Foley Hoag LLP

SUMMARY

On October 7, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) released a statement regarding the expiration of the emergency order (the “Order”) prohibiting persons from short selling in the securities of financial companies.

On Friday, October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 (the “Legislation”), aimed at stemming the credit crisis. When the Order was extended, the SEC stated that the Order would expire on the third business day after enactment of the Legislation. Accordingly, the Order will expire at 11:59 p.m. ET on Wednesday, October 8, 2008.

SUMMARY

Foley Hoag LLP’s interdisciplinary team counsels and protects the interests of its clients facing new realities, challenges and risks framed by today’s tumultuous economic and market conditions. By maintaining an active and engaged dialogue with our clients during this period of economic distress, our lawyers are better able to adapt to the changing legal needs of clients affected in the short term. More importantly, our immersion in their businesses and industries enables our lawyers to provide sound, strategic counsel to protect our clients’ interests in the longer term. The Economic Crisis Team delivers forward-thinking advice, focusing on long-standing core, integrated strengths of the firm.

Topics include:

• Financial investigations, enforcement proceedings and litigation
• Federal and state securities regulation
• Deal-making, corporate finance and investment restructuring
• Bankruptcy, corporate reorganization and financial disputes

SUMMARY

1. Prohibition on Short Selling in Financial Companies

On October 1, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) extended the emergency order (the “Order”) prohibiting short selling in the securities of financial companies. The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

The Order will be extended beyond its currently scheduled expiration to allow time for completion of work on the anticipated passage of the Economic Stabilization Act of 2008 (the “Legislation”). The Order will now expire at 11:59 p.m. ET on the third business day after enactment of the Legislation, but in any case no later than 11:59 p.m. ET on Oct. 17, 2008.

2. Requirement of Institutional Investment Managers to Report New Short Sales

On October 1, 2008, the SEC also extended the emergency order (the “Second Order”) requiring institutional investment managers (those required to file a Form 13F) to report information concerning daily short sales of securities. The Second Order was also issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

The Second Order will also be extended to 11:59 p.m. ET on Oct. 17, 2008, but the Commission intends that the reporting requirement will continue in effect beyond that date without interruption in the form of an interim final rule. The Commission will seek comments on all aspects of the anticipated rulemaking. The SEC has also now indicated that disclosure of short positions reported under the Second Order will be made only to the SEC. This is a modification of the Second Order and will avoid public disclosure. It is unclear whether public disclosure will be required under any final rule.

SUMMARY

As a follow up to our Foley Adviser on September 19, 2008, we have prepared answers to the following frequently asked questions regarding the Securities and Exchange Commission’s (“SEC” or the “Commission”) emergency order (the “Order”) requiring institutional investment managers to report information concerning daily short sales of securities.

Questions Include:

• What is Form SH?
• Who must file?
• When is the filing required?
• How is the filing made?
• How soon will Form SH information be publicly available?
• What transactions are reportable?
• Are small short sales reportable?
• What must be disclosed on Form SH?
• What about pre-existing short positions?
• What if I increase a pre-existing short position?

SUMMARY

SEC Issues Emergency Order to Prohibit Short Selling of Financial Stocks to Protect Investors and Markets

On September 19, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) issued an emergency order (the “Order”) to prohibit short selling in the securities of 799 financial companies (the “Securities”), which are identified in Exhibit A. The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

Under the Order, all persons are prohibited from short selling the Securities except for registered market makers, block positioners, or other market makers obligated to quote in the over-the-counter market. The Order will be immediately effective and will terminate at 11:59 p.m. ET on October 2, 2008. The SEC may extend the Order beyond 10 business days if the SEC determines that the continuation of the Order is necessary in the public interest and for the protection of investors, but not for more than 30 calendar days in total duration. (continues...)

SUMMARY

The Office of Chief Counsel, Division of Investment Management of the Securities and Exchange Commission (the “SEC”) has issued an Interpretative Letter (the “Interpretative Letter”) dated July 15, 2008, clarifying its position concerning the applicability of Rule 206(4)-3 under the Investment Advisers Act of 1940 (the “Advisers Act”) in the context of a fund or other investment pool. In the Interpretative Letter, the SEC indicated that it believes Rule 206(4)-3 does not generally apply to a registered investment adviser’s cash payment to a person for soliciting or referring investors for an investment pool managed by that adviser since these investors are not “clients” of the investment adviser.

SUMMARY

On July 15, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) issued an emergency order (the “Order”) to enhance investor protections against “naked” short selling in the securities of Fannie Mae, Freddie Mac and primary dealers at commercial and investment banks (the “Securities”), which are identified in Exhibit A (.pdf). The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934. In addition, the SEC will undertake rulemaking to address these issues across the entire market.

Under the Order, anyone effecting a short sale in the Securities must arrange beforehand to borrow the Securities and deliver them at settlement. The Order took effect at 12:01 a.m. ET on Monday, July 21, 2008 and will terminate at 11:59 p.m. ET on Tuesday, July 29, 2008. The SEC may extend the Order if the SEC determines that the continuation of the Order is necessary in the public interest and for the protection of investors, but not for more than 30 calendar days in total duration.

SUMMARY

The Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (“FINRA”) and New York Stock Exchange Regulation, Inc. (“NYSE Regulation”) have taken unprecedented steps in response to the concern that the stock collapse of Bear Stearns and Lehman Brothers resulted from the spread of false and misleading rumors, and that the rumors may have been linked to “naked” short selling.  

SUMMARY

Established in December 1980 by the partners of law firm Foley Hoag, The Foley Hoag Foundation is a private foundation that seeks to combat racism, especially among youth, in the City of Boston. The Foundation awards grants to organizations working to improve the racial climate in Boston by addressing issues of diversity and racism. Grantee organizations achieve their goals through a variety of means, including arts and cultural activities, youth leadership and recreational programs. Other grantees provide advocacy assistance, enabling individuals to confront racism through legal or political action. Some grantee organizations work to prepare young children to live in the reality of a multicultural society, others engage teens, and a few target a primarily adult constituency.

The Foley Hoag Foundation was the first—and remains the only— foundation to focus exclusively on the improvement of race relations in Boston. The trustees are fortunate to have the unqualified endorsement of Foley Hoag, which has provided an enormous amount of financial, administrative and moral support.

SUMMARY

• In Stoneridge, the Supreme Court ruled that businesses may not be sued in private securities fraud lawsuits unless they themselves make deceptive statements or acts directly relied on by investors.

• The Court sought to shield parties in "the realm of ordinary business operations" who do not attempt to "affect securities markets" from the risks and costs associated with private shareholder litigation.

• The SEC and Justice Department may still proceed against businesses that participate in fraudulent schemes or otherwise "aid and abet" fraud.

SUMMARY

Successful dispute resolution requires perspective, from all vantage points. At Foley Hoag, we offer you clear insight into when to go to the mat and when to settle. If litigation becomes necessary, we focus on helping you make prudent upfront decisions that best represent your interests and aim to reach a prompt, cost-effective and viable solution.

SUMMARY

• Prosecutors facing hurdles in proving off-label promotion is a crime
• Large financial settlements, CIA’s the national trend
• Smart drug companies should assess off-label implications of their promotional activities

SUMMARY

• Growing regulatory interest in subprime mortgage-backed investments
• The SEC has expanded investigation to credit rating agencies, and further expansion appears likely
• Market troubles could result in new wave of securities litigation brought by investors
• Those involved in issuing, rating, purchasing, repackaging, recommending or selling mortgage backed investments should assess risk profile and act accordingly

SUMMARY

This guide is intended to provide foreign businesspeople with an introduction to the basic kinds of laws and regulations that affect the conduct of business in the United States, and particularly in the Commonwealth of Massachusetts. The level of detail is varied, reflecting the nature of the legal areas discussed. For example, environmental law and taxation are subjects of detailed and technical regulation, while labor relations are governed as much by custom and practice as by direct regulation.

SUMMARY

Included In This Issue:

• Former Brocade CEO Gregory Reyes guilty of securities fraud relating to stock options backdating
• The case was the first to test the defenses of “lack of criminal intent” and “immateriality”
• Judges and juries clearly think stock option accounting matters to investors, regardless of how arcane it may appear

SUMMARY

Included In This Issue:

• In Tellabs, the Supreme Court clarified the heightened pleading standard for shareholders who file securities fraud lawsuits.
• Shareholders must allege facts that give rise to an inference of fraud that is "at least as compelling as any opposing inference."
• Defendants who persuade the court that an innocent explanation is more compelling will win dismissal before discovery even begins. 

SUMMARY

Chambers and Partners, a leading U.K.-based research and publishing company, has again included Foley Hoag and its individual lawyers in its popular Chambers USA: The Client's Guide. This year, eleven practice areas and 22 lawyers are represented.

A digital reprint is avalable for download (.pdf).

SUMMARY

Passed in 1995, the Private Securities Litigation Reform Act (“PSLRA”) was designed to curb abuses occurring in private securities class action litigation. Among the enacted measures were provisions for appointment by the court of a lead plaintiff (or, in some instances, a lead plaintiff group or two or more co-lead plaintiffs), and approval by the court of lead plaintiff’s selection of lead counsel (or, again, in some instances, two or more co-lead counsel or lead or co-lead counsel and liaison counsel). The intent of these provisions was to have injured shareholders themselves, and not their lawyers, actually control securities class action litigation, so that there would be fewer baseless lawsuits brought and controlled by lawyers with the goal of simply extracting settlements. Courts have generally taken seriously the lead plaintiff and lead counsel requirements, and have carefully reviewed lead plaintiff applications and lead counsel selections to ensure that those requirements are being met.