EAST-WEST TRADE: LEGAL REQUIREMENTS FOR FOREIGN BUSINESS AND INVESTMENT Monday, June 4, 2012 Gansevoort Park Avenue NYC Director’s and Officer’s Liability By Perry S. Granof Esq. Williams Kastner & Granof International Group LLC

 The Corporation  Its Shareholders  Its Creditors  Its Employees  The Regulators/Law Enforcement Agencies

The Duties a D&O Owes to the Corporation Itself – The Duty of Care – The Duty of Loyalty – The Duty of Obedience The Business Judgment Rule Derivative Actions – Recourse for Breaches of Duty

Mega Derivative Settlements/Judgments: – Southern Peru Copper Corp: - US $1.26 billion judgment (Dec. 19, 2011) – United Health Group - US $900 million settlement (July 1, 2009) – Oracle - US $122 million settlement (Nov. 22, 2005) – Broadcom - US $118 million partial settlement (Aug. 28, 2009) – AIG/Greenberg - US $90 million settlement (Aug. 26, 2010) – Sino-Forest – Derivative Demand served (Oct. 14, 2011) – Canadian Corp. Special Litigation Committee formed The D&O Diary, by Kevin LaCroix December 7, 2010, et al

Select Fee Awards in Derivative Litigation – Southern Peru Copper Corporation (Del. Ct. Chancery, Dec. 19, 2011) : $300 million fee award – Del Monte Foods (Del Ct. Chancery, Oct. 2011): $22.3 million fee award – El Paso Corporation (Morgan Kidde) (Del Ct. Chancery, Nov. 19, 2010): $50 million fee award – Atlas Energy Resources (Del Ct. Chancery, May 14, 2012): $4,500,000 fee award

Statutory Basis for Liability (US Code) – The Securities Act of 1933: -Section 11 -Section 12(2) -Section 15 – The Securities Exchange Act of 1934: -Section 10(b) -Section 14(d) (7) -Section 20(a) – The Public Company Accounting and Investor Protection Act of 2002 (Sarbanes-Oxley): -Section 302

2011 U.S. Settlements in Subprime and Credit Crisis – American International Group: $725 million partial settlement USDC – Southern District New York (Approved in February 2012) – Wachovia Bondholders: $627 million USDC- Southern District of New York (Settled August 5, 2011) – Lehman Brothers/Offering Underwriters: $417 million USDC – Southern District of New York (Settled December 2, 2011) – Washington Mutual: $208.5 million USDC- Western District of Washington (Settled July 1, 2011) – National City Corporation: $168 million USDC- Northern District of Ohio (Settled Aug. 9, 2011), Kevin La Croix ABA/CCIP Presentation, Beijing China, April 19, 2012

Trends – Chinese Reverse Merger Cases Declining (Number of Filings) – Merger and Acquisition Cases Increasing (Number of Lawsuits per transaction) Kevin La Croix ABA/CCIP Presentation, Beijing China, April 19, 2012

Litigation Outcomes ( ) – Before first ruling on Motion to Dismiss 9% voluntarily dismissed 16% settled – After first ruling on Motion to Dismiss 32% dismissed 35% settled before ruling on Motion for Summary Judgment (MSJ) 8% proceeded to ruling on MSJ Cornerstone Research, Securities Class Action Filings, 2011 Year in Review

Statutory Remedies Title VII of the Civil Rights Act of 1964 The Equal Pay Act The Age Discrimination in Employment Act The Family and Medical Leave Act The Americans with Disabilities Act Common Law Remedies Wrongful Interference with Contractual Relationships Breach of Fiduciary Duty Fraud and Negligent Misrepresentation Tortuous Inducement

Unsecured Creditor Class Actions Derivative Claims Against Directors of Insolvent Companies

Fiduciary duties of directors of distressed companies: – American Catholic Educational Programming Foundation Inc. v. Gheewalla, et al WL (Del. May 18, 2007). Individual creditors of an insolvent corporation have no right to assert direct claims for breach of fiduciary duty against corporate directors when a company is in the zone of insolvency. However, a creditor may step into the shoes of the shareholders, in the event of corporate insolvency. – Shandler v. DLJ Merchant Banking, Inc., C.A. No VCS (Del. Ch. July 26, 2010) Where the board was fully informed and fulfilled its duty of loyalty when making its decision, they enjoy the protection of the business judgment rule and the Court will not second-guess a decision to attempt to keep the company alive with additional financing instead of filing for bankruptcy sooner.

The Equal Employment Opportunity Commission (Enforces the above statutory remedies, available to employees) The Securities Exchange Commission – Securities Fraud – Foreign Corrupt Practices Act The Federal Trade Commission The US Department of Justice and State Attorney General Offices

SEC Enforcement Actions – 735 enforcement actions commenced (8% increase over 2010) – 933 investigations opened (2% decrease from 2010) – $2.8 billion in penalties and disgorgement – 22 settlements of $10M or more (16% increase over 2010) ($71.4 million average) SEC Market Data Fiscal 2011; PwCs 2011 Securities Litigation Study

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Expanded SEC Powers) – Section 922 (Whistleblower - remedies and prohibitions against retaliation as respects disclosures to the SEC) 10% - 20% Recovery Rewards – Section 929O (SEC can apply Aiding and Abetting standard of knowledge satisfied by - Recklessness) – Section 929P(b) (SEC granted authority to bring actions based on “conduct/effect” standard – Extraterritorial Jurisdiction) – Section 954 (Recovery of erroneously awarded compensation – Claw- Back) The Dodd-Frank Act’s Impact on Securities Litigation and Enforcement, Anthony M. Alexis, Hector Gonzalez. Marcia E. Goodman Mayer, Brown

Enforcement Action Against Wall Street Firms for Conduct Related to the Credit Crisis – Goldman Sachs agreed to pay US $550 million – Citigroup agreed to pay US $285 million* – UBS agreed to pay US $160 million – Bank of America agreed to pay US $150 million – Wachovia Capital Markets ( Wells Fargo Securities), agreed to pay a US $4.45 million penalty and to give up US $6.75 million of allegedly ill-gotten gains *Judge Rakoff rejected the SEC’s proposed settlement and, the 2nd Circuit said "the SEC and Citigroup have made a strong showing of likelihood of success.” The federal appeals court stopped just short of throwing out the judge’s decision.

Law Enforcement and Regulatory Actions Against D&O’s – Foreign Corrupt Practices Act (FCPA) Siemens agreed to pay the SEC US $800 million to settle FCPA – related charges (Dec 15, 2008), the largest settlement ever Johnson & Johnson agreed to pay the SEC more than US $70 million to settle FCPA - related allegations (April 8, 2011) Walmart ? (FCPA Professor’s Blog) – Insider Trading “In the past 18 months alone, the U.S. has criminally charged 47 hedge-fund managers and others with insider trading; Galleon Group's Mr. Rajaratnam is the 35th defendant to be convicted or to plead guilty.” Currently, Rajat Guptaa a former director of Goldman Sachs is on trial facing charges that he leaked secret information about the company to Raj Rajaratnam. (“Trial Win Adds to Momentum in Crackdown”. Wall Street Journal, may 12, 2011)

“Fund Titan Fond Guilty” The Wall Street Journal, May 12, 2011

The Convection of Raj Rajaratnam “Trial Win Adds to Momentum” The Wall Street Journal, May 12, 2011

The Decline in US Listings “U.S. Falls Behind in Stock Listings”, Wall Street Journal, May 26, 2011, U.SChinaHong Kong LondonBrazilCanada U.SChinaHong Kong LondonBrazilCanada