Sunday, January 06, 2008

Web Notes and Updates

Chinese Checkered: In an earlier post (here), I reviewed the recent checkered track record of Chinese companies listed on the U.S. securities exchanges, including in particular Chinese IPOs. A December 2007 Dewey & LeBoeuf article entitled "China’s Top Ten at the Corporate Governance Bottom" (here) sounds many of the same themes as my prior post.

The article notes that "the ten largest Chinese companies trading in the U.S. rate poorly when it comes to corporate governance." The article cites research showing that the ten companies have "an average rating of 0.5 stars for corporate governance, with five being the highest rating and three being average." Five of the companies received "0" ratings for corporate governance.

Among the reasons for the low ratings is a NYSE guideline allowing "foreign private issuers" to follow their home country governance rules. Because China does not require that a majority of directors to be independent, "Chinese companies listed on the NYSE are allowed to stack the board with inside directors."

In addition, that article notes, "lack of strong outside oversight" can lead to problems "when it comes to transfer pricing, related-party transactions, intergroup guarantees, tax rates, and the valuation of contingent liabilties." The control role of the Chinese government in these companies’ ownership and operation can "lead to considerable pressure," because "these large companies are instruments of state policy."

There may be a view that the exchanges’ allowances for Chinese companies are indispensable if the U.S. financial markets are to attract these and other overseas listings. And it may well be argued that the governance concerns, which reflect the biases of U.S. expectations, are merely components of the market information that should be taken in to account in the companies’ valuations.

At a minimum, these considerations certainly do argue in favor of a more cautious approach to Chinese companies, both for investors and D & O underwriters alike. As I noted in my prior post, a disproportionate number of Chinese companies have become involved in securities litigation in the U.S.. a fact that may not be unrelated to the governance concerns.

Changing Environment for Climate Change Disclosure: In prior posts (here and here), I have reviewed the changing circumstances surrounding environmental disclosures, particularly as relates to global climate change. A January 2008 McKenna, Long & Aldridge article entitled "The SEC is Getting Hot and Bothered Over Climate Change" (here) takes a detailed look at the current and proposed requirements that potentially could affect public companies’ disclosure obligations relating to global climate change.

The article’s conclusions are that "publicly traded companies can expect scrutiny of their SEC filings to increase" and that "companies that have yet to squarely confront the question should consider taking a closer look at future filings."

Apollo Group Securities Lawsuit Trial Wrapping Up: In recent posts (most recently here), I discussed the JDS Uniphase securities lawsuit trial, which, on November 27, 2007, resulted in a jury verdict in the defendants’ favor. The JDSU trial was noteworthy because trials in securities cases are so rare. But as I also noted that there was, coincidentally, another securities trial, involving Apollo Group, going on at the same time.

Adam Savett reports on his Securities Litigation Watch blog (here) that the plaintiffs in the Apollo Group trial rested their case on December 12, 2007, and the court subsequently denied the defendants’ motion for directed verdict. Closing arguments in the case apparently are scheduled to take place on January 9, 2008. Savett predicts a jury verdict on January 10.

In any event, we won’t have long to wait to find out the outcome of yet another civil securities lawsuit trial. It is probably a worthy topic for another day to consider why this flurry of trial activity is taking place now and what it may mean. Certainly, if the Apollo Group trial results in another defense verdict, it would further discourage other plaintiffs from hazarding a jury, and perhaps further encourage settlement.

Readers my be interested to note that the Securities Litigation Watch blog is also maintaining (here) a list of all post-PSLRA securities class action lawsuits that have gone to trial.

Finally, readers interested in details of the trial may want to read this December 7, 2007 Arizona Republic article (here) describing the trial testimony of Apollo Group's former CFO.

Busted Buyout Lawsuit Reaches the Finish Line: In an earlier post (here) I discussed the litigation arising out of Finish Line’s bid to walk away from its planned $1.5 billion acquisition of Genesco. In case you missed the news over the holidays, on December 27, 2007, the Tennessee court (here) rejected Finish Line’s contention that there had been a "materially adverse effect" sufficient to permit Finish Line to invoke the termination procedures in the agreement. The court ordered Finish Line to complete the transaction.

However, as noted in the December 28, 2007 CFO.com article (here) discussing the ruling, there is still a second action pending in New York, that could affect whether or not the transaction ultimately is completed. UBS, which had committed to finance the transaction, contends that the merger will result in an insolvent entity. The Tennessee court has said that if that is the case, the court would "halt the agreement."

Finally, the WSJ.com Law Blog notes (here) that though the court has issued its ruling in the Genesco case, there are still plenty of other busted deals to fuel additional litigation for the foreseeable future in the New Year.

PLUS D & O Symposium: The 2008 Professional Liability Underwriting Society (PLUS) D & O Symposium will take place on February 6 and 7, 2008 in New York. I will be co-chairing the Symposium again this year, with my good friend Chris Duca of Navigators Pro. We are very proud of this year’s agenda, which includes former SEC Chairman William Donaldson as the keynote speaker and features a stellar lineup of panelists, including SEC Enforcement Division Director Linda Chatman Thomsen. The entire schedule is available at the PLUS website, here.

Readers will be interested to know that the early registration discount is available only until January 11, 2008, so you will want to be sure to register before the end of this week.

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