Justia Securities Law Opinion Summaries

To safeguard investors and restore trust in financial markets after the Enron collapse, Congress passed the Sarbanes-Oxley Act of 2002, which provides that no public company nor any contractor or subcontractor of such a company, may discharge, demote, suspend, threaten, harass, or discriminate against an employee in the terms and conditions of employment because of whistleblowing activity, 18 U. S. C. 1514A(a). Plaintiffs are former employees of FMR, private companies that contract to advise or manage mutual funds. As is common in the industry, those mutual funds are public companies with no employees. Plaintiffs allege that they blew the whistle on putative fraud relating to the mutual funds and suffered retaliation by FMR. FMR argued that the Act protects only employees of public companies, and not employees of private companies that contract with public companies. The district court denied FMR’s motion to dismiss. The First Circuit reversed, concluding that the term “an employee” refers only to employees of public companies. The Supreme Court reversed and remanded, concluding that section 1514A’s whistleblower protection includes employees of a public company’s private contractors and subcontractors. FMR’s interpretation would shrink the protection against retaliation by contractors to insignificance. The Court stated that its reading fits the goal of warding off another Enron debacle; fear of retaliation was the primary deterrent to reporting by the employees of Enron’s contractors. FMR’s reading would insulate the entire mutual fund industry from section 1514A. Virtually all mutual funds are structured to have no employees of their own and are managed, instead, by independent investment advisors. View "Lawson v. FMR LLC" on Justia Law

Trustee sued on behalf of victims in the Ponzi scheme worked by Bernard Madoff under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa, alleging that, when defendants were confronted with evidence of Madoff's illegitimate scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the fraud. The court concluded that the doctrine of in pari delicto barred the Trustee from asserting claims directly against defendants on behalf of the estate for wrongdoing in which Madoff participated; SIPA provided no right to contribution; and the Trustee did not have standing to pursue common law claims on behalf of Madoff's customers. Accordingly, the court affirmed the district court's dismissal of the Trustee's claims. View "In Re: Bernard L. Madoff Investment Securities" on Justia Law

Daley opened an IRA with Merrill Lynch, rolling over $64,646 from another financial institution. He signed a contract with a "liens" provision that pledged the IRA as security for any future debts to Merrill Lynch. No such debts ever arose. Daley never withdrew money from his IRA, borrowed from it or used it as collateral. Two years later, Daley filed a Chapter 7 bankruptcy petition and sought protection for the IRAs, 11 U.S.C. 522(b)(3)(C). The trustee objected, contending that the IRA lost its exempt status when Daley signed the lien agreement. The bankruptcy court and the district court ruled in favor of the trustee. The Sixth Circuit reversed. An IRA loses its tax-exempt status if the owner "engages in any transaction prohibited by section 4975 of the tax code. There are six such transactions, including “any direct or indirect” “lending of money or other extension of credit” between the IRA and its owner, 26 U.S.C. 4975(c)(1)(B). Daley never borrowed from the IRA, and Merrill Lynch never extended credit to Daley based on the existence of the IRA. View "Daley v. Mostoller" on Justia Law

This is an adversary proceeding arising out of the bankruptcy of debtor (Derivium). Plaintiff (Grayson), assignee of the Chapter 7 bankruptcy trustee, appealed from a district court judgment affirming the bankruptcy court's decision to grant summary judgment for defendants (Wachovia). The court concluded that the district court did not err in affirming the grant of summary judgment for Wachovia on Grayson's Customer Transfers claim; summary judgment for Wachovia on Grayson's Cash Transfers claim; the bankruptcy court's determinations that the stockbroker defense applied to commissions; and the bankruptcy court's ruling that in pari delicto barred Grayson's tort claims against Wachovia. View "Grayson Consulting, Inc. v. Wachovia Securities, LLC" on Justia Law

Appellant purchased nonrecourse notes (Notes) in the amount of two million dollars, issued by the Puerto Rico Conservation Trust Fund (PRCTF). The Notes were not registered under the Securities Act based on an exemption from registration. The Notes later went into default, and Appellant sued Banco Popular de Puerto Rico (BPPR), trustee of the Notes, and Wilmington Trust Company (WTC), indenture trustee of the securities that the PRCTF purchased with Note proceeds. Appellant brought suit in federal district court, premising his assertion of subject matter jurisdiction on the Edge Act and the Trust Indenture Act of 1939 (TIA). The district court dismissed the amended complaint for want of subject matter jurisdiction. The First Circuit Court of Appeals affirmed, holding (1) Appellant's suit did not arise under federal law; and (2) the district court did not abuse its discretion in refusing to permit Appellant to file a delayed amended complaint asserting a new theory of liability because Appellant proffered no good reason for the delay. View "Nikitine v. Wilmington Trust Co." on Justia Law

Appellants purchased nonrecourse notes (Notes) in the amount of two million dollars, issued by the Puerto Rico Conservation Trust Fund (PRCTF). The Notes were not registered under the Securities Act based on an exemption from registration. The Notes later went into default, and Appellants sued Banco Popular de Puerto Rico (BPPR), trustee of the Notes, and Wilmington Trust Company (WTC), indenture trustee of the securities that the PRCTF purchased with Note proceeds. Appellants brought their suit in federal district court, premising their assertion of subject matter jurisdiction on the Edge Act and the Trust Indenture Act of 1939 (TIA). The district court dismissed the amended complaint for want of subject matter jurisdiction. The First Circuit Court of Appeals affirmed, holding that Appellants' suit did not arise under federal law. View "Calderon-Serra v. Wilmington Trust Co." on Justia Law

Plaintiffs appeal from the district court's order denying their motion for remand to state courts. This is an interlocutory appeal of a question certified by the district court, calling for interpretation of the jurisdictional provisions of the Edge Act, 12 U.S.C. 632. Whether the district court's denial of remand was proper turns on whether the dispute falls within section 632. The court concluded that the dispute did not fall within section 632's grant of jurisdiction so that removal from state to federal court was not authorized by the statute. Therefore, the court vacated the district court's order denying remand. View "AIG v. Bank of America" on Justia Law

MBIA sued as the third party beneficiary of the Pooling and Servicing Agreements (PSAs) of a failed bank. It alleged that the FDIC as conservator of the successor bank had "approved," the PSAs and then breached its "Put Back" obligations under those agreements, resulting in investor claims of MBIA-issued insurance policies. At issue was whether payments made by MBIA to investors in mortgage securitizations of a failed bank constituted "administrative expenses" entitled to priority under the Financial Institutions, Reform, Recovery, and Enforcement Act (FIRREA), 12 U.S.C. 1821(d)(11)(A). The court held that the district court properly rejected MBIA's broad interpretation of "approved" in section 1821(d)(20) and dismissed MBIA's damage claims in counts I-V and VIII as prudentially moot in light of the FDIC's No Value Determination; the district court did not err in dismissing counts VI-VII for failure to state a claim; and the court rejected MBIA's alternative theory of recovery, claiming that FDIC Corporate was obligated under 12 U.S.C. 1821(m)(13) to fund the failed bank's losses. Accordingly, the court affirmed the judgment. View "MBIA Ins. Corp. v. FDIC" on Justia Law

Argentina appealed from permanent injunctions entered by the district court designed to remedy Argentina's failure to pay bondholders after a default in 2001 on its sovereign debt. The district court granted plaintiffs summary judgment and enjoined Argentina from making payments on debt issued pursuant to its 2005 and 2010 restructurings without making comparable payments on the defaulted debt. The court held that an equal treatment provision in the bonds barred Argentina from discriminating against plaintiffs' bonds in favor of bonds issued in connection with the restructurings and that Argentina violated that provision by ranking its payment obligations on the defaulted debt below its obligations to the holders of its restructured debt. Accordingly, the court affirmed the judgment of the district court; found no abuse of discretion in the injunctive relief; and concluded that the injunction did not violate the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. 1602-1611. However, given the need for clarity as to how the injunctions were to function, the court remanded for further proceedings. View "NML Capital, Ltd. v. The Republic of Argentina" on Justia Law

Knight was owner and CEO of Knight Industries, which owned other companies. Bank had provided credit ($34 million) to the companies, which, in 2009, filed bankruptcy petitions. Chatz was appointed trustee and was authorized to retain the Freeborn law firm. Chatz and the Bank alleged that Knight had made fraudulent transfers, had breached duties of good faith and fair dealing and duties to creditors, had misappropriated corporate opportunities, had committed conversion, and had violated securities laws, and demanded $27 million for the companies and $34 million for the Bank. In 2010 Knight filed a chapter 7 petition, listing the claims, value “unknown.” Chatz, appointed as trustee, requested representation by the Freeborn law firm, without disclosing intent to pursue the claims against Knight. The bankruptcy court approved. Later, the Bank and Chatz asked to assign the companies’ claims to the Bank. Knight objected, arguing that approval of the law firm conflicted with the companies having viable claims against Knight. The bankruptcy court overruled Knight’s objection. The district court and Seventh Circuit affirmed. Failure to disclose intent to pursue the claims did not harm Knight, and other remedies are available. It would be inequitable to permit Knight to reap huge benefits from harmless omission.View "Knight v. Bank of America, N.A." on Justia Law