D&G Law

Securities Litigation Blog

Morgan Keegan Ordered to Buy Back Auction-Rate Securities Saturday, 16 February, 2013

Donaldson & Guin, LLC - securities fraud litigation blogAlthough the SEC did not prevail on its fraud-based claims against Morgan Keegan regarding its retail sales of auction-rate securities (“ARS”),  a federal district court in Atlanta did conclude that “[b]rokers apparently were lulled into describing [their ARS] too broadly and neglected in their discussions with the customers … to discuss the practical and technical requirements of an auction and the consequences of an acution failure…..  As a result, the evidence in this case was that the Morgan Keegan brokers … neglected to fully inform investors of the ARS risk when marketing the ARS production, to include informing them of the risk of auction failures, the concomitant loss of liquidity, and varying interest rates.”

The court’s opinion followed a non-jury trial in November 2012 in which the SEC put on evidence that Morgan Keegal told client that the more than $2 bilion in ARS it sold to its clients had “zero risk,” even as the ARS market was collapsing in 2007 and 2008.

The case is SEC v. Morgan Keegan & Co., Inc., 1:09-cv-01965 (N.D. Ga.).

“Introduction to FINRA Arbitrations – A View From Both Sides of the Bar.” Thursday, 14 February, 2013

In December 2012, partner Dawn Evans presented the plaintiffs’ perspective on FINRA stock fraud arbitrations at a Continuing Legal Education seminar sponsored by the Birmingham Bar Association. Her materials are available here. For more information about stock broker-dealer arbitrations, contact Dawn Evans

9th Circuit Makes it Harder to Sue for Securities Fraud Monday, 11 February, 2013

Despite all the corruption that has been revealed within the financial markets – from the concerted manipulation of interest rates, to tipping major investors, to packaging mortgage-backed securities to guarantee a failure for investment banks who bet against their success via their purchase of credit default swaps – Congress and the courts continue to make it more and more difficult for investors to recover their stolen monies.

Most recently, the Ninth Circuit Court of Appeals held that in cases where “a company has issued shares in multiple offerings under more than one registration statement,” a plaintiff who purchased shares on the secondary market must plead specific facts that “give rise to a reasonable inference that [its] shares are traceable” to a particular offering made under a specific registration statement in order to state a claim under Section 11 of the 1933 Act. In re Century Aluminum Co. Sec. Litig., 2013 WL 11887, at *2–3 (9th Cir. Jan. 2, 2013).

Sounds simple – if you allege that a particular offering was fraudulent, you have to allege and prove that you bought shares in that same offering. But Congress has also prohibited investors from having access to key facts (“discovery”) about their potential claims until after a court rules on the sufficiency of the allegations. So now an investor has to plead whether the shares she bought in the aftermarket were traceable to a particular public offering without any ability to conduct discovery to first trace those shares.

This is yet another example of how Congress is systematically stripping the rights of investors. Our financial markets used to be the envy of the world, but the increasing lack of accountability is undergirding our markets, and as a result, the nation’s financial recovery.

Social Media and Securities Litigation Friday, 01 February, 2013

Donaldson & Guin, LLC - securities fraud litigation blogCompanies regulated by the Securities and Exchange Commission may have to examine their use of social media. The SEC recently sent a Wells Notice to Netflix concerning a statement made by its CEO, Reed Hastings, on his Facebook page. Allegedly, Hastings commented that Netflix customers watched over one billion hours of streaming video in June 2012.

The SEC’s Ref FD (Regulation Fair Disclosure) prohibits public companies from releasing material information to a select group of investors before disclosing that information to the public at large. This rule attempts to prevent small groups of investors from benefiting from material information about a company before the general public. Even though Hastings’ Facebook page is public and has over 200,000 followers, including members of the press, the SEC apparently views Hastings’ comment as a selective disclosure pursuant to the rule.

While the SEC will have a fight on its hands regarding both the materiality of Hastings’ statement and causation with respect to Netflix stock’s subsequent bump in price, in the future, it will be interesting to watch the SEC’s regulation of statements made on social media outlets by publicly traded companies. Plaintiffs’ securities lawyers should take note of such developments when examining public disclosures by companies via social media.

We’ve All Been Forced into Arbitration Thursday, 08 March, 2012

Donaldson & Guin, LLC - securities fraud litigation blogWe’ve all done it – signed an arbitration agreement, that is. Every time you buy a cell phone or a car or any number of consumer products, or just about any time you click on “Agree” to download an app for your phone, buy an e-book, or visit a web page, you have agreed to forgo your day in court and arbitrate your claims if you are cheated. While arbitration began as an alternative method of dispute resolution among commercial equals, such as market savvy corporations with teams of lawyers who negotiate every letter of their agreements, today arbitration is used by large corporations to curtail the legal rights of individual consumers who have no other choice than to agree to arbitration. Many times, we don’t read the fine print and don’t understand the fundamental rights we are giving up. But even if we do read the required terms, they’re just that – required. If we don’t click the “Agree” box or sign the car dealer’s forms, we don’t get the cell phone, iPad or car.

In the wake of the Supreme Court’s decision in AT&T v. Concepion, which limited the rights of individuals to bring employment claims in court, Senators Franken and Blumenthal have introduced the Arbitration Fairness Act (“AFA”) in Congress. The AFA provides that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, or civil rights dispute.” Referring to the Supreme Court’s Concepion decision, Senator Franken stated that the AFA “would help rectify the Court’s most recent wrong by restoring consumer rights.” Senator Blumenthal, another proponent of the bill, asserted that the AFA would “restore the long-held rights of consumers to hold corporations accountable for their misdeeds.”

Arbitration is fine for businesses and individuals that have the financial and legal resources to bargain for terms they can accept. But without this new legislation or something like it, consumers have no such ability. Arbitration is expensive and there is virtually no right to appeal an unfair ruling. The ability to take our claims to a court of law, and have our day in court, is a fundamental democratic right that shouldn’t be so easily disposed of.

For more information, see the following links:




Ethics committee investigates Rep. Spencer Bachus for alleged insider trading during the financial crisis Monday, 13 February, 2012

In the wake of the uproar over allegedly rampant insider trading among members of Congress,  the Office of Congressional Ethics is investigating Rep. Spencer Bachus (R-Ala.), Chairman of the powerful House Financial Services Committee, for alleged violations of SEC laws prohibiting insider trading – that is, trading stocks and options based on material, non-public inside information. Insider trading laws stem primarily from traditional laws dealing with fraud providing that trading on a company’s proprietary information constitutes a type of theft. Studies show that insider trading increases the cost of capital for companies and therefore decreases the efficiency of markets (usually artificially increasing the costs for consumers).

According to media reports, Bachus made trades coinciding with major federal government policy announcements in the midst of the financial crisis in 2008. Allegedly, Bachus used options to bet against the health of the economy following private meetings with Fed officials. Congress, apparently, has become a financial boon for the elected, and insider trading laws are necessary to increase Congress’ accountability to its constituents.

Stay tuned as this issue heats up in Congress.

For more information, please see the following articles:





Carlyle Group Drops Mandatory Arbitration Effort Friday, 03 February, 2012

We reported on January 24th that Carlyle Group had attempted to include a clause in a new registration statement it filed with the SEC to mandate that any claims for fraud in connection with its sale of securities be sent to mandatory arbitration. Today, the Carlyle Group amended its registration statement to remove that requirement, apparently finding that limiting liability for its potential frauds is simply bad business.

If this country is to get out of its financial doldrums, the answer is not in limiting liability for financial fraud; it is in providing accountability for those frauds.

Big Four Accounting Firms Facing Criticism for Poor Audits Tuesday, 24 January, 2012

Donaldson & Guin, LLC - securities fraud litigation blogAn accounting watchdog group found flaws in 1 of 5 “Big Four” audits. Ernst & Young’s chief responds to some of the concerns here.


Will all securities fraud claims be swept under the rug of mandatory arbitration? Tuesday, 24 January, 2012

Donaldson & Guin, LLC - securities fraud litigation blogStock brokers have for years required any claims involving their actions or advice to be submitted to binding, mandatory arbitration. Now companies that issue stock or sell bonds are trying to do the same. Carlyle Group recently filed a registration statement with the SEC to sell new stock, and as a term of the stock certificates, is trying to require that any claim of misstatements in connection with the sale be sent to private arbitration (and therefore kept out of the courts). With all the restrictions courts have placed on securities litigation (and the resulting lower recoveries for investors), I don’t know why Carlyle is bothering with this. But the trend against letting courts and juries decide disputes is disconcerting.

A Warning for Baby Boomers Friday, 16 December, 2011

Donaldson & Guin, LLC - securities fraud litigation blogThe Wall Street Journal reports (Dec. 14, 2011 at pg. C1) that securities regulators and prosecutors are “battling … a nationwide surge in investment fraud against baby boomers.” Today’s older workers, unlike their parents, will be reliant on their own 401k portfolios in their retirement years. Although the stock markets rebounded somewhat since the crash, the DJI is still 15% below its 2007 peak, causing many people on the cusp of retirement to grasp for higher returns. Securities regulators report “rampant” abuses. Like hunters shooting prey on baited fields, slick-talking salesmen hawk promissory notes, real estate deals, gold mines, and oil wells to unsuspecting seniors grazing at free-lunch seminars. During our many years of representing defrauded investors, we’ve noticed that when interest rates are especially low – as they are today – many people fall victim to promises of higher yields. It’s heart breaking to hear the stories of people who have saved all of their working lives only to lose their hard-earned savings due to fraud. Be careful out there. Just because they’re holding a fountain pen instead of a gun doesn’t mean they aren’t trying to steal your money.

For more information, please see the following Wall Street Journal article: