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Business Crimes Hotline
National rulings of interest to you and your practice.
In The Courts
The latest rulings you need to know.
One FCPA World
Suppose a group of officers of one of your foreign-based corporate clients, with no offices or businesses in the United States, makes a rare visit to the U.S. for an industry-related conference. Between sessions, they break off to participate in a conference call with employees overseas. The subject is whether to authorize political contributions in another country in the hope of getting business there, and they tell their compatriots to proceed. As soon as the conference is over, they head home. Can this one call be the basis for an assertion of U.S. jurisdiction over your client and the officers under the Foreign Corrupt Practices Act (FCPA)? Surprisingly, the answer is yes, in spite of the entirely accidental nature of the contact.
Daubert Motions in Business Crimes Cases
White-collar defense attorneys face many challenges to overcome in successfully representing their clients. In federal criminal cases, the challenges have increased dramatically due to the heightened punishments that can be assessed against "non-cooperating" individuals or businesses who insist upon their rights to a trial. Consider the recent case of Jamie Olis, a mid-level accountant at an energy company, who (unlike two of his superiors) went to trial and was convicted of various fraud charges for having engaged in "income-smoothing" or "cookie-jar accounting" of the company's earnings history to try to help the company meet its earnings expectations. Although Olis received no financial benefit for his misguided efforts, he got 24 years' imprisonment (compared with his cooperative bosses, whose sentences were capped at a 5-year maximum under plea agreements). The sentence was largely due to the calculations of the "amount of loss."
Internal Investigations and Outside Auditors
The Problem: You are the CEO of a publicly traded company that has been rocked by a highly publicized scandal. When the story first broke, your General Counsel told you that the company had to hire an outside law firm to conduct an internal investigation. She also told you that the report of the internal review might have to be turned over to DOJ and the SEC if those agencies insisted on having a copy. You worried about whether plaintiffs in the inevitable shareholder lawsuits would claim that they, too, were entitled to copies of the report, but you deferred to the judgment of your General Counsel and authorized the internal review. Now a new issue has arisen. Long before DOJ or the SEC asks for the results of the internal investigation, and well before a single shareholder suit is filed, your General Counsel gets a call from your company's outside auditor saying that they want a copy of the internal review. You ask your General Counsel whether providing the report to your auditor will waive its privileged status. She says the answer probably is "no." Is your General Counsel right?
Delaware Chancery Court Takes Fresh Look At Zone of Insolvency
Over a decade ago, a Delaware Chancery Court's footnote in <i>Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications</i>, 1991 WL 277613 (Del. Ch. 1991), established the "zone of insolvency" as something to be feared by directors and officers and served as a catalyst for countless creditor lawsuits. Claims by creditors committee and trustees against directors and officers for breach of fiduciary duties owed to creditors have since become commonplace. But in a decision that may have equally great repercussion both in the Boardroom and in bankruptcy cases, the Delaware Chancery Court has revisited zone-of-insolvency case law and limited this ever-expanding legal theory.
Section 547(C)
In recent years, one of the hottest topics in bankruptcy law has been the use and appropriateness of critical vendor orders (hereinafter, CVOs). Critics argue that CVOs directly contradict the mandate of the Bankruptcy Code requiring equal treatment of similarly situated creditors. Even worse, critics point out, is that requests for CVOs are often presented, and the CVO entered, in the first days of a Chapter 11 bankruptcy case on shortened and limited notice to a minimal amount of creditors, days or weeks prior to the appointment of any statutory committees under Section 1102. Thus, it is often the case that the very creditors that are being discriminated against by court sanctioned preferential behavior are not given the notice and/or do not have the knowledge to allow them to appear and object to the entry of the CVO.
In Search of the Holy Grail
<b>Part Two of a Two-Part Article.</b> In our article that appeared in last month's issue, we discussed the special rule contained in Section 382(l)(5) with respect to the use of net operating losses by a company that has restructured under the protection of the bankruptcy court. Where the stock, debt and claims against a bankrupt company are traded, companies execute lock up agreements with their stockholders or request orders from the bankruptcy court to restrict trading in the stock, debt or claims so as to protect its net operating loss carry forwards. Often, out of an excess of caution, the orders requested have been overly broad and have disrupted trading in such debt and claims. On Nov. 22, 2004, The Bond Market Association and The Loan Syndications and Trading Association announced that in a joint effort they had developed a model NOL order to address these disruptions. Part Two discusses the results.
The Devil in the Details
In theory, a borrower's issuance of junior secured debt is a boon for its senior secured lender. The borrower obtains additional capital, and the claims of the junior lender against shared collateral, since "subordinated," don't diminish the senior lender's prospects for repayment. In practice, however, a senior secured lender should view proposed junior secured financing skeptically because the existence of such debt can become highly problematic for the senior lender. The key to protecting the senior lender lies in properly negotiating and documenting the intercreditor agreement with the junior lender to eliminate, or at least minimize the myriad of ways in which the junior lender's rights may, in practice, limit -- or even trump -- those of the senior lender.
The Bankruptcy Hotline
Recent rulings of interest to you and your practice.

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