Transcript WSGR Defense of Companies in Securities Class Action

Spring Training for Investor
Relations Executives
Avoiding Unforced Errors in
Corporate Disclosure
National Investor Relations Institute, Northwest Chapter
April 17, 2014
Barry M. Kaplan & Gregory L. Watts
Barry M. Kaplan, Partner – Securities Litigation
Barry Kaplan is the head of the Northwest litigation group of Wilson Sonsini Goodrich &
Rosati. Barry has broad experience in securities and corporate governance litigation, class
action defense, SEC and internal corporate investigations, and complex commercial
litigation, including international disputes.
CONTACT:
701 Fifth Avenue
Suite 5100
Seattle, WA 98104
Phone | 206-883-2538
Fax | 206-883-2699
[email protected]
For over 25 years, Barry has represented many public companies and individuals in
shareholder class actions and related corporate litigation both in the Northwest and across
the country, including The Boeing Company, Micron Technology, Sterling Financial
Corporation, Alaska Air, and Starbucks. Barry was lead counsel for the former CEO of
Washington Mutual, Inc. in the various shareholder lawsuits that followed the seizure and
sale of WaMu to JPMorgan Chase. He has special expertise in representing public biotech
companies and, among others, has represented Immunex, Dendreon, Inspire
Pharmaceuticals, Pozen, Chelsea Therapeutics and Cell Therapeutics.
Barry is a frequent writer and speaker on securities litigation and corporate law and
governance topics, and teaches a course on securities litigation at the University of
Washington School of Law. He also co-authored the leading treatise on Washington
corporate law, published by LexisNexis.
Best Lawyers in America named Barry the 2012 Securities Litigator of the Year for Seattle—
the first time that this honor has been awarded to a Seattle securities litigator.
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Gregory L. Watts, Partner – Securities Litigation
CONTACT:
701 Fifth Avenue
Suite 5100
Seattle, WA 98104
Phone | 206-883-2617
Fax | 206-883-2699
[email protected]
Greg Watts is a partner at Wilson Sonsini Goodrich & Rosati, where he focuses on
securities and complex commercial litigation, primarily defending companies and their
directors and officers in securities class actions, shareholder derivative actions,
contested mergers and acquisitions, and SEC investigations and enforcement
proceedings. He also advises audit committees, special committees, and boards of
directors in internal investigations.
For over 15 years, Greg has represented companies and their directors and officers in
dozens of securities class action and shareholder derivative lawsuits in the Northwest
and across the country, including Banc of America Securities, The Boeing Company,
Fisher Communications, Flow International, Intermec, Isilon Systems, Juniper
Networks, Occam Networks, Outerwall, Starbucks, and Sterling Financial Corporation.
A frequent writer and speaker on securities litigation and corporate governance, Greg is
co-chair of the Northwest Securities Institute, an Advisory Board Member of the
National Association of Corporate Directors, Northwest Chapter, and a member of the
Washington Bar Association’s Securities Committee.
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Creation of Bad Documents:
The Pre-Call Q&A Script
• “You knew about this problem six months ago. Why
are you just disclosing it now? [?????]”
• “Your competitors said it was a problem for them last
year. You assured us your company was different.
Why are you now saying it’s a problem for you, and in
fact a big problem?”
• “What are the reasons for the softness you are seeing
in your business? [Dodge. We don’t know and won’t
know until our key customer meetings next month.]”
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Pre-Announcements
• How does it help?
• When should you resist?
• Avoiding a changing story
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Errors in Using the Forward-Looking
Statement Safe Harbor
• Must communicate Safe Harbor cautionary
language orally
– “Start off with the Safe Harbor rules. I”ll give you a second to
look at those. I’d like to spend about 10 minutes talking about
[the Company”] and then we’ll be able to take questions from
that point.” CFO at Investor Conference
– “Considering the transcripts alone, Defendants’ statements did
not contain sufficient cautionary language for the safe harbor
provision to apply.” Federal Judge in Order Denying Motion to
Dismiss Securities Class Action Complaint
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Avoid Promises to Update
“I think the Company has always taken it very much
to heart that we want to keep the investment
community up to speed and up to date on the
information, so as we learn more from the FDA in our
discussions with them, we’ll let you know.”
Biotech Company CEO in Analyst Call
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Social Media and Reg FD
• CFO tweets “Board meeting. Good numbers =
Happy Board” before earnings call
• CEO tweets appear in blog prominently linked
to company website
• CEO posts on Facebook that company has
exceeded 1 billion hours of streamed content
that month (first time ever)
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Disclosure Committee Decisions and
“Monday-Morning Quarterbacks”
Materiality: Whether a reasonable investor
would have viewed the undisclosed
information as having significantly altered the
total mix of information made available
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Changing Forecasting Practices
• Business reasons for change?
• New normal?
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Inconsistent Use of “No Comment”
“Silence, absent a duty to disclose, is not misleading
under Rule 10b-5. ‘No comment’ statements are generally
the functional equivalent of silence…It has been
suggested that, given current market practices, a ‘no
comment’ statement is tantamount to an admission that
merger discussions are underway…That may well hold
true to the extent that issuers adopt a policy of truthfully
denying merger rumors when no discussions are
underway, and of issuing ‘no comment’ statements when
they are in the midst of negotiations.”
Basic v. Levinson (U.S. Supreme Court)
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Avoid Using Rote Language
Which Is Not True
“We believe this lawsuit is without merit and
intend to vigorously defend it.”
M&A context (frequently there is an early
decision to settle)
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Do Not Deny the Merit of a
Shareholder Derivative Lawsuit
“The company and its directors have been
named in a shareholder derivative lawsuit.
We believe the lawsuit is without merit and
intend to vigorously defend.”
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Being Too Sensitive or Reacting to Rumors
•
“I’ve never settled a lawsuit before and I don’t plan to start
with this work of fiction.”
CEO quoted in local newspaper
•
“I’m the CEO of [the Company] and you all have it wrong.
Our Phase II trial does not . . . . Seriously, you should do
your homework before getting on these boards. If you
keep defaming me and my business, you will find yourself
a defendant in a lawsuit. I’ll be watching.”
CEO post in investor chat room
•
There is an “Al-Qaeda-like conspiracy” of naked shortsellers in our stock “headed by a Sith Lord” who “was one
of the master criminals in the 1980s.” This conspiracy
includes hedge funds, journalists, investigators, trial
lawyers, the SEC and Eliot Spitzer.
CEO on analyst call ret short-selling of company stock
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Handling Litigation-Related Inbound
Communications
• Section 16(b) “short-swing” trading letters
• Shareholder demands upon the board to
commence litigation
• Shareholder inspection demands
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Special Issues for Biotechs: Materiality
Collaboration
BIG PHARMA
Small
Biotech
MATERIALITY
Materiality
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Document Retention
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Final slides for each conference
Final call scripts
Final Q&A, if any
Final Disclosure Committee minutes, if any
Analyst reports
Drafts are rarely, if ever, our friends in litigation
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