but who knowingly disseminated false statements to potential investors with intent to defraud, could be found to have violated subsections (a) and (c) of  Rule 10b–5.  The answer, in an opinion written by Justice Breyer, was yes. Will this case embolden plaintiff’s counsel to push the envelope and assert claims against people who are only peripherally involved in the dissemination of allegedly false information?  Time will tell what the ultimate impact of this case may be.

You want mandatory arbitration in your charter? Hey, just ask!

This is the opening paragraph from Tuesday’s column by Alison Frankel, one of my favorite legal columnists/bloggers:

“This could be the start of something huge: Securities and Exchange Commissioner Michael Piwowar said in a speech Monday to the Heritage Foundation that the SEC is open to the idea of allowing companies contemplating initial public offerings to include mandatory shareholder arbitration provisions in corporate charters. If Piwowar’s statements…mark a new SEC policy on mandatory arbitration, they could be the beginning of the end of securities fraud class actions.”