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The Securities Litigation Uniform Standards Act (SLUSA) barred a plaintiff class from bringing a covered class action based on state law claims alleging that the defendants made a misrepresentation or omission or employed any manipulative or deceptive device in connection with the purchase or sale of a covered security. The panel held, in this case, that SLUSA precluded all of Northstar's claims against Schwab and that the district court correctly dismissed them. However, the panel held that the district court erred in dismissing the claims with prejudice. View "Northstar Financial Advisors v. Schwab Investments" on Justia Law

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Vanguard offers retail securities brokerage accounts. Its website stated that Vanguard offered a price of “$2 commissions for stock . . . trades” for customers who maintained a balance in Vanguard accounts of $500,000-$1,000,000. The Taksirs, whose holdings met that threshold, used Vanguard to purchase Nokia stock. Vanguard charged them a $7 commission for each of their respective purchases, stating that the Taksirs’ accounts “are not eligible for discounts for trading stocks and other brokerage securities because of IRS nondiscrimination rules” and that “[u]nfortunately, this information is not listed on the Vanguard Brokerage Commission and Fee Schedule.” Weeks later, Orit Taksir acquired additional Nokia stock in the same Vanguard account and was charged a $2 commission. The Taksirs filed a putative class action for fraud or deception under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law and breach of contract. The district court dismissed the UTPCPL claim but denied Vanguard’s motion to dismiss the contract claim. On interlocutory appeal, the Third Circuit affirmed. The Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. 78bb, does not bars investors’ claims that their broker overcharged them for the execution of securities transactions. The issue is whether the overcharges constitute “misrepresentation . . . in connection with the purchase or sale of a covered security.” The overcharges do not have a “connection that matters” to the securities transactions. View "Taksir v. Vanguard Group" on Justia Law

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Plaintiffs filed a derivative action under Section 16(b) of the Securities Exchange Act of 1934 against Perceptive, seeking to require the company to disgorge profits from writing call options on shares of Repros that later expired. The Second Circuit affirmed the district court's grant of Perceptive's motion to dismiss the complaint, holding that, under the plain text of 17 C.F.R. 240.16b6(d) and the congressional purpose of Section 16(b), the statement that liability attaches "upon the cancellation or expiration of [the] option" to mean that there could be liability only if Perceptive owned more than 10 percent of Repros shares at the moment when the calls actually expired. In this case, because the puts were exercised—resulting in Perceptive's sale of most of its Repros shares—prior to the expiration of the calls, the expiration of the calls did not trigger liability. View "Olagues v. Perceptive Advisors LLC" on Justia Law

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Carter, through broker Perkins, opened a commodities trading account to secure the prices his Wyoming ranch would receive for its cattle using financial instruments (hedging). After Perkins changed offices, those accounts were part of a “bulk transfer” to Straits. Carter did not sign new agreements. At Perkins’s request, Carter opened another Straits account to speculate in other categories. After Carter and Perkins split a $300,000 profit, Carter instructed Perkins to close the account. Perkins did not do so but continued speculating on Treasury Bond futures, losing $2 million over three months. Straits liquidated Carter’s livestock commodities holdings to satisfy most of the shortfall and sued for the deficiency. Carter established his right to the seized funds and an award of attorney fees but the court significantly reduced damages, finding that Carter failed to mitigate by not closely reading account statements and trading confirmations. The Seventh Circuit affirmed the interpretation of the contract but remanded for recalculation of damages. Finding Carte responsible for losses resulting from Perkins's fraud would apply a guarantee or ratification that was never given. Fraud victims are not responsible for their agent’s fraud before they learn of unauthorized activity. Under Illinois law, the injured party must have actual knowledge before it must act to mitigate its damages. The court affirmed the attorney fee award under the Illinois Consumer Fraud and Deceptive Business Practices Act. View "Straits Financial LLC v. Ten Sleep Cattle Co." on Justia Law

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Under Federal Rule of Evidence 201, a court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment, but a court cannot take judicial notice of disputed facts contained in such public records. The incorporation-by-reference doctrine prevents plaintiffs from selecting only portions of documents that support their claims, while omitting portions of those very documents that weaken or doom their claims. The Ninth Circuit addressed and clarified when and how the district court should consider materials extraneous to the pleadings at the motion to dismiss stage via judicial notice and the incorporation-by-reference doctrine. In this case, plaintiffs appealed the district court's dismissal of an action under the Securities Exchange Act of 1934. The panel held that the district court erred in part by judicially noticing some facts, but properly took notice of the date of Orexigen's international patent application for Contrave. Therefore, the panel reversed and remanded for clarification on Exhibit D, reversed the district court's judicial notice of Exhibit E, and affirmed the judicial notice of Exhibit V. The panel also that the district court abused its discretion by incorporating certain documents into the complaint and properly incorporated others. The panel reversed the district court's incorporation-by-reference of Exhibits B, C, F, H, R, S, and U, and affirmed the incorporation of Exhibits A, I K, L, N, O, P, and T. The panel affirmed in part, reversed in part, and remanded as to the remaining claims. View "Khoja v. Orexigen Therapeutics, Inc." on Justia Law

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The Supreme Court answered a question certified to it by the United States Court of Appeals for the Sixth Circuit by holding that Ohio Rev. Code 1707.43, a provision of the Ohio Securities Act, does not impose joint and several liability on persons who aided in the purchase of illegal securities but did not participate or aid in the sale of the illegal securities. Plaintiffs filed a class action lawsuit in federal court seeking to hold Defendants, two trust companies, liable under the Ohio Securities Act, Ohio Rev. Code 1707.01 et seq., for their alleged roles in a Ponzi scheme. The district court granted Defendants’ motions to dismiss, holding that the trust companies’ mere involvement in the transactions at issue was insufficient to impose liability on them under the Act. The court of appeals then certified the above question to the Supreme Court. The Court answered that section 1707.43 does not impose joint and several liability on a person who, acting as the custodian of a self-directed individual retirement account (IRA), purchased, on behalf and at the direction of the owner of the self-directed IRA, illegal securities. View "Boyd v. Kingdom Trust Co." on Justia Law

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Reading, a Pennsylvania not-for-profit health system, issued auction rate securities (ARSs) to finance capital projects. J.P. Morgan was the underwriter and broker-dealer. Reading claims that J.P. Morgan and others artificially propped up the ARS market through undisclosed support bidding; when they stopped in 2008, the market collapsed. Reading filed state law claims and demanded arbitration with the Financial Industry Regulatory Authority (FINRA). The 2005 and 2007 broker-dealer agreements state “all actions and proceedings arising out of” the agreements or ARS transactions must be filed in the Southern District of New York. Reading filed a claim under FINRA Rule 12200, which requires a FINRA member (J.P. Morgan) to arbitrate any dispute at the customer’s request. J.P. Morgan refused, arguing that the forum-selection clauses in the 2005 and 2007 broker-dealer agreements constituted a waiver of Reading’s right to arbitrate under Rule 12200. The Third Circuit affirmed the Eastern District of Pennsylvania, which resolved the transfer dispute before the arbitrability dispute, declined to transfer the action, and required J.P. Morgan to submit to arbitration. Reading’s right to arbitrate is not contractual but arises out of a binding, regulatory rule, adopted by FINRA and approved by the SEC. Condoning an implicit waiver of Reading’s regulatory right to arbitrate would erode investors’ ability to use a cost-effective means of resolving allegations of misconduct and undermine FINRA’s ability to oversee and remedy such misconduct. View "Reading Health System v. Bear Stearns & Co., Inc." on Justia Law

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The Fund filed suit alleging that Hangar and three of its officers engaged in securities fraud. The Fifth Circuit held that the district court did not err in dismissing the section 10(b) of the Securities and Exchange Act claims against Defendants Asar and Kirk, but erred in dismissing the claims against Defendants McHenry and Hanger. In this case, the allegations supported a strong inference of scienter as to McHenry where the court could infer from the Audit Committee's report that he intended to enhance Hanger's financial results. The court explained that, taking the allegations holistically, McHenry's having had the requisite state of mind was "cogent" and "at least as compelling" as the alternate explanations. Therefore, McHenry's scienter could be imputed to Hanger, but only as to his allegedly false statements. View "Alaska Electrical Pension Fund v. Asar" on Justia Law

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Best execution claims alleging misrepresentations or omissions relating to: (1) a broker's receipt of "kickbacks" from trading venues; and (2) the execution of trades so as to take advantage of such arrangements, satisfy the third element of the Securities Litigation Uniform Standards Act of 1998 (SLUSA), by alleging securities claims based on fraudulent conduct.    The Second Circuit affirmed the district court's dismissal of plaintiff's action alleging that defendant violated its duty of best execution. The court held that the claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). In this case, plaintiff filed a covered class action based on state law claims involving covered securities; the gravamen of plaintiff's complaint was that defendant made material misrepresentations and omissions that were designed to induce clients to execute non‐directed, standing limit orders with defendant even though it allegedly had no intention of fulfilling its purported fiduciary obligations; and defendant's alleged fraudulent conduct arose in connection with the purchase or sale of covered securities. View "Rayner v. E*TRADE Financial Corp." on Justia Law

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The issue this appeal presented for the Tenth Circuit’s review centered on the district court’s dismissal of Plaintiff-Appellant David Hampton’s securities-fraud class action against Defendants-Appellees root9B Technologies, Inc. (“root9B”), Joseph Grano, Jr., the Chief Executive Officer and Chairman, and Kenneth T. Smith, the former Chief Financial Officer. Hampton filed suit claiming root9B made false or misleading statements in connection with the purchase or sale of securities. Hampton identified two statements he alleged were false or misleading and material: (1) a letter from Grano to investors attesting that root9B was differentiated from competitors by its “proprietary hardware and software;” and (2) a press release and associated report published by root9B in which the company claimed to have detected a planned cyber attack against a number of international financial institutions. He further alleged that the individual defendants were jointly and severally liable under section 20(a) of the Securities Exchange Act of 1934. The district court dismissed Hampton’s claims, finding that he had failed to sufficiently plead that the identified statements were false or misleading. The Tenth Circuit concurred with the district court’s findings and affirmed its judgment. View "Hampton v. Root9B Technologies" on Justia Law