Corporate Scienter: One of the recurring issues in securities litigation is the question of what is required to establish that the corporate defendant acted with scienter. The question was squarely presented by the Vivendi trial verdict, where, as discussed here, the jury found that the corporation was liable, even though the two individual defendants were exonerated. Judge Rakoff also posed the issue in his notorious initial critique of the SEC’s settlement of the Bank of America enforcement action (about which refer here), where he questioned why the SEC was proceeding solely against the corporation without also pursuing the company’s senior managers.


An interesting July 12, 2010 memo from the Arnold & Porter law firm entitled "Whose Mind is It? Pleading and Proving Corporate Scienter" (here) take a detailed look at the appellate case law addressing the questions of what is required to establish that the corporation acted with the requisite state of mind to establish a corporate securities violation.


The memo surveys the various recent corporate appellate decisions, including, among others, the Ninth Circuits’s decision in the Glazer Capital Management case (refer here) and the Seventh Circuit’s decision on remand from the Supreme Court in the Tellabs case (refer here). The memo states that "the courts consistently have … considered whether plaintiff pleaded or proved scienter on the part of one or more members of senior management who bore sufficient responsibility for issuing the challenged statements, which could then be attributed to the corporation."


The authors suggest that none of the appellate cases have endorsed a "collective scienter" approach whereby plaintiffs may establish a claim against a corporation without naming any corporate officer or employee who acted with scienter – although the authors do labor to reconcile the dicta in Judge Posner’s opinion in the Seventh Circuit’s consideration of Tellabs with this overall analysis.


Finally, the authors conclude by suggesting that one of the recurring issues in this area is the fundamental question of what it means to "make" a statement, because it goes to the heart of the question of who made a statement for issue of potential securities liability. The authors suggest that the Supreme Court may well provide necessary guidance in its upcoming term on this issue in the Janus Capital Case, in which the Court recently granted a writ of certiorari (about which refer here).


European Corporate and Securities Developments: In light of the U.S. Supreme Court’s recent decision in the Morrison v. National Australia Bank case (about which refer here), narrowing the availability of U.S. courts to claimants who did not purchase their shares on U.S-based exchanges, there may be increased interest the regulatory and legal regimes outside the U.S. There are certainly relevant developments outside the U.S., particularly in Europe.


A July 2010 memorandum from the Sherman & Sterling law firm entitled "Governance & Securities Law Focus: Europe Edition" (here) takes a detailed look at corporate and securities developments at the EU level as well as at the level of certain individual countries (particularly Germany and the U.K.) The memo also includes a brief summary of key U.S. developments as well.


U.K. Bribery Bill: Regular readers know that a recurring theme on this blog is consideration of the question of the increasing liability exposure that companies may face under the Foreign Corrupt Practices Act. But the U.S. authorities’ enforcement of this statute is far from the sole regulatory effort to enforce anticorruption measures, as the German authorities’ pursuit of the Siemens case demonstrates.


In addition the U.K. recently substantially increased regulators’ statutory antibribery authority, and these changes have important implications, even for U.S.-based companies, according to a July 7, 2010 memo from the Reed Smith law firm entitled "What the U.K. Bribery Act Means for U.S. Companies" (here).


According to the memo’s authors, the Bribery Act 2010 , which has not yet come into force, "introduces important new offences which will apply to any business either based in the U.K. or which has some part of its operation in the U.K." and in "some important respects" will be "more far reaching than the FCPA."


Among other things, the FCPA requires at least one actor in the alleged bribery to have a role in the public sector, whereas the Bribery Act will "apply to acts of bribery which take place between two entirely private entities." The FCPA also has a statutory safe harbor for small "grease payments," but the Bribery Act has no such carve out. The Bribery Act also provide for significantly greater criminal penalties.


Pertinent to the question of corporate state of mind discussed above, the Bribery Act gets around the challenging question of corporate intent by making the new corporate offense described into a strict liability offense. Guilt can be a result of attempted or actual bribery a corporation’s "associated person." which seemingly includes not only employees and agents but anyone who provides services for the company.


As a result of this corporate strict liability, the activities of a U.S. company in any part of the world "could make it liable to a prosecution in the U.K. for this corporate offence if that U.S. company carries on some part of its business in the U.K. or for a principal bribery offence if some part of it is committed in the U.K."


The memo also addresses the question of the procedures that the Act requires, noting that "to avoid U.K criminal liability under the corporate offence introduced in the Bribery Act, it will be essential for U.S. companies which operate in the U.K. to put in place and to maintain clear and effective anti-bribery procedures over both their own staff and those who provide services to them."


Advisen Quarterly Securities Litigation Seminar: At 11:00 EDT on Friday, July 16, 2010, I will be participating in a free, one-hour webinar sponsored by Advisen to discuss 2Q2010 securities litigation trends. The panel will include my good friends Carl Metzger of the Goodwin Proctor law firm, Carol Zacharias of ACE, Louise Pennington of Integro and David Bradford of Advisen. Information about and registration instructions for the webinar can be found here.