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With Vigour and Zeal » 2007 » February

Archive for February, 2007

London listing brand should look to Gucci

Wednesday, February 28th, 2007

WV&Z has contributed content on recent developments of London’s Alternative Investment Market rules and regulations to The D&O Diary in the past few days, which has resulted in two posts, here and here, both a well recommended read.

On the same topic of UK market regulation, the Financial Times (Lombard) yesterday presented its case for the Financial Services Authority - who in its capacity as UK Listing Authority is the competent authority for listing - to learn from Gucci’s brand management mishaps in the past in managing the integrity of its “London listing” brand. (The consultation paper the article refers to on hedge fund listings is CP06/21: Investment Entities Listing Review.)

The Economist collects class actions

Tuesday, February 27th, 2007

The previous print issue of The Economist (of February 17th 2007) contains three articles on class actions. They can be found online, as follows (with thanks to Best in Class for the second link):

  • Accepting the ambulance chasers (subscription required, pp.16,17)
  • If you can’t beat them, join them (pp.71,72)
  • Classier actions (pp.80,81)

To regular readers of WV&Z and learned friends however, there is hardly anything new here, rather, all three together serve as a tidy collection of what’s already elsewhere. The basic theme of the first two articles is that ‘the American-style collective lawsuits [are] coming to Europe’ and what the differences in practice are between the US and the various European jurisdictions - of the latter, some do and some do not (yet) accommodate for ‘group actions’.

Jurisdictions singled out include Britain, the Netherlands, Germany and France; cases mentioned, among others, are Royal Ahold NV (securities, settlement), Parmalat SpA (securities, pending), BP Plc (derivative, see this previous post) and British Airways Plc (anti-trust, previous post).

In addition, a recent example of a ‘collective action’ brought in the Dutch courts by an investor association and institutional investors which led to a court-approved settlement for the whole class is the Unilever NV settlement (previous post).

The third article is about the drop in the number of US class actions, but how those fewer actions yield higher settlements by an increasing share of institutional lead plaintiffs. For links to the sources of competing filing statistics and a thorough analysis of them and the trends behind them, see The D&O Diary, The 10b-5 Daily and PointofLaw.com.

Now, for more fun, also at The Economist, check out its Corporate Non-Governance quiz. You’re unlikely to finish it without at least a chuckle or two.

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Bankfurt’s falling behind

Friday, February 23rd, 2007

With all eyes on New York and London on the current topic of who’s the leader of the pack as the financial capital of the world, spare a thought for Frankfurt. The report Finanzplatz Frankfurt - Ein Standort bewegt sich (in German, or see this summary), which it must be noted was published some time ago in June last year, was the recent subject of review in the Financial Times and the Bahrain Tribune - the latter, admittedly, not one of my daily reads - under such headlines as ‘Frankfurt suffering’.

Frankfurt am Main, sometimes optimistically referred to as ‘Mainhattan’ or less often as ‘Bankfurt’, is compared with London and Paris in this report, which was co-authored by Landesbank Hessen-Thüringen Girozentrale (or Helaba for short) and HA Hessen Agentur GmbH, the state’s economic development agency, among others. In its comparison it covers equity markets, business education, logistics and costs.

The authors make several recommendations, including making existing legal frameworks more competitive internationally (report p.72, summary p.8) and conclude that:

[t]he British financial centre holds a position of uncontested pre-eminence in Europe. On the European continent, Frankfurt and Paris are competing for leadership. Frankfurt as a financial centre has good chances of capturing that leading position over the medium term and securing it over the long term.

Wolverhampton in action against Dell, Intel

Wednesday, February 21st, 2007

Wolverhampton City Council, the Administering Authority for the £7 billion West Midlands Metropolitan Authorities Pension Fund, is moving a Texas court to serve as one of two co-lead plaintiffs in a securities class action against Dell Inc. (NASDAQ: DELL), Intel Corporation (NASDAQ: INTC) and certain others. The other movant, of the US, is Amalgamated Bank’s LongView Collective Investment Fund. The case is pending in the Western District of Texas. (press release; complaint)

Plaintiffs’ counsel: Lerach Coughlin Stoia Geller Rudman & Robbins LLP

Brian Bailey, Acting Chief Executive of the council and administrator of the fund, is quoted in relation to the action as saying that “we are sending a message out to companies that they can’t act in this way and get away with it.” (Pensions Week, with thanks to ISS for that quote.) The council claims the fund has lost $1.8 million because of the alleged fraud.

Here it is interesting to note the council’s following observation on the relevance of its nationality in relation to its move for lead plaintiff status, as expressed in the minutes of its Investment Advisory Sub Committee meeting of 17 January 2007, about a fortnight prior to the filing of its complaint: “However, it should be noted that US courts have historically favoured US investors to take the lead plaintiff position.”

WV&Z will follow the case with interest.

What’s more: In its latest regulatory filing, Form 8-K dated 28 February 2007, Dell details the current SEC and related investigations and the 15 securities, ERISA and derivative actions against it, all arising out of the same events and facts. Its reponse: “Dell intends to defend all of these lawsuits vigorously.”

Unilever NV settles preference share action

Monday, February 19th, 2007

In November last year, Unilever NV (Euronext: UNA; NYSE: UN) settled the action brought against it, regarding a certain preference share conversion, with the Vereniging van Effectenbezitters (Dutch Investors’ Association) and ’several institutional shareholders’. (press release) It has recently announced this settlement is offered to all other preference shareholders affected who were not part of the original settlement, for which it has set aside a provision of €300 million. (notice)

In March 2004, Unilever announced its intention to convert the main part of the notional value of the NLG 0.10 cumulative preference shares it had issued in 1999, as an alternative to a cash dividend, into ordinary shares. The announcement was followed by an action in the Enterprise Chamber of the Amsterdam Court of Appeal to request an enquiry into the valuation of the conversion, which was granted later that year. (case LJN AR7861, in Dutch)

Plaintiffs’ counsel: Houthoff Buruma and Pels Rijcken & Droogleever Fortuijn NV; Defendant’s counsel: De Brauw Blackstone Westbroek NV

The cash settlement, with a value of €1.38 plus €0.16 interest per preference share, takes the total amount received per preference share to €5.98 (excluding interest) against a notional value and expectation of €6.58, or 91%. (For a timeline of events, see here.) The deadline to register with claims administrator NV Algemeen Nederlands Trustkantoor (no link) to take up the settlement offer is 20 April 2007.

To download a claim form and learn more, see Prefcompensatie (a VEB site, in Dutch) or Prefsettlement (an ANT site). With thanks to Eric J. Belfi of Labaton Sucharow & Rudoff LLP for the notification.

In re BP Plc Derivative Litigation, where?

Tuesday, February 13th, 2007

One of the aims of the Companies Act 2006 (or Company Law Reform Bill as it was known prior to enactment in November last year) was to clarify and simplify existing law, such as the Companies Act 1985, as amended, regarding the derivative claim and shareholder litigation.

As I argued before nonetheless, the Act would not lead to the import of US-style litigation into the UK. Instead, the US would remain the venue of choice for UK institutions: “US plaintiff firms will continue to enforce the law by way of civil actions in US courts against UK corporations on behalf of US and foreign investors, including those situated in the UK.” (Legal Week; PointofLaw.com)

Last Friday, according to the various press reports - for example: here, here and here - the London Pension Fund Authority - with assets of £3.5 billion one of the UK’s largest administering authorities of the Local Government Pension Scheme - brought a derivative action against BP Plc (LSE, NYSE: BP) and its outgoing chief executive Lord John Browne of Madingley in relation to the latter’s pay. The action was brought in the US District Court for the District of Alaska and thus notably not in an English court. The other institutional plaintiff in that action is reportedly Unite Here National Retirement Fund of the US, plaintiffs’ counsel Lerach Coughlin Stoia Geller Rudman & Robbins LLP.

Alaska Court System records however tell a different story: a derivative action was indeed brought against BP there, not last week but four months ago, not by the LPFA and Unite Here together, but Unite Here alone, and on different grounds than Lord Browne’s pay. (Case 3AN-06-11929CI; Complaint; the background)

Asked for comment, the LPFA, which retained Lerach in 2004 to monitor its US holdings, put its position into context, explaining that it had joined the action some time after it was brought and that it was last week that the new allegations regarding executive pay were added to the pending action, but not on its initiative.

The answer therefore to the question whether the new Companies Act has brought about the change it was enacted to bring is, at least on the basis of this case, that it is too soon to tell.

Watching out for the Y in MPBR

Thursday, February 8th, 2007

Two days ago the FSA published its Business Plan for 2007/08 (here; press release). Yesterday, the Financial Times published no less than four pieces on the topic of principles-based regulation. They are: News, Comment*, Lombard* and Mudlark (* subscription required).

Interesting to highlight is the notes of caution and shared views expressed in the news article and comment on the dangers of principles’ potential vagueness and the requirement of a competent regulator with industry input to make such approach work. Lombard particularly explores the importance of competent personnel for a regulator to be competent (which is acknowledged in the Business Plan, on page 33 (35 of 55); the SEC recruitment video Lombard refers to, for who’s interested, it’s here).

It’s Mudlark who elaborates on the “more” in “more principles-based regulation” or MPBR, expecting the “Y”, as in “yet”, to follow in years ahead. (Also see this previous post on FSA Enforcement strategy, and the FSA Discussion Paper DP06/05, on industry guidance, which is being referred to in the comment piece.)

Wake up pal

Tuesday, February 6th, 2007

Contributing just another tidbit to pass around” in the current discussion on competitiveness between New York and London and on London’s market standards, I’d like to note the FSA’s ‘outsider trading’ enforcement case as an example of the UK’s regulatory enforcement style.

Margaret Cole, FSA Director of Enforcement, addressed a City & Financial conference with a speech entitled FSA Investigations & Enforcement 2007. She began her remarks by setting out the scope of the talk, referring to the FSA’s “philosophy behind enforcement activity [and] the use of enforcement to change behaviour in the interests of accomplishing the FSA’s overall strategic agenda”, and by presenting some self-proclaimed “shameless praise” of the UK’s financial services industry, before going into, among other things, ’succesful Enforcement outcomes’ of last year.

Sean J. Pignatelli, at the time a US equity salesman with CSFB, as it then was, had received an analyst’s e-mail, the content of which could have been construed as inside information. (…keep btwn us for now”.) Instead of verifying with Compliance or management if it was or not - it turned out it wasn’t - he went into sales mode and called clients to pass on this information. In other words, he was not inside, he was outside. Still, the result: a £20,000 fine in November 2006 for “failing to exercise due skill, care and diligence” in breach of Principles 2 and 3 of the FSA’s Statements of Principle for Approved Persons. (FSA’s press release, Final Notice)

At the time it was suggested that “[t]he ruling will unnerve the City given that the regulator accepted that real inside information was not involved and that Mr Pignatelli had neither thought he possessed inside information, nor had deliberately sought to give that impression.” (FT)

On the contrary, Cole argued. This case is, in line with the FSA’s strategic shift to more Principles based regulation, an example of how enforcement has succeeded to change behaviour:

This was the first reported case of “outsider dealing” and had a big market impact, emphasising the care and attention that Approved Persons must give to the information they disseminate to the market. Feedback from firms suggests that this case has really hit home with traders who are asking compliance lots of questions about what is or is not acceptable.

A quote from her closing remarks:

We believe that Principles-based regulation can bring you [a real regulatory] dividend [for good behaviour], flexibility and the opportunity for you take decisions that are the right decisions for you. The Principles for Businesses provide a framework and clearly set out our expectations of the right behaviour by industry participants. We are absolutely convinced of the overall merits of a Principles-based approach and the FSA is committed to using Enforcement tool selectively and strategically to support that approach.

Enron’s legacy in English law

Friday, February 2nd, 2007

In an article in this week’s Legal Week, John Ellison, a partner with KPMG and the Chairman of its Forensic UK practice, and another, highlight the differences between US and English law in fraud cases set against the background of Enron.

The main differences noted there are in the length of sentences, in fraud trial procedural issues including the debate on the role of juries in fraud trials, and the absence of plea bargaining in the UK. (Note in contrast the Sentencing Game, in this week’s Forbes: “[T]he financial fraud sentences start to look out of control when weighed against what murderers and others of that ilk often get.”) They come to the conclusion that Enron “may show that it was a catalyst finally to put into effect reforms that have been debated for a number of years.”

The main sources and entities mentioned in the article:

For more specifically discussing the recently enacted Fraud Act, see this article by Morgan Lewis & Bockius LLP in the same issue of Legal Week. (The magazine’s theme this week is ‘white-collar crime, fraud and expert witnesses’.) The Fraud (Trials without a Jury) Bill is discussed in a previous guest post in the context of the Paulson Committee’s Interim Report. And finally, for a recent exchange between The D&O Diary and WV&Z on fraud in the UK, please see here and here.