Securities Litigation and Enforcement

View as PDF
Overview

Our Clients

In the securities class action area, Katten attorneys represent issuers, underwriters, officers and directors in cases alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and other federal and state securities law statutes. We also represent target companies and their boards of directors in the "merger objection" strike suits that have plagued nearly every sizable M&A transaction in recent years. Our Securities Litigation and Enforcement team is regularly retained to represent clients in transactions where Katten did not serve as deal counsel—often where advice of deal counsel becomes an issue in the litigation.

Our Services

Katten is a nationally recognized leader in defending securities class actions, stockholder derivative cases, M&A litigation, proxy disclosure suits, and Securities and Exchange Commission (SEC) investigations and enforcement actions. With a deep bench of more than 50 securities litigators located in New York, Chicago, Los Angeles and Washington, DC, Katten attorneys have defended more than 400 major securities actions, including some of the largest and most significant cases in the field. To best serve our clients’ needs, our Securities Litigation and Enforcement practice routinely works with and draws upon the resources of the firm’s Financial Services, Securities, and White Collar, Investigations and Compliance practices.

Katten attorneys have long played a prominent role in creating securities law and curbing the growth of abusive strike suits. Members of our Securities Litigation and Enforcement team were involved in drafting the heightened pleading standards that Congress adopted in the Private Securities Litigation Reform Act of 1995, the statute that raised the standards necessary for shareholders to state a claim for securities fraud. In addition, we have litigated many of the seminal cases that are routinely cited in nearly every securities case, including Basic Inc. v. Levison and In re Silicon Graphics, as well as an array of front-page cases—from Madoff matters to In re Lehman Brothers Securities and ERISA Litigation. As a result of this track record, clients routinely look to Katten to handle the most complex and cutting-edge cases.

We focus on winning our cases at the pleading stage so that our clients avoid the substantial burden, expense and distraction of discovery and trial. Our group has won early dismissals for clients in numerous cases across the country and held such dismissals on appeal. In light of the heightened pleading standards applicable in class actions, many plaintiffs have elected to pursue their claims as stockholder derivative actions alleging breach of fiduciary duty. Katten attorneys have substantial expertise in litigating corporate governance and derivative actions in Delaware and other jurisdictions.

Our Securities Litigation and Enforcement team has led the effort to defeat executive compensation and proxy disclosure cases and prevent them from becoming an “annual tax” on stockholder meetings. We have authored numerous articles and given multiple presentations in this area and have obtained complete pleading stage dismissals for clients who have been faced with this new problem. Stockholder suits often go hand in hand with regulatory investigations by the SEC, Commodity Futures Trading Commission (CFTC), Financial Industry Regulatory Authority (FINRA), state attorneys general and other federal and state authorities. Among our experienced securities litigators are dozens of former assistant US attorneys, SEC enforcement attorneys and Department of Justice (DOJ) associate attorneys general. Our national team also includes former Big Four auditors and forensic accountants. We focus on demonstrating to regulators in the first instance that enforcement action is not warranted and, at later stages, in defeating claims resulting from regulatory inquiries.

In addition to defending regulatory cases and investigations, Katten guides companies and their boards of directors on matters of corporate governance and conducts internal investigations in connection with potential securities-related wrongdoing, including insider trading, executive compensation, public disclosure and accounting irregularities. We understand the unique interplay between internal investigations and related civil litigation and derivative suits, and we help clients anticipate and address the many complications that may arise in these circumstances.

Experience
SEC Rule 10b-5 Litigation
  • Defense of clients in connection with shareholder allegations that Skilled Healthcare, a provider of long-term health care and assisted living services, violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20 of the Securities Exchange Act of 1934 when a former employee improperly dated certain account records such that the company's allowance for doubtful accounts was substantially understated. Following an internal investigation, the company uncovered the dating issue and re-stated its financial results. Plaintiff also brought Securities Act claims against the underwriters for the company's initial public offering. After Katten attorneys presented the intended arguments to make on behalf of the underwriters in a motion to dismiss, plaintiff agreed to dismiss its claims against the underwriters. Skilled Healthcare subsequently resolved the case, and the settlement included full releases for clients (Credit Suisse, JP Morgan Chase & Co., UBS, Goldman Sachs, Royal Bank of Canada, Scotia Capital) without any payment by Katten's clients.
  • Defense of the former chief executive officer of The Great Atlantic & Pacific Tea Company (more commonly known as "A&P," one of the world's most well-known consumer brands) and certain of its officers and directors in a Securities Exchange Act class action. According to plaintiffs, A&P and its senior executives made false and misleading statements regarding the success of the company's acquisition and integration of Pathmark, a competing supermarket chain. Plaintiffs further asserted that A&P misrepresented the company's financial performance by falsely suggesting that a capital infusion and "turnaround" plan would improve overall performance.
  • Representation of Hansen Medical, Inc. in connection with an internal investigation of accounting practices on behalf of the Audit Committee of this medical devices company. Katten subsequently represented Hansen in an SEC investigation and also conducted a further investigation for the board of directors in response to demands from several shareholders.
  • Defense of People's United Financial, Inc. (as successor to Smithtown Bancorp Inc.) and certain officers and executives in a stockholder class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934. Plaintiffs alleged that Smithtown Bancorp and certain of its officers and executives intentionally or recklessly concealed known losses in the bank's loan portfolio during the financial crisis, thereby understating the "allowance for loan and leases losses" and overstating net income.
Financial Industry Litigation
  • Defense of Royal Bank of Canada (RBC) in a suit brought by Healey Alternative Investment Partnership. Healey purchased from RBC a $70 million cash-settled equity barrier call option designed to track the performance of 24 specific hedge funds. After RBC and Healey agreed to terminate the option, RBC began making payments to Healey as RBC received payment on the redemption requests it submitted to the hedge funds in the investment "basket." Certain of the funds in Healey's basket, however, had suspended redemptions in light of the financial crisis and prevailing economic conditions and had not yet honored RBC's redemption requests. Healey filed suit asserting that RBC breached the option agreement by: (i) failing to timely pay the amounts due to Healey following the termination; (ii) failing to pay the value of the option shown in a pre-termination monthly estimated value report; and (iii) improperly "linking" parts of Healey's investment to certain "side pockets" created by the hedge funds in Healey's basket. RBC moved to dismiss Healey's complaint in its entirety and with prejudice because, among other things, the parties' agreement made clear that Healey is entitled to receive only the amount that would be received by a direct investor in each fund in its basket if and when redemption requests submitted on the termination date actually are honored by the funds. The court granted RBC's motion dismissing as to all counts except for one breach of contract claim. The discovery phase in the case will commence shortly on the sole issue of whether RBC's method for determining the option's final value was "commercially reasonable."
  • Defense of Royal Bank of Canada (RBC) in connection with a securities litigation matter brought by the bankruptcy trustees of Thornburg Mortgage, Inc. Thornburg (now known as TMST, Inc.) filed for reorganization under Chapter 11 of the US Bankruptcy Code in what was at that time one of the 10 largest bankruptcies in US history. Two years into the bankruptcy case, Thornburg's trustee filed an adversary proceeding alleging that RBC breached the terms of a master repurchase agreement when RBC liquidated approximately $570 million worth of RMBS following Thornburg's failure to timely honor various margin calls. The trustee alleges that, in liquidating the RMBS, RBC undervalued Thornburg's collateral by at least $35 million. The litigation turns on the core financial crisis issue of how a party should determine value for complex derivative securities when the market for those securities seizes up and ceases to operate.
  • Representation of a travel services provider and certain of its officers in a shareholder class action in federal court in New Jersey and stockholder derivative litigation in Nevada. Client is based in China and each of these matters concerns allegations that its filings with the SEC were false and misleading because, among other things, the financial information disclosed therein differed from the financial information filed with the State Administration for Industry and Commerce in China. Plaintiffs' lawsuits were filed after two different short sellers published detailed reports claiming that, contrary to its representations, client was not an online travel agency and that its US financial statements were internally inconsistent and differed from the financials filed in China. The plaintiffs in the federal class action have recently filed an amended complaint which purports to support its claims with information from a number of confidential witnesses, information allegedly obtained by a private investigator in China and Chinese government documents. Katten also represents client in connection with a formal SEC investigation and proceedings by the NYSE to delist the company.
Merger and Corporate Control Litigation
  • Representation of Kensey Nash Corp. and its directors in a lawsuit alleging that they breached their fiduciary duties in agreeing to sell the company to Koninklijke DSM N.V (DSM). Three different sets of plaintiffs filed suit in the Delaware Court of Chancery and sought expedition of the proceedings including discovery such that they could attempt to enjoin the transaction. Katten attorneys opposed plaintiffs' effort to expedite the proceedings before Vice Chancellor Parsons and, despite the liberal standard applicable to motions to expedite, the court denied plaintiffs' motion for expedition, thereby preventing the plaintiffs from attempting to enjoin the transaction.
  • Representation of DemandTec, Inc. and its directors in a lawsuit alleging that they breached their fiduciary duties in agreeing to sell the company to IBM. Katten attorneys successfully negotiated very limited expedited discovery and, after the plaintiffs' counsel was unable to develop any theories that justified enjoining the transaction and while Katten's opposition to the plaintiffs' motion for a preliminary injunction was pending, Katten attorneys resolved the case, with attorneys' fees paid to the plaintiffs' counsel well below the median for this type of case.
Foreign Company/SEC Rule 10b-5 Litigation
  • Representation of Camtek, Ltd. and its directors and officers in a securities class action covering a class period in which the plaintiff alleged that Camtek inflated its projected and reported revenues by recognizing revenue for products still under evaluation and by factoring receivables and utilizing letters of credit. Plaintiff also challenged certain of Camtek's transactions with its primary stockholder. The court granted Camtek's initial motion to dismiss on the grounds that the court lacked subject matter jurisdiction over a purported securities case brought by a foreign citizen against a foreign company. Katten made this argument that the court lacked subject matter jurisdiction before the issue came to prominence by the US Supreme Court's grant of certiorari and subsequent decision on the issue in Morrison v. National Australia Bank, Ltd. Camtek's motion to dismiss the second amended complaint was granted based on plaintiff's failure to allege falsity, scienter and loss causation. The court gave plaintiff leave to file a third amended complaint, which plaintiff did. Camtek filed a motion to dismiss the third amended complaint which was granted. Katten's argument in connection with the third motion to dismiss had to address SEC Division of Corporation Finance comment letters that had become public and that plaintiff learned of between the second and third amended complaints. These comment letters made specific reference to Camtek's inventory disclosures that plaintiff had asserted Camtek was manipulating to hide by recognizing revenue for products still under evaluation. The court granted the third motion to dismiss with prejudice and entered judgment for Camtek, which plaintiff did not appeal.
  • Representation of Ormat Technologies, Inc. and certain of its directors and officers in shareholder class action litigation in federal court in Nevada and stockholder derivative litigation in federal and state court in Nevada. Each of these matters concerns allegations that Ormat used an incorrect method to account for its exploration and development costs that resulted in a financial restatement and that Ormat misled its shareholders concerning the progress of a geothermal power plant at North Brawley in Imperial County, California. Over the objections of four different sets of plaintiffs' counsel, Katten attorneys successfully obtained stays of both the state and federal derivative cases so that the company could focus its defense on the securities class action. Katten attorneys also successfully moved for dismissal of plaintiffs' amended complaint in the securities class action. The court dismissed plaintiffs' claims relating to Ormat's progress with respect to the North Brawley power plant and only allowed plaintiffs' accounting restatement claims to continue. This dismissal cut the proposed class period in half, reduced possible damages by nearly two-thirds, eliminated the need for discovery covering the five-year exploration, development and construction process and further reduced the scope of discovery from an expected 50 witnesses to 10. Katten attorneys then filed an opposition to plaintiffs' motion to certify even the more-limited class based on an interpretation of the Supreme Court's decision in Erica P. John Fund, Inc. v. Halliburton Co., and dispositive admissions obtained during the deposition of plaintiffs' expert on market efficiency, Candace L. Preston.
Shareholder Derivative Litigation
  • Representation of Himelsein Mandel Advisors LLC, Himelsein Mandel Fund Management LLC, Wayne Himelsein, Jason G. Mandel, HM Ruby Fund, L.P. and Himelsein Mandel Offshore Limited in a derivative action brought by a stockholder of Himelsein Mandel Offshore Limited contending that Katten's clients breached their fiduciary duties to stockholders by causing the fund to overpay for assets and to otherwise lose value. Katten, acting as lead counsel for all of the Himelsein Mandel entity defendants and both managing principals, successfully obtained an order dismissing the complaint in its entirety on the ground that, under controlling Cayman Islands law, the stockholder plaintiff lacked standing to pursue her derivative claims.
Professionals
Firm News
Articles
October 2008
Advisories
October 23, 2008
Newsletters
Events
June 12-13, 2017
Legaltech West
CLE Eligible | San Francisco, California
March 8–10, 2017
October 27, 2016
October 20, 2016
8th Annual Conference on Futures & Derivatives
CLE Eligible | Chicago, Illinois
September 28–29, 2016
Understanding the Securities Laws 2016
CLE Eligible | Chicago, Illinois
November 19, 2015
October 6, 2015
September 25, 2015
April 30, 2015
October 23–24, 2014
October 16, 2014
June 11, 2013
November 12–13, 2012
October 17, 2011
September 12–14, 2011
June 6, 2011
ACE Professional Risk | Lafayette Hill
May 18, 2011
March 2, 2011
January 20, 2011
December 8–9, 2010
General Counsel Forum | New York, New York
September 21, 2010
November 18–19, 2008
October 20–21, 2008
October 2–3, 2008
October 15–16, 2007
September 11–12, 2006
August 17–18, 2006
July 25, 2006

Recognition

Litigation – Securities (Los Angeles), 2012–2017
Litigation – Securities: Shareholder Litigation, 2013–2015
Top 100 Law Firms With the Largest Securities Practice Groups, 2012
Securities: Litigation (Nationwide), 2011–2013
Litigation – Securities (Chicago), 2012–2017
Litigation – Securities (New York), 2012–2017
Securities Litigation: Defense, 2015–2017
Litigation – Securities (National), 2012–2017
Previous Next

Recognition

Litigation – Securities (Los Angeles), 2012–2017
Litigation – Securities: Shareholder Litigation, 2013–2015
Top 100 Law Firms With the Largest Securities Practice Groups, 2012
Securities: Litigation (Nationwide), 2011–2013
Litigation – Securities (Chicago), 2012–2017
Litigation – Securities (New York), 2012–2017
Securities Litigation: Defense, 2015–2017
Litigation – Securities (National), 2012–2017

OUR CLIENTS SAY...

"[Long] been a leading light in securities litigation . . ."

The Legal 500 United States 2015
(Securities: Shareholder Litigation)

Katten Websites   Careers  |  Alumni  |  Mobile Site
Contact Us   Offices  |  Media Center  |  People  |  Email
Legal Notices   Disclaimer  |  Privacy Policy  |  United Kingdom Notices  |  Attorney Advertising  
Contact Us