Justia Securities Law Opinion Summaries

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Judicial review of SEC proceedings lies in the courts of appeals after the agency rules. At issue was whether a party may nonetheless raise a constitutional challenge to an SEC enforcement action in federal district court before the agency proceeding ends.Bound by Bank of La. v. FDIC, 919 F.3d 916 (5th Cir. 2019), and in accord with the unanimous view of other circuits, the Fifth Circuit held that the statutory review scheme is the exclusive path for asserting a constitutional challenge to SEC proceedings. In this case, the court held that the Thunder Basin analysis does not show that Congress exempted plaintiff's claims from the common path for judicial review of agency action—direct appeal to a court of appeals after the agency rules—that it adopted for the SEC. The court explained that plaintiff may raise her removal-power claim before the ALJ and, if she loses before the agency, in a court of appeals. Furthermore, she may even be able to get her claim all the way to the Supreme Court, but she cannot circumvent the statutory review scheme by litigating it now in a federal trial court. Accordingly, the court affirmed the district court's judgment and dissolved the stay of the SEC proceeding. View "Cochran v. Securities and Exchange Commission" on Justia Law

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The Second Circuit reversed and remanded the district court's dismissal of plaintiff's putative class action claims against Omega under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs alleged that Omega misled investors by failing to disclose a $15 million working capital loan it made to one of its major tenants, Orianna, and that the omission hid from investors the true magnitude of Orianna's solvency problems.The court held that the complaint adequately alleges that Omega acted with scienter in failing to disclose the loan. In this case, Omega's decision not to disclose the loan -- in the context of its disclosures regarding Orianna's financial health -- was a sufficiently extreme departure from the standards of ordinary care to satisfy the Private Securities Litigation Reform Act of 1995's requirement for showing recklessness. The court stated that the allegations in the complaint raise a strong inference that defendants acted, at the very least, recklessly in choosing to disclose incomplete and misleading information regarding Orianna. Furthermore, the facts as alleged create a compelling inference that defendants made a conscious decision to not disclose the loan in order to understate the extent of Orianna's financial difficulties. View "Holtzman v. Omega Healthcare Investors, Inc." on Justia Law

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This appeal stemmed from an attempt to hold Defendant Paul Robben liable for securities fraud. Various Plaintiffs alleged that Robben fraudulently induced them to purchase ownership interests in a Kansas limited liability company named Foxfield Villa Associates, LLC (“Foxfield”). Plaintiffs argued that those interests were securities under the Securities Exchange Act of 1934. Plaintiffs contended Robben violated section 10(b) of the 1934 Act (its broad antifraud provision) and SEC Rule 10b-5 (an administrative regulation expounding upon that antifraud provision) when engaging in his allegedly deceitful conduct. The Tenth Circuit Court of Appeals determined that the specific attributes of the LLC interests in this case lead it to conclude the interests at issue were not securities as that term was defined by the Securities Exchange Act of 1934. The Court affirmed the district court's order declining to characterize the LLC interests as securities, thus granting summary judgment to defendants on those grounds. View "Foxfield Villa Associates v. Robben" on Justia Law

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Plaintiff-investors appealed the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC). It was not the only state-affiliated regional center, but it was the only one that represented itself as a “state-run agency.” The VRC billed itself as an attractive option for development and foreign investment due to its superlative “oversight powers,” the overwhelming investor confidence that came from its “stamp of approval,” and the State of Vermont’s backing that would result in a “faster path to approval.” ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the "Jay Peak Projects" a particularly sound investment. They told prospective investors that the VRC conducted quarterly reviews to ensure that projects complied with all applicable laws and regulations and “engag[ed] in the financial monitoring and auditing of projects to ensure legitimacy,” and they represented that MOUs imposed “strict covenants and obligations on the project to ensure compliance with all applicable laws and regulations.” Unbeknownst to the investors, but known to the VRC officials, no such state oversight by the VRC existed. The VRC never issued any of the quarterly reports contemplated in the MOUs. In April 2016, the U.S. Securities and Exchange Commission filed a lawsuit alleging securities fraud, wire fraud, and mail fraud against the Jay Peak Projects developers. On the basis of these and other allegations, plaintiffs, all foreign nationals who invested in the Jay Peak Projects, filed a multi-count claim against ACCD and several individual defendants. The trial court granted plaintiffs’ motion to amend their complaint for a third time to a Fourth Amended Complaint, and then dismissed all thirteen counts on various grounds. Plaintiffs appealed. After review, the Vermont Supreme Court reversed the dismissal of plaintiffs’ claims of negligence against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. The Court affirmed the dismissal of plaintiffs' remaining claims. View "Sutton et al. v. Vermont Regional Center et al." on Justia Law

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In this case arising from a failed attempt to restore and reopen the historic Cal Neva Lodge, the Supreme Court affirmed the district court's decision to deny relief on the claims brought by Plaintiff, an investor, against the developers and others involved in setting up Plaintiff's investment on the project, but reversed the damages award for Defendants, holding that the record did not support upholding the damages award.Plaintiff sued Defendants for breach of contract, breach of fiduciary duty, fraud, negligence, conversion, and securities fraud. After a bench trial, the trial judge ordered judgment in favor of Defendants and sua sponte awarded Defendants damages, along with attorney fees and costs. The Supreme Court reversed in part and affirmed in part, holding (1) the district court erred in awarding damages to Defendants in the absence of an express or implied counterclaim; and (2) the record supported the district court's denial of relief on Plaintiff's claims. View "Yount v. Criswell Radovan, LLC" on Justia Law

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In 2013, Allstate announced a new strategy in its auto insurance business: attracting more new customers by “softening” its underwriting standards. Allstate disclosed that new and potentially riskier customers might file more claims and that Allstate would monitor and adjust business practices accordingly. Two years later, Allstate’s stock price dropped by more than 10 percent, immediately after Allstate announced that the higher claims rates it had experienced for three quarters had been fueled at least in part by the company’s recent growth strategy and that the company was “tightening" its underwriting parameters. The plaintiffs claim that Allstate initially intentionally misled the market by falsely attributing the increases to other factors.The Seventh Circuit vacated the certification of a plaintiff class after reviewing recent Supreme Court decisions concerning the fraud-on-the-market presumption of reliance, which allows plaintiffs to avoid proving individual reliance upon fraudulent misrepresentations and omissions. The issues of materiality, loss causation, and transaction causation are left for the merits but the court must consider evidence on those issues in deciding class certification using the presumption, if the defense offers it to show the absence of transaction causation (price impact). The district court granted class certification after admitting, but without engaging with, defense evidence offered to defeat the presumption--an expert opinion that the alleged misrepresentations had no impact on the stock price. Class certification may be appropriate here, but the district court must decide at the class stage the price impact issue. The court directed modification of any class certification to limit the class to buyers of Allstate common stock rather than any other securities. View "Carpenters Pension Trust Fund for Northern California v. Allstate Corp." on Justia Law

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In 2015, the SEC initiated enforcement proceedings in the District of Arizona against appellant for illegitimate investment activities. In 2017, appellant entered into a consent agreement with the SEC, and the United States District Court for the District of Arizona ultimately held appellant liable for disgorgement in the amount of $4,494,900. Then the grand jury in the Eastern District of Virginia returned an indictment charging appellant with, inter alia, securities fraud and unlawful sale of securities, based in part on the same conduct underlying the SEC proceeding. Appellant filed a motion to dismiss the indictment, which the district court denied.The Fourth Circuit joined with every other circuit to have decided the issue in holding that disgorgement in an SEC proceeding is not a criminal penalty pursuant to the Double Jeopardy Clause, such that an individual cannot be later prosecuted for the conduct underlying the disgorgement. Accordingly, the court affirmed the district court's denial of appellant's motion to dismiss the indictment. View "United States v. Bank" on Justia Law

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Plaintiffs filed a class action under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of NewLink's Phase 3 clinical trial for a novel pancreatic cancer drug and the resulting decline in the market value of NewLink shares.The Second Circuit held that defendants' statements about the efficacy of their pancreatic cancer drug were puffery, not material misrepresentations. However, the court held that plaintiffs plausibly pled material misrepresentation and loss causation for defendants' statements about the scientific literature and the design of their clinical trial. Therefore, the court affirmed the district court's dismissal in part regarding the 2013-2016 Assessments; vacated the dismissal in part regarding the September, March, and Enrollment statements; and remanded for further proceedings. View "Nguyen v. NewLink" on Justia Law

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Martin Franklin, the Chief Executive Officer and co-founder of Jarden Corporation, negotiated the corporation’s sale to Newell Brands for $59.21 per share in cash and stock. Several large Jarden stockholders refused to accept the sale price and petitioned for appraisal in the Court of Chancery. The Court of Chancery found that, of all the valuation methods presented by the parties’ experts, only the $48.31 unaffected market price of Jarden stock could be used reliably to determine the fair value. The court placed little or no weight on other valuation metrics because the CEO dominated the sales process, there were no comparable companies to assess, and the parties’ experts presented such wildly divergent discounted cash flow models that, in the end, the models were unhelpful to the court. On appeal, the petitioners argued the Court of Chancery erred as a matter of law when it adopted Jarden’s unaffected market price as fair value because it ignored what petitioners claim is a “long-recognized principle of Delaware law” that a corporation’s stock price does not equal its fair value. They also claimed the court abused its discretion by refusing to give greater weight to a discounted cash flow analysis populated with data selected by petitioners, ignoring market-based evidence of a higher value, and refusing to use the deal price as a “floor” for fair value. Finding no abuse of discretion or other reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Fir Tree Value Master Fund v. Jarden Corp" on Justia Law

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The Second Circuit denied a petition for review, under the Administrative Procedure Act, of Regulation Best Interest, which creates new standards of conduct for broker-dealers providing investment services to retail customers. Petitioners claimed that Regulation Best Interest is unlawful under the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act.The court held that Ford Financial Solutions has Article III standing to bring its petition for review. The court also held that the SEC lawfully promulgated Regulation Best Interest pursuant to Congress's permissive grant of rulemaking authority under Section 913(f) of the Dodd-Frank Act. Finally, the court held that Regulation Best Interest is not arbitrary and capricious, holding that the SEC's interpretation of the scope of the broker-dealer exemption was not so fundamental to Regulation Best Interest as to make the rule arbitrary and capricious, or otherwise not in accordance with law. Furthermore, the SEC gave adequate reasons for its decision to prioritize consumer choice and affordability over the possibility of reducing consumer confusion, and it supported its findings with substantial evidence. View "XY Planning Network, LLC v. Securities Exchange Commission" on Justia Law