Pomerantz LLP


Pomerantz Hosts International Conference in New York


On October 23, Pomerantz hosted its 2018 Corporate Governance and Securities Litigation Roundtable Event in the Four Seasons Hotel in New York City. The Round­table Event provides institutional investors from around the globe with the opportunity to discuss topics that affect the value of the funds they represent, and to net­work with their peers in an informal and educational setting. Presenters are international experts in the fields of corporate governance, securities litigation and asset management. This year, presenters and attendees trav­eled to the Roundtable from across the United States, the United Kingdom, France, Italy, Belgium, and Israel.

The theme of this year’s Roundtable Event focused on women and minorities who have risen through the ranks and have pioneered the path for change and unity in our communities. Pomerantz Partner Jennifer Pafiti, the event’s organizer, says, “We were excited to present is­sues of importance to institutional investors through the lens of diversity. Judging by the robust exchange of ideas during the day’s sessions and the feedback we have re­ceived, these are matters that resonate globally today.” As a first-year associate with Pomerantz, and as a wom­an with an ethnically diverse background, creating and participating in this event was a great point of pride and honor in my career. While our community is at the cusp of change, Pomerantz believes it is pivotal to be at the fore­front to encourage these discussions to further educate and bring awareness to ourselves and members of our community with the hope of encouraging and fostering a change that will benefit us all.

Counsel to a $400-billion European asset management company presented, “Corporate Governance: What Can the World Learn from the European Model?” This session explored the emerging European corporate governance model, and how it compares to its Anglo-American coun­terpart. The European Union’s 2017 Shareholder Rights Directive (“SRD”) mandates that institutional investors and asset managers develop and publicly disclose an engagement policy that describes, among other matters, how they integrate shareholder engagement in their in­vestment strategy, and how they monitor investee com­panies on relevant matters, including ESG: environmen­tal, social, and corporate governance. Of interest to many in the room was the news that the United States receives a relatively low ESG country rating in the EU for the rea­sons that it pulled out of the Paris Agreement on climate change and maintains the death penalty.

“Gunning for Profit” was another session that focused on ethical investing. Following a number of mass shootings in the United States, CalSTRS made the decision to stop investing in companies that sold assault-style weapons or devices that allow guns to fire more rapidly. The ses­sion inspired a lively discussion on whether ethical in­vesting makes financial sense, and provided insight into why CalSTRS, the second-largest pension fund in the U.S., decided to take a stand against the big guns.

The Roundtable Event also discussed the allegations against Harvey Weinstein and how they created a Hol­lywood movement that has since gained momentum around the globe, turning the focus to workplace culture and corporate governance. Beyond Weinstein’s liability, the conversation has since turned to the institutions that allowed those crimes to become a part of the corporate culture. The panel session, “Corporate Governance in a Post-Weinstein Era” addressed such issues. Among other information shared by panelists, Partner Gustavo Bruckner, who heads Pomerantz’s Corporate Gover­nance litigation team, described the firm’s involvement in current litigation relating to sexual and other harass­ment in the workplace (see his article in this issue of the Monitor).

Research indicates that companies with board members representing diversity of thought and culture deliver high­er returns on equity and better growth overall. In the past five years, many countries have passed legislation man­dating diverse board representation or set non-mandato­ry targets. However, some argue diversity cannot be truly measured and performance cannot be attributed to the makeup of those occupying boardroom seats. The panel “Diversity in the Boardroom: Fashion or Fact?” opened up vibrant debate among panelists and Roundtable at­tendees as it explored those conflicting ideals, how sub­conscious bias can affect selection processes, and why diversity in the boardroom should foster an environment in which every shareholder is represented.

In “Unleash the Lawyers: Securities Litigation Policy and Practice,” a panel of lawyers shared their thoughts on the hallmarks of a robust securities litigation policy and what to do to mitigate a fund’s liability in the absence of one.

Jeremy Hill, Group General Counsel for Universities Su­perannuation Scheme (“USS”), gave an enlightening pre­sentation on USS’s role as lead plaintiff in the Petrobras litigation, in which USS and Pomerantz recently achieved a historic settlement of $3 billion on behalf of defrauded investors with Brazilian oil giant, Petrobras, and its audi­tors. Armed with candor, facts, and figures, he explained how a conservative British pension fund that had never before served as lead plaintiff found itself leading the highest-profile class action in the United States.

Pomerantz Co-Managing Partner Jeremy Lieberman spoke on, “Will Trump’s SEC Negate Investors’ Ability to Fight Securities Fraud?” With serious indications that the new SEC Chair, Jay Clayton, is considering allowing corporations to use forced arbitration clauses to curtail investors’ rights to bring securities class actions, Jeremy used several examples from Pomerantz’s roster of ac­tive and recently settled cases to demonstrate the very real and deleterious effect that forced arbitration would have on investors. He also addressed what institutional investors can do to protect their right to hold companies accountable for securities fraud. Notably, the day after the Roundtable, Jeremy Lieberman and Jennifer Pafiti traveled to Washington D.C. to meet with Chairman Clay­ton and other key Senate staffers to strenuously argue against forced arbitration clauses and for the crucial func­tion of securities class action litigation as a fundamen­tal principal to hold corporate wrongdoers accountable. [Eds.’ note: See cover story for the update.]

The Pomerantz Monitor will keep our readers posted on the next Corporate Governance and Securities Litigation Roundtable Event, scheduled for 2020 in California.

California Champions Women for Board Seats


In late September, California became the first state to re­quire its publicly held corporations to include women on their boards. Pursuant to this new law, SB-826, publicly traded corporations headquartered in California must have at least one woman on their boards of directors by the end of 2019. By the end of July 2021, a minimum of two women must sit on boards with five members, and there must be at least three women on boards with six or more members. Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.

It is widely accepted that companies with gender-diverse boards of directors outperform their peers. Although it is not uniformly settled as to why this is so, companies with gender-diverse boards tend to have higher returns on eq­uity and net profit margins than their peers. Studies have shown that the greatest benefit to a company’s bottom line occurs when there are three or more women on a board. According to one famous study, “One female board mem­ber is often dismissed as a token. Two females are not enough to be taken seriously. But three give the board a critical mass and the benefit of the women’s talents.”

In the United States, women comprise about half of the total workforce; hold half of all management positions; are responsible for almost 80% of all consumer spending; and account for 10 million majority-owned, privately-held firms, employing over 13 million people and generating over $1.9 trillion in sales.

It is generally believed that gender diversity on boards translates to less “group think,” greater expression of non-conforming views, more leadership positions for tal­ented but often overlooked female employees, and less tolerance for underperforming CEOs.

Every company but one on the Standard & Poor’s 500 has at least one woman on its board and 11 of the Standard & Poor’s 500 companies, including Best Buy, Macy’s, Viacom and General Motors, have half or more of their board seats held by women. However, women still only hold 19.9% of board seats at Standard & Poor’s 500 companies.

Sixty-four countries have made some sort of national effort to promote boardroom gender diversity. In 2003, Norway passed a law mandating 40 percent representation of each gender on the board of publicly limited liability companies. Since then, approximately 20 countries have adopted some sort of legislation/quota to increase the number of women on boards, including Colombia, Kenya, Belgium, Denmark, Finland, France, Germany, Iceland, Italy, and Israel. Not surprisingly, a study of global companies found that Norway (46.7%) and France (34.0%) had the highest percentages of women on their boards.

In the United States, there has been a deep reluctance to mandate gender quotas. The Securities Exchange Com­mission (SEC) requires that companies disclose whether they have a diversity policy, and how it applies to board recruitment practices (Regulation S-K, Item 407(c)). While the SEC recommends that this include “race, gender, and ethnicity of each member/nominee as self-identified by the individual,” ultimately, the definition of diversity is left to each issuer. Many states have passed resolutions encour­aging public companies to gender diversify their boards. Some, like Rhode Island, made pension fund investments conditional on increased board diversity. In March, the New York State Common Retirement Fund said it would vote against all corporate boards of directors standing for re-election at companies with no women board members. The California State Teachers’ Retirement System recent­ly sent letters to 125 California corporations with all-male boards warning them that they risk shareholder action if they do not self-diversify. Thirty-five of those companies subsequently appointed female directors.

The political forces in California felt that change was not being effected fast enough. A quarter of California’s public­ly traded companies do not have a woman on their boards and there are 377 California-based companies in the Rus­sell 3000 stock index of large firms with all-male boards that could be affected by the new law. 684 women will be needed to fill board seats for Russell 3000 companies by 2021.

Hare-Brained Tweet gets Musk in Trouble


On September 27, 2018, the SEC sued Elon Musk, CEO and Chairman of Tesla Inc., charging him with securities fraud. It alleged that on August 2, 2018, after the close of the market, Musk had sent an email with the subject, “Offer to Take Tesla Private at $420,” to Tesla’s Board of Directors, Chief Financial Officer, and General Counsel. Musk stated he wanted to take Tesla private because being a publicly-traded company “[s]ubjects Tesla to con­stant defamatory attacks by the short-selling community, resulting in great harm to our valuable brand.” Apparently Musk had not lined up financing or done any other prepa­ratory work before making this offer.

Before anyone at the company could respond, on August 7, 2018 Musk sent out a series of false tweets about the potential transaction to take Tesla private, confusingly saying that:

“My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla.”

“Shareholders could either to [sic] sell at 420 or hold shares & go private.”

“Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a share­holder vote.”

Rule 10-b5 prohibits a company’s officers and directors from “knowingly or recklessly mak[ing] material misstate­ments about that company.” Musk’s tweets contain both clearly factual statements that are ambiguous or incom­plete at best and concern information that Tesla share­holders would find very important.

The SEC’s complaint alleged that Musk had not even discussed the deal terms he tweeted, which offered a substantial premium to investors that was greater than Tesla’s share price at the time. After the tweet, Tesla’s stock price rose on increased trading volume, closing up 10.98% from the previous day.

A press release issued by the SEC on September 27, 2018 made it clear that Musk’s “celebrity status,” includ­ing his 22 million Twitter followers, did not affect his “most critical obligations” as a CEO not to mislead investors, even when making statements through non-traditional media. This status and Musk’s large audience drove the tenor of the SEC’s complaint and the relief sought: a permanent injunction against future false and misleading statements, disgorgement of any profits resulting from the tweets, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.

The SEC had previously issued a report that companies can use social media to announce key information in compliance with Regulation Fair Disclosure, so long as investors have been alerted about which media avenues will be used and such statements otherwise comply with regulations. This clarification arose out of the 2013 in­quiry into a post by Netflix CEO Reed Hastings’ person­al Facebook page, stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Due to the uncertainty about the rule, an enforcement action was not initiated regarding Hastings or Netflix.

Regarding the disclosure of material, company-specific information via Twitter, the SEC averred that Tesla had stated in 2013 that the company may use social me­dia to release information to investors, but never made any greater specification. Here, Musk announced a re­cord-breaking private buyout offer at a price he alone determined without any board approval or arms-length negotiation.

Musk initially rejected settlement negotiations outright, but lawyers for the company purportedly convinced him, and the SEC, to come back to the table. Before Musk or Tesla responded to the SEC’s complaint, settlement was quickly reached on September 29, 2018 and a joint motion for the court to approve the settlement was filed. The deal allows Musk to remain CEO and a board mem­ber but imposed a two-year ban as Chairman and a $20 million fine, as well as a $20 million fine on Tesla. The settlement further requires Tesla to add two independent directors as well as a permanent committee of indepen­dent directors tasked with monitoring disclosures and potential conflicts of interest. Such monitoring includes a required preapproval of any communications regard­ing Tesla in any format that contains, “or reasonably could contain, information material to the Company or its shareholders.”

On October 4, District Judge Alison J. Nathan ordered the parties to file a joint letter explaining why the proposed settlement was fair and reasonable, which was filed Oc­tober 11. As to the reasons behind the tweets, Musk has cryptically commented, “[i]f the odds are probably in your favor, you should make as many decisions as possible within the bounds of what is executable. This is like be­ing the house in Vegas. Probability is the most powerful force in the universe, which is why the house always wins. Be the house.”

Before the Court ruled on the proposed settlement, Musk released another confusing tweet:

“Just want to [sic] that the Shortseller Enrichment

Commission is doing incredible work. And the name change is so on point!”

The court nevertheless overlooked this outburst, ap­proved the settlement and entered final judgment on October 16. After taking a short Twitter break, Musk then tweeted that the whole debacle was “[w]orth it.”

The settlement comes without an admission or denial of wrongdoing by Musk, but stands as a clear reminder of the obligations that the officers and directors of public companies have to shareholders. Tesla is a company whose value is in no small part its future potential – a value driven by a belief that Musk is central to the com­pany’s ongoing success. It appears as though this was tacitly recognized through the settlement negotiations, as the second round resulted in the SEC backing away from their initial position that Musk be barred from being a corporate officer or director permanently. Such a pun­ishment could have easily proved ruinous for Tesla.

In a time where even presidential communiqués can issue via Twitter, officer and director statements con­cerning material information related to publicly traded companies must adhere to the well-established rules of disclosure, even when they are limited to 140 characters or less.

Protecting Shareholder Rights: Forcing Away Forced Arbitration Clauses


Pomerantz is the oldest law firm in the world dedicated to representing defrauded shareholders. When it came to our attention that the United States Securities and Exchange Commission (the “SEC”) hinted that it might consider allowing companies to include mandatory arbitration clauses in their bylaws, Pomerantz acted quickly to express its concern that such clauses could eviscerate a sharehold­er’s ability to hold to account a corporate wrongdoer.


Banks, credit card issuers and other companies, preferring to settle disputes with shareholders without going to court over class action lawsuits, often insert mandatory arbitra­tion/class action waiver provisions in the fine print of their service agreements. But for investors, a bar on securities class actions would eliminate the ability of all but the largest shareholders to seek compensation from compa­nies who have violated U.S. securities laws.

For decades, it has been the policy of the SEC not to ac­celerate any new securities registrations for companies that contained a class action waiver provision, as such waivers run counter to the SEC’s mission to enforce the federal securities laws. In 2012, the Carlyle Group’s Initial Public Offering registration was delayed because it con­tained such a waiver bylaw. Ultimately, under pressure to complete its offering, the Carlyle Group scrapped the offensive waiver. Since then, no public company has at­tempted to include such a waiver bylaw in its registration statement, preserving the right of defrauded investors to participate in securities class actions.

Then last year, a Consumer Financial Protection Bureau rule banning mandatory arbitration was overturned by the Republican-controlled Congress, under the Congres­sional Review Act. President Donald Trump signed the legislation, H.J. Res. 111 (115).

Adding concern is a recent push by the U.S. Chamber of Commerce and other affiliated groups to allow forced arbitration clauses. At a Heritage Foundation conference in July 2017, then Republican SEC Commissioner Michael Piwowar openly encouraged corporations to file registration statements containing class action waiver bylaws. In October 2017, the U.S. Treasury Department issued a position paper whereby it encouraged the SEC to change its policy regarding class action waivers. A few months ago, Republican Commissioner Hester Peirce answered “absolutely” to the question as to whether she believed such bylaws should be allowed.

The position today is that unless the cur­rent Chairman of the SEC, Jay Clayton, is convinced to maintain the status quo, the SEC can and will easily change its policy to allow class action waiver bylaws, which would doom investors’ rights to hold corporate wrongdoers accountable via securities class actions in the U.S.

Hear Us Roar:

To express concerns over a potential shift in policy, Pomerantz organized a coalition of large institutional investors from around the globe to meet with SEC Chairman Jay Clayton in D.C. on October 24, 2018. The key focus of this meeting was to attempt to persuade Chairman Clayton against the recent push by the U.S. Treasury Depart­ment and the Republican Commissioner of the SEC to allow for forced arbitration/class action waiv­er bylaws which could seriously undermine the future of defrauded investors.

Wanting to make sure all bases were covered, and after meeting with Chairman Clayton, Pomerantz and the team of institutional investors then met with a number of both Republican and Democratic Senate staffers. The purpose of the meetings was to encourage them, in particular Republican Senators, to write to Chairman Clayton cautioning against a shift in policy that would impose forced arbitration bylaws on investors.

Our Voices Were Heard:

On November 13, 2018 – two weeks after the SEC meetings – ten Republican State Treasurers, in a letter co-authored by the State Financial Officers Foundation, urged the SEC to maintain their existing stance against forced arbitration. In the letter, the State Financial Officers Foundation, which represents mostly conservative-lean­ing state treasurers, auditors and controllers, expressed “concerns about recent news reports that the SEC may change its long-standing position and allow public companies to include forced arbitration clauses in their corporate governance documents.” The letter went on to say that: “Allowing public companies to impose a private system of arbitration on investors “will eliminate the ability of all but the largest shareholders to seek recompense from criminals.” Republican Treasurers signing the November 13 letter represent Arizona, Arkansas, Idaho, Indiana, Kentucky, Louisiana, Maine, Nevada, South Carolina and Washington State. It is a significant and unusual step to have ten Republican Treasurers publicly take a position contrary to two Republican SEC Commissioners and the Treasury Department.

Pomerantz has been credited by the American Association for Justice for our dedication to this effort.

Jeremy Lieberman, Pomerantz’s Co-Managing Partner, said of the firm’s efforts on this matter: “Bringing a coalition of large institutional investors from around the globe to ex­press our concern to Chairman Clayton is an important step to ensuring the continued viability of shareholder litigation for institutional and retail investors. While we be­lieve that Chairman Clayton was receptive to our position, it is critical to continue a full court press to ensure that both Congress and policy makers understand the significance of this issue to the investor community.”

Looking Ahead:

Democrats remain concerned about mandatory arbitration and the issue is likely to get renewed attention when the party takes control of the House in January.

Rep. Carolyn Maloney of New York, currently the Dem­ocratic head of the House panel that oversees the SEC, said in April that “allowing companies to use forced arbi­tration clauses would devastate investor confidence in our markets.”

While the Republican letter to the SEC is a strong step for­ward, the institutional investor community should remain concerned about any SEC shift in policy. Pomerantz will continue to work proactively with the institutional investor community to prevent a policy change that would harm institutional investors.