Securities & Directors/Officers Litigation

Steptoe & Johnson LLP litigates civil and criminal securities cases before federal and state courts nationwide. Our active Securities Fraud Litigation and Enforcement practice has represented institutional and individual defendants in high-profile criminal trials, major consolidated securities fraud class actions, SEC and SRO investigations and suits, and arbitrations. In addition, our attorneys have represented board of directors’ special litigation committees and third-party professional firms in many shareholder derivative actions.

Our firm is well known for representing issuers, corporate officers and directors, attorneys, and accountants in litigation, investigations, and arbitrations relating to initial public offerings (IPOs), secondary market trading, proxy disclosure violations, and merger and acquisition transactions involving allegations of misrepresentations and omissions, securities fraud, breach of fiduciary duty, and violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Our reputation also extends to our representation of issuers, professionals, national, and regional broker-dealers, investment companies, and investment advisers and their registered representatives in litigation and arbitrations before the SEC, NYSE, and NASD. Our litigators have defended an increasing number of lawsuits that charge securities fraud and breach of fiduciary duty in connection with the offering of employer securities as an investment option in 401(k) plans.

In our highly regarded civil and criminal securities enforcement team, many of our attorneys are former government prosecutors or members of the SEC staff. Steptoe's litigators have represented senior corporate executives in some of the most noteworthy cases in the country relating to allegations of accounting fraud, securities fraud, and corporate misconduct. In addition, we have a team of lawyers with significant skill and experience in the Foreign Corrupt Practices Act (FCPA), Patriot Act, Bank Secrecy Act, and money-laundering statutes.

We have been retained by many boards of directors and audit committees to conduct confidential internal investigations in a wide range of matters, including financial and accounting irregularities affecting a wide range of statutes and regulations. We are sensitive to, and well versed in, the new procedures, responsibilities, and duties added by the Sarbanes-Oxley Act of 2002; the SEC, NYSE, and NASD; and directors’ fiduciary duties under state law.

When the future of a company hangs in the balance, many of the nation's highest profile executives and corporations choose Steptoe to represent them. We have confronted complex issues under the Private Securities Litigation Reform Act of 1995 and the Class Action Fairness Act of 2005; we regularly navigate the difficult issues raised by parallel criminal, civil, and enforcement proceedings.

Our Securities Fraud Litigation and Enforcement practice has handled matters in the following six areas:

Securities and RICO Litigation
Securities Enforcement
Derivative Suits and Corporate Claims
Merger and Acquisition Litigation
Financial Derivatives and Swap Litigation
Internal Investigations

Securities and RICO Litigation

Corporations and their directors and officers, attorneys, and auditors in securities and corporate litigation;
Directors, officers, and others in insider trading litigation;
ERISA plan fiduciaries and related providers in securities and breach of fiduciary duty litigation arising from 401K plans;
National and regional broker-dealers and hedge funds in litigation and arbitration of securities and common-law claims; and
Broker-dealers and investment advisers in litigation arising from tax shelter advice and transactions.

Securities Enforcement

Companies and their directors, officers, and employees in SEC, DOJ, NYSE, NASD, and State Attorneys General and County Attorney investigations and proceedings involving securities, mail, wire, bank and tax fraud, violations of the Foreign Corrupt Practices Act, and money-laundering violations;
Broker-dealers, hedge funds, investment companies, and investment advisers in SEC, NYSE, and NASD investigations and proceedings;
Auditors and their partners and employees in SEC proceedings and before State Boards of Public Accountancy; and
Financial institutions in bank regulatory and enforcement proceedings.

Derivative Suits and Corporate Claims

Corporate directors and officers in derivative actions or actions brought by bankruptcy trustees;
Special litigation committees as independent corporate counsel in evaluating the merits of derivative demand letters and claims;
Corporations or bankruptcy trustees bringing claims against current or former directors and officers involving securities or common-law or bankruptcy claims; and
Auditors and their partners and employees in litigation brought by corporations or bankruptcy trustees involving securities or common-law claims.

Merger and Acquisition Litigation

Directors and officers, corporations, and shareholders in pre- and post-closing actions alleging securities and common-law claims in connection with merger and acquisition transactions or sales of all or a portion of a business;
Corporations and their directors and offices in proxy disclosure litigation; and
Corporations bringing post-closing claims against current or former shareholders, directors, officers, or employees involving securities or common-law claims arising from misrepresentations made in merger and acquisition transactions or the payment of an inflated deferred purchase price through earnout arrangements, in which misrepresentations, false transactions, and false entries are alleged.

Financial Derivatives and Swap Litigation

Public and privately held companies, governments, and governmental entities and financial institutions in litigation involving derivatives and swaps.

Internal Investigations

Internal investigations for companies, boards of directors, audit committees, or special litigation committees into allegations of securities fraud, financial fraud, insider trading, misappropriation of corporate assets or business opportunities, and a wide variety of other alleged criminal activity including commodities fraud, bank fraud, mail and wire fraud, bribery, tax fraud, antitrust violations, government contract fraud, federal and state program fraud, Foreign Corrupt Practices violations, money laundering, and environmental health and safety violations.

Representative Matters

Securities and RICO Litigation Experience

A national brokerage firm in an alleged charitable gift annuity investment fraud, which led to $50 million in investor losses. The founder of the charity maintained a maze of brokerage and bank accounts. The firm, one of its brokers, and an office manager were sued by a class, an SEC receiver, and an individual plaintiff for securities fraud, negligence, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and conversion. The plaintiffs claimed that the brokerage firm had failed to require the charity to keep investor funds segregated, had failed to monitor the charity’s activities, and had failed to report suspicious activity to regulatory authorities. We defeated class certification and settled the Receiver action. Individual cases remain pending.
Eleven broker-dealers in a putative national class action seeking to compel the payment of interest on free credit balances and to enjoin account transfer practices that have been approved by the SEC. Plaintiffs' counsel claimed that class damages exceeded $1 billion. We obtained dismissal on forum non conveniens grounds.
A national brokerage firm in two related actions arising from trading in stock index options. We also represented the broker in CBOE disciplinary proceedings.
A regional brokerage firm in five actions brought by over 100 investors in oil and gas limited partnerships sponsored by the same general partner. The investors alleged violations of state and federal securities laws, racketeering, and common-law claims based on alleged misstatements in prospectuses.
A national brokerage firm in an action against the founders of a failed local brokerage and one of its customers. The national firm, a clearing broker, alleged that the local firm had breached its contractual responsibilities and that its officers and directors had been negligent in failing to conduct financial due diligence on a margin account customer. After losses in several positions, the unmet margin calls led back to capital deficiency and closure of the defendant firm. The action led to a significant payment by the defendant firm and payments by its officers and directors and the margin customer to our client.
A national accounting firm in a class action securities and professional malpractice litigation arising from the bankruptcy of a major national homebuilder. Plaintiffs alleged errors in accounting for net realizable value write-offs and deferred tax asset estimates among other issues. Plaintiffs sought $95 million in actual damages and $1 billion in punitive damages. After a 66-day jury trial, the matter ended in a defense verdict. We also represented the firm and two of its partners in related State Board of Public Accountancy proceedings.
A national accounting firm and two of its partners in a stockholder lawsuit arising out of the failure of a life insurance company and an associated insurance service agency, involving alleged failures in accounting for life insurance premiums and calculating required reserves.
A national accounting firm and one of its partners in an action brought by foreign investors in British Virgin Islands corporations that owned US real estate, alleging breach of fiduciary duty, fraud, and racketeering arising from alleged improper disclosures regarding asset sales, erroneous financial statements, and erroneous tax planning and advice.
An insurance company in securities and racketeering litigation related to the financing of real estate limited partnerships. The insurer had issued financial guaranty bonds and was involved in litigation with the investors, the real estate syndicator, bond lenders, attorneys, accountants, appraisal firms, and reinsurers, as well as parallel criminal proceedings involving aggregate losses of over $100 million.
A national bank that served as indenture trustee for electric utility first mortgage bonds in two bondholder class actions arising out of the redemption of certain bonds at par value. The bondholders claimed the bonds should have been redeemed at a premium, and sought over $25 million in damages for claims brought under the federal securities laws and contract principles.
The former CEO of Firestone in private securities fraud class action arising out of the recall of allegedly defective tires. We had all claims against our client dismissed by the district court; the decision was upheld on appeal by the Sixth Circuit.

Securities Enforcement

The former general counsel of Rite Aid in an SEC and grand jury investigation and subsequent criminal trial on securities fraud, false filings, false books and records, and related charges.
The former general counsel of Tyco in a state grand jury investigation and subsequent trial on grand larceny charges, as well as in parallel SEC proceedings and parallel shareholder class action and derivative suit litigation.
The former CEO of Worldcom in an SEC and grand jury investigation and subsequent criminal trial on securities fraud, false filings, false books and records, and related charges, as well as in parallel SEC proceedings.
The former chief accounting officer of Enron in an SEC and grand jury investigation and subsequent trial on securities fraud, false filings, and false books and records charges, as well as in parallel civil proceedings.
A former regional vice president of a crop ingredients subsidiary of a Fortune 100, NYSE-listed food packaging firm in an SEC investigation of revenue recognition issues relating to deferred deliveries, which had led to a restatement of several years’ financials by the parent corporation.

Derivative Suits and Corporate Claims

The bankruptcy trustee of a failed publicly traded savings and loan holding company challenging the settlement of a derivative claim for no consideration on the eve of bankruptcy, recovering over $55 million in damages against former officers, directors, and attorneys for the company. The case involved disastrous investments by the savings and loan in both consumer loans and junk bonds. The litigation took place in several courts on both coasts and produced 16 published opinions.
A national accounting firm and two of its partners in an action filed by a bankruptcy trustee of a NASDAQ-listed national distributor of personal care products. Plaintiff sought over $100 million in damages, alleging the improper auditing and application of revenue recognition criteria and errors in the installation of a major ERP system impacting financial statements, customer relationship management, and supply chain management.

Merger and Acquisition Litigation

The former chief executive of an aerospace avionics firm in a $350 million lawsuit filed by the purchaser in a $1 billion merger and acquisition transaction. The suit alleged that there were misrepresentations in financial statements arising from the improper application of SOP 81-1 and sought recovery under federal and state securities law for violations of the sale agreement and various tort claims. After extensive fact and expert discovery and motion practice, the matter was successfully mediated on the eve of trial, with our client contributing no funds to the settlement.
Sellers in an arbitration proceeding regarding a merger and acquisition transaction involving the sale of a computer software applications services business. The buyer sought rescission of the sale agreement based upon violation of the material adverse change and material adverse affects clauses in the asset purchase agreement and alleged misrepresentations involving projections and damages for alleged breach of non-solicitation agreements contained in the asset purchase agreement and related employment agreements. The seller sought enforcement of the asset purchase agreement and the payment of deferred consideration.
The buyer in an arbitration and related bankruptcy proceedings relating to its purchase of an information services company using a stock purchase agreement with a cash-down payment and deferred purchase price earnout provision conditioned on achieving certain EBIT targets. During the arbitration, the company established that the seller had created false invoices, engaged in fictitious transactions, made false entries in the company books and records, and made misrepresentations and omissions of material fact in thereby receiving fraudulently inflated overpayments. The arbitrators rendered a decision finding fraud, resulting in a fraud judgment.
Currently, the NASDAQ-listed buyer of a multi-state data entry firm using a stock purchase agreement with a down payment, holdback payments, and deferred purchase price. There will be an arbitration proceeding and possible related court proceedings as to alleged misrepresentations in the earnout process by the seller. The arbitration will include application of revenue recognition criteria, among other issues.

Financial Derivatives and Swaps

The government of South Korea in a failed derivative swap transaction against a major Wall Street investment firm.

Internal Investigations

Conducted an internal investigation at a public traded public utility concerning allegations of accounting irregularity made by a purported whistleblower.
Conducted an internal investigation at venture capital firm following published suggestions of its participation in a “pump and dump” scheme and other improprieties.
Represented an executive vice president of a large commercial bank in connection with an internal investigation of accounting issues relating to the valuation and classification of certain mortgage-backed securities.

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