As one of the nation’s top securities law firms, Andrews Kurth regularly counsels public companies and their officers and directors on Securities and Exchange Commission and Self Regulatory Organization (SRO) compliance and enforcement issues. Our Corporate Compliance, Investigations and Defense (CCID) Team is experienced to help clients avoid regulatory and governance problems and defend them in enforcement inquiries, investigations, and litigation. We have the experience and skill to guide clients through the minefield of Sarbanes-Oxley Act requirements, heightened SEC and SRO scrutiny, and rampant shareholder litigation.

The SEC compliance and enforcement minefield

Today, more than ever, public companies need an inside view, which Andrews Kurth can provide, on the “how” and “why” of SEC and SRO enforcement as part of seasoned advice to deal with governance, fiduciary liability, and internal investigation concerns. Consider that:

• One of every seven securities issuers faced a class action lawsuit in the past five years
• The average settlement in 2005 was $28.5 million, up from $27.8 million in 2004. The median settlement also increased from 2004 to 2005, going from $6.3 million to $7.5 million in 2005
• The SEC filed approximately 975 enforcement actions in 2005 (up from nearly 700 enforcement actions in 2004, and in the past three years has barred more than 300 officers and directors due to allegations of individual malfeasance
• Amended filings for financial restatements of public companies due to accounting errors totaled 657 in 2005, a 58% percent increase from 2004
• There were 1228 CEO departures from U.S. companies in 2005, up 102% from 2004
• In 2005 there were 129 CEO changeovers in the Fortune 1000, up 32% from 2004 and equal to a 13% turnover

Sources: The International Risk Management Institute, Challenger, Gray & Christmas, SEC Director of Enforcement Stephen Cutler, U.S. General Accounting Office, Burson Marsteller and Weber Shandwick

A snapshot of the Andrews Kurth solution

Our approach is to provide an integrated and comprehensive solution that public companies need, especially in the Sarbanes-Oxley environment. The CCID team brings together more than 30 partners from across the firm, linking our corporate and securities lawyers and litigators (a number of whom are securities industry arbitrators). Heading the team is Spencer Barasch, who for the past seven years ran the SEC’s enforcement program in the Southwest and served as SEC liaison with US Attorney offices, the Department of Justice, self-regulatory organizations, other federal agencies, international securities agencies, and state regulators and prosecutors. Importantly, Spencer has considerable experience with the SEC since the passage of Sarbanes-Oxley.

There can be numerous benefits to this combination of experience and resources, including the following unique advantages:

• Decades of disclosure and compliance counsel to Fortune 500 companies, boards, special and audit committees, and officers
• An inside view of SEC enforcement, particularly involving interpretation of the Sarbanes-Oxley Act
• Proactive compliance advice to issuers and underwriters of IPOs or other securities offerings
• Seasoned insight on governance and fiduciary liability concerns
• Remedial help to craft practices and policies that enable companies to avoid shareholder litigation and SEC enforcement
• Confidential assistance with whistleblower, internal fraud, and misconduct investigations
• Skilled guidance in the event of SEC or SRO civil and administrative enforcement action
• Aggressive defense of shareholder class action and derivative litigation
• Representation of hedge fund managers, investment advisors, broker/dealers, and other financial professionals in NASD, stock exchange, and federal regulatory proceedings
• Effective arbitration of broker/dealer disputes involving shareholders and securities exchanges

Managing the disclosure process

Our lawyers strive to give clients practical guidance on their disclosure obligations to shareholders, exchanges (including the New York Stock Exchange and NASDAQ), industry associations like the National Association of Securities Dealers (NASD), stakeholders, and federal and state regulators under the federal securities laws and key statutes, such as the Sarbanes-Oxley Act. We know right questions to ask and right standards to follow when it comes to ensuring the accuracy of financial filings and disclosing material information. Our counsel experience includes these broad areas:

Disclosure

• Public reporting of financial results and executive compensation in compliance with rules and interpretations of the SEC and stock exchanges, standards for “fair presentation” of financial information, and CEO and CFO certifications of public filings with the SEC
• Guidelines to comply with Regulation FD in financial analyst communication, management discussion and analysis, and similar statements, taking into account recent SEC enforcement actions and penalties for violations of the rules against selective disclosure
• Specialized disclosure issues, such as insider trading, proxy statements, and communications distributed on Websites and the Internet

Internal Controls

• Disclosure of deficiencies, weaknesses and changes in internal financial reporting controls
• Implementing governance procedures that comply with Sarbanes-Oxley in the structuring of boards and their committees, development of effective charters and codes of ethics, and handling stockholder nominations and communications
• Developing internal controls to ensure compliance with the Foreign Corrupt Practices Act
• Designing effective procedures that enable attorneys practicing before the SEC to report credible evidence of securities violations and breach of fiduciary duty up the ladder to the chief legal officer, audit committee, and board of directors, and to confirm that their actions result in appropriate remedial measures
• Structuring internal compliance programs to ensure consistency with the amended federal sentencing guidelines

Fiduciary Responsibility

• Advice to individual officers and directors, as well as boards and special committees, on their fiduciary responsibilities in matters like takeover responses and personal conflicts of interest
• Indemnification of corporate officers and directors, as well as coverage and claims matters involving D&O insurance
• Due diligence for underwritten offerings and merger and acquisition transactions, encompassing governance, corporate compliance, and disclosure controls and procedures

Handling independent investigations

Andrews Kurth regularly represents companies and audit and other special committees of the board of directors in investigating disclosure and accounting concerns, alleged corporate or employee misconduct, and potential fraud, negligence, or breach of fiduciary duty. When clients call upon us to investigate actions that may violate the law or established corporate policies, our team endeavors to undertake a thorough, professional, and confidential study, and to focus on identifying problems, recommending how to resolve them, and helping ensure they do not happen again. The CCID team can help with these issues:

Whistleblower Claims

• Investigating allegations of improper conduct by employees or others
• Ensuring that companies do not run astray of the protections afforded whistleblowers due under the civil or criminal provisions of Sarbanes-Oxley or other applicable laws that prohibit retaliation
• Supporting the role of the company’s audit committee in the treatment of complaints regarding accounting and auditing

Financial Investigations

• Investigating allegations of improper smoothing or manipulation of financial reporting and the timing of when revenue is booked
• Handling legal and disclosure issues associated with financial restatements, including reviews of potential misstatements under SAB 99
• Representing public companies and their audit committees in connection with independent committee investigations of alleged accounting and auditing irregularities

Other Committee Inquiries

• Acting on behalf of special committees in connection with litigation, related party transactions, actual or potential conflicts of interest, and mergers and acquisitions
• Responding when reports from a public company’s auditors allege illegal acts, accounting or auditing irregularities, or unusual adjustments, or require changes in accounting principles or estimates

Defending securities litigation and enforcement actions

Our lawyers have extensive experience defending public companies, accounting firms, brokerage firms, investment advisors and companies, and individuals against allegations that they have violated the securities laws. Our lawyers regularly represent corporations, officers, directors, and other executives in SEC investigations, shareholder litigation, and NASD proceedings that encompass these wide-ranging concerns:

SEC Enforcement

• Response to and cooperation with SEC inquiries and investigations of allegations against companies, individuals, directors, officers, and auditors
• Advice to clients regarding government voluntary disclosure programs and proactive reporting of securities violation evidence in order to discourage formal enforcement action
• Development of effective corporate compliance programs that can prevent illegal conduct and lessen sanctions if misconduct is uncovered

Securities Litigation

• Defense of actions under federal and state securities laws, including class actions
• Advice to companies and their boards of directors regarding shareholder derivative lawsuits
• Arbitration and other alternative dispute resolution proceedings to settle alleged violations of securities laws

White-Collar Matters

• Investigating allegations or indications of possible criminal activity, including Foreign Corrupt Practices Act violations
• Representing companies in disclosure and reporting of improper foreign payments
• Applying insider trading rules, handling disclosure and providing defense in SEC enforcement actions, including the application of amended standards under Rule 10b5-1
• Representing and defending individuals and companies in connection with various other government investigations, civil enforcement actions and criminal indictments

Sarbanes-Oxley

• Investigating alleged violations of Sarbanes-Oxley, including conflicts of interest, prohibited loans to insiders, and other claims or indications of improper conduct
• Advising on how Sarbanes-Oxley affects the decision to maintain or waive legal privilege in SEC, Department of Justice and other government investigations
• Helping avoid violation of Sarbanes-Oxley rules that prohibit obstruction, document destruction, and retaliation against whistleblowers

Industry Self-Regulation Proceedings

• Representing broker/dealers in litigation and arbitration over customer disputes, securities clearing controversies, and employment matters
• Defending securities brokerage firms in connection with NASD investigations
• Acting for broker/dealers and individual brokers in proceedings before NASD and NYSE arbitration panels

Using straight talk to prevent and solve problems

In the Sarbanes-Oxley environment, government regulators and law enforcement officials are increasingly and more aggressively exercising their civil, criminal and administrative enforcement authority. Andrews Kurth knows that straight talk to corporate clients can avoid problems and prevent small issues from growing into large ones. We work fast and effectively behind the scenes to develop proper policies and procedures, make the right disclosures, investigate concerns, negotiate resolutions, and provide a vigorous defense when necessary. With extensive resources and our inside view into the SEC, our goal is to help lessen the risk that a subpoena or lawsuit will threaten your company.