Justia Securities Law Opinion Summaries
OKLAHOMA FIREFIGHTERS PENSION V. NEKTAR THERAPEUTICS
Nektar Therapeutics (“Nektar”) touted the results from a Phase 1 clinical trial (dubbed “EXCEL”) of its anti-cancer drug. A different and more comprehensive Phase 1/2 clinical trial (called “PIVOT”) showed that the drug was not as effective as the initial trial had suggested. Two public pensions sued Nektar for securities fraud, alleging that Nektar misleadingly relied on outlier data from a single patient during the Phase 1 EXCEL clinical trial. The district court dismissed their operative complaint.The Ninth Circuit affirmed the district court’s dismissal for two reasons. First, the court held that Plaintiffs did not adequately allege falsity under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Securities and Exchange Commission Rule 10b-5. The complaint failed to articulate why Nektar’s statements about the Phase 1 EXCEL clinical trial would be materially misleading to investors. Plaintiffs do not sufficiently explain what the clinical trial would have shown without the alleged outlier data, nor do they specify how that would have affected the investing public’s assessment of the drug.Second, Plaintiffs did not plausibly allege loss causation. Nothing in the operative complaint suggests that Nektar’s disclosure of its later Phase 1/2 PIVOT clinical trial results uncovered the “falsity” of the earlier Phase 1 EXCEL trial. Rather, Plaintiffs’ factual allegations suggest a more mundane explanation: the different and more robust Phase 1/2 PIVOT clinical trial merely showed that the drug may not be as effective as the initial Phase 1 EXCEL clinical trial had suggested. View "OKLAHOMA FIREFIGHTERS PENSION V. NEKTAR THERAPEUTICS" on Justia Law
Petri v. Stericycle, Inc.
Following a False Claims Act lawsuit against Stericycle, customers were leaving and the price of Stericycle’s common stock dropped. On behalf of the company’s investors, Florida pension funds filed a securities fraud class action against Stericycle, its executives, board members, and the underwriters of its public offering, alleging that the defendants had inflated the stock price by making materially misleading statements about Stericycle’s fraudulent billing practices. The parties agreed to settle for $45 million. Lead counsel moved for a fee award of 25 percent of the settlement, plus costs. Petri, a class member, objected to the fee award, arguing that the amount was unreasonably high given the low risk of the litigation and the early stage at which the case settled. Petri moved to lift the stay the court had entered while the settlement agreement was pending so that he could seek discovery regarding class counsel’s billing methods, the fee allocation among firms, and counsel’s political and financial relationship with a lead plaintiff, a public pension fund.The district court approved the settlement and the proposed attorney fee and denied Petri’s discovery motion. The Seventh Circuit vacated. The district court did not give sufficient weight to evidence of ex-ante fee agreements, all the work that class counsel inherited from earlier litigation against Stericycle, and the early stage at which the settlement was reached. The court upheld the denial of the objector’s request for discovery into possible pay-to-play arrangements. View "Petri v. Stericycle, Inc." on Justia Law
In re: Application of OK Dev. Finance Auth.
In February 2021, the State of Oklahoma endured record cold temperatures. The severe cold weather resulted in a shortage of the natural gas supply and in turn extraordinary natural gas costs for regulated utilities operating in Oklahoma. The cost of natural gas for the Oklahoma utilities during the two weeks of extreme cold exceeded their entire fuel acquisition cost in 2020. As a result, the Oklahoma Legislature enacted the February 2021 Regulated Utility Consumer Protection Act, 74 O.S.2021, ch. 110A-1, sections 9070-9081, to provide financing options to lower the economic impact on the utility customers. Most Oklahomans could not afford a one-time, cost recovery payment imposed by the utility, and the Legislature provided a new mechanism to spread the fuel cost recovery over a longer period to minimize the financial impact on utility customers. The Act authorized the Oklahoma Corporation Commission (Commission) to approve the recovery of costs through securitization. The Oklahoma Development Finance Authority requested that the Oklahoma Supreme Court assume original jurisdiction and approve the issuance of ratepayer-backed bonds pursuant to the Act. The Supreme Court assumed original jurisdiction and held the ratepayer-backed bonds were properly authorized under the Act and were constitutional. View "In re: Application of OK Dev. Finance Auth." on Justia Law
Wong v. Restoration Robotics, Inc.
The value of shares of stock in Restoration Robotics, a Delaware corporation, dropped within months of the company’s 2017 initial public stock offering. Wong, having purchased the stock, sued Restoration in San Mateo County Superior Court, alleging that the company’s offering documents contained materially false and misleading statements in violation of the Securities Act of 1933 (15 U.S.C. 77). Although the 1933 Act generally allows a plaintiff to choose whether to file suit in state or federal court, and bars the removal to federal courts of a suit filed in state court, a “federal forum provision” (FFP) in Restoration’s certificate of incorporation states that 1933 Act claims must be brought in federal court unless Restoration consents to a different forum.The trial court declined jurisdiction on the basis of the FFP. The court of appeal affirmed, rejecting arguments that the FFP violates the 1933 Act, which states that both state and federal courts have jurisdiction over 1933 Act causes of action, that the Delaware statutory scheme permitting the FFP violates the Commerce Clause and the Supremacy Clause, and that the FFP is invalid and should not be enforced in any event because it is unfair and unreasonable. View "Wong v. Restoration Robotics, Inc." on Justia Law
SEC v. GenAudio Inc., et al.
Taj Jerry Mahabub, founder and Chief Executive Officer (“CEO”) of GenAudio, Inc. (“GenAudio”; collectively referred to as “Appellants”) attempted to secure a software licensing deal with Apple, Inc. (“Apple”). Mahabub intended to integrate GenAudio’s three-dimensional audio software, “AstoundSound,” into Apple’s products. While Appellants were pursuing that collaboration, the Securities and Exchange Commission (“SEC”) commenced an investigation into Mr. Mahabub’s conduct: Mahabub was suspected of defrauding investors by fabricating statements about Apple’s interest in GenAudio’s software and violating registration provisions of the securities laws in connection with sales of GenAudio securities. The district court found Mahabub defrauded investors and violated the securities laws. The court determined that Appellants were liable for knowingly or recklessly making six fraudulent misstatements in connection with two offerings of GenAudio’s securities in violation of the antifraud provisions of the securities laws. Appellants appealed, but finding no reversible error, the Tenth Circuit affirmed the district court’s grant of summary judgment in favor of the SEC. View "SEC v. GenAudio Inc., et al." on Justia Law
Construction Laborers Pension Trust Southern CA v. Marriott International, Inc.
Following a data breach targeting servers owned by Defendant, Plaintiffs alleged that Defendant violated federal securities laws by omitting material information about data vulnerabilities in their public statements.The Fourth Circuit affirmed the district court’s dismissal of the complaint, finding that the investors did not adequately allege that any of Defendant’s statements were false or misleading when made.The court explained that to state a claim under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, a plaintiff must first allege a “material misrepresentation or omission by the defendant.” However, not all material omissions give rise to a cause of action. Here, Plaintiffs focus on statements about the importance of protecting customer data; privacy statements on Defendant's website; and cybersecurity-related risk disclosures. The court found that Plaintiffs failed to allege that any of the challenged statements were false or rendered Defendant's public statement misleading. Although Defendant could have disseminated more information to the public about its vulnerability to cyberattacks, federal securities law does not require it to do so. View "Construction Laborers Pension Trust Southern CA v. Marriott International, Inc." on Justia Law
Douglas Kelley v. Safe Harbor Managed Acct. 101
Appellant, as a Trustee of the PCI Liquidating Trust, filed a proceeding against Appellee, Safe Harbor Managed Account 101, Ltd. (“Safe Harbor”) to recover nearly $6.9 million transferred to Safe Harbor as a subsequent transferee of an entity that Appellant had previously obtained a default judgment against for transfers made to it by a PCI subsidiary. The district court held that 11 U.S.C. Sec. 546(e) shielded Safe Harbor from Appellant’s avoiding powers. The Eighth Circuit affirmed in part, reversed in part, and remanded for further consideration. The court found that the district court did not err in determining that a financial institution’s customer may qualify as a financial institution if the intermediary bank acted as an agent for the customer during the transaction. The court did not consider Appellant’s argument that the district court failed to determine whether Wells Fargo was a custodian. Finally, although the district court erred in confusing two entities in determining who was a party to the Notes Purchase Agreement, that error is not dispositive. Therefore, the court reversed and remanded to the district court to analyze the facts and determine whether transfers from MGC finance were in connection with the Note Purchase agreement. View "Douglas Kelley v. Safe Harbor Managed Acct. 101" on Justia Law
Robert F. Anderson v. Morgan Keegan & Company, Inc.
Infinity Business Group used an accounting practice that artificially inflated its accounts receivable and therefore its revenues. The company’s CEO, board of directors, and outside auditors affirmed the wrongdoing. Appellant, the company’s trustee, alleges that the true mastermind was a financial services company and an adviser of the company (“Defendants”) that Infinity contracted with to unsuccessfully solicit investments.The Fourth Circuit held that even assuming that the financial services company played some role in creating or perpetuating the flawed accounting technique, Appellant still cannot succeed in holding Defendants liable. Infinity engaged Defendant for the limited purpose of assisting with “a private placement of” Infinity stock. Defendants’ task was to help prepare a confidential information memorandum for potential investors, which was to include Infinity’s financial information from 2003 to 2005. Infinity’s CEO prepared and provided the relevant information for all three years. The accounting practice the company used was inconsistent with the generally accepted accounting principles endorsed by the Securities and Exchange Commission.Appellant first contends that he represents Infinity as well as Infinity’s creditors. Thus, when he was acting on behalf of the presumptively blameless creditors, Appellant insists he is immune from in pari delicto. The court held that when a trustee pursues a right of action that ultimately derives from the debtor—even if the trustee is nominally exercising a creditor’s powers when doing so—the trustee remains subject to the same defenses as the debtor. The court ultimately found that Infinity’s officers and auditors were the authors of the company’s demise—not Defendants. View "Robert F. Anderson v. Morgan Keegan & Company, Inc." on Justia Law
ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN
The Ninth Circuit panel held that defendant was not required to disgorge to CytoDyn his short-swing profits from exercising options and warrants granted by CytoDyn, entitling him to purchase and later sell CytoDyn shares. The panel held that the short-swing transaction fell within an exemption, set forth in SEC Rule 16b-3(d)(1) because the option and warrant award was “approved by the board of directors” of CytoDyn. The circuit court concluded that the affirmative votes of three of CytoDyn’s five board members, at a meeting where only four board members were present, were sufficient, and a unanimous decision was not required under either the plain text of Rule 16-3(d)(1), Delaware corporate law, or CytoDyn’s bylaws.The court left the determination of what a corporate board must do to approve insider-issuer acquisitions to the laws of the state where the corporation is incorporated. Reasoning that federal securities law defers to—and does not displace—the state laws governing corporate boards. Thus, the circuit court affirmed the district court’s ruling. View "ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN" on Justia Law
Funding Metrics, LLC v. Letha’s Pies, LLC
The Supreme Court reversed the circuit court's order granting class certification in this action brought by Letha's Pies, LLC and Rhonda and Timothy Glenn, on behalf of themselves and all others similarly situated (collectively, Letha's Pies), for alleged violations of the Arkansas Securities Act, holding that the circuit court abused its discretion by refusing to enforce a class-action waiver.Letha's Pies entered into a merchant agreement to sell Funding Metrics, LLC $21,900 of Letha's Pies' future receivables in exchange for an immediate payment of $15,000 by Funding Metrics. The agreement contained a class-action waiver provision. Letha's Pies subsequently brought a class-action complaint claiming that Funding Metrics promoted and sold securities in violation of Arkansas law. Funding Metrics moved to dismiss based on the class-action waiver. The circuit court denied the request, finding that the agreement lacked mutuality of obligation. The circuit court then certified two classes. The Supreme Court reversed, holding that the circuit court abused its discretion by refusing to enforce the class-action waiver in the merchant agreement as a bar to class certification. View "Funding Metrics, LLC v. Letha's Pies, LLC" on Justia Law