Justia Securities Law Opinion Summaries

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After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

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Steven Thompson was a real estate developer and sole member and manager of SGD Timber Canyon, LLC (“Timber Canyon”), a real estate company that held an interest in a number of undeveloped lots in Castle Rock, Colorado. To buy those properties, Timber Canyon initially obtained a $11.9 million loan from Flagstar Bank. The properties went into foreclosure in October 2009. In February 2010, Timber Canyon filed for bankruptcy; Flagstar Bank sought relief from the automatic stay to allow it to proceed with the foreclosure. In the spring of 2010, Thompson met John Witt (“John”), who had worked in the construction industry in Denver but wanted to become a real estate developer. John eventually began working with Thompson and signed a letter of intent indicating that John would eventually obtain an ownership interest in Thompson’s company. Shortly thereafter, and without disclosing the fact that the Timber Ridge properties were in foreclosure and subject to a forbearance agreement, Thompson obtained an “investment” from John’s parents, Thomas and Debra Witt (“the Witts”). Ultimately, the Witts agreed to increase their initial $400,000 investment to $2.4 million. At no point did Thompson disclose to the Witts that Timber Canyon's properties were already highly leveraged; the company was in bankruptcy, the properties were in foreclosure, and the properties had been valued at only $6.75 million (an amount significantly less than the $31 million value that Thompson had represented to the Witts during negotiations). When the Witts’ note ultimately came due in the winter of 2011, Thompson defaulted. The Witts filed a civil lawsuit against him and contacted law enforcement. Thereafter, the State charged Thompson with two counts of securities fraud and one count of theft. A jury convicted Thompson on all counts, and the court sentenced him to the Department of Corrections for twelve years on each of the securities fraud counts, to be served concurrently, and eighteen years on the theft count, to be served consecutively to the securities fraud counts. As pertinent here, Thompson argued on appeal: (1) because the note at issue was not a security, insufficient evidence supported his securities fraud convictions; (2) the trial court erred by tendering an incorrect jury instruction regarding the meaning of “security”; and (3) his theft conviction had to run concurrently with his securities fraud convictions. The issue this case presented for the Colorado Supreme Court's review was whether: (1) the promissory note at issue was a security under the "family resemblance" test; (2) any error in the jury instruction defining “security” was not plain; and (3) consecutive sentences were permissible because different evidence supported defendant Steven Thompson’s securities fraud and theft convictions. Finding the note at issue was indeed a security under Colorado law, and no other reversible error, the Supreme Court affirmed Thompson's convictions. View "Thompson v. Colorado" on Justia Law

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The SEC investigated Gentile for his role in a penny-stock manipulation scheme in 2007-08 and civilly sued Gentile, who was indicted for securities fraud violations. The criminal prosecution was dismissed as untimely. The SEC separately investigated securities transactions through an unregistered broker-dealer in violation of the Securities and Exchange Act of 1934, 15 U.S.C. 78o(a): Traders Café, a day-trading firm, maintained an account with Gentile’s Bahamian broker-dealer, which was not registered in the U.S. The SEC issued a Formal Order of Investigation into Café in 2013. Without issuing a new Formal Order, the SEC informed Gentile that he was a target in that investigation.The SEC subpoenaed Gentile for testimony. He refused to comply. The SEC did not seek enforcement against Gentile but subpoenaed Gentile’s attorney and an entity affiliated with Gentile’s Bahamian broker-dealer, which also refused to comply. The SEC commenced enforcement actions against those entities. Gentile unsuccessfully moved to intervene; the Florida district court ordered compliance. Gentile filed suit in New Jersey, seeking a declaration that the Café investigation was unlawful, requesting the quashing of the subpoenas, and seeking an injunction to prevent the SEC from using the fruits of that investigation against him.The Third Circuit affirmed the dismissal of the suit. The APA’s waiver of sovereign immunity, 5 U.S.C. 702, includes an exception for “agency action committed to agency discretion by law,” section 701(a)(2); sovereign immunity prevents judicial review of the Formal Order of Investigation. View "Gentile v. Securities and Exchange Commission" on Justia Law

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The First Circuit affirmed the judgment of the district court dismissing Plaintiff's Securities Act claims and finding that Plaintiff did not have standing to bring his Securities Exchange Act claims, holding that Plaintiff failed to allege a violation of the Securities Act and failed to state an Exchange Act claim.On behalf of proposed classes of investors, Plaintiff alleged that ReWalk Robotics, Ltd. violated both the Securities Act and the Securities Exchange Act by omitting details and misrepresenting its dealings with the Federal Drug Administration in its initial public offering Registration Statement and in subsequent disclosures. The district court concluded that Plaintiff failed to allege a violation of the Securities Act and that he lacked standing to challenge ReWalk's alleged failures to make certain disclosures after his purchases of ReWalk securities. The district court further denied Plaintiff's motion to add Joanne Geller as a party. The First Circuit affirmed, holding that the district court properly dismissed Plaintiff's claims. View "Yan v. ReWalk Robotics Ltd." on Justia Law

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The Fifth Circuit affirmed the district court's dismissal of plaintiff's claims in a putative class action alleging that defendants' omissions from a proxy statement led Tesco shareholders to approve an all-stock acquisition by Nabors.Under the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA), the court held that plaintiff failed to state a claim upon which relief can be granted. In regard to plaintiff's claims under Section 14(a) of the Securities Exchange Act of 1934 that the proxy statement was misleading because it omitted certain material facts, the court held that plaintiff failed to identify how the four allegedly omitted pieces of information were necessary in order to make the statements therein not false or misleading. The court rejected plaintiff's remaining contentions as to this issue. In regard to plaintiff's claims under Section 20(a) of the 1934 Act that the individual defendants are liable for any violations committed by people they controlled, plaintiff failed to state a predicate claim under Section 14(a) and SEC Rule 14a-9. Finally, the court held that amendment would be futile and that the district court did not abuse its discretion in denying leave to amend. View "Heinze v. Tesco Corp." on Justia Law

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Investors filed a claim with FINRA's arbitration division seeking to recover substantial losses from Broker, alleging nine causes of action. Broker counterclaimed, seeking payment of the debt and attorneys' fees. The arbitration panel found in favor of Investors and dismissed Broker's counterclaim. The arbitrators then issued a modified award on remand. The district court subsequently granted Broker's motion to vacate the modified award in favor of the Investors and remanded Broker's counterclaim to a new panel of arbitrators. Investors timely appealed.The Fourth Circuit held that the district court erred in vacating the modified award where the arbitrators' imposition of liability against Broker is not in manifest disregard to the law. The court explained that imposing liability based on a contractual obligation to comply with the FINRA rules is, at the very least, an arguable interpretation of the parties' contracts. In this case, Broker executed trades of iPath S&P 500 VIX Short-Term Futures (VXX) on Investors' portfolio margin accounts, in clear violation of FINRA Rule 4210. Rule 4210 prohibits trades of certain high-risk securities through portfolio margin accounts, including trades of VXX. The court also held that the arbitration panel did not manifestly disregard the law by imposing damages in the amount of Investors' accounts on August 19, 2015. In light of Connecticut law, the court reasoned that the award placed Investors in the position they would have been if the contracts had been properly performed after August 19. Finally, the arbitration panel did not manifestly disregard the law by awarding Investors attorneys' fees. Accordingly, the court vacated and remanded with instructions to confirm the modified arbitration award. View "Interactive Brokers LLC v. Saroop" on Justia Law

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After the district court granted defendants' Federal Rule of Civil Procedure 12(b)(6) motion to dismiss with prejudice plaintiffs' second amended complaint alleging violations of the federal securities laws and entered judgment for defendants, plaintiffs brought a motion under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from the judgment and for leave to file a third amended complaint.The Second Circuit affirmed the district court's denial of the motion and held that plaintiffs are not entitled to relief under Rules 59(e) and 60(b). The court held that the district court applied the correct legal standard to plaintiffs' post-judgment motion by considering whether plaintiffs were entitled to relief under Rules 59(e) or 60(b), and committed no abuse of discretion in denying the motion on the grounds that plaintiffs had failed to identify an adequate basis for relief pursuant to those rules. In this case, plaintiffs failed to proffer any newly discovered evidence that would entitle them to relief under Rules 59(e) or 60(b) and, even if the purported newly discovered evidence was indeed new, the result would be the same because amendment would be futile. View "Metzler Investment GmbH v. Chipotle Mexican Grill, Inc." on Justia Law

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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