Regulations:
Securities Act
Exchange Act
Regulation S-X
Rules of Practice

Statutes
Sarbanes-Oxley
SOA-Effective Dates

Questions: More Opportunities for Lawyers?

1. Be prepared to discuss the events that led to the adoption of Sarbanes-Oxley Act of 2002. See § 2:1-2:5,

2. Does Sarbanes-Oxley include any provisions that amend the Private Securities Litigation Reform Act and/or impose any lesser pleading standards in a private action asserting securities fraud claims?  See § 2:9.

3. What are the elements of a Section 306 claim? Who can assert a Section 306 claim? Could the SEC initiate an enforcement action based on Section 306. See § 2:10. Who, if anyone, is likely to assert a claim and why?

4. Who can assert a claim based on Section 304? Can the issuer assert a claim? A stockholder? The SEC? See § 2:11, 2:8. Who, if anyone, is likely to assert a claim and why? What does the Tyco scenario suggest? See § 2:11

5. Note that new management of Tyco filed a claim based on breach of fiduciary duty against former officers. The same law firm that filed the action also conducted an investigation of the prior accounting practices of the the company that resulted in $382 million charge in 2002 to rectify prior errors, characterized by the report of the investigation and the company as not material. See § 2:11. Does new management have any motive to minimize the misdeeds of prior management that it is also suing?

6. What would the party bringing a Section 304 claim have to establish and what could be recovered in such an action. See § 2:12.

7. Under Section 302 who has to certify filed reports, what filed reports have to be certified, and of which issuers? See § 2:13. Precisely what does the certifying officer certify? See § 2:15.

8. In what respect will the Section 302 certification aid plaintiffs in meeting the PSLRA pleading standards with respect to pleading scienter in a Rule 10b-5 action? How is the certification qualified? In view of the qualification, what does it really add in pleading scienter?

9. What does the certifying officer certify with respect to the issuers disclosure controls and procedures? See § 2:15. How might this play out in the context of pleading scienter. See § 2:14

10. What does Section 404 add to the mix? How has the Commission proposed to amend the certification form to take it into account.  See § 2:15.

11. Is Section 906 redundant? Do the criminal penalties go beyond Section 302? See § 2:8.

12. Does  Section 409 in itself provide aid to plaintiffs in preparing Rule 10b-5 complaint? Will the Commission's proposal to amend Form 8-K and require accelerated disclosure of current events and more triggering events aid plaintiffs in preparing Rule 10b-5 complaint? See § § 2:17.

13. Assuming the expanded events that trigger the need to file a Form 8-K result in the filing of a Form 8-K and the information is false and misleading, does it necessarily follow that the information is material because the Commission has mandated that it be filed?  Note in this regard, that Form 8-K provides that items filed pursuant to the present Item 5 and Item 9 does not amount to an acknowledgement that the information is material. See Form 8-K.

14. This gets us far a field, but, nonetheless, let us try. Assuming that the amendments to Form 8-K is adopted, one of the triggering events occur, and the issuer fails to file or files late. There has been a violation of Section 13(a) which authorizes the Commission to require the filing of periodic reports by a company with a class of securities registered under the Exchange Act. The Commission clearly can file an enforcement action, but private parties may not (and probably do not) have an implied private action based on Section 13(a) for failure to file. Recall what Judge Easterbrook had to say re duty to disclose in Gallagher. See § 2:17. Would an expanded Form 8-K create a duty for Rule 10b-5 purposes in the event of a failure to file or merely a violation of Section 13(a) of the Exchange Act. Consider the implications if it creates a duty for Rule 10b-5 purposes. The failure to file such required disclosure if the information is material, it is forseeable that the absence of such information in the market affects the market price of the security, and the market relies on the availablity of such information in making investment decisions the potential liability could be staggering.    What do you think?

15. How does the accelerated filing of Form 4s as required by amended Section 16(a) and availability on EDGAR aid plaintiffs in pleading a Rule 10b-5 case?  How would you go about developing information relating to insider trading to include in the complaint assuming you are representing plaintiff?

16. Be prepared to discuss critically the rules adopted by the Commission implementing Section 307.

17. Virtually all securities practitioners among the elite of those practicing before the Commission (as distinguished from bringing class actions alleging securities fraud) noisily objected to the "noisy withdrawal" provisions of the rules the Commission proposed to implement Section 307 of Sarbanes-Oxley. Click HERE and HERE and HERE to read some of their objections or go to HERE and select those you want to read.  About the only ones supporting "noisy withdrawal" was the law professors (Click HERE), although Professor Painter (largely responsible with other Professors in getting the Senate to include Section 307) suggested that the attorney should have the alternative of resigning or making a noisy withdrawal. Click HERE. If the noisy withdrawal provision is adopted, would it provide aid and comfort to plaintiffs? Will it make information available to anyone other than the Commission? What information will the Commission have received? See § 2:20.

18. Assuming you are an associate in a law firm reviewing the company's annual report on Form 10-K of an issuer at the request of the partner who is the responsible partner within the firm for that issuer. You meet with the in-house counsel of the issuer who prepared the draft Form 10-K. You learn in the course of your discussions that the issuer's principal customer (XYZ) is threatening to withdraw its business under an exclusive contract to purchase from the issuer because of repeated failures of the company to deliver the product timely. You advise in-house counsel that such threat should be disclosed as part of Management's Discussion and Analysis as a know uncertainty that could materially affect the company's business. In-house counsel refuses to follow your advice, stating that XYZ is bluffing. You report your discussion and concern that failure to disclose the threat might constitute a violation of the securities laws to the responsible partner in your firm. Do you have any further obligation? See § 2:20.

19. You are the responsible partner referred to in the previous question and believe you have an obligation to go up the ladder. Which alternative are you going to follow and why as between going to the Chief Legal officer (see § 2:20) and the company's Qualified Legal Compliance Committee (see § 2:21).