Securities Fraud and Sentencing Guidelines After Sarbanes-Oxley
July 29, 2004
In the legislative process that led to the adoption of Sarbanes-Oxley (SOX), legislators from both sides of the aisle vied with each other to establish their credentials for being tough on white-collar crime. The maximum penalties for mail fraud and wire fraud were increased from 5 to 20 years. Pub. L. No. 107-204 ' 903. The maximum penalty for willful violations of any provision of the Exchange Act or rule or regulation adopted thereunder the violation of which is unlawful was increased from 10 to 20 years. Pub. L. No. 107-204 ' 903. If this were not enough, a new crime relating to securities fraud in connection with the securities of public companies with a maximum penalty of 25 years was created. Pub. L. No. 107-204 ' 807 This does not exhaust the list, but should be sufficient to suggest that there are more than enough post-SOX criminal laws covering financial fraud to deter rational corporate officers and others to refrain from participating in financial crimes.
The SEC Expands and Accelerates Form 8-K Reporting
July 29, 2004
On March 11, 2004, the Securities and Exchange Commission (SEC) promulgated final rules that significantly alter the reporting requirements for public companies on Form 8-K. These final rules put into place a series of reforms first proposed in June 2002, and which were given additional momentum by Section 409 of the Sarbanes-Oxley Act of 2002 (SOX), which mandated that the SEC promulgate rules to require disclosure of additional information regarding material changes in the financial condition or operations of an issuer on a "rapid and current basis."
SOX Backlash
July 29, 2004
Corporate counselors are in a unique position to help facilitate the cultural changes needed in most companies to meet new Sarbanes-Oxley (SOX) requirements.
Changes to the Federal Sentencing Guidelines
July 29, 2004
In response to the recent corporate scandals within organizations including Enron, WorldCom, Adelphia and Tyco, and with the enactment of the Sarbanes-Oxley Act (SOX), the Federal Sentencing Commission (the "Commission") has submitted to Congress amendments to Chapter Eight of the Federal Sentencing Guidelines that, barring action from Congress, will take effect on Nov. 1, 2004. See Notice of Submission to Congress of Amendments to the Sentencing Guidelines Effective November 1, 2004 ("Notice of Submission"), 69 Fed. Reg. 28,994, 28,994 (May 19, 2004).
Unique Settlement Ruling in Smart World Case
July 29, 2004
It is the uncommon occasion when creditors seek the Bankruptcy Court's assistance to impose a settlement that compromises the debtor's asserted rights to recovery against third parties. While settlements are typically preferable to the debtor's engagement in contested and costly litigation, it is a challenge to convince a court to compromise a debtor's asserted claims. In a recent case in the United States Bankruptcy Court for the Southern District of New York, a settlement was negotiated and ultimately approved by the Bankruptcy Court over the vigorous objection of the debtors-in-possession (the "Debtors"), resolving a hotly contested adversary proceeding and third party claims.
'Necessity' Revisited: Wishing Won't Make It So
July 29, 2004
The April and May issues of <i>The Bankruptcy Strategist</i> featured a scholarly, interesting, and informative article by Michael L. Cook and William R. Fabrizio on the recent Seventh Circuit <i>Kmart</i> Opinion (<i>In Re Kmart Corporation</i>, 359 F. 3d 866 (7 Cir. 2004)) in which the Circuit Court affirmed the District Court's reversal (<i>Capital Factors, Inc. v. Kmart Corporation</i>, 291 B. R. 818 (ND Ill. 2003)) of four "critical vendor" orders entered by the Bankruptcy Judge. In all respects but one, Cook and Fabrizio concisely and accurately analyzed the Opinion as well as the history and basic flaws of the so-called "Necessity" Doctrine. Moreover, we agree not only with their conclusion that "the [Necessity] Doctrine ... lacks explicit Code authorization," but also with their flat rejection of such erroneous (and insulting) comments as that of the unnamed practitioner who was quoted by Reuters as stating that the District Court Opinion was "[A] tremendous blow to the efforts of the Chicago bench and bar to fashion their bankruptcy court system in the mold of Delaware and New York." <i>The Bankruptcy Strategist</i>, April 2004, p. 2. Unfortunately when they come to the Opinion of the Court of Appeals, Cook and Fabrizio overstate the case.
'Megabankruptcies': Changes On the Way?
July 29, 2004
Across the nation, readers of this publication are plagued daily with myriad problems associated with "megabankruptcies" and complex reorganization cases, and sometimes with Chapter 11s that are just large enough to be cumbersome and unwieldy, but too important and/or lucrative to pass up. Notwithstanding what is generally the statutory clarity of the Bankruptcy Code, many of the solutions to these nettlesome issues have evolved on an ad hoc basis, and are often the creatures of local customs and practice, if not the rules and procedures of individual judges. Putting aside the natural peaks and valleys of Chapter 11 filings, these issues persist, no matter the economic climate.
