If there’s one federal jurist the Securities and Exchange Commission absolutely, positively did not want to see at the top of the docket in its $285 million settlement with Citigroup, it was Senior Judge Jed Rakoff of Manhattan federal court. Rakoff has been a festering sore for the agency since 2009, when he rejected a proposed $33 million settlement with Bank of America over failing to disclose bonus payments to Merrill Lynch executives in merger-related documents. In a March 2011 opinion in the Vitesse Semiconductor case, Rakoff took the agency to task for agreeing to settlements in which defendants neither admit nor deny wrongdoing. Then in July he claimed jurisdiction over the SEC’s case against former Goldman Sachs director Rajit Gupta, accusing the agency of forum shopping in filing an administrative action against Gupta. You can only imagine the teeth-gnashing at the SEC when Rakoff was assigned the Citi case. After the SEC tried to argue that Rakoff doesn’t have the power to consider the public interest in his evaluation of the proposed settlement, Monday’s rejection of the settlement was practically a foregone conclusion.
In 2010, when the Securities and Exchange Commission brought a case against Citigroup for misleading investors about the bank’s exposure to subprime mortgages, the SEC filed the proposed $75 million settlement in Washington, D.C., federal court. Judge Ellen Huvelle gave the agency some gruff about the deal, in which two individual Citi defendants also settled SEC claims through an administrative action, but she eventually accepted the settlement without demanding any big changes.
On June 28, 2010, the Enforcement Director of the Securities and Exchange Commission, Robert Khuzami, spoke on the phone with Mark Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison. Pomerantz and Khuzami had worked together as assistant U.S. attorneys in Manhattan in the 1990s; according to Pomerantz, he was partly responsible for Khuzami’s promotion to chief of the office’s securities unit. But this wasn’t a social call. Pomerantz represented Citigroup, which had agreed to settle SEC allegations that it drastically underreported its subprime mortgage exposure. The deal was held up, however, by the agency’s insistence that Citi CFO Gary Crittenden face fraud claims for allegedly misleading investors.
At the beginning of his closing argument way back on Sept. 20, Micron counsel William Price of Quinn Emanuel Urquhart & Sullivan told jurors that his client and its co-defendant, Hynix, had fixed prices on some computer memory chips. They did it 11 years ago, he said, when the tech bubble burst and memory chip prices were plummeting. “That activity was wrong, and there were victims,” Price said, according to this transcript. “But Rambus wasn’t a victim …. And, so, what Rambus has done here is they’ve taken something that we have told you from the beginning was true and said they were victims when they weren’t.”
The big guns are rolling out on both sides of Microsoft’s patent infringement suit against Barnes & Noble at the U.S. International Trade Commission. Microsoft has no fewer than four firms (Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg) working on the six-month-old case, in which it accuses Barnes & Noble’s Nook e-readers of infringing Microsoft patents. Barnes & Noble this week supplemented its team of Cravath, Swaine & Moore and Kenyon & Kenyon with Paul Brinkman‘s group from Quinn Emanuel Urquhart & Sullivan. The Quinn addition is notable because Barnes & Noble’s devices use Google’s Android operating system; Quinn, which is one of Google’s go-to IP firms, previously defended the Android system in Apple’s ITC case against HTC.
On Monday the National Credit Union Agency announced a pair of breakthrough mortgage-backed securities settlements. Deutsche Bank agreed to pay the government’s credit-union regulator $145 million for its role in underwriting mortgage-backed notes purchased by five credit unions that subsequently failed. Citigroup threw another $20.5 million into NCUA’s settlement pot, which will offset the $5 to $9 billion in fees the agency is charging solvent credit unions to pay for losses associated with the five failed institutions.
One of the most controversial aspects of the U.S. Supreme Court’s June 2011 ruling in Janus v. First Derivative Traders was that the Justices rejected the Securities and Exchange Commission’s interpretation of federal securities laws. The SEC said Janus Capital wasn’t liable for the allegedly misleading statements in a prospectus issued by a Janus mutual fund, even though the SEC argued that it was — and even though federal courts traditionally pay deference when they ask agencies to offer their expertise in interpreting the law.
With very little fanfare, Motorola Mobility announced Monday that it has reached a memorandum of understanding to resolve shareholder litigation that might have stood in the way of a vote on Google’s proposed $12.5 billion all-cash acquisition of the company. The memo is, alas, not public, so we don’t know just what the settlement entails, or how much the plaintiffs’ lawyers who challenged the deal will get in fees. Motorola Mobility did file an 8-K amending its proxy materials, giving shareholders marginally more information about (among other things) how the Google deal came together and what kind of equity awards Motorola officers will receive. These relatively insignificant disclosure amendments are a typical ending for the rash of M&A shareholder suits that have broken out in the last few years; it’s a pretty good bet that, in this case, the additional disclosures aren’t going to sway very many Motorola Mobility shareholders when they vote on the Google deal on November 17.
For all of its zeal in squelching what it considers unfounded class actions against U.S. businesses, the Chamber of Commerce rarely strays from appellate courts to venture into the weeds of a federal district court discovery dispute. But Monday, the Chamber filed an amicus brief in an uncertified wage-and-hour class action against the accounting firm KPMG, warning that if U.S. District Judge Colleen McMahon of Manhattan federal court adopts the order of a magistrate judge, the ruling will set “a dangerous precedent” that will be of “profound significance to businesses in America.” Piling on in their own Nov. 8 amicus brief, the Washington Legal Foundation and the International Association of Defense Counsel assert that the magistrate’s ruling could fundamentally distort class-action litigation by potentially making it cheaper to settle a case than to comply with discovery orders.
Like a stage mom watching from the wings, Bank of America and its lawyers at Wachtell, Lipton, Rosen & Katz have so far been observers — and not direct participants — in the fight to win court approval of the bank’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities holders. BofA signed the settlement, of course, but the case was filed as an Article 77 proceeding in New York State Supreme Court by Bank of New York Mellon, as Countrywide’s MBS trustee. The 22 institutional investors that negotiated the proposed deal with BofA and BNY Mellon intervened in the proceeding in support of the settlement. And their lawyers from Gibbs & Bruns have worked alongside BNY Mellon’s counsel from Mayer Brown and Dechert to ward off opposition to the deal, without overt involvement from BofA and Wachtell. When the case was removed to federal court, it was Mayer Brown and Gibbs & Bruns that argued before U.S. District Judge William Pauley III of Manhattan that the proceeding should be remanded to state court; then, when Pauley decided to retain jurisdiction, it was BNY Mellon and the Gibbs clients who asked the U.S. Court of Appeals for the Second Circuit to review the district court judge’s decision.