Risk Update

Law Firm Conflicts and Compliance — Shareholder Conflict Nixed, Law Firm Foreign Agent FARA Update for Former Client Noted

Posted Dan Bressler

“Myovant shareholder lawsuit dismissed by federal judge” —

  • “A federal judge in the US District Court, Southern District of New York, has dismissed a lawsuit brought by a shareholder – and putative class representative – of Myovant Sciences, a biopharmaceutical company that was acquired by its majority shareholder Sumitovant Biopharma in March 2023.”
  • “The claimant, Joseph Zappia, alleged that Myovant and its directors violated US federal securities laws by filing a false and misleading proxy statement to solicit shareholder approval for the merger. Zappia asserted that the proxy statement failed to disclose that Skadden, Arps, Slate, Meagher & Flom, the law firm hired to advise Myovant’s special committee for the merger, had a conflict of interest because it also represented other companies in the Sumitomo Group, a network of Japanese businesses that included Sumitovant Biopharma and its corporate parent Sumitomo Pharma Co.”
  • “Zappia attempted to make the case that Skadden’s conflict of interest compromised its independence and had a deleterious impact on its approach to Myovant and its shareholders, and that it therefore influenced the special committee to accept a low price for the merger and to refrain from soliciting other potential purchasers. In making these allegations, Zappia sought to represent a class of Myovant shareholders who he said had been harmed by the merger.”
  • “The judge found that Zappia was unable to produce any facts that demonstrated that Skadden had an actual or potential conflict of interest that would have affected its representation of the special committee. He further noted that Zappia did not actually allege that Skadden had ever represented Sumitovant, the named counterparty in the merger, nor did the claim mention Sumitomo Pharma, its corporate parent. The judge also remarked that the other Sumitomo Group entities that Skadden represented were not operationally integrated with Sumitovant or Sumitomo Pharma. Swatting away the claimant’s reliance on Wilson v Great American Industries [1988], he opined that Zappia ‘read[s] too much into too little.'”
  • “Moreover, the judge held that even if Skadden had a conflict of interest, it would not have been material to a reasonable investor, because the information about the firm’s representation of other Sumitomo Group entities was publicly available and did not significantly alter the total mix of information in the proxy statement.”

“Cravath Reveals Work For Ukraine Entities Tied to Hunter Biden” —

  • “Cravath Swaine & Moore has disclosed it worked years ago as a foreign agent for Ukrainian businessman Mykola Zlochevsky and his company Burisma Holdings Ltd., according to Justice Department filings.”
  • “Cravath partner John D. Buretta, a former Justice Department official, dating back to January 2016 represented Burisma and Zlochevsky, who have been featured in probes of Hunter Biden, the Jan. 4 filings under the Foreign Agents Registration Act show.”
  • “Hunter Biden served on the board of Burisma, a Ukrainian energy firm, from 2014 to 2019. Congressional Republicans have said they are investigating whether he worked to influence his father, President Joe Biden, to thwart an investigation of the firm while the elder Biden was vice president.”
  • “‘After discussions with the Department of Justice regarding FARA’s scope, Cravath has filed a retroactive registration covering legal services provided to two former clients in March and September 2016, and a supplemental statement terminating the registration as of September 2016,’ Cravath said in a statement.”
    “FARA mandates foreign principals and their advisers make disclosures when engaging in certain activities designed to influence the US government.”
  • “‘It is not unusual for DOJ to notify a party of a possible need to register when the department becomes aware of potentially-covered activity,’ said William Minor, who leads DLA Piper’s political law practice. ‘In those cases, the FARA Unit will typically send a ‘letter of inquiry’ requesting further information, and the subsequent back-and-forth will often lead to a party concluding that a registration is advisable, even after the work has concluded.'”
  • “Cravath said it was working for Zlochevsky ‘in connection with a possible investigation by the Federal Bureau of Investigation and/or other United States governmental authorities,’ according to a contract dated Jan. 13, 2016 and filed with DOJ’s FARA unit.”
  • “Cravath disclosed receiving about $350,000 from the clients for “professional services and advice rendered” between March 2016 and August 2017, according to the Jan. 4 filings.”