Blawgletter®

Snappy and Bitey Ponder the Beauty of Credit Default Swaps

Scene: An office near Ground Zero. Way up high. Perhaps in 40 Wall Street. Which has that awesome Duane Reade store on the ground floor. Some place posh in the area no matter what.

Snappy: Did you know, Bitey, that people could insure themselves against risks they Do Not Have?

Bitey: When, in the course of human events, one people may dissolve the political bands which have connected them to another.

Snappy: Right. You value Freedom. Like contract-freedom, such as those dear oh-so-smart Justices who wrote about it in Lochner. True that!

Bitey: And to assume among the powers of the Earth the separate and equal station to which the laws of Nature and Nature's own God entitle them.

Snappy: Thank you for not leaving a preposition at the end of what you just said.

Bitey: A decent respect to the opinion of womankind requires them to declare the causes of the separation.

Snappy: You have once again made my point about gender-neutral stuff, Bitey! How I adore you.

Bitey: I mainly regret not knowing the rest. The we hold these truths self-evident part for some reason escapes me just now.

Snappy: Don't worry, Bitey-meister. Jamie Dimon sings those words better than you can think! He knows from truth, let me tell you, whose cogitation I value and fear above that of all others.

Bitey: What a dork. We all know that credit default swaps have both a good function (hedging risk for bets you've in fact made on, for instance, a real firm's actual bonds) and a nutty risky one (making crazy gambles on debt as to which you have no risk at all). Will Dimon at last confess that his bank deserves to forfeit any right to write credit default swaps? Because if he won't I'd like to beat the [unclear words here] him.

Snappy: Alrighty then, Bitey. You rock. Let's go see Wicked!

Fade to Snappy and Bitey riding a taxi towards Broadway. Not to see Spiderman. Something else for sure.

10-K OK in SEC Case for Backdate of Stock Options, per Ninth Circuit

We can all agree that granting people stock options that can't lose -- as Apple and lots of other (often high-tech) outfits did Not Long Ago -- at least feels wrong. But who knew that accounting for them in the wrong way could expose you to a suit by the Securities and Exchange Commission?

Blawgletter surely did not know. As far as you know. But surely the chief financial officer of a public company should have known that, right?

Likely.

Yet we want to tell you about something else. We desire to let you know that an Annual Report on Form 10-K, the Ninth Circuit held today, can come into evidence under the business records exception to the hearsay rule to help persuade a jury that, yes, you (as CFO) messed up in how you accounted for those stock options that your firm back-dated. Even though the 10-K came out long after you left. And in spite of the fact that the parts the SEC used against you dealt with the results of a series of judgments about pretty complex stuff (like generally-accepted accounting principles). Securities and Exchange Comm'n v. Jasper, No. 10-17064, slip op. 5159-64 (9th Cir. May 15, 2012).

Quote of the Day: Boyce F. Martin, Jr.

Note the dripping red wax on the seal.

All bourbon is whiskey, but not all whiskey is bourbon.

Maker's Mark Distillery, Inc. v. Diageo N. Am., Inc., No. 10-5508, slip op. 4 (6th Cir. May 9, 2012) (affirming verdict and judgment that dripping-wax red seal on tequila bottles infringed trademark for same on bottles of bourbon) (per Boyce F. Martin, Jr., J.).

Eleventh Circuit Goes En Banc on Pack of Hedge Funds

May a pack of hedge funds gang up on a borrower to stop pack members from cutting deals with the borrower to lighten its debt burden?

Of course they can (and would), you say. But would they thus run afoul of the Sherman Act? Did you think of that? Heard of section 1? Which bars contracts, combinations, and conspiracies to restrain trade? Huh?

If that notion failed to flit across the great swirling maelstrom of your ever-churning mind, don't feel lonesome. The Eleventh Circuit ruled that section 1 Did Not Apply to a boycott by a group of hedge funds, which owned debt of subprime lender CompuCredit. At least the panel felt that way last November.

But now the Whole Court will give it further thought. The order sets a briefing schedule and oral argument some time in the week of October 15, 2012.

Please do not confuse this CompuCredit case with this one in the U.S. Supreme Court from January 2012 or this other one in the Eleventh Circuit from April 2012.

False Claims Act Claim Against Harvard Gets New Chance

The First Circuit sits in Boston. Which when Blawgletter went to law school called itself "The Hub". As in "Hub of the Universe". Which we found charming. Also troubling.

True, though? Kinda.

Today the court that sits in the Hub held that a qui tam -- False Claims Act -- claim about Harvard Medical School and others should have gotten beyond a summary judgment motion. The panel said:

The dispute at the heart of this case is not about resolving which scientific protocol produces results that fall within an acceptable range of "accuracy." Nor is it about whether Killiany's re-measurements, the basis for the preliminary scientific conclusions reported in the Application, are "accurate" insofar as they fall within a range of results accepted by qualified experts. Rather, the essential dispute is about whether Killiany falsified scientific data by intentionally exaggerating the re-measurements of the EC to cause proof of a particular scientific hypothesis to emerge from the data, and whether statements made in the Application about having used blinded, reliable methods to produce those results were true. If the jury should find that statements in the Application are false, they must also determine whether those statements were material and whether the Defendants acted knowingly in violating the FCA.

Because we conclude that genuine issues of material fact remain on these central issues, we vacate the district court's order and remand for further proceedings consistent with this opinion. Costs are awarded to the appellant.

So ordered.

United States ex rel. Jones v. Brigham & Women's Hospital, No. 10-2301, slip op. 50-51 (1st Cir. May 7, 2012).