Justia Securities Law Opinion Summaries
Altimeo Asset Mgmt. v. Qihoo 360 Technology Co. Ltd.
The Second Circuit vacated the district court's dismissal of a putative class action on behalf of investors who traded Qihoo 360 Technology securities between December 18, 2015, and July 15, 2016. The investors alleged that defendants violated the Exchange Act by, among other things, deceiving investors about the plan to relist the company. The court concluded that the allegations in the complaint were sufficient to survive a motion to dismiss on that ground. In this case, plaintiffs alleged, and provided supporting evidence, that defendants represented to shareholders that there were no plans to relist the company following a shareholder buyout, when in fact the company had such a plan at the time of the buyout. Therefore, plaintiffs adequately alleged a misstatement or omission of material fact. The court remanded for further proceedings. View "Altimeo Asset Mgmt. v. Qihoo 360 Technology Co. Ltd." on Justia Law
J.P. Morgan Securities Inc. v. Vigilant Insurance Co.
The Court of Appeals reversed the decision of the Appellate Division reversing Supreme Court's order granting summary judgment to Bear, Stearns & Co. Inc. and Bear Stearns Securities Corp. (collectively, Bear Stearns) in this action brought by Bear Stearns' successor companies alleging that its insurers (Insurers) had breached insurance contracts, holding that the $140 million disgorgement for which Bear Stearns sought coverage was not a "payment" within the meaning of the relevant policy.When the Securities and Exchange Commission (SEC) censured Bear Stearns for securities law violations, Bear Stearns agreed to a $160 million disgorgement payment and a $90 million payment for civil money penalties. Both payments were to be deposited in a fund to compensate mutual fund investors allegedly harmed by Bear Stearns' improper trading practices. Bear Stearns transferred the payments to the SEC. Plaintiffs then brought this action against Insurers seeking coverage under a "wrongful act" liability for the disgorged funds. Supreme Court granted summary judgment to Bear Stearns. The Appellate Division reversed, concluding that Bear Stearns was not entitled to coverage for the SEC disgorgement payment. The Court of Appeals reversed, holding that Insurers failed to establish that the $140 million disgorgement payment clearly and unambiguously fell within the policy exclusion for "penalties imposed by law." View "J.P. Morgan Securities Inc. v. Vigilant Insurance Co." on Justia Law
City of Plantation Police Officers Pension Fund v. Meredith Corp.
The Eighth Circuit affirmed the district court's dismissal of the Pension Fund's amended complaint in this securities fraud class action. The Pension Fund, as lead plaintiff, alleged securities fraud under section 10(b) of the Securities Exchange Act, as well as controlling-person liability under section 20(a) of the Securities Exchange Act.The court concluded that, 137 of the 138 statements listed in the amended complaint were clearly either (1) statements identified as forward looking and accompanied by meaningful cautionary statements, (2) corporate puffery, or (3) forward-looking statements that the complaint's allegations do not imply by strong inference were made with actual knowledge of their falsity. Furthermore, although the remaining statement comes closer than the other 137 to giving the Pension Fund a section 10(b) claim, it too falls short. The court explained that, even assuming arguendo the statement was false, the confidential former employee's allegation does not give rise to a strong inference of severe recklessness. Therefore, the complaint fails to satisfy the heightened pleading standards with respect to the misrepresentation and mental-state requirements of section 10(b) liability. Consequently, the section 20(b) claims were also properly dismissed. Finally, reviewing the issue of futility de novo, the court concluded that the district court properly denied leave to amend. View "City of Plantation Police Officers Pension Fund v. Meredith Corp." on Justia Law
Securities and Exchange Commission v. Blackburn
In 2008, Blackburn founded Treaty an oil and gas company whose shares were traded over the counter as “penny stocks.” Blackburn received around 400 million shares, giving him an 86.4% interest in Treaty. Though Blackburn was never a board member or an officer of Treaty, he maintained significant control. He communicated with a foreign government on behalf of Treaty, paid the company’s bills with his stock proceeds, and appointed Treaty’s officers and directors. Treaty had previously worked at a gravel company that went bankrupt. Blackburn paid over $1 million to settle the trustee’s claim that he had misappropriated company funds. Blackburn had also been convicted of four federal tax felonies. Blackburn recruited others, with clean records, to serve in public positions; they failed to disclose in public filings Blackburn’s involvement with Treaty.In 2014, the SEC asserted claims against Treaty, Blackburn, and others under the Securities Act. 15 U.S.C. 77e(a), 77q(a). The company and one defendant settled. The district court found the others liable for selling unregistered securities and misleading investors about the company’s production of oil and Blackburn’s involvement. It ordered disgorgement of the defendants’ fraud proceeds. The Fifth Circuit affirmed. Summary judgment was warranted in the SEC’s favor and the disgorgement award was “for the benefit of investors” as required by the Supreme Court’s 2020 “Liu” decision. View "Securities and Exchange Commission v. Blackburn" on Justia Law
Oetting v. Sosne
A global settlement was approved in 2002 in securities law class actions concerning the merger of companies to form Bank of America, which included an award of approximately $58 million in fees to the attorneys appointed to represent the NationsBank Class. Two decades later, one of the lead plaintiffs for the class filed a motion to reconsider the fee award and to order disgorgement of some $38 million in fees previously paid to NationsBank Class Counsel based on their poor performance, mismanagement of the settlement fund, and abandonment of the class.The Eighth Circuit affirmed the district court's denial of plaintiff's motion for redetermination, concluding that disgorgement of attorneys' fees was barred by the equitable doctrine of laches. The court concluded that the delay in asserting plaintiff's claim is manifestly unreasonable and inexcusable, prejudicing the other parties; the court and/or the district court previously rejected plaintiff's challenges; the challenged actions, from the inclusion of an exculpatory clause in the settlement checks to opposing cy pres distribution, occurred seven to fifteen years before plaintiff sought total disgorgement in his motion for redetermination; and plaintiff's failure to seek disgorgement in the proper manner and before the proper court was inexcusable delay. Finally, the court concluded that the district court has not failed to honor its ongoing fiduciary duty to the class in overseeing a complex settlement fund distribution made more complex and dilatory by the contentious actions of its participants, and the court has not allowed the class to be abandoned by those responsible for distributing the settlement fund. View "Oetting v. Sosne" on Justia Law
Securities and Exchange Commission v. Romeril
The Second Circuit affirmed the district court's order denying defendant's motion pursuant to Federal Rule of Civil Procedure 60(b)(4) for relief from judgment. In 2003, the SEC brought a civil enforcement action against defendant and, to resolve the matter, defendant consented to the entry of a final judgment against him, agreeing not to deny any of the factual allegations of the complaint. Almost 16 years later, defendant sought to invalidate the judgment on the basis that it incorporated a "gag order" that violated the First Amendment and his right to due process. The court agreed with the district court that defendant's motion fails on the merits because it does not allege either a jurisdictional or due process violation that would permit relief under Rule 60(b)(4). View "Securities and Exchange Commission v. Romeril" on Justia Law
United Food and Commercial Workers Union v. Zuckerberg, et al.
In 2016, the board of directors of Facebook, Inc. (“Facebook”) voted in favor of a stock reclassification that would allow Mark Zuckerberg, Facebook’s controller, chairman, and chief executive officer, to sell most of his Facebook stock while maintaining voting control of the company. Zuckerberg proposed the Reclassification to allow him and his wife to fulfill a pledge to donate most of their wealth to philanthropic causes. With Zuckerberg casting the deciding votes, Facebook’s stockholders approved the Reclassification. Not long after, numerous stockholders filed lawsuits in the Delaware Court of Chancery, alleging that Facebook’s board of directors violated their fiduciary duties by negotiating and approving a purportedly one-sided deal that put Zuckerberg’s interests ahead of the company’s interests. The trial court consolidated more than a dozen of these lawsuits into a single class action. At Zuckerberg’s request and shortly before trial, Facebook withdrew the Reclassification and mooted the fiduciary-duty class action. Facebook spent more than $20 million defending against the class action and paid plaintiffs’ counsel more than $68 million in attorneys’ fees under the corporate benefit doctrine. Following the settlement, another Facebook stockholder, the United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund (“Tri-State”), filed a derivative complaint, rehashing many of the allegations made in the prior class action but sought compensation for the money Facebook spent in connection with the prior class action. Tri-State pleaded that making a demand on Facebook's board was futile because the board’s negotiation and approval of the Reclassification was not a valid exercise of its business judgment and because a majority of the directors were beholden to Zuckerberg. Facebook and the other defendants moved to dismiss Tri-State’s complaint arguing Tri-State did not make demand or prove that demand was futile. The Court of Chancery dismissed Tri-State's complaint under Rule 23.1. Finding no reversible error in that judgment, the Delaware Supreme Court affirmed dismissal. View "United Food and Commercial Workers Union v. Zuckerberg, et al." on Justia Law
Brookfield Asset Management, Inc., v. Rosson
The issue presented from this interlocutory appeal of a Court of Chancery order holding that Appellees/Cross-Appellants, former stockholders of TerraForm Power, Inc. (“TerraForm”), had direct standing to challenge TerraForm’s 2018 private placement of common stock to Appellant/Cross-Appellees Brookfield Asset Management, Inc. and its affiliates, a controlling stockholder, for allegedly inadequate consideration. The trial court held that Plaintiffs did not state direct claims under Tooley v. Donaldson, Lufkin & Jennette, Inc., but did state direct claims predicated on a factual paradigm “strikingly similar” to that of Gentile v. Rossette, and that Gentile was controlling here. Appellants contended Gentile was inconsistent with Tooley, and that the Delaware Supreme Court’s decision in Gentile created confusion in the law and therefore ought to be overruled. Having engaged in a "full and fair presentation and searching inquiry has been made of the justifications for such judicial action," the Supreme Court overruled Gentile. Accordingly, the Court of Chancery's decision was reversed, but not because the Court of Chancery erred, but rather, because the Vice Chancellor correctly applied the law as it existed, recognizing that the claims were exclusively derivative under Tooley, and that he was bound by Gentile. View "Brookfield Asset Management, Inc., v. Rosson" on Justia Law
Pirani v. Slack Technologies, Inc.
The Ninth Circuit affirmed the district court's order denying in part a motion to dismiss and ruling that plaintiff had standing to sue Slack and individual defendants under Sections 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing. Plaintiff alleges that Slack's registration statement was inaccurate and misleading because it did not alert prospective shareholders to the generous terms of Slack's service agreements, which obligated Slack to pay for service disruptions; nor did it disclose that these service disruptions were frequent in part because Slack guaranteed 99.99% uptime; and the statement downplayed the competition Slack was facing from Microsoft Teams at the time of its direct listing.The panel concluded that plaintiff had standing to bring a claim under Sections 11 and 12(a)(2) because his shares could not be purchased without the issuance of Slack's registration statement, thus demarking these shares, whether registered or unregistered, as "such security" under Sections 11 and 12 of the Act. The panel explained that because standing existed for plaintiff's section 11 claim against Slack, standing also existed for a dependent section 15 claim against controlling persons. The panel did not resolve the issue of whether plaintiff has sufficiently alleged the other elements of Section 12 liability. View "Pirani v. Slack Technologies, Inc." on Justia Law
IWA Forest Industry Pension Plan v. Textron Inc.
IWA filed a putative securities fraud class action against Textron, a manufacturer of aircraft and recreational vehicles, and two of its executives, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The district court dismissed the action for failure to allege any actionable misstatements.The Second Circuit vacated the portion of the district court's judgment dismissing IWA's securities fraud claims arising from the inventory statements. The court concluded that IWA sufficiently alleged the materially misleading nature of the 2018 statements at issue regarding Textron's inventory, and that Federal Rule of Civil Procedure 9(b)'s demand for particularity is satisfied in this case. The court affirmed the district court's ruling as to the other categories of statements. View "IWA Forest Industry Pension Plan v. Textron Inc." on Justia Law