- News & Publications
- Carter Ledyard & Milburn LLP Wins Important Case of First Impression
Carter Ledyard & Milburn LLP Wins Important Case of First Impression
On September 30, 2010, in an important case of first impression, the United States Court of Appeals for the Second Circuit held that public companies may not indemnify their CEOs or CFOs from liability under Section 304 of the Sarbanes Oxley Act, which mandates that if a public company is required to restate its financial reports as a result of misconduct, the CEO and CFO must reimburse the company for any bonuses, incentive compensation, or trading profits that they earned during that period.
The Second Circuit held that Section 304, whose purpose is to prevent CEOs and CFOs from profiting by misleading investors and regulators about the financial health of their companies, does not provide a private cause of action and may only be enforced or waived by the SEC. Allowing a public company to indemnify and release its officers and directors from liability under Section 304 would nullify the SEC’s authority to pursue the Section 304 remedy or to grant exemptions from the statute.
The case before the Second Circuit, In re: DHB Industries, Inc. Derivative Litigation, Docket No. 08-3860-cv (2d Cir. Sept. 30, 2010), was an appeal from the approval by the United States District Court for the Eastern District of New York of a settlement of derivative lawsuits brought on behalf of shareholders of a public company formerly known as DHB (now Point Blank Solutions, Inc.) against former CEO David H. Brooks, former CFO Dawn Schlegel, and other former officers and directors of the company. One of the key provision of the settlement was that DHB would indemnify Brooks and Schlegel from any liability under Section 304 of the Sarbanes Oxley Act.
On September 14, 2010, Brooks and former COO Sandra Hatfield were convicted on 31 criminal charges stemming from their participation in a conspiracy involving massive securities fraud and theft of company assets. Schlegel had earlier pled guilty to having participated in this conspiracy. The SEC currently has actions pending against Brooks, Schlegel and Hatfield in the Southern District of Florida, in which it seeks disgorgement of $186 million under Section 304.
The effect of today’s ruling by the Second Circuit is that DHB, which is currently undergoing bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware, In re Point Blank Solutions, Inc., Case No. 10-11255-PWJ, is no longer bound by the terms of the settlement to reimburse its officers and directors for their liability under Section 304, and is instead eligible to recoup those funds itself if the SEC’s pending actions are successful.
Carter Ledyard & Milburn LLP (Gary D. Sesser, William F. Sondericker and Laura A. Reeds) represented appellant D. David Cohen, a DHB shareholder, in his successful appeal before the Second Circuit of the district court’s approval of the settlement.
Please contact Gary D. Sesser (212-238-8820, firstname.lastname@example.org) for comment prior to next Friday's argument, or if you would like to receive a copy of the briefs filed in this case.
Client Kaneka Corporation was awarded a default judgment against a Chinese importer...
Ms. Mann was asked to comment on the lawsuit alleging that the Trump Foundation charity used funds for personal and political purposes.
Carter Ledyard is pleased to welcome the arrival of Ms. Dreizen to the firm as Counsel in the Corporate department.
Partner Steven Paul McSloy gave a presentation at the Consulate General of Ireland in NYC on “The American Indian as Irishman: The Lost Connection”
Carter Ledyard client Global SC Finance IV Limited completed an offering of $196 million of fixed rate asset backed notes.
Judith discusses the benefits and risks of arbitration of art disputes in the newly created process at the Netherlands Arbitration Institute.
Jack was honored with the Chairman's Award, in recognition of his "tireless efforts and unending dedication to the foundation."
Mr. McCarthy has joined the firm as a partner in the Litigation Department, bringing with him years of experience in international litigation and arbitration.
Our 2017 Year in Review highlights the cutting-edge work of our clients, both foreign and domestic, and some of the ways we helped them succeed.
Over breakfast at the midtown office, more than 30 members of the private equity community gathered to create a deal flow for all concerned.
Val Vasi discussed anti-money laundering (AML) guidelines in the art world and AML regulations in the financial services industry
Carter Ledyard client Lisa Schwarz, developer of the Comprehensive Resource Model trauma treatment model, prevailed on her motion for contempt against Dr. David Grand in proceedings in the Federal District Court for the…
Together with Her Justice, Carter Ledyard attorneys were successful in guiding pro bono clients apply for their U-Visa, obtain deferred and final approval of legal status, and receive employment authorization.