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Regulation of Tumor Suppressor Gene CDKN2A and Encoded p16-INK4a Protein by Covalent Modifications by Yang Jiao; Yunpeng Feng; Xiuli Wang (1289-1298).
CDKN2A is one of the most studied tumor suppressor genes. It encodes the p16-INK4a protein that plays a critical role in the cell cycle progression, differentiation, senescence, and apoptosis. Mutations in CDKN2A or dysregulation of its functional activity are frequently associated with various types of human cancer. As a cyclin-dependent kinase inhibitor, p16-INK4a forms a complex with cyclin-dependent kinases 4/6 (CDK4/6) thereby competing with cyclin D. It is believed that the helix-turn-helix structures in the content of tandem ankyrin repeats in p16-INK4a are required for the protein interaction with CDK4. Until recently, the mechanisms considered to be involved in the regulation of p16-INK4a functions and cancer development have been mutations in DNA, homozygous or heterozygous gene loss, and methylation of CDKN2A promoter region. In this review, we discuss recent findings on the regulation of p16-INK4a by covalent modifications at both transcriptional and post-translational levels.
Regulation of Protein Synthesis in Inactivated Skeletal Muscle: Signal Inputs, Protein Kinase Cascades, and Ribosome Biogenesis by T. M. Mirzoev; B. S. Shenkman (1299-1317).
Disuse atrophy of skeletal muscles is characterized by a significant decrease in the mass and size of muscle fibers. Disuse atrophy develops as a result of prolonged reduction in the muscle functional activity caused by bed rest, limb immobilization, and real or simulated microgravity. Disuse atrophy is associated with the downregulation of protein biosynthesis and simultaneous activation of protein degradation. This review is focused on the key molecular mechanisms regulating the rate of protein synthesis in mammalian skeletal muscles during functional unloading.
Molecular Factors of the Maintenance and Activation of the Juvenile Phenotype of Cellular Sources for Eye Tissue Regeneration by E. N. Grigoryan (1318-1331).
Modern achievements in the understanding of tissue regeneration, identification of endogenous cell sources for regeneration, and development of approaches for induction and differentiation of pluripotent stem cells have open broad prospects for regenerative medicine. However, application of the obtained information in medicine is hindered by insufficient knowledge on the molecular factors and their combinations capable of regulating the age and fate of cellular sources for eye tissue reparation as well as on the regenerative responses of these cells. In the review, we present our own and literature data on cells serving as endogenous sources for eye tissue regeneration in lower and higher vertebrates and properties of gene expression that allow these cells to maintain their juvenile phenotype. Transcription factors and signal pathways providing cell juvenile status as well as cell reprogramming and entry into the S-phase are discussed. The role of systemic factors (blood and immune system factors, hormones, oxidative stress products, and cell rejuvenation factors) in these processes and their interaction with local factors of the cell environment are described. Molecular factors and conditions for induction of reprogramming and proliferation of cellular sources involved in regeneration in vitro are analyzed with special attention to the role of epigenetic factors (associated with cell senescence, in particular) in the source cells conversion during eye tissue regeneration.
Pseudogenes as Functionally Significant Elements of the Genome by T. F. Kovalenko; L. I. Patrushev (1332-1349).
Pseudogene is a gene copy that has lost its original function. For a long time, pseudogenes have been considered as “junk DNA” that inevitably arises as a result of ongoing evolutionary process. However, experimental data obtained during recent years indicate this understanding of the nature of pseudogenes is not entirely correct, and many pseudogenes perform important genetic functions. In the review, we have addressed classification of pseudogenes, methods of their detection in the genome, and the problem of their evolutionary conservatism and prevalence among species belonging to different taxonomic groups in the light of modern data. The mechanisms of gene expression regulation by pseudogenes and the role of pseudogenes in pathogenesis of various human diseases are discussed.
Vitamin D in Nature: A Product of Synthesis and/or Degradation of Cell Membrane Components by H. Göring (1350-1357).
The review discusses the data on vitamin D accumulation in animals, plants, and other organisms. 7-Dehydrocholesterol (7-DHC) and ergosterol are considered to be the only true precursors of vitamin D, although even vitamin D2 (ergocalciferol) is not fully comparable to vitamin D3 (cholecalciferol) in regard to their functions. These precursors are converted by UV radiation into the corresponding D vitamins. There are a few published reports that this reaction can also occur in the dark or under blue light, which is unexpected and requires explanation. Another unexpected result is conversion of pro-vitamins D (7-DHC and ergosterol) into vitamin D3 and D2 via pre-vitamin D at low temperatures (<16°C) in the lichen Cladonia rangiferina. An extensive survey of literature data leads to the conclusion that vitamin D is synthesized from (1) 7-DHC via lanosterol (D3) in land animals; (2) 7-DHC via cycloartenol (D3) in plants; (3) ergosterol via lanosterol (D2) in fungi; and (4) 7-DHC or ergosterol (D3 or D2) in algae. Vitamin D primarily accumulates in organisms, in which it acts as a pro-hormone, e.g., land animals. It can also be found as a degradation product in many other species, in which spontaneous conversion of some membrane sterols upon UV irradiation leads to the formation of vitamins D3 or D2, even if they are not necessarily needed by the organism. Such products accumulate due to the absence of metabolizing enzymes, e.g., in algae, fungi, or lichens. Other organisms (e.g., zooplankton and fish) receive vitamins D with food; in this case, vitamins D do not seem to carry out biological functions; they are not metabolized but stored in cells. A few exceptions were found: the rainbow trout and at least four plant species that accumulate active hormone calcitriol (but not vitamin D) in relatively high amounts. As a result, these plants are very toxic for grazing animals (cause enzootic calcinosis). In connection with the proposal of some scientists to produce large quantities of vitamin D with the help of plants, the accumulation of calcitriol in some plants is discussed.
Exogenous 3-Deoxyglucosone-Induced Carbonyl and Oxidative Stress Causes β-Cells Dysfunction by Impairing Gut Permeability in Rats by L. Zhou; X. D. Song; H. Xu; G. Q. Liang; F. Wang; L. R. Zhang; F. Huang; J. Cai; G. R. Jiang (1358-1368).
3-Deoxyglucosone (3DG) is a highly reactive dicarbonyl species, and its accumulation evokes carbonyl and oxidative stress. Our recent data reveal the role of 3DG as an independent factor for the development of prediabetes and suggest that intestine could be its novel target tissue. The present study investigated whether exogenous 3DG increases intestinal permeability by triggering carbonyl and oxidative stress, thus contributing to β-cell dysfunction. Rats were administered 3DG for two weeks by gastric gavage. Then levels of insulin, ROS, MDA, SOD, NLRP3, TNF-α and IL-1β in blood plasma as well as the ROS level and content of TNF-α and IL-1β in pancreas were assessed. Also, the expression of E-cadherin and ZO-1 as well as levels of 3DG, protein carbonylation, ROS, TNF-α and IL-1β in colon were determined. The 3DG-treated rats showed an elevation in systemic oxidative stress (ROS, MDA and SOD) and in inflammation (TNF-α and IL-1β), decreased plasma insulin level 15 min after the glucose load, and increased levels of TNF-α, IL-1β and ROS in pancreatic tissue. In colon tissues of the 3DG-treated rats, decreased E-cadherin expression and increased ROS production as well as an elevation of TNF-α and IL-1β levels were observed. Interestingly, elevation of colon protein carbonylation was observed in the 3DG-treated rats that displayed 3DG deposition in colon tissues. We revealed for the first time that 3DG deposition in colon triggers carbonyl and oxidative stress and, as a consequence, impairs gut permeability. The enhanced intestinal permeability caused by 3DG deposition in colon results in systemic and pancreatic oxidative stress and inflammatory process, contributing to the development of β-cell dysfunction.
Contribution of Eutrema salsugineum Cold Shock Domain Structure to the Interaction with RNA by V. V. Taranov; N. E. Zlobin; K. I. Evlakov; A. O. Shamustakimova; A. V. Babakov (1369-1379).
Plant cold shock domain proteins (CSDPs) are DNA/RNA-binding proteins. CSDPs contain the conserved cold shock domain (CSD) in the N-terminal part and a varying number of the CCHC-type zinc finger (ZnF) motifs alternating with glycine-rich regions in the C-terminus. CSDPs exhibit RNA chaperone and RNA-melting activities due to their non-specific interaction with RNA. At the same time, there are reasons to believe that CSDPs also interact with specific RNA targets. In the present study, we used three recombinant CSDPs from the saltwater cress plant (Eutrema salsugineum)-EsCSDP1, EsCSDP2, EsCSDP3 with 6, 2, and 7 ZnF motifs, respectively, and showed that their nonspecific interaction with RNA is determined by their C-terminal fragments. All three proteins exhibited high affinity to the single-stranded regions over four nucleotides long within RNA oligonucleotides. The presence of guanine in the single-or double-stranded regions was crucial for the interaction with CSDPs. Complementation test using E. coli BX04 cells lacking four cold shock protein genes (ΔcspA, ΔcspB, ΔcspE, ΔcspG) revealed that the specific binding of plant CSDPs with RNA is determined by CSD.
Lymphocyte Phosphatase-Associated Phosphoprotein Is a Substrate of Protein Kinase CK2 by T. D. Tsoy; N. A. Kruglova; A. V. Filatov (1380-1387).
Lymphocyte phosphatase-associated phosphoprotein (LPAP) is a molecular partner of CD45 phosphatase that plays a key role in the regulation of antigen-specific activation of lymphocytes. The functions of LPAP still remain unknown. We believe that studying LPAP phosphorylation pathways could shed light on its functions. In this work, we studied the phosphorylation of LPAP ectopically expressed in non-lymphoid cells in order to determine the effect of LPAP interaction partners on its phosphorylation. We found that phosphorylation at Ser153 and Ser163 in non-hematopoietic HEK293 cells was conserved, while phosphorylation at Ser99 and Ser172 was almost absent. The pattern of LPAP phosphorylation in K562 erythroid and U937 myeloid cells expressing endogenous CD45 protein was similar to that observed in T and B lymphocytes. We demonstrated for the first time that LPAP is a substrate for protein kinase CK2 that phosphorylates it at Ser153, presumably ensuring LPAP resistance to degradation.
Effect of Disulfide Bond Incorporation on the Structure and Activity of Endostatin Peptide by S. Ehtesham; R. Sariri; A. Eidi; S. Hosseinkhani (1388-1398).
The structure and function of a 27-a.a. fragment of the N-terminal sequence of human endostatin (ES-Zn) were compared to those of the mutant peptide (ES-SSZn) obtained by adding Cys-Pro-Ala to the endostatin N-terminus and substituting Asn16 for Cys ensuring formation of a disulfide bond. Structural comparison of ES-Zn and ES-SSZn by far-UV circular dichroism (CD), intrinsic fluorescence, and molecular dynamics simulation methods revealed significant structural perturbations in ES-SSZn, such as elimination of the β-sheet conformer, modification of the N-terminal loop structure, and reorganization of dynamic properties of the entire peptide backbone. ES-SSZn was approximately 2 and 3 times less efficient than ES-Zn and the full-length human endostatin, respectively, in the induction of caspase-3-dependent apoptosis in human umbilical vein endothelial cells (HUVECs) in vitro (p < 0.05). In contrast, treatment of metastatic 4T1 breast tumors in mice with ES-Zn and ES-SSZn (5 mg/kg body weight daily) for 14 days resulted in similar regression of tumor size, comparable downregulation of angiogenesis (CD31 and CD34) and cell proliferation (Ki67), and therefore, the same extent of apoptosis induction (TUNEL, p53, and Bcl-2) for both peptides (as compared to the untreated controls). Western blot analysis of HUVEC and 4T1 tumor lysates revealed the same levels of suppression of key signaling mediators Akt and ERK1/2 by ES-Zn and ES-SSZn. Contrary to the earlier studies, our results showed that the function of the 1-27 endo-statin fragment is independent of its overall structure. Stabilization of the N-terminal loop structure by the disulfide bond incorporation causes relief from structural deviations.
Comprehensive Analysis of Carbohydrate-Active Enzymes from the Filamentous Fungus Scytalidium candidum 3C by I. Yu. Pavlov; E. V. Eneyskaya; K. S. Bobrov; D. E. Polev; D. R. Ivanen; A. T. Kopylov; S. N. Naryzhny; A. A. Kulminskaya (1399-1410).
Complete enzymatic degradation of plant polysaccharides is a result of combined action of various carbohydrate-active enzymes (CAZymes). In this paper, we demonstrate the potential of the filamentous fungus Scytalidium candidum 3C for processing of plant biomass. Structural annotation of the improved assembly of S. candidum 3C genome and functional annotation of CAZymes revealed putative gene sequences encoding such proteins. A total of 190 CAZyme-encoding genes were identified, including 104 glycoside hydrolases, 52 glycosyltransferases, 28 oxidative enzymes, and 6 carbohydrate esterases. In addition, 14 carbohydrate-binding modules were found. Glycoside hydrolases secreted during the growth of S. candidum 3C in three media were analyzed with a variety of substrates. Mass spectrometry analysis of the fungal culture liquid revealed the presence of peptides identical to 36 glycoside hydrolases, three proteins without known enzymatic function belonging to the same group of families, and 11 oxidative enzymes. The activity of endohemicellulases was determined using specially synthesized substrates in which the glycosidic bond between monosaccharide residues was replaced by a thiolinkage. During analysis of the CAZyme profile of S. candidum 3C, four β-xylanases from the GH10 family and two β-glucanases from the GH7 and GH55 families were detected, partially purified, and identified.
Aggregation of Influenza A Virus Nuclear Export Protein by A. O. Golovko; O. N. Koroleva; A. P. Tolstova; N. V. Kuz’mina; E. V. Dubrovin; V. L. Drutsa (1411-1421).
Influenza A virus nuclear export protein (NEP) plays an important role in the viral life cycle. Recombinant NEP proteins containing (His)6-tag at either N-or C-terminus were obtained by heterologous expression in Escherichia coli cells and their high propensity for aggregation was demonstrated. Dynamic light scattering technique was used to study the kinetics and properties of NEP aggregation in solutions under different conditions (pH, ionic strength, presence of low-molecular-weight additives and organic solvents). Using atomic force microscopy, the predominance of spherical aggregates in all examined NEP preparations was shown, with some amyloid-like structures being observed in the case of NEP-C protein. A number of structure prediction programs were used to identify aggregation-prone regions in the NEP structure. All-atom molecular dynamics simulations indicate a high rate of NEP molecule aggregation and reveal the regions preferentially involved in the intermolecular contacts that are located at the edges of the rod-like protein molecule. Our results suggest that NEP aggregation is determined by different types of interactions and represents an intrinsic property of the protein that appears to be necessary for its functioning in vivo.
Erratum to: Structural Relationships Between Genetically Closely Related O-Antigens of Escherichia coli and Shigella spp. by Y. A. Knirel; Chengqian Qian; A. S. Shashkov; O. V. Sizova; E. L. Zdorovenko; O. I. Naumenko; S. N. Senchenkova; A. V. Perepelov; Bin Liu (1422-1423).
Errors have been found in polysaccharide structures on pages 603 (Fig. 3), 606 (Figs. 13-15) and 607 (Fig. 17). The following are the correct structures.
Cysmotif Searcher Pipeline for Antimicrobial Peptide Identification in Plant Transcriptomes by A. A. Shelenkov; A. A. Slavokhotova; T. I. Odintsova (1424-1432).
In this paper, we present the new Cysmotif searcher pipeline for identification of various antimicrobial peptides (AMPs), the most important components of innate immunity, in plant transcriptomes. Cysmotif searcher reveals and classifies short cysteine-rich amino acid sequences containing an open reading frame and a signal peptide cleavage site. Due to the combination of various search methods, Cysmotif searcher allows to obtain the most complete repertoire of AMPs for one or more transcriptomes in a short amount of time. The pipeline performance is estimated on the model plant Arabidopsis thaliana and nine other plants, including cultivated and wild species. The obtained results are compared to the existing annotation (A. thaliana) and results of conventional homology search (other plants). The comparison is carried out for known families of plant AMPs and newly discovered peptides that could not be assigned to existing families. The applicability of Cysmotif searcher in detecting new AMPs is discussed, and some practical recommendations on the pipeline usage for end users are given. The Cysmotif searcher pipeline is free for academic use and can be downloaded from Github ( https://doi.org/github.com/fallandar/cysmotifsearcher).

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A recurring problem for criminal defense lawyers is presented by the DUI client with a prior conviction for the same offense. The prior often creates enhancement problems for the subsequent charge for which the client seeks representation. The problem can manifest itself in several ways.
Consider someone who is arrested for DUI in 1974. Informed at the arraignment that a guilty plea will result in a fine and a suspended sentence, he might well have decided to plead guilty, thus terminating an embarrassing and troublesome procedure. If he does so, that plea is likely entered without any understanding of the rights that are being waived, or whether the state had a case that it could possibly win at trial.
If the same person is again arrested for DUI in 1994 and retains you as defense counsel, your job is considerablly complicated by the 20 year old plea. For example, if the client pleads to the 1994 offense, the 1974 conviction will render him ineligible for a hardship license during the 6-12 month driver’s license suspension period which will be invoked. This will transpire automatically by action of the Department of Motor Vehicles; the judge has no discretion in the matter. The loss of driving prvileges is an extremely iimportant matter, whatever your client’s vocation. It can cripple the lifestyle of a retired librarian; it can economically devastate and insurance salesman. Also, many judges impose more severe penalties for a second offense even if the earlier conviction is 15 or 20 years old.
Another common occurence is a client that comes to your office with one or two prior DUI’s within the last 5 to 10 years and is now facing extremely harsh punishment because the sentencing judge is going to give a great deal of weight to those prior convictions. Typically, the first conviction was entered after the defendant pleaded guilty at first appearance or arraignment without he assistance of counsel and with little or no understanding of the consequesnces of the conviction he or she was about to receive. Judges typically do not inquire into the factual basis for the plea on a first DUI, and if they do so, it is a cursory examination at best. Even the defendant who believes he is not guilty and in fact, had a blood alcohol level below the legal limit may plead guilty just to “get it over with”.
Frequently a judge on a second or third DUI (or a first DUI with a BAC over .20) will ignor the precepts of the Hlad decision 585 So. 2d 928 (Fla. 1991)(an attorney must be appointed whenever the indigent defendant is facing a possible jail sentence of more than 6 months) and accept a plea without appointing counsel for the accused or obtaining a valid waiver of counsel. It is typical for the presiding judge to dispense with a point by point review of the requirements of Fla. R. of Crim. P. 3.172 and simply impose a sentence and move on. The defendant is usually happy because he is out of jail. It is only 5, 10 or 20 years later that he realizes the impact of this uniformed decision.
These are a few examples of the myriad of ways in which a prior DUI arrest and conviction, which seemed fairly easy to resolve at the time it occured, can come back to haunt a client who is charged with the offense in this day when it is the subject of heightened concern.
We have witnessed major changes in sentencing in the last several years, and an important part of those changes consists of imposing enhanced penalties for repeat offenders. We see it in state and federal drug offense penalties, in the fashionable “three striles and you’re out” provisions now being promulgated, and we see it all over the country in DUI/DWI sentencing. Of all the criminal laws which are likely to have an effect on the “everyday” citizen, DUI ranks at the top.
In response to the exposure which modern sentencing procedures entail, defense attorneys have become keenly interested in collaterally attacking or otherwise diminishing the impact of prior convictions. The common law writ of coram nobis is one vehicle which has proven to be very successful in this regard, and it will comprise the major topic of this presentation. Other avenues of relief include a motion to vacate a prior conviction for sentencing purposes only.
When a defendant is not actually serving a sentence for the conviction he/she wants to challenge, a petition for writ of error coram nobis, addressed to the court of original jurisdiction, is a proper vehicle for collateral attack. For the incarcerated Florida inmate sentenced under state law, filing a motion for post-conviction relief based on Florida Rule of Criminal Procedure 3.850 is the correct procedure. Rule 3.800 covers the reduction and modification of sentences, and Rule 3.851 governs collateral relief in cases where the death sentence is imposed. A sample petition for writ of error coram nobis and supporting memorandum of law is included at the end of these materials.
In modern practice, the petition is normally addressed to the court of original jurisdiction. State v. Woods, 400 So.2d 456, 457 (Fla. 1981). It must allege a factual error as opposed to an error of law. In the language of one of the older cases on which modern use of the writ is predicated, it provides post judgement relief where by “strong and convincing proof” it can be shown that the trial result was based on a mistake of fact, unknown to the court, parties and counsel. The mistake has to be so serious that, had it been known at the time of judgement, it would have precluded entry of the judgement. Russ v. State, 95 So.2d 594 (Fla. 1957). Older decisions also state that the mistakes of fact on which the writ is predicated is a mistake which is not the fault of the court’s and which inheres in the judgement. Pike v. State, 139 So. 196 (Fla. 1931).
Coram nobis is an old procedure which is available in modern courts for criminal defendants who are not in custody for the conviction under challenge. The way in which DUI defendants are administered through the criminal justice system makes coram nobis especially helpful to many of them.
Boykin v. Alabama, 395 US 238 (1969), is seen as the foundation on which coram nobis principles and standards stand, and understandably so. Two earlier cases, Jackson v. Denno, 378 US 368 (1964), and Carnley v. Cochran, 369 US 506 (1962), are important, Jackson for its concern with a “reliable determination of the voluntariness issue” in confessions cases and Carnley for requiring an affirmative showing that an offer of counsel was knowingly and intelligently refused in waiver of counsel cases. Other pre-Boykin decisions discussed in the guarantee against self-incrimination, the right to jury trial and the right to confront one’s accuser. Boykin brought all these principles together in one Supreme Court decision.
It is often the case that prior DUI pleas were entered without the advice of counsel. In general, the strength of a right to counsel claim is conditioned on whether a term of incarceration in excess of 6 months is potentially or actually imposed. Leading opinions which develop the issues are Hlad v. State, 585 So.2d 928 (Fla. 1991) and Baldasar v. Illinois, 446 US 222 (1979), which are discussed below.
The importance of all this for coram norbis purposes is that the client with a dated plea-based conviction waived the very rights addressed in these opinions, culminating in Boykin. Citing the cases is an effective tactic for persuading a trial judge that the circumstances of the waiver, which probably took place, after all, at a time when pleading to DUI was a much less serious matter than it is today, do not comport with United States Supreme Court standards. Guilty pleas are entered in Florida in accordance with Fla. R. Crim. P. 3.172 which thoroughly catalogs the rights being waived but the circumstances surrounding the plea may render the a rote recitation of or acquiescence in the language of that rule ineffective.
The DWLSR statute provides for felony enhancement upon a third conviction for DWLSR. It is often the case that the prior convictions which are used for enhancement purposes are often 10 to 20 years old. More often than not, these older convictions may have been entered into as a result of a plea without the assistance of counsel. As a result, a defendant may not have understood the rights they were waiving or the ramifications of entering their plea. A plea collquy, if it existed at all, may have only been a brief recitation of some of the essential requirements of Fla. R. of Crim. P. 3.172. The prior DWLSR conviction that seemed fairly easy to resolve at the time it occured may now come back to haunt a client who is again charged with the offense and now subject to felony enhancement.
A writ of error coram nobis used to be a useful vehicle for setting aside prior convictions. When a defendant was not actually serving a sentence for the conviction the defendant wanted to challenge, a petition for writ of error coram nobis addressed to the court of original jurisdiction was a proper vehicle for collateral attack. For the incarcerated Florida inmate senteced under state law, filing a motion for post-conviction relief based on Florida Rule of Criminal Procedure 3.850 was the correct procedure.
That all changed with the Florida Supreme Court’s decision in Wood v. State, 24 F.L.W. S240 (Supreme Court, May 27, 1999). Prior to the Wood decision there was a split of opinion between judicial circuits as to whether the two year time limit in rule 3.850 also applied to coram nobis petitions. See Wood v. State, 698 So.2d 293 (Fla. 1st DCA 1997); Malcolm v. State, 605 So. 2d 945 (Fla. 3d DCA 1992). The split of opinion was based on the First District Court of Appeals’ opinion that a coram nobis petition was essentially the same as a 3.850 motion and was therefore subject to the same time limitations.
The supreme Court had previously held the Rule 3.850 was patterned after the writ of error coram nobis and largely supplanted the writ for criminal defendants in custody. Richardson v. State, 546 So. 2d 1037, 1038-39. The evidence for this assertion was apparently found in rule 3.850’s genetic progeny, Title 28, section 2255 of the United States Code. Title 28, section 2255, on which rule 3.850 was based, contains a cryptic reviser’s note that indicates the federal section “restates, clarifies, and amplifies the procedure in the nature of the ancient writ of error coram nobis.” Based on the revisor’s note, the court held that the only viable use for the writ of error coram nobis was for petitioners who were not in custody, and therefore could not seek relief under rule 3.850. Id.
Because of the Richardson ruling, the First Circuit also held that the only continuing application for the writ of error coram nobis is the situation where the petitioner would have a viable claim under rule 3.850, but for the “in custody” requirement. Wood, 689 So. 2d at 293-94. Therefore, the two year time limit of 3.850 applied.
As mentioned above, the Supreme Court agreed with the First District’s analysis and ruled that the two-year time limit was applicable to writs of error coram nobis. The Supreme Court’s main motivation in applying the time limit seemed to be a desire to prevent circumvention of rule 3.850 through coram nobis. Wood 24 F.L.W. S240. The Supreme Court also held that a petitioner for a writ of error coram nobis will still have to show that they could not have discovered the alleged facts by the use of due diligence, and that the relief sought through the writ of error is not a time-barred post-conviction remedy. Id.
The Supreme Court went on to hold that Wood’s petition was not time-barred under the two year limitation, as the time limitation had just been imposed by the court. Id. The court may also have been concerned that Wood was never actually in custody and therefore never had the opportunity to seek relief under rule 3.850. Id. (J. Wells, concurring). The court also held that all defendants adjudicated prior to May 27, 1999 would have two years to file claims traditionally cognizable under coram nobis. Id. The court made no mention of whether laches could still bar a coram nobis petition.
By extending rule 3.850 relief to noncustodial claimants, we do not narrow in any way the relief hertofore available to defendants under coram nobis. All claims cognizable under the writ are now available to noncustodial movants under the rule. Id. The effective date of the rule change was May 27, 1999, the date of the order. Id. The court ordered that it’s revisions be published in the Florida Bar News, and that the rule be reviewed for comment, but this portion of the ruling has little realistic effect, as the court ordered that the amended rule 3.850 become effective immediately, irrespective of motions for rehearing in the substantive case. Id.
Since the Supreme Court’s ruling in Wood, at least one court has allowed a previously time-barred petition for writ of error coram nobis to proceed. Kalici v. State, 24 FLW D1714 (Fla. 4th DCA 1999). This writ was filed prior to the Supreme Court’s decision in Wood. See also McHugh v. State, 24 FLW Supp. D1606a (19th Jud. Cir., July 7, 1999).
The Supreme Court’s language in Wood seems to indicate that the writ of error coram nobis is no longer available as a remedy, unless the writ was actually filed prior to May 27, 1999. First, the Supreme Court amended rule 3.850, noting that “all claims cognizable under the writ are now available to noncustodial movants under the rule.” Wood, 24 FLW at S241. This eliminates the need for a writ of error coram nobis, since the court previously held in Richardson that the writ’s only purpose was to provide rule 3.850 – style relief to noncustodial movants. That need is obviated by the amendment. Further, the court does not indicate that coram nobis petitions are available for the next two years; rather, it ruled that “defendants…shall have two years from the filing date within which to file claims traditionally cognizable under coram nobis” Id. (emphasis added). Note that the court does not specifically say “within which to file a writ of coram nobis”. The language of the ruling seems to indicate that these claims can be filed under a rule 3.850 motion, noting Wood’s specific waiver of the traditional two-year time limitation. The only use for an actual petition for writ of error coram nobis after Wood is to revive a previously filed writ that was denied on the basis of the two-year time bar.
As a footnote, there remain two lingering questions. The first is whether laches still applies as a defense for the state. Although Wood addresses “due diligence,” it does not mention equitable defenses. However, the defense of laches is probably still available to the state, as post conviction motions may generally be barred by laches. Smith v. State, 506 So.2d 69 (Fla. 1st DCA 1987). Laches is an affirmative defense (discussed in more detail below) incorporating an equitable principle, which must be pleaded and proven by the state if they assert it. To claim laches, the state must show a delay by the person asserting a legal right and resultant injury or prejudice by reason of the delay, or a change in position or condition which renders it inequitable to enforce the legal right. Hoffman v. Foley, 541 So. 2d 145, 146 (Fla. 1st DCA 1989). In Smith showing that during the ten years it took the prisoner to bring his claim the state had destroyed the relevant files, resulting in prejudices to the state’s ability to defend the propriety of the conviction.
The second question is whether the Supreme Court’s action in Wood is legal. The Court took the specific step of declaring that “all claims cognizable under the writ are now available under [rule 3.850],” thereby avoiding the assertion that they were retroactively limiting Woods’ constitutional rights. However, the Court did not follow the circumscribed procedure for amending criminal rules. Instead, it put the cart before the horse, amending the rule and then making it available for committee review and comment. However, given the Supreme Court’s seemingly unfettered rule making authority, this is probably not a major issue. In sum, it seems as if coram nobis is dead, at least in the form of the ancient writ. Currently, all coram nobis petitions must be brought under rule 3.850, Fla. R. Crim. P., the only caveat being that the two year time limit is extended to May 27, 2001 for petitioners sentenced prior to May 27, 1999.
A petitioner for coram nobis relief should always allege prejudice, and you must be prepared to argue actual prejudice on behalf of your client. There are any number of ways in which a defendant can argue prejudice. A lack of counsel may have led to pleading to a winnable case. Having an attorney does not in itself preclude an ill-informed plea. Bad advice from counsel may also result in pleading to a winnable case, and that is prejudical. Pleas accepted under Rule 3.172, requires the trial judge to ensure that the rights which are being waived by the defendant are fully understood. The judge is also required to explain the consequences of waiving those rights. Waiving ones rights unknowingly, then suffering the unanticipated consequences is arguable prejudicial. See Koenig v. State, 597 So. 256 (Fla. 1992). Often clients pleaded to DUI when it was treated almost as a mere traffic ticket had no idea that there might be dire sentencing consequences later if a second DUI were charged. The question arises whether prejudice arises at the time the original unintelligent, involutary plea is entered or only later when its consequences make themselves at a time when a subsequent charge is leveled. The language of Boykin seems to indicate that entering a plea in violation of a defendant’s rights is in itself prejudicial. Prosecutors argue otherwise, as would be expected.
Regarding the distinction between counselled and uncounselled pleas, which deserves a presentation all its own, the following remarks are intended as a synopsis. In uncounselled plea cases, the threshold concerns of Boykin should be stressed. If a basic constitutional right is relinquished unknowingly of involuntarily by an unrepresented client, the language in Boykin suggests that the defendant was prejudicated thereby and coram nobis relief should be available.
If the defendant was represented, another line of cases must be addressed. In Baldasar v. Illinios, 446 US 222 (1979), the United States Court accepted Justice Balckmun’s “bright line” approach which holds that for constitutional purposes, a criminal defendant is automatically entitiled to an attorney only where the offense involved an offense which subjects the defendant to 6 months or more potential jail time, or to some actual jail time. The Florida Supreme Court adopted this view in Hlad v. State 585 So.2d 928 (Fla. 1991). In a later first degree murder case mentioned above, Koenig v. State 597 So.2d 256 (Fla. 1992), the Florida Supreme Court ruled that even where counsel is present and the client signed an acknowledgment of rights form it is up to the judge to ascertain that the requirements of knowing and voluntary plea under Rule 3.172 are met. It is always worth arguing that whatever potential of actual sentence was involved in the prior conviction, and whether or not the defendant was represented, the requirements of Rule 3.172 must be complied with or a valid conviction. See Dugart v. State, 578 So.2d 789 (Fla. 4th DCA 1991).
This principle was underscored in Williams v. State, 316 So.2d 267 (Fla. 1975). The Williams court affirmed a Second District decision that where a trial court failed to determine a factual basis for a guilty plea under the predecessor of Rule 3.172, the failure did not warrant reversal and a vacation of the plea absent a showing of prejudice by the defendant. The Williams Court relied for its holding on Richardson, and on its approval of ABA Standard 2.1 which stated: “The court should allow the defendant to withdraw his plea of guilty or nolo contendere whenever the defendant, upon a timely motion for withdrawal, proves that withdrawal is necessary to correct a manifest injustice.” 316 So.2d 273. Also see Fuller v. State, 578 So.2d 887 (Fla 1st DCA 1991) (failure to comply with oral sentencing colloquy under Rule 3.172 does not warrant reversal “in absence of” an allegation of prejudice of manifest injustice), quashed on other grounds, 595 20 So. 2d 20 (Fla. 1992).
In a footnote, the Williams Court distinguished two opinions which may be cited for the proposition that an honest misunderstanding contaminating the voluntariness of the plea is sufficient to render it defective. Costello v. State, 260 So.2d 198 (Fla. 1972); Brown v. State, 245 So.2d 41 (Fla. 1971) 316 So. 2d 267, 274 n. 7.
The requirement that the time between judgement and filing the petition must be reasonable under the circumstances suggests that the state will ordinarily claim laches in a case involving considerable delay. Laches is an affirmative defense incorporating an equitable principle. An affirmative defense must be pled and proven, and an equitable principle like laches requires a showing of delay by the person asserting a legal right and resultant injury or prejudice by reason of the delay, or a change in position or condition which renders it inequitable to enforce the legal right. Hoffman v. Foley, 541 So.2d 145, 146 (Fla. 1st DCA 1989). In Smith v. State, 506 So.2d 69 (Fla. 1st DCA 1987), an incarcerated defendant was denied post-conviction relief. The state prevailed on its laches claim by showing that during the ten years it took the prisoner to bring his claim, the state had destroyed the relevant files, resulting in prejudice to its ability to defent the propriety of the conviction. If the state’s witnesses for the original proceeding are still available, and you can demonstrate that to the court, it will undercut the state’s claim of prejudice. See also Gregersen v. State, 714 So.2d 1195 (Fla. 4th DCA 1998).
In Fox v. Kelso, 911 F.2d 563 (11th Cir. 1990), the Court held that once a Georgia DUI defendant challenged a guilty plea by way of a habeas corpus and passes the Boykin threshold of noncompliance, the state assumed the burden of demonstrating that the plea meets constitutional standards. Once the defendant denied that he had entered a pleas of guilty to the misdemeanors and by stated that he had not known what he was signing (or that the signatures were not his), the defendant placed the question of whether his plea was obtained constitutionally at issue. The state in Fox based a laches defense on the contention that it had been prejudiced by the passage 10 years between the judgement and the habeas petition. The court seemed to treat the prejudice claim as being superseded by the state’s burden to show by clear and convincing evidence that the plea was intelligent and voluntary, a burden which was placed on the state once the threshold Boykin criteria had been met.
In addition, the Eleventh Circuit also tendered an opinion which dramatically underscores the requirement that a plea be truly knowing and voluntary. In Tower v. Phillips, 979 F.2d 807, 815 (11th Cir. 1992) the court stated: In order for Tower’s pleas to have been knowing and voluntary, he must have been reasonably informed of the nature of the charges against him, the factual basis underlying those charges, and the legal options and alternatives that are available. LoConte, 847 F2d at 751. Courts look at the totality of information held by the defendant at the time he makes his plea, and not merely the information communicated at the plea hearing, to determine if the defendant was adequately informed to make a knowing and voluntary plea. Therefore, the fact that the trial court properly conducted the plea hearing does not guarantee that the plea is consititutionally valid.
Countering the inertia which prevents courts in general from being enthusiastic about entertaining challenges the past results of procedures still being used, is a trend in which state and federal judges treat coram nobis petitions “liberally,” that is, in such a way as to undo apparent injustice. In Malcomb v. State, 605 So.2d 945 (Fla. 3d DCA 1992), the petitioner had been convicted but his conviction had been reversed.
Nonetheless, he was subsequently convicted of possession of a firearm by a convicted felon. The later conviction was based on an error of fact, as is required for coram nobis relief. According to the classic formulation of State v. Woods, 400 So.2d 456, 457 (Fla. 1981), however, post-conviction relief should not be accorded because the error would have been discovered by Mr. Malcomb’s former attorney had due diligence been exercised. The Third DCA decided that the standard could properly be relaxed. “(W)e believe the interests of justice require us to relax this requirement so that the conviction of an innocent man may be corrected… (I)t is better to bend a rule of procedure than to use the rule to convict an innocent person.” 605 So.2d 945, 947-948.

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Back when the Cold War was still perking along, Ronald Reagan wanted to support the Contras fighting the Marxist Sandanista dictatorship in Nicaragua. The Democrats in Congress passed something called the Boland Amendment, which barred the administration from providing support for the Contras using any ''funds available to ... any ... agency or entity of the United States involved in intelligence activities.'' (Why?) The Iran-Contra scandal grew out of an administration attempt to end run the Boland Amendment.
... the President - if his latest ''recollections'' are accepted - either encouraged entities involved in intelligence to circumvent the amendment or, at the very least, did not ''take Care that the Laws be faithfully executed'' by such entities, as Article II, Section 3 of the Constitution requires.
Therein lies what appears to be the most serious breach of duty by the President - a breach that may well entail an impeachable abuse of power, however politically unlikely impeachment of this affable officeholder may be.
The Constitution is, after all, indifferent to popularity and blind to personality. Yet, stripped of its technical camouflage the latest White House position ultimately reduces to the claim that this President, being somehow outside the Government, is above the law.
Our entire constitutional system -not to mention common sense -rebels at any such notion.
The White House would forge ahead with military action in Libya even if Congress passed a resolution constraining the mission, Secretary of State Hillary Clinton said during a classified briefing to House members Wednesday afternoon. ... The answer surprised many in the room because Clinton plainly admitted the administration would ignore any and all attempts by Congress to shackle President Obama's power as commander in chief to make military and wartime decisions.
Isn't that the precise claim that, if acted upon, Tribe thought was an impeachable offense on Reagan's part? If Congress passed a Boland amendment type law with application to Libya, and Obama really had the stones to defy it, would Tribe call for his impeachment?
Under the "traditional" or "classical theory" of insider trading liability, §10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a "deceptive device" under §10(b), we have affirmed, because "a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation." Chiarella v. United States, 445 U.S. 222, 228 (1980). That relationship, we recognized, "gives rise to a duty to disclose [or to abstain from trading] because of the `necessity of preventing a corporate insider from . . . tak[ing] unfair advantage of . . . uninformed . . . stockholders.' " Id., at 228-229 (citation omitted). The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation. See Dirks v. SEC, 463 U.S. 646, 655, n. 14 (1983).
The "misappropriation theory" holds that a person commits fraud "in connection with" a securities transaction, and thereby violates §10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information. See Brief for United States 14. Under this theory, a fiduciary's undisclosed, self serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company's stock, the misappropriation theory premises liability on a fiduciary turned trader's deception of those who entrusted him with access to confidential information.
The two theories are complementary, each addressing efforts to capitalize on nonpublic information through the purchase or sale of securities. The classical theory targets a corporate insider's breach of duty to shareholders with whom the insider transacts; the misappropriation theory outlaws trading on the basis of nonpublic information by a corporate "outsider" in breach of a duty owed not to a trading party, but to the source of the information. The misappropriation theory is thus designed to "protec[t] the integrity of the securities markets against abuses by `outsiders' to a corporation who have access to confidential information that will affect th[e] corporation's security price when revealed, but who owe no fiduciary or other duty to that corporation's shareholders." Ibid.
A newer view of insider trading, the "misappropriation theory" is now part of US law. It states that anyone who misappropriates (steals) information from their employer and trades on that information in any stock (not just the employer's stock) is guilty of insider trading.
For example, if a journalist who worked for Company B learned about the takeover of Company A while performing his work duties, and bought stock in Company A, illegal insider trading might still have occurred. Even though the journalist did not violate a fiduciary duty to Company A's shareholders, he might have violated a fiduciary duty to Company B's shareholders (assuming the newspaper had a policy of not allowing reporters to trade on stories they were covering).
Let's start with the claim that liability arises where on "steals" information. As defined by the Court In O'Hagan, however, the misappropriation theory does not deal with theft of inside information--or, at least, not directly--but rather holds that a fiduciary's undisclosed use of information belonging to his principal, without disclosure of such use to the principal, for personal gain constitutes fraud in connection with the purchase or sale of a security and thus violates Rule 10b-5. Instead of basing liability on stealing information, the Court based the theory on “a fiduciary’s undisclosed, self serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality."
I'm being a stickler here because this is a longstanding sore point. I have long argued that the only coherent basis for imposing insider trading liability is protection of property rights in information. From a policy perspective, those who steal information ought to be liable for insider trading. The trouble is that O’Hagan cannot be read to permit imposition of liability on such persons.
On to the next problem with the Wikipedia entry. The entry claims that the journalist in the hypothetical "might have violated a fiduciary duty to Company B's shareholders (assuming the newspaper had a policy of not allowing reporters to trade on stories they were covering)." Wrong. The journalist is an agent of the newspaper and owes the newspaper fiduciary duties regardless of whether or not the company has an explicit policy. Put another way, the journalist's relevant duties arise out of the employment relationship not a policy in the employee handbook.
What would happen if the newspaper had an explicit policy of allowing journalists to trade on the basis of such information? I discuss that here.
One thing the entry does get right is that "the journalist did not violate a fiduciary duty to Company A's shareholders."
The misappropriation theory's origins are commonly traced to Chief Justice Burger's Chiarella dissent. Burger contended that the way in which the inside trader acquires the nonpublic information on which he trades could itself be a material circumstance that must be disclosed to the market before trading. Accordingly, he argued, "a person who has misappropriated nonpublic information has an absolute duty [to the persons with whom he trades] to disclose that information or to refrain from trading."
In O’Hagan, the court’s majority opinion grounded liability under the misappropriation theory on deception of the source of the information. As the majority interpreted the theory, it addresses the use of "confidential information for securities trading purposes, in breach of a duty owed to the source of the information." Under this theory, the majority explained, "a fiduciary's undisclosed, self-serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information." So defined, the majority held, the misappropriation theory satisfies § 10(b)'s requirement that there be a "deceptive device or contrivance" used "in connection with" a securities transaction.
The Supreme Court thus expressly declined to embrace Chief Justice Burger's argument in Chiarella that the misappropriation theory created a disclosure obligation running to those with whom the misappropriator trades. Instead, it is the failure to disclose one's intentions to the source of the information that constitutes the requisite disclosure violation under the O'Hagan version of the misappropriation theory.
Sokol's trades: Did he have material information?
1. December 14: Sokol purchased 2,300 shares of Lubrizol.
2. December 21: Sokol sold those 2,300 shares.
3. January 5, 6, and 7: Sokol purchased 96,060 shares of Lubrizol, pursuant to a 100,000-share limit order he had placed.
4. Jan. 14 or 15: Sokol for the first time discussed with Warren Buffett the idea of purchasing Lubrizol. Buffett was skeptical.
5. Jan. 24: Buffett sent Sokol a short note indicating his skepticism about acquiring Lubrizol.
6. Jan. 25: Sokol discussed a possible purchase with James Hambrick, the CEO of Lubrizol.
7. Subsequent to Jan. 25, Sokol reported his discussion with Hambrick to Buffett and the Berkshire Hathaway board approved the purchase.
According to the Wall Street Journal, the profit on Sokol’s 96,060 shares would be $3 million.
... One is liable for trading on nonpublic information only if that information is material, and Sokol doesn’t appear to have had any material information when he purchased the stock—at least if we accept the Berkshire Hathaway account.
According to Berkshire Hathaway, Sokol had not suggested the Lubrizol acquisition to anyone prior to his purchases. He approached Buffett a week after his last purchase and the matter did not go to the full board until much later. Thus, the only nonpublic information Sokol could have had at the time of the trades was knowledge that he intended to suggest the Lubrizol acquisition to Buffett.
Was that material? Fortunately, Basic v. Levinson, decided by the United States Supreme Court in 1988, addresses this very question: whether information about a possible acquisition is material. Basic says that one must consider both the probability that the acquisition will occur and the magnitude of the transaction if it does occur.
It’s pretty clear that the magnitude of the Lubrizol transaction, if it did occur, was fairly high: it was a $9 billion deal offering a substantial premium above the pre-deal price of the Lubricol stock.
If one accepts the Berkshire Hathaway account, nothing even close to that had happened when Sokol bought his stock. The Berkshire Hathaway board had not even discussed the Lubrizol deal, much less approved a resolution to negotiate with Lubricol. Sokol himself was not even a director of Berkshire Hathaway. As far as is known, no one had contacted an investment banker. And, at the time of the trades, there had been no negotiations. Sokol himself didn't talk to Lubrizol until after the stock purchases. Under Basic standards, the probability was virtually nil.
Basic says to weigh the probability and magnitude together to determine materiality, and the magnitude is high, but magnitude alone certainly can’t be enough if there is absolutely nothing to establish probable corporate interest in the deal. A thought in one employee’s head (unless, perhaps, that employee were Warren Buffett himself) does not make a possible acquisition material.
David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., defended himself Thursday morning after resigning unexpectedly amid surprising revelations about his personal stock trading.
In an unusual and personal announcement Wednesday evening, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased roughly $10 million in shares of a chemicals company that Berkshire recently agreed to buy at the suggestion of Mr. Sokol, Lubrizol Corp.
Securities lawyers debated whether Mr. Sokol's dealings could fall into a gray legal area. In broad terms, insider trading laws prohibit individuals from trading on shares based on material nonpublic information in violation of some duty of trust.
One key question, lawyers say, is whether Mr. Sokol knew that he would pitch a Lubrizol deal to Mr. Buffett, or even that he might do so, at the time he bought Lubrizol shares. If Mr. Sokol did know at that time, that could suggest he had material information at the time he bought the shares, lawyers said.
However, lawyers said it could be hard to show that Mr. Sokol misappropriated information in breach of a duty to Berkshire. A question would be whether in buying shares he wrongly used knowledge about what Berkshire was likely to do.
It's hard to see how what Sokol did qualifies as insider trading under SEC Rule 10b-5. The classic disclose or abstain theory doesn't apply because Sokol didn't trade in the stock of the company of which he is an insider. So you'd have to rely on the misappropriation theory. The trouble here is that the SCOTUS in US v. O'Hagan made clear that liability is premised on the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” Under this theory, the majority explained, “a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.” If Sokol traded before Berkshire made any decisions, did he really trade on the base of confidential information belonging to Berkshire-Hathaway? In effect, he traded on the basis of what he knew that HE intended to do. Even though he's an agent of Berkshire, I'm not sure trading on the basis of the knowledge that he was going to pitch a takeover to his boss counts as inside information.
On the other hand, Buffett knew. On the third hand, did Buffett know the extent of Sokol’s ownership, or the fact that he bought the shares knowing of Berkshire’s possible interest? On the fourth hand, it seems highly unlikely Sokol thought he was doing anything wrong.
Berkshire might be hurt if Sokol had a conflict of interest in pitching the deal. But that conflict was disclosed.
To have a conflict and to be motivated by it to breach a duty of loyalty are two different things—the first a factor increasing the likelihood of a wrong, the second the wrong itself. Thus a disloyal act is actionable even when a conflict of interest is not—one difference being that the conflict is disclosed, the disloyal act is not.
I think the distinction Posner drew is bogus, but if you buy it, disclosure by Sokol might not excuse disloyal acts.
What might be the disloyal act? I'm thinking that In re eBay, Inc. Shareholders Litigation, 2004 WL 253521 (Del. Ch. 2004), may come into play here. During the late 1990s, a phenomenon known as spinning became common. In return for hiring a given investment bank to do their firm’s work, executives of that firm would receive preferential allocations of shares being sold in an IPO by another client of that investment bank. The executives would then sell those shares almost immediately, typically at a much higher price than then IPO sale price. Spinning thus apparently accounted for at least some of the persistent problem of under-pricing of IPO stocks.
The individual defendants here were executives of eBay who spun shares sold to them by Goldman Sachs. Plaintiffs are shareholders of eBay, suing derivatively. Plaintiffs advance the clever argument that the executives usurped a corporate opportunity from eBay.
Did Sokol's buying up shares in Lubrizol likewise usurp an opportunity he should have left on the plate for Berkshire-Hathaway? I think it would be a very aggressive application of the doctrine. But in the course of his opinion Chancellor Chandler further explained that "even if one assumes that IPO allocations like those in question here do not constitute a corporate opportunity, a cognizable claim is nevertheless stated on the common law ground that an agent is under a duty to account for profits obtained personally in connection with transactions related to his or her company." Granted, making a profit on inside information differs from the kickbacks at issue in eBay, but doesn't prompting your firm to buy a company in which you've invested similarly invoke fiduciary obligations?
In Brophy, the defendant insider traded on the basis of information about a stock repurchase program the corporation was about to undertake. Stephen M. Bainbridge, Securities Law: Insider Trading 20-21 (2d ed. 2007). In a very real sense, the insider was competing with the corporation, which both agency law and corporate law clearly proscribe. Indeed, the insider’s conduct in fact directly threatened the corporation’s interests. If his purchases caused a rise in the stock price, the corporation would be injured by having to pay more for its own purchases. A derivative suit seeking redress for that potential injury thus was quite proper.
“[A] plaintiff seeking to prevail on a Brophy claim ultimately must show that: 1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because she was motivated, in whole or in part, by the substance of that information.” In re Oracle Corp., 867 A.2d 904, 934 (Del. Ch. 2004) (hereinafter “Oracle”), aff’d, 872 A.2d 960 (Del. 2005) (TABLE).
Toll, slip op. at 16.
In the typical scenario in which an insider trades based on material information that allegedly was not disclosed to stockholders, a corporation can recover for actual harm causally related (in both the actual and proximate sense) to the breach of the duty of loyalty. Without limiting the types of harm that could be related causally to a loyalty breach, the obvious candidates are costs and expenses for regulatory proceedings and internal investigations, fees paid to counsel and other professionals, fines paid to regulators, and judgments in litigation.
What all this shows, I think, is that the case stretches the boundary of insider trading liability. The misappropriation theory requires that you use information that belongs to the principal. Could one construct an argument based on corporate opportunities, agency law, Brophy and Toll that Sokol's information belonged to Berkshire-Hathaway? I've tried to play around with that in the preceding paragraphs, but I remain unpersuaded that there is a violation of federal law here.
My question: what should federal law have to do with all this? The “hook” for federal securities liability is the trading in Lubrizol — but the breach of duty that triggers liability has to do with the details of Sokol’s dealings with Buffett and Berkshire. This, as I’ve said before, is appropriately a matter of state law. See my article, Federalism and Insider Trading, 6 Supreme Court Economic Review, 123 (1998).
A fair question, but one that I think has a good answer. I addressed this point at length (pp. 39-45, 83-84) of The Law and Economics of Insider Trading: A Comprehensive Primer, and even more length in Incorporating State Law Fiduciary Duties into the Federal Insider Trading Prohibition, 52 Washington and Lee Law Review 1189 (1995).
I argue that insider trading is not defined in the federal securities statutes. Instead, its definition has evolved through a process of common-law adjudication. At the core of the resulting rule is a requirement that the alleged inside trade constitute a breach of the trader's fiduciary duty to refrain from self-dealing in confidential information. Once the substantive definition of insider trading is viewed as a species of federal common law, the question arises whether federal courts should incorporate state law as the rule of decision or create a unique federal standard. I demonstrate that the insider trading prohibition can be justified only as a mechanism for protecting property rights in information. As such, the prohibition has relatively little to do with the traditional securities regulation concerns of disclosure and fraud. To the contrary, insider trading became a matter of federal concern because of the SEC's self-interest and that of some of its regulatory constituents. To be sure, the exigencies of detecting and prosecuting insider trading warrant a continuing federal regulatory role. Because there is no significant federal policy interest at stake, however, there is no reason to create a unique federal rule defining insider trading. Instead, courts should adopt state law fiduciary duty principles as the rule of decision.
Granted, reliance on state law will complicate insider trading prosecutions. But no more so than in any other case where state standards are incorporated into federal common law. In any case, there are affirmative reasons to adopt state law as the rule of decision. By acknowledging that insider trading is primarily a matter for state law, like all other questions of fiduciary duty, this approach accords proper deference to the states' position as the primary regulator of corporate governance questions. Finally, because state law fiduciary duty rules are designed to protect property rights, looking to them to define insider trading will more clearly tie the prohibition to the rationale for regulating insider trading.
Francis Pileggi brings news of an interesting Posner opinion in CDX Liquidating Trust v. Venrock Associates, (7th Cir. March 29, 2011), a case decided under Delaware law. As Mr. Pileggi notes, the case held, among other things, that disclosure of a conflict of a director’s interest may “insulate the agreement from attack, but does not, per se, protect the director from a claim for breach of fiduciary duty.” This is an established principle, but benefits from Judge Posner’s clear articulation. The case also raises some interesting procedural issues.
To have a conflict and to be motivated by it to breach a duty of loyalty are two different things—the first a factor increasing the likelihood of a wrong, the second the wrong itself. Thus a disloyal act is actionable even when a conflict of interest is not—one difference being that the conflict is disclosed, the disloyal act is not. A director may tell his fellow directors that he has a conflict of interest but that he will not allow it to influence his actions as director; he will not tell them he plans to screw them. If having been informed of the conflict the disinterested directors decide to continue to trust and rely on the interested ones, it is because they think that despite the conflict of interest those directors will continue to serve the corporation loyally.
I agree that disclosure of the conflict was not enough to eliminate the breach of fiduciary duty issue. But should it be enough for liability to show that the disinterested directors relied on the interested one?
I don't buy Posner's analysis. Posner's trying to be his usual clever self, but the analysis simply makes no sense. In oder for disclosure to cure a conflict of interest, there must be full disclosure of all material facts relating to both the transactions and the director's conflict of interest. If the interested director failed to disclose that "he plans to screw them," neither the conflict nor the disloyal act has been excused.
Clinton was responding to a question from Rep. Brad Sherman (D-CA) about the administration's response to any effort by Congress to exercise its war powers, according to a senior Republican lawmaker who attended the briefing.
The answer surprised many in the room because Clinton plainly admitted the administration would ignore any and all attempts by Congress to shackle President Obama's power as commander in chief to make military and wartime decisions. In doing so, he would follow a long line of Presidents who have ignored the act since its passage, deeming it an unconstitutional encroachment on executive power.
Q: Can the president disregard a congressional statute limiting the deployment of troops--either by capping the number of troops, or by setting minimum home-stays between deployments?
A: No, the President does not have that power. To date, several Congresses have imposed limitations on the number of US troops deployed in a given situation. As President, I will not assert a constitutional authority to deploy troops in a manner contrary to an express limit imposed by Congress and adopted into law.
Q: In what circumstances would the president have constitutional authority to bomb Iran without seeking a use-of-force authorization from Congress?
To repeat, Senator Obama's position was clear: "I will not assert a constitutional authority to deploy troops in a manner contrary to an express limit imposed by Congress and adopted into law." But isn't that exactly the authority his Secretary of State just asserted?
The latest book from Olson (The Excuse Factory) is part historical overview and part cutting-edge commentary examining corporate case studies and public and tort law with a sharp analysis of the academic system and the internal and external forces shaping its agenda. Law schools mould the future leaders of America, shaping the nation and influencing consensus. Recent legal scholars have infiltrated politics, journalism, and broadcasting, claiming greater authority and creating potentially serious social repercussions. The author explores perceived political bias at Harvard and Yale, their dependence on "left-tilting philanthropy," and the tendency of professors to permeate the curriculum with their own values. Additionally, Olson argues, the commercialization of American universities creates markets of intellectual property and a culture of one-upmanship. Often with tongue firmly in-cheek, Olson addresses the "American disease" of dubious injury claims and product liability lawsuits, the ever-spurious "recovered memory" litigation, and other legal precedents. This hard-hitting, witty account reveals the effect of law on the individual and the collective and astutely forecasts the future of law reform, in the academy, in politics, and across the globe.
The 18th novel (after 2010's Iorich) in Brust's sprawling Dragaera fantasy series is a wonderful return to form, setting assassin hero Vlad Taltos in a contest of wits and wills against imperial guard captain Khaavren, the formidable protagonist of 1992's The Phoenix Guards. On the run from his former employers, the Jhereg, Vlad swings back into town for a surreptitious visit to his family and finds himself wanted all over again by Khaavren, who is chasing a magical silver statue of a tiassa. A cat-and-mouse game ensues, full of plots, counterplots, unlikely disguises, swordfights, and mistaken identities. Fans will love the full cast of favorite characters and the resolution of longstanding plots and mysteries, and like most of Brust's books, this witty, wry tale stands well alone and is very accessible to new readers.
How can the Catholic faith help not only Catholics, but all people, build a just and flourishing society?
The Catholic Church contributes first and foremost to the common good by forming the consciences of the faithful. Faith helps reason achieve a proper understanding of the common good and thereby guides what individuals need to do to live justly and harmoniously. In this book, J. Brian Benestad provides a detailed and accessible introduction to Catholic social doctrine (CSD), the Church's teachings concerning the human person, the family, society, political life, charity, justice, and social justice.
Church, State, and Society explains the nuanced understanding of human dignity and the common good found in the Catholic intellectual tradition. It makes the case that liberal-arts education is an essential part of the common good because it helps people understand their dignity and all that justice requires. The author shows the influence of ancient and modern political philosophy on CSD philosophy and examines St. Augustine, St. Thomas Aquinas, papal social encyclicals, Vatican Council II, and postconciliar magisterial teaching. Benestad highlights the teachings of popes John Paul II and Benedict XVI that the attainment of the common good depends on the practice of the virtues by citizens and leaders alike.
The book is divided into four parts. The first treats key themes of social life: the dignity of the human person, human rights, natural law, and the common good. Part two focuses on the three principal mediating institutions of civil society: the family, the Church, and the Catholic university. Part three considers the economy, work, poverty, immigration, and the environment, while part four focuses on the international community and just war principles. The conclusion discusses tension between CSD and liberal democracy.
President Obama’s campaign in Libya may be the most deceptively sold U.S. military policy since Franklin Roosevelt’s “all aid short of war” policy in 1941.
Yes, but what do you really think?
CIA officers on the ground in Libya assisted with the rescue of one of two airmen who ejected when their F15E fighter jet crashed last week, sources tell the Associated Press.
The Obama administration has sent teams of CIA operatives into Libya in a rush to gather intelligence on the identity, goals and progress of rebel forces opposed to Libyan leader Moammar Gaddafi, according to U.S. officials.
Do they really expect us to believe they are there solely to "gather intelligence"? But notice the artful phrasing: "gather intelligence on the ... progress of rebel forces". That wouldn't mean guidance and advice would it?
This is how dumb wars start. When presidents insist they haven't.
Obama's making Bush 43 look like an honest man.
27 In re Appraisal of Metromedia Int’l Group, Inc., 971 A.2d 893, 899 (Del. Ch. 2009) (citing Matulich v. Aegis Commc’ns Group, Inc., 942 A.2d 596, 600 (Del. 2008)).
28 Benihana of Tokyo, Inc. v. Benihana, Inc., 906 A.2d 114, 120 (Del. 2006) (citing Northwestern Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996)).
29 Waggoner v. Laster, 581 A.2d 1127, 1134 (Del. 1990). See also Baron v. Allied Artists Pictures Corp., 337 A.2d 653, 657 (Del. Ch. 1975).
What's interesting to me is that no where in the opinion does the dread word "Jedwab" appear. A few years ago, I wrote a very long blog post on the rights of preferred stockholders, in which I discussed former Delaware Chancellor Allen's opinion in Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584 (Del. Ch. 1986), which held that directors owe fiduciary duties to preferred stockholders as well as common stockholders where the right claimed by the preferred “is not to a preference as against the common stock but rather a right shared equally with the common.” Presumably, since the specific claims at issue did not allege a breach of fiduciary duty, Strine did not feel it necessary to address that issue. Still, it's at least a little curious that the scholarly Strine--who frequently offers up interesting dicta in his many long textual footnotes (of which this opinion has several) did not even mention the Jedwab issue.
Is it too much to hope that Delaware courts may finally be waking up to the myriad of ways in which Jedwab is inconsistent with Delaware Supreme Court precedent and, moreover, just plain bad policy?
I've been meaning to add a blogroll back to the site for a while. I finally got around to it by exporting a list of the feeds I read daily via Google Reader and converting it into a blogroll using the instructions and application at this very helpful site. So this is not a list of blogs with whom I've exchanged links or included as a courtesy. It's the list of blogs whose RSS feeds I follow daily. Hope you find it useful.
I've recently started reading Shark and Shepherd, a blog by Marquette law professor Rick Esenberg, whose "interests relate to law and religion, election law and the ways in which the law impairs and empowers civil society." (Where's my serial comma, guy?) His coverage of the legal aspects of the fascinating Wisconsin political wars is what got me hooked, but he also writes interestingly on law and religion, which doubtless will keep me reading long after the current kerfuffle has ended. Recommended.
What's the origin of "nice talk, GI"?
As long as I can remember, my family's used the phrase "nice talk, G.I." as a reprimand for using bad words. I broke it out on Twitter this pm. Wondering whether this was common usage, I googled it (as a phrase) and came up with only 46 results. Which got me to wondering where we got it from.
SEC charges FDA employee with insider trading: One-off or trend?
The Securities and Exchange Commission today charged a U.S. Food and Drug Administration (FDA) chemist with insider trading on confidential information about upcoming announcements of FDA drug approval decisions, generating more than $3.6 million in illicit profits and avoided losses.
In United States v. O'Hagan, the US SCOTUS grounded liability under the misappropriation theory on deception of the source of the information; the theory addresses the use of “confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” According to the Court, “a fiduciary’s undisclosed, self serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.” So defined, the Court held, the misappropriation theory satisfies § 10(b)’s requirement that there be a “deceptive device or contrivance” used “in connection with” a securities transaction.
Where a Member of Congress, a Congressional staffer, or other government information obtains material nonpublic information in the course of their duties and then uses it to trade in the stock of the relevant issuer, their conduct could be colloquially described as a theft of the information, but under O’Hagan any potential insider trading liability under the misappropriation theory would require proof of a duty of disclosure between the official and the source of the information.
The Standards of Ethical Conduct for Employees of the Executive Branch provide that: “Public service is a public trust, requiring employees to place loyalty to the Constitution, the laws and ethical principles above private gain.” Accordingly, an employee of the Executive Branch should be deemed an agent of the government or, at least, to stand in a similar relationship of trust and confidence with the government. The Standards further provide that: “An employee shall not engage in a financial transaction using nonpublic information, nor allow the improper use of nonpublic information to further his own private interest or that of another, whether through advice or recommendation, or by knowing unauthorized disclosure.” As such, the relationship between the government and one of its employees is such that the undisclosed use by the latter of information gained in the course of his employment would give rise to liability under the misappropriation theory.
So this should be a very straightforward case.
The interesting question is whether this case portends greater SEC attention to insider trading by government employees. There's a lot of chatter these days about political intelligence, but that's not this case. This is classic insider trading by somebody with access to confidential information.
The SEC alleges that Liang used the trading profits for his own personal benefit. Checks totaling at least $1.2 million were written from the accounts he used for trading to a bank account in his name, to him or his wife directly, or to credit card companies to pay off balances in accounts in his or his wife’s name. Nearly $65,000 worth of checks were written from the brokerage accounts to car dealerships to purchase vehicles later registered to Liang and his wife.
Hint: If you live on a government salary, don't start depositing hundreds of thousands of dollars into your personal bank accounts. If you went to the trouble of using 7 brokerage accounts under false names to hide your trail, don't then write checks on those accounts to buy yourself a car.
My guess is that the SEC got a tip that something wasn't kosher w/r/t Liang. Once they subpoenaed this financial records the whole thing would have unraveled very quickly.
 5 C.F.R. § 2635.101. I assuming here that government ethics rules embodied in the terms of employment of government employees banning the use of nonpublic information for personal gain will be deemed to constitute the requisite agreement. In fact, however, the question of whether an employee handbook constitutes a contract arises in many legal settings and, in general, does not admit of easy resolution. See generally 19 Williston on Contracts § 54:10 (4th ed. 2009) (discussing cases).
 Joseph Kalo, Deterring Misuse of Confidential Government Information: A Proposed Citizens’ Action, 72 Mich. L. Rev. 1577, 1581 (1974) (“The application of fiduciary duties to activities of government employees is not novel.”).
 5 C.F.R. § 2634.703(a). Nonpublic information is defined for this purpose as “information that the employee gains by reason of Federal employment and that he knows or reasonably should know has not been made available to the general public.” Id., § 2634.703(b).
Lewis Lazarus opines on the question of representative directors, concluding that "Directors Designated By Investors Owe Fiduciary Duties to the Company as a Whole and Not to the Designating Investor."
[Delaware] cases teach that directors designated by particular stockholders or investors owe duties generally to the company and all of its stockholders. Where the interests of the investor and the company and its common stockholders potentially diverge, the directors cannot favor the interests of the investor over those of the company and its common stockholders.
As a general rule, I think that's right. It's especially important when the sponsoring investor has a conflict of interest, such as where the sponsoring investor proposes a transaction with the corporation.
In some cases, however, a bright line rule might not make sense. Suppose a financially distressed company with a unionized work force negotiated give backs from the union. As a condition of those give backs, the union required representation on the corporation’s board of directors. My research on these cases suggests that board of director representation is a way of maximizing access to information and bonding its accuracy. The employee representatives will be able to verify that the original information about the firm’s precarious financial situation was accurate. Employee representatives on the board also are well-positioned to determine whether the firm’s prospects have improved sufficiently to justify an attempt to reverse prior concessions through a new round of bargaining.
The anticipated role of the union representative in such cases is almost certain to conflict with the duties of the director as set forth by Mr Lazarus. Suppose that as a condition of granting the concessions, the union insisted that its director be free to pass any information to the union. The board of directors agreed. Would it matter if the proposal was disclosed to the shareholders and the shareholders elected the union representative to the board, as opposed to the union representative being appointed by the board to fill a vacancy?
What if the union insisted that the union representative on the board be allowed to vote as s/he understands the interests of the union to demand? Should the board of directors (or the shareholders) be denied the power to agree where that is necessary to obtain concessions that might save the company?
To take another example, suppose a corporation has failed to pay dividends on preferred stock for a sufficient period of time that the holders of the preferred are now entitled to elect a majority of the board. Would Delaware courts really say that the board cannot prefer the interests of the preferred holders? Isn’t looking out for the interests of the preferred shareholders the very purpose of giving otherwise nonvoting preferred shares the right to elect a board in the event of failure to pay dividends?
As a final example, what about the case in which a dissident shareholder successfully wages a short slate proxy contest on a platform calling for, say, the sale of the company. Surely the sponsoring shareholder should surely be entitled to expect their nominees to pursue that goal. Indeed, the sponsor might reasonably expect the directors not just to "advocate" for the shareholder's position, but to vote for it and take other action.
Granted, I don't think the sponsor should be able to punish the directors for failing to do so. In the recent Airgas case, discussed by Lazarus, three directors sponsored by a takeover bidder declined to support the bidder's demand that the target's poison pill be lifted. If the bidder doesn't like that result, it should have picked people with a greater sense of loyalty. On the other hand, I wouldn't necessarily fauly directors who had been elected on the basis of a campaign to sell the company from insisting that the pil be dropped.
So I think we have to take these cases contextually.