Securities Litigation Insights is a periodic report concerning recent developments, issues, and matters of interest in securities litigation and regulation. To access your copy of the most current issue, follow this link.

Articles in this issue:

  • Securities Litigation Issues Impacting Energy Companies
    Recently there has been a renewed focus on securities litigation and regulatory enforcement actions against energy companies. Chesapeake Energy Corp. faced an SEC investigation and investor suits when CEO Aubrey McClendon's borrowing practices became public, investors accused First Solar, Inc. of concealing manufacturing flaws in its solar panels, and BP reached a settlement with the SEC concerning the Deepwater Horizon explosion and spill. Looking behind these headline stories, we highlight four major securities litigation and regulatory issues that are likely to continue to impact energy companies going forward: (1) securities litigation regarding alleged improper disclosure of safety issues, (2) securities litigation related to reserve estimates in public filings, (3) shareholder and regulatory focus on hydraulic fracturing, and (4) a new SEC rule requiring disclosure of certain payments made in connection with resource extraction.
  • Recent Chancery Court Decisions Expand Availability of Direct Claims for Stockholder Dilution Under Gentile
    Two recent Court of Chancery opinions have expanded the availability of direct claims for corporate stockholders complaining of equity dilution under Delaware law. These opinions have expanded the holding of Gentile v. Rossette, 906 A.2d 91, 99-100 (Del. 2006), which first established that claims alleging equity dilution can be direct or derivative. Since Gentile, courts and commentators have indicated that the availability of direct dilution claims is limited to cases involving a majority, controlling stockholder. The recent opinions illustrate that Gentile claims are available in situations where there is no controlling stockholder, either through a number of stockholders working as a "control group" or through self-dealing transactions by interested directors. These decisions indicate that corporate boards should take great care when issuing stock.
  • From Revlon to Galaviz: Judicial Treatment of Forum-Selection Clauses in Corporate Charters or Bylaws
    When corporations adopt forum-selection provisions in their charters or bylaws, they generally do so to ensure that derivative lawsuits and other intra-corporate disputes are brought in Delaware. Requiring that matters be decided by the Delaware Court of Chancery affects settlement value in derivative suits both by providing increased certainty in outcomes and by eliminating the increased costs of litigating in multiple forums. The Court of Chancery has implicitly endorsed corporations adopting forum-selection provisions in their charters or bylaws. Outside of Delaware, however, the enforceability of later-adopted forum-selection clauses is less clear. This article discusses how courts have construed these clauses since Vice Chancellor Laster endorsed the practice in his 2010 opinion in In re Revlon Shareholders Litigation.
  • The Dodd-Frank Hedge Fund Adviser Registration Requirements Mean Enhanced Visibility Into Hedge Fund Management Metrics and Increased Enforcement Actions Against Hedge Fund Advisers
    With the passage of the Dodd-Frank Act, many investment advisers to hedge funds are no longer exempt from registration requirements and the myriad of obligations that result from being regulated by the SEC. The SEC and other regulatory authorities are relying on this new information to monitor risk in the financial markets and uncover patterns of misconduct. As recent comments from the Chief of the SEC Enforcement Division's Asset Management Unit and a survey of recent SEC complaints show, enforcement activity against hedge fund advisers is increasing. It is, therefore, becoming increasingly important for sponsors of private equity funds and hedge funds to comply with registration requirements, identify conflicts of interest, and appropriately disclose those conflicts.

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