Part XV: SEC Enforcement Trends And Priorities, 2008
Last year, the Commission brought 10 cases which named lawyers as defendants. This was a record number. Many of these cases were based on allegations of insider trading, options backdating and fraud.
Two cases from last year which are currently in litigation and of note are:
SEC v. Collins, Case No. 07 CV 111343 (S.D.N.Y. Dec. 18, 2007) which arose out of the collapse of Refco. The Commission’s complaint alleges that Joseph Collins, a partner at the law firm of Mayer Brown LLP and Refco’s long time outside counsel, learned that Refco Group Holdings, Inc., a non-Refco entity controlled by Phillip Bennett, Refco’s CEO, owed Refco hundreds of millions of dollars. Mr. Collins participated in, worked on, and supervised other attorneys who documented periodic transactions in which a Refco subsidiary appeared to loan Refco Group Holdings millions of dollars in transactions which were later reversed. In the transactions, Refco assumed hundreds of millions of dollars in liabilities. Specifically, in 2004 Refco placed $600 million in senior subordinated notes with certain financial institutions pursuant to an offering circular. The next year, Refco conducted an IPO. The offering circular did not disclose Refco Group Holdings debts or the round trip transactions used to conceal it at times.
The SEC is seeking a permanent injunction which would enjoin defendant Collins from future violations of Section 10(b) and a civil penalty. Mr. Collins was also indicted on similar charges. U.S. v. Collins, Case No. 1:0-cr-01170 (S.D.N.Y. Dec. 18, 2007).
A second case involves Christi R. Sulzbach, former general counsel and chief compliance officer of Tenet Healthcare Corp., SEC v. Tenet Healthcare Corp., No. CV-07-2144 (C.D. Cal. April 2, 2007). The complaint in this case alleges that the company and several officers, along with Ms. Sulzbach, misled the investing public by failing to disclose a company strategy, its impact on revenues and earnings and the fact that it could not be sustained in the MD&A section of the filings.
All of the officers except Ms. Sulzbach settled. This case, and both of those involving Mr. Collins, is in litigation.
Next: The subprime crisis