Can defense attorneys be too zealous?

Robert Khuzami, director of the enforcement division at the Securities and Exchange Commission, talked in a recent speech about some of the ways he thinks defense attorneys cross the line into obstruction. “Mr. Khuzami’s comments sound like a directive for attorneys to exercise greater care in how they interact with the S.E.C.,” says Dealbook. But, contrast that with the government’s attempt to prosecute a GlaxoSmithKline lawyer for obstruction over the way she represented the company. The judge wouldn’t even let the case go to the jury, and acquitted her on the spot.

Research report alleges that Sino-Forest Corp. overstated assets, revenues

Muddy Waters LLC said in a research report that Sino-Forest Corp., a Canadian company with extensive timber holdings in China, has substantially overstated the amount of forest land it controls, as well as the amount of wood it has been harvesting.

Trading in the Mississauga, Ontario-based companys stock (TSX: TRE.TO) was halted by the Toronto Stock Exchange after the shares plunged 20 percent in less than 30 minutes. 

Muddy Waters said in its 33-page report that the land purchases that Sino-Forest has reported in China did not square with government records, and appear to be overstated by as much as $900 million. The report also included photographs of apartment buildings and other nondescript structures at the addresses listed for some of Sino-Forest’s major customers and financial partners.

Unlike other Chinese businesses that trade on North American exchanges, Sino-Forest has attracted some large, savvy investors, includging Paulson & Co., which has more than $30 billion in assets under management.


Whistleblower rules set to be finalized soon

The specifics of a new program that rewards whistleblowers for reporting corporate wrongdoing to the Securities and Exchange Commission are taking shape. But for the SEC “it looks to be ‘damned if you do, damned if you don’t,’” says Peter J. Henning in the New York Times. The agency has faced criticism from all sides, he says, and won’t likely be able to please everyone. Most interesting, though, will be how it handles the rules’ most outspoken critics: corporate America.

House lawmakers wonder why SEC hasn’t punished anyone over Stanford

“‘I don’t think the agency is going to change much because I don’t see anything where people are being held accountable and responsible,’ Rep. Steve Pearce (R-N.M.) said,” according to the Wall Street Journal. The panel investigating the Securities and Exchange Commission’s handling of the Stanford case — the agency knew there were problems with Stanford’s firm as early as 1997 but didn’t act — were told that a former SEC official responsible for blocking attempts to investigate Stanford, former Fort Worth Regional Office Enforcement Chief Spencer Barasch, might become the target of a federal criminal investigation to see if he broke any laws in representing Stanford after he left the agency in 2005.

SEC looking at rules surrounding nonpublic companies

After Goldman Sachs & Co. halted a planned offering of more than $1.5 billion in Facebook shares, the Securities and Exchange Commission has sharpened its focus on the rules surrounding smaller companies and private investments, says Bloomberg. “Companies seeking access to capital should not be overburdened by unnecessary or superfluous regulations,” SEC Chairwoman Mary Schapiro said in a statement. “At the same time, while we have an important responsibility to facilitate growing companies’ access to America’s investment capital, we must balance that responsibility with our obligation to protect investors and our markets.” The agency is particularly interested in the rules that require companies with more than 499 investors to disclose financial information, and others that put restrictions on how private companies can recruit investors.

Kandi Technologies responds to Sharesleuth story

Kandi Technologies Corp. said in a letter to shareholders that it stands by the revenue figures in its Securities and Exchange Commission filings. However, the Chinese maker of electric cars, go-karts and other vehicles acknowledged discrepancies in charts in those SEC filings that compared 2009 and 2010 unit sales for all of its product lines. It attributed the errors to “new accounting employees.”

Kandi did not directly address the question of how and where it sold the roughly 3,700 electric cars that it reported selling over the past two years. Sharesleuth’s investigation found that dealers in the United States — the company’s primary market — sold well under 1,000 of the vehicles..

Kandi said in its letter that it sells its vehicles to Chinese export agents, distributors and other middlemen, and that it had no knoweldge of — or relationship with — the dealers that market those vehicles to retail customers.

“To the best of our knowledge, these distributors through their dealer networks distribute our vehicles throughout the world,” the company said.


Feds sue Deutsche Bank for mortgage fraud

The government says the German bank and one of its subsidiaries “illegally obtained government insurance for substandard mortgages during the U.S. housing boom” and that as a result, many of the loans went into default, costing taxpayers at least $386 million to date. The suit, brought by Preet Bharara, the U.S. Attorney for the Southern District of New York, seeks $1 billion in damages. Deutsche Bank says it will “vigorously” defend the case.

Proving fraud in the financial crisis hasn’t been easy for plaintiffs

Even “in the face of overwhelming evidence” that investors suffered massive losses during the financial crisis – judges haven’t been willing to assume that defendants in lawsuits intended to decieve anyone ( a necessary element of a suit for fraud).  In several notable cases, judges found that the losses were more likely caused by the economic meltdown than by any alleged fraud, noting that other investors suffered similar losses at the same time, according to two securities lawyers writing for Thomas Reuters. This shouldn’t be a surprise, they say. Judges need more than “conclusory assertions” to prove fraud.