We have an interesting this day in legal history entry for today, on this day, May 16, in 1868 President Andrew Johnson was acquitted in his impeachment trial. President Johnson was Abraham Lincoln’s running mate in the 1864 election and was a sop to the south – prior to sharing a ticket Lincoln had never met him. After the Civil War, President Johnson clashed with Congress over the reconstruction of the South. He vetoed legislation aimed at protecting the rights of former slaves, leading to tension and disagreement with his own party. In 1868, the House of Representatives impeached Johnson, accusing him of violating the Tenure of Office Act by removing the Secretary of War. The trial then began in the Senate, where Republicans held the majority, but Johnson was acquitted because not enough senators supported his removal. Johnson's presidency was marked by his opposition to political rights for freedmen and his lenient reconstruction policies. He served out his term but faced significant opposition from Congress. Johnson later returned to the Senate, serving for 3 months before dying in 1875. He is frequently ranked by historians as among the worst American Presidents, with his predecessor Abraham Lincoln typically taking the top spot. Those are difficult shoes to fill, I suppose. All the same, not a great guy.
Wells Fargo has agreed to pay $1 billion to settle a class-action lawsuit brought by shareholders. The lawsuit accused the bank of making misleading statements regarding its compliance with federal consent orders after the 2016 scandal involving unauthorized customer accounts. Shareholders alleged that former CEO Tim Sloan and other executives provided misleading information to Congress, investors, and the media, painting a more positive picture of their interactions with regulators than was accurate. The settlement funds will be distributed to investors who purchased Wells Fargo stock between February 2, 2018, and March 12, 2020. This settlement follows previous settlements related to the bank's fake-accounts scandal in 2016 and a shareholder settlement in 2018. In 2020, Wells Fargo agreed to pay $3 billion to settle US investigations into consumer abuses.
Silicon Valley Bank (SVB) removed a disclosure metric called economic value of equity (EVE) from its year-end 2022 financial statement, just two weeks before the bank's collapse in March 2023. For the past decade, SVB had provided this metric to demonstrate how interest rate fluctuations would impact its financial health. The removal of EVE, which was expected to show a bleak picture of the bank's situation amid rising rates and depositors withdrawing funds, raises questions about the role of the bank's auditor, KPMG LLP. The financial statement offers no explanation for the removal, and KPMG has not commented on the disclosure changes. Auditors are expected to question significant changes in disclosures and raise concerns when necessary. The omission of EVE, which could have served as a warning sign of growing risks associated with the bank's long-term assets, has drawn attention to the auditor's responsibilities in reviewing management sections of financial statements. Auditors primarily focus on the audited financial statement but are expected to review the management section for inconsistencies and misleading information. However, auditors have limited authority to demand disclosures or address forward-looking risk scenarios. The discretion given to reporting entities allows them to withhold important information from financial statement users.
Regular consumers of Minimum Competence will remember our reporting on the recent collapses of Silicon Valley Bank, Signature Bank, and the near miss at First Republic Bank and the raised concerns about the role of Big Four accounting firms in these failures. KPMG, in particular, had signed off on the financial statements of these banks, leading to questions about the effectiveness and reliability of audits. The problem lies in the close relationships between accounting firms and the banks they audit, potentially leading to conflicts of interest and a lack of incentive to disclose potential problems. To address this, auditors should be held liable for failing to draw attention to aspects of financial statements that require caution, and firms should be banned from both consulting and auditing the same client to avoid conflicts of interest.
The U.S. Federal Trade Commission (FTC) is expected to file a lawsuit to block Amgen Inc.'s $27.8 billion acquisition of Horizon Therapeutics PLC, according to a source. Amgen had entered into the deal last year to enhance its rare diseases drugs portfolio and aimed to complete the acquisition in the first half of this year. Senator Elizabeth Warren, a critic of corporate consolidation, had expressed concerns about the deal and pharmaceutical price increases. The FTC's move to sue is uncommon, as it typically requires divestments rather than blocking deals in the pharmaceutical industry. The acquisition would provide Amgen with two fast-growing drugs, Tepezza and Krystexxa, which have orphan drug designations.
Elon Musk's attempt to modify or terminate his 2018 securities fraud settlement with the U.S. Securities and Exchange Commission (SEC) has been rejected by a federal appeals court. The court upheld the requirement for a Tesla lawyer to approve some of Musk's tweets in advance as part of the settlement. Musk's settlement stemmed from an SEC lawsuit accusing him of defrauding investors with a tweet about taking Tesla private. His lawyers argued that the pre-approval mandate amounted to an illegal restriction on his free speech rights. However, the court panel determined that the SEC's inquiries into Musk's subsequent tweets were appropriate and that complying with the consent decree was not overly burdensome for Musk. The decision affirms a ruling made by a U.S. District Judge in 2022. Musk's lawyers plan to seek further review of the decision.
Motion Offense LLC, a patent monetization company, has claimed that Dropbox Inc. owes it $35 million for alleged patent infringement in a federal trial in Waco, Texas. Motion Offense alleges that Dropbox used ideas developed by inventor Robert Paul Morris to enhance file-sharing capabilities, which were similar to Morris' inventions from 2012. Dropbox's attorney countered by stating that the company had already developed the features in question at least three years before Morris began the patent application process. The two sides also disputed the timing of Morris' conception of the patented ideas. Dropbox did not present a damages estimate, while Motion Offense argued for approximately $35 million in compensation. This litigation is part of a broader patent dispute involving Dropbox and other companies.
Elon Musk has been issued a subpoena by the US Virgin Islands (USVI) in its lawsuit against JPMorgan Chase & Co., accusing the bank of knowingly benefiting from Jeffrey Epstein's sex-trafficking activities. The USVI believes that Epstein may have referred or attempted to refer Musk to JPMorgan as a client. Other billionaires, including Larry Page and Sergey Brin, have also received subpoenas in this case. The USVI has requested alternative means of serving the subpoena on Musk, as it has been unable to locate his address despite efforts, and is seeking documents related to communications or meetings between Musk, JPMorgan, and Epstein, as well as any information regarding Epstein's involvement in human trafficking and fees paid by Musk to Epstein or JPMorgan.