Justia Securities Law Opinion Summaries

James Donelson, CEO of Long Leaf Trading Group, oversaw a company that provided trade recommendations in the commodities market and earned commissions on executed trades. Despite collecting $1,235,413 in commissions from customers participating in the "Time Means Money" (TMM) program, customers incurred losses totaling $2,376,738. The Commodity Futures Trading Commission (CFTC) investigated and filed a civil enforcement action against Donelson and others, alleging options fraud and other violations of commodities laws.The United States District Court for the Northern District of Illinois granted summary judgment to the CFTC on all but one count against Donelson. The court found that Donelson and Long Leaf made several misrepresentations, including misleading trade history emails, false return rate projections, and omissions about Long Leaf's history of losses. The court also determined that Long Leaf acted as a Commodity Trading Advisor (CTA) and should have registered as such. Donelson was ordered to pay restitution and disgorgement totaling $3,612,151. Donelson appealed the summary judgment.The United States Court of Appeals for the Seventh Circuit reviewed the case de novo. The court affirmed the district court's findings on options fraud, fraud by a CTA, and fraudulent advertising by a CTA, agreeing that Donelson made misleading statements and omissions. The court also upheld the finding that Long Leaf was a CTA and that Donelson was a controlling person of the company. However, the court reversed the summary judgment on the claims related to the failure to register as a CTA and failure to make required disclosures, remanding these issues for further proceedings to determine if Long Leaf was exempt from registration under CFTC regulations. View "Commodity Futures Trading Commission v. Donelson" on Justia Law

Plaintiffs, property developers owning three hotels, alleged that Defendants, rival developers operating the Hollywood Athletic Club, abused the California Environmental Quality Act (CEQA) processes to extort funds in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). Defendants challenged several of Plaintiffs' hotel projects through CEQA objections and lawsuits, which Plaintiffs claimed were baseless and intended to obstruct their developments.The United States District Court for the Central District of California granted summary judgment in favor of Defendants, holding that the Noerr-Pennington doctrine protected Defendants' petitioning activities from statutory liability under the First Amendment. The district court found that Defendants' actions were not objectively baseless and thus did not fall within the sham litigation exception to the Noerr-Pennington doctrine. The case was transferred from Judge Wright to Judge Gutierrez, who reconsidered and reversed the prior denial of summary judgment, concluding that the previous decision was clearly erroneous and would result in manifest injustice.The United States Court of Appeals for the Ninth Circuit affirmed the district court's summary judgment. The court held that the district court did not abuse its discretion in reconsidering the prior judge's ruling. It also agreed that Defendants' CEQA challenges were not objectively baseless, as the actions had some merit and were not brought solely for an improper purpose. The court emphasized that the Noerr-Pennington doctrine provides broad protection to petitioning activities to avoid chilling First Amendment rights. Consequently, the court did not need to address Defendants' additional arguments regarding the applicability of RICO to litigation activities. View "RELEVANT GROUP, LLC V. NOURMAND" on Justia Law

Plaintiffs, a group of preferred stockholders in Cedar Realty Trust, sued Cedar and its directors, alleging that a series of transactions culminating in Cedar's acquisition by Wheeler Properties devalued their preferred shares. Cedar delisted its common stock and paid common stockholders, but the preferred stock remained outstanding and its value dropped significantly. Plaintiffs claimed Cedar and its directors breached contractual and fiduciary duties by structuring the transactions to deprive them of their preferential rights. They also alleged Wheeler tortiously interfered with their contractual rights and aided Cedar's breach of fiduciary duties.The United States District Court for the District of Maryland dismissed the complaint. It found that the transactions did not trigger the preferred stockholders' conversion rights under the Articles Supplementary because Wheeler's stock remained publicly traded. The court also ruled that Maryland law does not recognize an independent cause of action for breach of the implied duty of good faith and fair dealing. Additionally, the court held that the fiduciary duty claims were duplicative of the breach of contract claims, as the rights of preferred stockholders are defined by contract. Consequently, the claims against Wheeler failed because they depended on the existence of underlying breaches of contract and fiduciary duty.The United States Court of Appeals for the Fourth Circuit affirmed the district court's decision. It held that the transactions did not constitute a "Change of Control" under the Articles Supplementary, as Wheeler's stock remained publicly traded. The court also agreed that Maryland law does not support an independent claim for breach of the implied duty of good faith and fair dealing. Furthermore, the court found that the fiduciary duty claims were properly dismissed because the directors' duties to preferred stockholders are limited to the contractual terms. Finally, the claims against Wheeler were dismissed due to the absence of underlying breaches by Cedar and its directors. View "Kim v. Cedar Realty Trust, Inc." on Justia Law

TD Ameritrade offers brokerage services to retail investors, allowing them to trade stocks through its online platform. The company routes customer orders to trading venues for execution. Roderick Ford, representing a group of investors, alleged that TD Ameritrade's order-routing practices violated the company's duty of best execution by prioritizing venues that paid the company the most money rather than those providing the best outcomes for customers. Ford claimed this violated § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and that CEO Frederic J. Tomczyk was jointly liable under § 20(a) of the Act.A magistrate judge initially recommended denying Ford's motion for class certification due to the predominance of individual questions of economic loss. However, the district court certified a class, believing Ford's expert's algorithm could address these issues. The Eighth Circuit reversed this decision, stating individual inquiries were still necessary. Ford then proposed a new class definition and moved again for certification under Rule 23(b)(3), (b)(2), and (c)(4). The district court certified the class under Rule 23(b)(3) and alternatively under Rule 23(b)(2) and (c)(4).The United States Court of Appeals for the Eighth Circuit reviewed the district court's certification order for abuse of discretion. The court found that Ford's new theory of economic loss, based on commissions paid, did not align with the previous definition of economic loss and still required individualized inquiries. Consequently, the court held that the district court abused its discretion in certifying the class under Rule 23(b)(3). The court also found that the alternative certifications under Rule 23(b)(2) and (c)(4) were improper due to the predominance of individual issues and the lack of cohesiveness among class members. The Eighth Circuit reversed the district court's order and remanded for further proceedings. View "Ford v. TD Ameritrade Holding Corp." on Justia Law

Two whistleblowers, John M. Barr and John McPherson, challenged the Securities and Exchange Commission’s (SEC) calculation of their award amounts under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The case involves Life Partners Holdings, Inc., which was found guilty of extensive securities fraud from 1999 to 2013. In 2012, the SEC filed a civil action against Life Partners, resulting in a $38.7 million judgment. Life Partners subsequently filed for Chapter 11 bankruptcy to avoid the appointment of a receiver. The bankruptcy court appointed a Chapter 11 trustee, and a reorganization plan was confirmed in 2016.The SEC posted a Notice of Covered Action in 2015, inviting whistleblowers to apply for awards. Barr and McPherson submitted applications. The SEC’s Claims Review Staff initially recommended denying Barr an award and granting McPherson 23% of the collected sanctions. After objections, the SEC revised its decision, granting Barr 5% and McPherson 20% of the collected amounts. The SEC argued that the bankruptcy proceedings did not qualify as a “covered judicial or administrative action” or a “related action” under the Dodd-Frank Act.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the SEC’s motion to appoint a Chapter 11 trustee did not constitute “bringing an action” under the Dodd-Frank Act. The court found that the ordinary meaning of “action brought” refers to initiating a lawsuit or legal proceedings, which did not apply to the SEC’s involvement in the bankruptcy case. The court also rejected the argument that the SEC’s actions in the bankruptcy case were a continuation of its enforcement strategy. Consequently, the court denied the petitions for review, upholding the SEC’s award calculations. View "Barr v. SEC" on Justia Law

In 2018, John Burns and Rajeev Arora, representing Moca Financial Inc., engaged in discussions with Manoj Baheti, represented by Yash Venture Holdings, LLC, about a potential investment. The alleged agreement was that Yash would provide $600,000 worth of software development in exchange for a 15% non-dilutable ownership interest in Moca. However, subsequent documents and communications indicated ongoing negotiations and changes in terms, including a reduction of Yash's proposed stake and a shift from software development to a cash investment. Yash eventually refused to sign the final documents, leading to the current litigation.The United States District Court for the Central District of Illinois dismissed most of Yash's claims, including breach of contract, fraud, and securities fraud, but allowed the equitable estoppel and copyright infringement claims to proceed. Yash later voluntarily dismissed the remaining claims, and the district court entered final judgment, prompting Yash to appeal.The United States Court of Appeals for the Seventh Circuit reviewed the case de novo. The court found that Yash did not adequately allege the existence of an enforceable contract, as there was no meeting of the minds on the material term of whether the ownership interest was non-dilutable. Consequently, the breach of contract claim failed. Similarly, the promissory estoppel claim failed due to the lack of an unambiguous promise. The fraud and securities fraud claims were also dismissed because they relied on the existence of a non-dilutable ownership interest, which was not sufficiently alleged. Lastly, the breach of fiduciary duty claims failed as there was no enforceable stock subscription agreement to establish a fiduciary duty. The Seventh Circuit affirmed the district court's judgment. View "Yash Venture Holdings, LLC v. Moca Financial, Inc." on Justia Law

The case involves EPD Investment Co., LLC (EPD) and its owner, Jerrold S. Pressman, who were found to have operated a Ponzi scheme. EPD was forced into Chapter 7 bankruptcy by its creditors, and the Trustee, Jason M. Rund, filed an adversary proceeding against Poshow Ann Kirkland and her husband, John Kirkland, seeking to avoid fraudulent transfers made by EPD to John. John had assigned his interest in EPD to the Bright Conscience Trust, for which Ann is the trustee.The United States District Court for the Central District of California bifurcated the trial, separating the claims against John and Ann. A jury trial was conducted for the claims against John, resulting in a verdict that EPD was a Ponzi scheme but that John received payments in good faith and for reasonably equivalent value. The bankruptcy court ruled that the jury's findings would be binding in the Trustee's claims against Ann. Ann appealed the judgment, particularly challenging the jury's finding that EPD was a Ponzi scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that Ann had standing to appeal due to her significant involvement in the case and her interest in the issues presented. The court rejected Ann's argument that the district court erred by not including a mens rea instruction requiring the jury to find that Pressman knew he was operating a Ponzi scheme that would eventually collapse. The court held that fraudulent intent could be inferred from the existence of a Ponzi scheme established through objective criteria. The court also rejected Ann's argument that the district court erred by instructing the jury that lenders are investors for purposes of a Ponzi scheme.The Ninth Circuit affirmed the district court's order affirming the judgment of the bankruptcy court and remanded the case for further proceedings. View "In re: EPD INVESTMENT COMPANY V. KIRKLAND" on Justia Law

The case involves a dispute over attorneys' fees following a $1 billion settlement in litigation challenging Dell Technologies' redemption of Class V stock. The plaintiff, Steamfitters Local 449 Pension Plan, alleged that Dell Technologies, controlled by Michael Dell and Silver Lake Group LLC, redeemed the Class V stock at an unfair price. The litigation was complex, involving extensive discovery and expert testimony, and was settled on the eve of trial.The Court of Chancery of the State of Delaware awarded 26.67% of the settlement, or $266.7 million, as attorneys' fees. Pentwater Capital Management LP and other class members objected, arguing that the fee was excessive and that a declining percentage method should be applied, similar to federal securities law cases. The Court of Chancery rejected this argument, holding that Delaware law, as established in Sugarland Industries, Inc. v. Thomas and Americas Mining Corp. v. Theriault, does not mandate a declining percentage approach. The court found that the $1 billion settlement was a significant achievement and that the fee award was justified based on the results achieved, the time and effort of counsel, and other relevant factors.The Supreme Court of the State of Delaware reviewed the case and affirmed the Court of Chancery's decision. The Supreme Court held that the Court of Chancery did not exceed its discretion in awarding 26.67% of the settlement as attorneys' fees. The court emphasized that the Sugarland factors, particularly the results achieved, are paramount in determining fee awards. The Supreme Court also noted that while a declining percentage approach is permissible, it is not mandatory, and the Court of Chancery adequately justified its decision not to apply it in this case. View "In re Dell Technologies Inc." on Justia Law

Mark Nordlicht, founder and chief investment officer of Platinum Partners, defrauded Black Elk Energy Offshore Operations' creditors of nearly $80 million, transferring the funds to his hedge fund’s investors, including Shlomo and Tamar Rechnitz, who received about $10.3 million. Nordlicht was later convicted of securities fraud. Black Elk declared bankruptcy, and the Trustee initiated an adversary proceeding against the Rechnitzes to recover the transferred funds.The bankruptcy court ruled that the Trustee could recover the money from the Rechnitzes under 11 U.S.C. §§ 544, 548(a)(1), and 550(a), rejecting their defense under 11 U.S.C. § 550(b)(1) that they were good faith transferees. The court imputed Nordlicht’s knowledge of the fraudulent scheme to the Rechnitzes, as he acted as their agent. The court also found that the funds transferred to the Rechnitzes were traceable to the fraudulent scheme. The district court affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Fifth Circuit reviewed the case and affirmed the lower courts' rulings. The court held that the knowledge of an agent (Nordlicht) is imputed to the principal (the Rechnitzes) under 11 U.S.C. § 550(b)(1), and thus, the Rechnitzes could not claim to be good faith transferees. The court also found that Nordlicht’s actions were within the scope of his authority as the Rechnitzes’ agent. Additionally, the court upheld the bankruptcy court’s tracing methodology, which assumed that tainted funds were used first, finding it appropriate under the circumstances. The court concluded that the Trustee could recover the $10.3 million from the Rechnitzes. View "Rechnitz v. Schmidt" on Justia Law

Ryan Cox filed a class action lawsuit alleging that the defendants manipulated the price of a cryptocurrency called HEX by artificially lowering its ranking on CoinMarketCap.com. The defendants include two domestic companies, a foreign company, and three individual officers of the foreign company. Cox claimed that the manipulation caused HEX to trade at lower prices, benefiting the defendants financially.The United States District Court for the District of Arizona dismissed the case for lack of personal jurisdiction, concluding that Cox needed to show the defendants had sufficient contacts with Arizona before invoking the Commodity Exchange Act's nationwide service of process provision. The court found that none of the defendants had sufficient contacts with Arizona.The United States Court of Appeals for the Ninth Circuit reviewed the case and held that the Commodity Exchange Act authorizes nationwide service of process independent of its venue requirement. The court concluded that the district court had personal jurisdiction over the U.S. defendants, CoinMarketCap and Binance.US, because they had sufficient contacts with the United States. The court also found that Cox's claims against these defendants were colorable under the Commodity Exchange Act. Therefore, the court reversed the district court's dismissal of the claims against the U.S. defendants and remanded for further proceedings.However, the Ninth Circuit affirmed the district court's dismissal of the claims against the foreign defendants, Binance Capital and its officers, due to their lack of sufficient contacts with the United States. The court vacated the dismissal "with prejudice" and remanded with instructions to dismiss the complaint against the foreign defendants without prejudice. View "COX V. COINMARKETCAP OPCO, LLC" on Justia Law