Justia Securities Law Opinion Summaries

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An objector appealed a Delaware Court of Chancery decision approving a litigation settlement for claims alleging excessive non-employee director compensation. Initially, the parties agreed to a preliminary settlement and presented it to the Court of Chancery for approval. The Court of Chancery sided with the objector and refused to approve a non-monetary settlement of the derivative claims. The court also awarded the objector fees. After the court denied a motion to dismiss, the parties came up with a new settlement that included a financial benefit to the corporation. The objector renewed his objection, this time arguing that the new settlement improperly released future claims challenging compensation awards and that the plaintiff was not an adequate representative for the corporation’s interests. The Court of Chancery approved the new settlement and refused to award the objector additional attorneys’ fees. On appeal to the Delaware Supreme Court, the objector argued the court erred by: (1) approving an overbroad release; (2) approving the settlement without finding that the plaintiff was an adequate representative of the corporation’s interests; and (3) reducing the objector’s fee because the court believed it would have rejected the original settlement agreement without the objection. Though the Supreme Court acknowledged the Court of Chancery and the parties worked diligently to bring this dispute to a close, it reversed the judgment because the settlement agreement released future claims arising out of, or contemplated by, the settlement itself instead of releasing liability for the claims brought in the litigation. View "Griffith v. Stein" on Justia Law

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Petitioner Bloomberg L.P. (“Bloomberg”) seeks review of the Securities and Exchange Commission’s (the “Commission” or “SEC”) decision to approve new reporting requirements proposed by the Financial Industry Regulatory Authority, Inc. (“FINRA”), Intervenorfor-Respondent, affecting underwriter members in the corporate bond market. The Commission ultimately concluded that FINRA’s proposal would impose a limited burden on competition and enable market participants to obtain broad, uniform access to corporate bond reference data before the first transaction in a new-issue bond. Accordingly, the Commission approved FINRA’s proposal.   The DC Circuit granted Bloomberg’s petition for review in part and denied in part. The court held that the Commission’s approval of FINRA’s proposed reference data service was arbitrary and capricious in one respect: the Commission failed to respond adequately to Bloomberg’s concerns about the cost of building and maintaining the program and the extent to which those costs—which could conceivably amount to millions, or tens of millions, of dollars—will be borne by market participants. As such, the Commission violated the Administrative Procedure Act and failed to engage in reasoned decision-making. However, the court wrote, that Bloomberg’s remaining arguments lack merit. Therefore, Bloomberg’s petition for review is otherwise denied. View "Bloomberg L.P. v. SEC" on Justia Law

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The First Circuit affirmed the judgment of the district court dismissing this complaint against Karoypharm Therapuetics, Inc. and its corporate officers (collectively, Defendants) alleging securities fraud in violation of sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j(b) and 78t(a), and Securities and Exchange Commission (SEC) Rule 10-b, 18 C.F.R. 240.10b-5, holding that the district court correctly dismissed the complaint for failure to state a claim.Plaintiff-investors brought this action following a decline in Karyopharm's stock price, alleging that Karyopharm materially misled them as to the safety and efficacy of the company's cancer-fighting drug candidate selinexor. The district court dismissed the complaint for failure to state a claim, concluding that Plaintiffs failed adequately to plead scienter with respect to Defendants' statements about a certain study of the drug as a treatment for pinta-refractory multiple myeloma. The First Circuit affirmed on other grounds, holding that Plaintiffs did not plausibly allege an actionable statement or omission with respect to the trial disclosures, and therefore, dismissal was appropriate. View "Thant v. Karyopharm Therapeutics Inc." on Justia Law

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Plaintiff claimed that UBS Securities, LLC and UBS AG (together “UBS”) fired him in retaliation for reporting alleged fraud on shareholders to his supervisor. Plaintiff sued UBS under the whistleblower protection provision of the Sarbanes-Oxley Act (“SOX”), 18 U.S.C. Section 1514A, and he ultimately prevailed at trial.   The Second Circuit vacated the jury’s verdict and remanded to the district court for a new trial. The court explained that the district court did not instruct the jury that a SOX anti-retaliation claim requires a showing of the employer’s retaliatory intent. Section 1514A prohibits publicly traded companies from taking adverse employment actions to “discriminate against an employee . . . because of” any lawful whistleblowing act. 18 U.S.C. Section 1514A(a). Accordingly, the court held that this provision requires a whistleblower-employee, like Plaintiff, to prove by a preponderance of the evidence that the employer took the adverse employment action against the whistleblower-employee with retaliatory intent—i.e., an intent to “discriminate against an employee . . . because of” lawful whistleblowing activity. The district court’s legal error was not harmless. View "Murray v. UBS Securities" on Justia Law

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This appeal arises from an enforcement action brought by the Securities and Exchange Commission (SEC) against Appellants World Tree Financial, L.L.C. (World Tree) and its principals. After a bench trial, the district court found that the principal and World Tree engaged in a fraudulent “cherry-picking” scheme, in which they allocated favorable trades to themselves and favored clients and unfavorable trades to disfavored clients. It also found that all three Appellants made false and misleading statements about the firm’s allocation and trading practices. The court entered permanent injunctions against the principal and World Tree, ordered them to disgorge ill-gotten gains, and imposed civil penalties on each Appellant.   The Fifth Circuit affirmed, holding that Liu v. SEC, 140 S. Ct. 1936, 1940 (2020) does not require the district court to conduct its own search for business deductions that Appellants have not identified. Accordingly, the court held that the district court did not abuse its discretion in ordering disgorgement.   The court explained that unlike in Liu, in this case, Appellants did not challenge the SEC’s proposed disgorgement amount in their pretrial or posttrial submissions—instead, they argued only that there was no “basis for disgorgement.” Nor did the principal and World Tree propose specific deduction amounts, either before the district court or to this court. View "SEC v. World Tree" on Justia Law

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Defendant challenged the district court’s disgorgement order against him and Owings Group, LLC, the entity he founded and controlled. Together, Defendant, Owings, and three codefendants perpetrated a fraudulent scheme in violation of federal securities laws. After Defendant consented to an entry of judgment, the court ordered him to disgorge $681,554 and imposed a monetary penalty in the same amount.Defendant argued that the disgorgement order violates Liu v. SEC, 140 S. Ct. 1936 (2020) and that the district court erroneously premised the associated monetary penalty on joint-and-several liability. The Fourth Circuit affirmed the district court’s disgorgement order and its monetary penalty.The court explained that it agreed with the district court that Defendant and Owings were “partners engaged in concerted wrongdoing". The court wrote that Owings’s conduct in the scheme generated its ill-gotten gains—and Defendant controlled that conduct. Further, the district court didn’t order a joint-and-several penalty. It ordered a penalty equal to Defendant's disgorgement, which happened to be joint and several.Finally, the court concluded that it found no abuse of discretion. Though the district court didn’t explicitly discuss Defendant's financial situation, it’s clear to the court that the district court considered it, along with the remaining factors. The district court understood that all the defendants were insolvent but decided that Defendant's substantially more serious role in the scheme warranted a penalty all the same. View "SEC v. Mark Johnson" on Justia Law

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The Police and Fire Retirement System of the City of Detroit lost money when a short seller’s report concluded that Axogen, Inc., had overstated the market for its products, resulting in a precipitous decline in Axogen’s stock price. Specifically, Axogen said that its human nerve repair products had potential because “each year” 1.4 million people in the United States suffer nerve damage, leading to over 700,000 nerve repair procedures. The Retirement System filed this lawsuit against Axogen and related entities, which presents the following question: Were Axogen’s public statements forward-looking? If so, as the district court held, the statements are eligible for a safe harbor from liability.   The Eleventh Circuit concluded that the challenged statements are forward-looking and affirmed the judgment of the district court. The court explained that the Retirement System again does not argue that it meets the statutory “actual knowledge” standard. Instead, it contends that the Supreme Court’s decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015) relieves it of that burden. The Retirement System’s argument misunderstands the safe-harbor statute and Omnicare. The “actual knowledge” standard is a non-negotiable part of the statute. The safe-harbor provision expressly requires a plaintiff to prove that a forward-looking statement was made with “actual knowledge that the statement was false or misleading.” Omnicare, on the other hand, addressed whether an opinion may be an actionable misstatement of fact under 15 U.S.C. Section 77k(a). Thus, the Retirement System’s failure to plausibly allege—or even attempt to argue on appeal—Axogen’s actual knowledge dooms its ’33 Securities Act claims. View "Police and Fire Retirement System of the City of Detroit v. Axogen, Inc., et al" on Justia Law

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In 2005, the SEC promulgated a series of initiatives dubbed “Regulation NMS,” which stands for National Market System. One of those initiatives established the concept of the “[n]ational best bid and national best offer,” which are the best bid and best offer for a security, from the taker’s point of view, across all U.S. securities exchanges. Regulation NMS also classifies some providers’ orders as “protected” bids or offers (collectively “protected quotations”). Protected quotations are “automated,” publicly displayed, and the national best bid or offer.At issue is not whether companies like Petitioner may seek advantages in the market by using advanced technology and ingenious trading strategies, but instead whether the SEC may allow an exchange to innovate, with the D-Limit order, in a way that offers new opportunities to long-term investors.The D.C. Circuit approved the SEC's rule, finding that substantial evidence supported the SEC’s findings and the SEC’s conclusions were reasonable and reasonably explained. View "Citadel Securities LLC v. SEC" on Justia Law

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The Seventh Circuit affirmed the judgment of the district court dismissing Plaintiffs' amended complaint against Cboe with prejudice and entering a judgment under Fed. R. Civ. P. 54(b) wrapping up litigation against Cboe involving claims under the Securities Exchange Act and the Commodity Exchange Act, holding there was no error.At issue was whether Cboe violated either Act by trading options and futures based on a number, called VIX, which was designed to estimate the near-term volatility in the Standard & Poors 500 Index of stocks. Plaintiff-traders argued that the Cboe knew that unknown entities could take advantage of the formula for determining VIX on the settlement dates and failed to enforce rules forbidding manipulation. The district court dismissed the amended complaint with prejudice. The Seventh Circuit affirmed, holding that remedies, if any were appropriate, lay with administrative agencies rather than the judiciary at the behest of private litigants. View "Barry v. Cboe Global Markets, Inc." on Justia Law

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Petitioner worked at a subsidiary of the Royal Bank of Scotland Group PLC (“RBS” or “the Bank”) for six weeks in the fall of 2007 before resigning, prompted by what he believed to be unlawful practices engaged in by the Bank in connection with its portfolio of residential mortgage-backed securities (“RMBS”).   Petitioner later formally submitted information to the SEC about the Bank’s misconduct. The SEC itself took no action against the Bank but gave the information to the Department of  Justice (“DOJ”) and the Federal Housing Finance Agency (“FHFA”), each of which had already begun RMBS-related investigations into the Bank.   Petitioner n applied to the SEC for an award under its whistleblower program (the “Program”), established in 2010 by Section 21F of the Securities Exchange Act. The SEC denied his claim. Petitioner petitioned for judicial review.   The Second Circuit denied the petition holding that it found no error in the SEC’s construction of Section 21F to require an action “brought by the Commission” to support a whistleblower award. The court further decided that, contrary to Petitioner’s arguments, investigative and information-sharing activities engaged in by the SEC are not “covered judicial or administrative action[s]  brought by the Commission under the securities laws” or “actions” as to which the DOJ  and FHFA settlements can be considered “related.” Thus, the court adopted the Commission’s determination that Petitioner was not entitled to an award under the Program because the Commission did not bring a covered action. View "Hong v. Securities and Exchange Commission" on Justia Law