by
Former shareholders alleged that Altisource and several of its officers (collectively AAMC) inflated the price of its stock through false and misleading statements. When these mistruths were revealed to the market, they claimed, the price of AAMC’s stock plummeted, costing shareholders billions of dollars. The district court dismissed the complaint, concluding that Plaintiffs failed to satisfy the requirements of the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u– 4. The Third Circuit affirmed. Plaintiffs failed to adequately plead three elements of a Rule 10b-5 claim: a material misrepresentation (or omission), scienter, and loss causation, with “particularity” as required by PSLRA. The economic harm suffered by AAMC’s investors is "regrettable," but plaintiffs failed to plausibly allege that this harm arose from fraud. When a stock experiences the rapid rise and fall that occurred here, it will not usually prove difficult to mine from the economic wreckage a few discrepancies in the now-deflated company’s records. View "City of Cambridge Retirement System v. Altisource Asset Management Corp." on Justia Law

by
Olagues is a self-proclaimed stock options expert, traveling the country to file pro se claims under section 16(b) of the Securities and Exchange Act of 1934, which permits a shareholder to bring an insider trading action to disgorge “short-swing” profits that an insider obtained improperly. Any recovery goes only to the company. In one such suit, the district court granted a motion to strike Olagues’ complaint and dismiss the action, stating Olagues, as a pro se litigant, could not pursue a section 16(b) claim on behalf of TimkenSteel because he would be representing the interests of the company. The Sixth Circuit affirmed that Olagues cannot proceed pro se but remanded to give Olagues the opportunity to retain counsel and file an amended complaint with counsel. View "Olagues v. Timken" on Justia Law

by
From 2008-2016, Brennan and Dyer (Defendants) operated Broad Street, to incorporate Tennessee corporations (Scenic City). They claimed that once Scenic City was appropriately capitalized, Defendants would register its common stock with the SEC using Form 10, would publicly trade Scenic City, and would acquire small businesses as a legal reverse merger. Investors sent money by mail and electronic wire from other states. Defendants moved the funds through Broad Street’s bank accounts, diverting significant funds to their personal bank accounts. They issued stock certificates and mailed them to investors, but never filed Form 10 nor completed any reverse mergers. Investors lost $4,942,070.18. Defendants reported the embezzled funds as long-term capital gains, substantially reducing their personal tax liability and treated payments to themselves from Broad Street as nontaxable distributions. For 2010-2014, Dyer owed an additional $312,799 in taxes; Brennan owed $164,542. The SEC began a civil enforcement suit under 15 U.S.C. 77(q)(a)(1), 77(q)(a)(2), 77(q)(a)(3), and 78j(b), and Rule 10b-5. Defendants pleaded guilty to conspiracy to commit mail and wire fraud, 18 U.S.C. 371, 1341 and tax evasion, 26 U.S.C 7201. The court sentenced them to prison, ordered restitution ($4,942,070.18), and ordered payments for their tax evasion. The SEC sought and the court entered a disgorgement order to be offset by the restitution ordered in the criminal case. The Sixth Circuit affirmed, rejecting an argument that the disgorgement violates the Double Jeopardy Clause under the Supreme Court’s 2017 “Kokesh” holding that disgorgement, in SEC enforcement proceedings, "operates as a penalty under [28 U.S.C.] 2462.” SEC civil disgorgement is not a criminal punishment. View "United States v. Dyer" on Justia Law

by
The Ninth Circuit affirmed the district court's grant of summary judgment for the SEC on its claims that defendant violated federal securities laws. Having considered the records in the criminal and civil proceedings in light of the relevant Restatement factors, the panel held that defendant's conviction determined the identical issues the SEC was required to prove to establish defendant's liability for securities fraud. Therefore, the district court did not err in entering summary judgment based on the preclusive effect of defendant's conviction. The panel rejected defendant's arguments to the contrary, and all pending motions were denied as moot. View "Securities and Exchange Commission v. Stein" on Justia Law

by
The question before the Delaware Supreme Court in this case was whether the Court of Chancery properly applied Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) by reading it as: (1) allowing for the application of the business judgment rule if the controlling stockholder conditions its bid on both of the key procedural protections at the beginning stages of the process of considering a going private proposal and before any economic negotiations commence; and (2) requiring the Court of Chancery to apply traditional principles of due care and to hold that no litigable question of due care exists if the complaint fails to allege that an independent special committee acted with gross negligence. In the Supreme Court's previous affirmance of the Court of Chancery in Swomley v. Schlecht, 128 A.3d 992 (Del. 2015), the Court held that an interpretation of MFW based on these principles was correct. Accordingly, the Court affirmed. View "Flood v. Synutra International, Inc., et al." on Justia Law

by
Plaintiff filed suit against Whole Foods and its executives, alleging that the company and its executives defrauded Whole Foods shareholders in violation of federal securities law by perpetuating weights-and-measures fraud against customers. The Fifth Circuit affirmed the district court's dismissal of the complaint for failure to state a claim, holding that plaintiffs failed to properly allege a material misrepresentation, scienter, or loss causation. In this case, plaintiffs failed to state a claim under section 10(b) of the Securities and Exchange Act based on defendants' comments because plaintiff failed to allege that defendants' particular statements about Whole Foods' prices were false. The court also held that defendants' comments about Whole Foods' commitments to transparency and quality, even if false, were immaterial. Furthermore, plaintiffs failed to identify a decline in stock price that shortly followed a corrective disclosure. Likewise, plaintiffs section 20(a) claims failed because they were derivative to the section 10(b) claims. View "Employees' Retirement System of the State of Hawaii v. Whole Foods Market, Inc." on Justia Law

by
Esperion has never generated any revenue, relying solely upon investor funding. Esperion’s sole focus is the development of ETC-1002, a first-in-class oral medication for lowering LDL “bad cholesterol,” a significant risk factor in cardiovascular disease. Esperion hopes to market ETC-1002 as an alternative treatment for statin-intolerant patients and as an add-on for patients are unable to reach their recommended levels using statins alone. In 2015, Esperion had completed several clinical studies and reported that ETC-1002 was well-tolerated and demonstrated significant average LDL-cholesterol reductions. After a meeting with FDA officials regarding Phase 3 of the approval process, Esperion published a press release, stating that “[b]ased upon feedback from the FDA, approval of ETC-1002 in [specific] patient populations will not require the completion of a cardiovascular outcomes trial,” with cautionary language, suggesting that “Esperion may need to change the design of its Phase 3 program once final minutes from the FDA meeting are received.” Market reaction was mostly positive. Following its receipt of the final FDA minutes, Esperion published another press release, indicating that the “FDA has encouraged the Company to initiate a cardiovascular outcomes trial promptly.” Esperion’s stock dropped 48% the next day. Plaintiffs, the purchasers of Esperion common stock between the two press releases, brought a class action under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. The Sixth Circuit reversed the district court holding that Plaintiffs failed to adequately plead a strong inference that Esperion’s CEO willfully or recklessly made misleading statements. Plaintiffs adequately alleged scienter. View "Dougherty v. Esperion Therapeutics, Inc." on Justia Law

by
The Ninth Circuit affirmed the district court's holding that the general partnership interests at issue qualified as securities under federal law and that defendant violated federal securities law by selling unregistered securities and defrauding his investors. In this case, the general partnership interests at issue were stripped of the hallmarks of a general partnership and marketed as passive investments. The panel held that, in light of defendant's death during the pendency of the appeal and the executor replaced as the name party, as well as intervening Supreme Court precedent, several aspects of the district court's judgment require vacatur and remand. Therefore, the panel vacated the civil penalty order and the disgorgement order, remanding for further proceedings. View "USSEC v. Schooler" on Justia Law

by
The Trusts initiated before FINRA an arbitration proceeding against the eight individuals who had owned Banque Pictet as partners and others, including Pictet Overseas, seeking to recover losses from custodial accounts with Banque Pictet. Pictet Overseas and the Partners then filed an action in federal district court, seeking to enjoin the arbitration, contending that, even if Rule 12200 of the FINRA Code of Arbitration Procedure for Customer Disputes required Pictet Overseas to arbitrate certain claims before FINRA, it did not require Pictet Overseas or the Partners to arbitrate the Trusts' claims. The Eleventh Circuit affirmed the district court's ruling that the Trusts' claims were non-arbitrable and held that FINRA Rule 12200 did not require arbitration. In this case, the Trusts' claims did not arise in connection with Pictet Overseas' or the Partners' business activities. Therefore, the court affirmed the district court's order permanently enjoining the Trusts from arbitrating in a FINRA forum their claims against Pictet Overseas and the Partners. View "Pictet Overseas Inc. v. Helvetia Trust" on Justia Law

by
Pension Funds brought a putative securities fraud class action against Hertz and several of its current and former executives for violating sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 (PSLRA), and Rule 10b-5, 17 C.F.R. 240.10b-5 by making materially false and misleading statements concerning the company’s financial results, internal controls, and future earnings projections. The Funds’ securities fraud allegations rely on a financial restatement Hertz issued with its fiscal year 2014 Form 10-K. In it, the Company admitted that “an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management” and that the tone “resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to … effective review[.]”. The Third Circuit affirmed the dismissal of the fourth amended complaint for failure to plead a strong inference of scienter, as required by the PSLRA. The court conducted a comparative analysis by considering both inferences favorable to the Funds as well as “plausible, nonculpable explanations for the defendant’s conduct” and did not effectively require the Funds to submit “smoking-gun” evidence to survive the defendants’ motions to dismiss. View "In re: Hertz Global Holdings Inc" on Justia Law