Justia Securities Law Opinion Summaries
Springsteen-Abbott v. Securities and Exchange Commission
This appeal arose from petitioner's mismanagement of two related businesses, Commonwealth Capital and Commonwealth Securities. After FINRA determined that petitioner misused investor funds and tried to cover it up, FINRA barred petitioner from the securities industry, fined her, and ordered her to disgorge certain misused expenses. The SEC affirmed the industry bar and disgorgement order.The DC Circuit affirmed, concluding that petitioner's ambitious constitutional arguments are futile for a simple reason: Congress has prohibited the court from considering issues not raised before the SEC. Furthermore, petitioner has not provided any reasonable grounds that would excuse her failure to exhaust her constitutional claims before the Commission. Nor has there been an intervening change in law that might have excused her failure to press these contentions below. The court also concluded that Saad v. SEC, 980 F.3d 103 (D.C. Cir. 2020), foreclosed petitioner's argument that her lifetime bar is impermissibly punitive. In this case, the SEC's remedial justification finds adequate support in the record. The court rejected petitioner's assertion that continuing education expenses misallocated to the funds—rather than to her companies—were not "net profit," and thus not appropriate for remedial disgorgement after Liu v. SEC, 140 S. Ct. 1936 (2020). Rather, by paying for continuing education expenses out of the funds, instead of her wholly-owned business, the court concluded that petitioner enriched herself by the amount of the savings. View "Springsteen-Abbott v. Securities and Exchange Commission" on Justia Law
Goldfarb v. Solimine
Plaintiff Jed Goldfarb claimed defendant David Solimine reneged on a promise of employment after Goldfarb quit his job to accept the promised position managing the sizeable investment portfolio of defendant’s family. The key issue in this appeal involved whether plaintiff could bring a promissory estoppel claim because he relied on defendant’s promise in quitting his prior employment even though, under New Jersey’s Uniform Securities Law of 1997 (Securities Law or the Act), he could not bring a suit on the employment agreement itself. The New Jersey Supreme Court determined the Securities Law did not bar plaintiff’s promissory estoppel claim for reliance damages. The Court affirmed the liability judgment on that claim and the remanded for a new damages trial in which plaintiff would have the opportunity to prove reliance damages. The Court found he was not entitled to benefit-of-the-bargain damages. To the extent that the Appellate Division relied on an alternative basis for its liability holding -- that a later-adopted federal law “family office” exception had been incorporated into the Securities Law -- the Court rejected that reasoning and voided that portion of the appellate court’s analysis. View "Goldfarb v. Solimine" on Justia Law
LifeWise Family Financial Security, Inc. v. Triangle Capital Corp.
LifeWise, a shareholder in Triangle, filed a securities fraud class action against Triangle, alleging that defendants knew or should have known of the risks of certain investments but defrauded them by failing to disclose such alleged risks. The district court dismissed the amended complaint and subsequently denied leave to amend as futile.The Fourth Circuit affirmed, concluding that LifeWise has not satisfied the Private Securities Litigation Reform Act of 1995's (PSLRA) heightened burden of pleading scienter and this failure is fatal to both its securities fraud claim against Triangle and its director liability claims against Defendants Poole, Lilly, and Tucker. The court considered LifeWise's allegations holistically and in their proper context and held that Lifewise failed to allege a strong inference of scienter. Rather, the court explained that the much stronger inference is that defendants had an honest debate about the merits of a subjective business judgment, and in hindsight, simply made the wrong choice with some investments. View "LifeWise Family Financial Security, Inc. v. Triangle Capital Corp." on Justia Law
In re: Synchrony Financial Securities Litigation
Plaintiffs filed suit alleging that Synchrony Financial and others involved in a December 2017 promissory note offering are liable for materially misrepresenting the scope and degree of changes to the company's underwriting practices beginning in mid-2016 and the impact these changes had on its business relationships with retail companies. The district court dismissed the case in its entirety.With one exception, the Second Circuit agreed with the district court that, from the face of the amended complaint, many allegations were too vague to constitute material misrepresentations on which a reasonable investor would rely. The court also agreed that many alleged material misstatements were properly contextualized by the total mix of publicly available information and appropriately dismissed. However, in regard to one alleged misstatement claiming that a corporate representative of Synchrony Financial publicly stated that the company had received no "pushback" from retail partners during negotiations, the court found that the alleged statement was sufficiently specific to plausibly allege a violation of the Securities Exchange Act of 1934. The court explained that because the alleged statement purported to make a factual assertion about events that had already transpired or were currently in progress, it is materially distinct from the other allegations. Furthermore, particularized allegations in the amended complaint explain how and why this statement may have been false at the time it was made. View "In re: Synchrony Financial Securities Litigation" on Justia Law
Friedman v. Tesla, Inc.
The Ninth Circuit affirmed the district court's dismissal with prejudice of a putative securities fraud class action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint alleged that Tesla, Inc., and two of its officers, misled the investing public during 2017 about Tesla's progress in building production capacity for the Model 3, its first mass-market electric vehicle.The panel concluded that, to the limited extent that the specific statements challenged in plaintiffs' operative Second Amended Complaint are not protected by the "safe harbor" for forward-looking statements in the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-5(c), plaintiffs have failed adequately to plead falsity. The panel also held that plaintiffs' proposal to amend the complaint further, to challenge an additional statement, fails for lack of the requisite loss causation. View "Friedman v. Tesla, Inc." on Justia Law
United States v. Wilkinson
In 1999-2016, Wilkinson convinced approximately 30 people to invest $13.5 million in two hedge funds that he created. By 2008, Wilkinson lost the vast majority of their money. Wilkinson told them that the funds’ assets included a $12 million note with an Australian hedge fund, Pengana. The “Pengana Note” did not exist. Wilkinson provided fraudulent K-1 federal income tax forms showing that the investments had interest payments on the Pengana Note. To pay back suspicious investors, Wilkinson solicited about $3 million from new investors using private placement memoranda (PPMs) falsely saying that Wilkinson intended to use their investments “to trade a variety of stock indexes and options, futures, and options on futures on such stock indexes on a variety of national securities and futures exchanges.” In 2016, the Commodity Futures Trading Commission filed a civil enforcement action against Wilkinson, 7 U.S.C. 6p(1).Indicted under 18 U.S.C. 1341, 1343, Wilkinson pleaded guilty to wire fraud, admitting that he sent fraudulent K-1 forms and induced investment of $115,000 using fraudulent PPMs. The court applied a four-level enhancement because the offense “involved … a violation of commodities law and ... the defendant was … a commodity pool operator,” U.S.S.G. 2B1.1(b)(20)(B). Wilkinson argued that he did not qualify as a commodity pool operator because he traded only broad-based indexes like S&P 500 futures, which fit the Commodity Exchange Act’s definition of an “excluded commodity,” “not based … on the value of a narrow group of commodities.” The Seventh Circuit affirmed. Wilkinson’s plea agreement and PSR established that Wilkinson was a commodity pool operator. View "United States v. Wilkinson" on Justia Law
Cavello Bay Reinsurance Ltd. v. Stein
The Second Circuit affirmed the district court's dismissal of Cavello Bay's claims of securities fraud for failure to plead a domestic application of the law. The court assumed without deciding that the transaction was "domestic," and agreed with the district court that Cavello Bay's claims are predominantly foreign under Parkcentral Global HUB Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198 (2d Cir. 2014). In this case, the claims are based on a private agreement for a private offering between a Bermudan investor (Cavello Bay) and a Bermudan issuer (Spencer Capital); Cavello Bay purchased restricted shares in Spencer Capital in a private offering; and the shares reflect only an interest in Spencer Capital, and they are listed on no U.S. exchange and are not otherwise traded in the United States. The court explained that it is not enough for Cavello Bay to allege that Spencer Capital made a misstatement from New York (through defendant); planned to use the funds to invest in U.S. insurance services; had its principal place of business and CEO and directors in New York; and was managed by a U.S. company. The court concluded that the contacts that matter are those that relate to the purchase and sale of securities. View "Cavello Bay Reinsurance Ltd. v. Stein" on Justia Law
Morris v. Spectra Energy Partners
After a $3.3 billion “roll up” of minority-held units involving a merger between Enbridge, Inc. and Spectra Energy Partners L.P. (“SEP”), Paul Morris, a former SEP minority unitholder, lost standing to litigate an alleged $661 million derivative suit on behalf of SEP against its general partner, Spectra Energy Partners (DE) GP, LP (“SEP GP”). Morris repeated the derivative claim dismissal by filing a new class action complaint that alleged the Enbridge/SEP merger exchange ratio was unfair because SEP GP agreed to a merger that did not reflect the material value of his derivative claims. The Court of Chancery granted SEP GP’s motion to dismiss the new complaint for lack of standing. The court held that, to have standing to bring a post-merger claim, Morris had to allege a viable and material derivative claim that the buyer would not assert and provided no value for in the merger. Focusing on the materiality requirement, the court first discounted the $661 million recovery to $112 million to reflect the public unitholders’ beneficial interest in the derivative litigation recovery. The court then discounted the $112 million further to $28 million to reflect what the court estimated was a one in four chance of success in the litigation. After the discounting, the $28 million, less than 1% of the merger consideration, was immaterial to a $3.3 billion merger. On appeal, Morris argued the trial court should not have dismissed the plaintiff’s direct claims for lack of standing. After its review, the Delaware Supreme Court agreed with Morris finding that, on a motion to dismiss for lack of standing, he sufficiently pled a direct claim attacking the fairness of the merger itself for SEP GP’s failure to secure value for his pending derivative claims. The Court of Chancery’s judgment was reversed and the matter remanded for further proceedings. View "Morris v. Spectra Energy Partners" on Justia Law
Securities & Exchange Commission v. Johnston
The First Circuit affirmed the district court's denial of Defendant's motion for judgment as a matter of law and for a new trial in this civil enforcement action brought by the Securities and Exchange Commission, holding that the evidence was sufficient to support the verdict.At issue was whether Defendant, the CFO of AVEO Pharmaceuticals, knowingly misled investors by the manner in which he responded to investor inquiries about the substance of AVEO's discussions with the Food and Drug Administration (FDA) about the results of AVEO's clinical trial for tivozanib, a kidney cancer drug candidate. A jury found against Defendant. On appeal, Defendant argued (1) he was entitled to judgment as a matter of law because he had no duty to disclose the substance of the FDA discussions and because the evidence of scienter was insufficient, and (2) he was entitled to a new trial because the district court improperly instructed the jury. The Supreme Judicial Court affirmed, holding (1) the evidence of fraud and scienter was sufficient to support the verdict; and (2) the challenged instructions were not given in error. View "Securities & Exchange Commission v. Johnston" on Justia Law
Porsche Automobile Holding SE v. John Hancock Life Insurance Co.
The First Circuit affirmed the decisions of the district court in these appeals challenging the court's discretionary rulings in connection with a request under 28 U.S.C. 1782 to conduct court-ordered discovery for use in a foreign proceeding, holding that the district court did not err or abuse its discretion.The foreign proceeding at issue was one of approximately 200 separate securities fraud actions brought in 2016 against Porsche Automobile Holding SE in Germany. The actions stemmed from Porsche's alleged malfeasance in connection with "defeat devices" employed to circumvent emissions testing in certain diesel vehicles manufactured by Volkswagen AG. The district court granted in part Porsche's request for discovery in the United States from affiliates of John Hancock funds who were plaintiffs in the German actions. The First Circuit affirmed the district court's orders denying the Hancock plaintiffs' motion to intervene and denying in part the Hancock affiliates' motion to quash, holding that the district court did not abuse its discretion. View "Porsche Automobile Holding SE v. John Hancock Life Insurance Co." on Justia Law