Justia Securities Law Opinion Summaries

Former Fifth Third employees participated in a defined contribution retirement plan with Fifth Third as trustee. Participants make voluntary contributions and direct the Plan to purchase investments for their individual accounts from preselected options. The options included Fifth Third Stock, two collective funds, or 17 mutual funds. Fifth Third makes matching contributions for eligible participants that are initially invested in the Fifth Third Stock Fund but may be moved later to other investment options. Significant Plan assets were invested in Fifth Third Stock. Plan fiduciaries incorporated by reference Fifth Third’s SEC filings into the Summary Plan Description. Plaintiffs allege that Fifth Third switched from being a conservative lender to a subprime lender, its loan portfolio became increasingly at-risk, and it either failed to disclose or provided misleading disclosures. The price of the stock declined 74 percent. The district court dismissed a complaint under the Employee Retirement Income Security Act, 29 U.S.C. 1001, based on a presumption that the decision to remain invested in employer securities was reasonable. The Sixth Circuit reversed, holding that the complaint plausibly alleged a claim of breach of fiduciary duty and causal connection regarding failure to divest the Plan of Fifth Third Stock and remove that stock as an investment option. View "Dudenhoefer v. Fifth Third Bancorp" on Justia Law

Defendant was indicted for bank fraud, mail fraud, and wire fraud. The government alleged that Defendant's sale of collateral pledged as security for a loan from a bank and his failure to carry out his disclosure duties under the security agreement amounted to a scheme to defraud for purposes of the bank, mail, and wire fraud statutes. The district court dismissed the indictment, finding (1) a false representation is a required element of a federal fraud offense and the indictment failed to allege any express misrepresentation by Defendant; and (2) absent a statutory, fiduciary, or independent disclosure duty, nondisclosure was insufficient to state a fraud claim under any of the charged offenses. The Eighth Circuit Court of Appeals affirmed, holding that the district court correctly dismissed the indictment for failure to state an offense, as the indictment failed to sufficiently allege a scheme to defraud under the mail, wire, and bank fraud statutes. View "United States v. Steffen" on Justia Law

The collapse of investment manager Sentinel in 2007 left its customers in a lurch. Instead of maintaining customer assets in segregated accounts as required by the Commodity Exchange Act, 7 U.S.C. 1, Sentinel pledged customer assets to secure an overnight loan at the Bank of New York, giving the bank in a secured position on Sentinel’s $312 million loan. After filing for bankruptcy, Sentinel’s liquidation trustee brought attempted to dislodge the bank’s secured position. After extensive proceedings, the district court rejected the claims. Acknowledging concerns about the bank’s knowledge of Sentinel’s business practices, the Seventh Circuit affirmed. The essential issues were whether Sentinel had actual intent to hinder, delay, or defraud and whether the bank’s conduct was sufficiently egregious to justify equitable subordination, and the district court made the necessary credibility determinations. Even if the contract with the bank enabled illegal activity, the provisions did not themselves cause the segregation violations. View "Grede v. Bank of NY Mellon Corp." on Justia Law

Aladdin’s purportedly gross mismanagement allegedly caused plaintiffs to lose their entire $60 million investment in a collateralized debt obligation. A CDO pays investors based on performance of an underlying asset. The CDO at issue was “synthetic” in that its asset was not a traditional asset like a stock or bond, but was a derivative instrument, whose value was determined in reference to still other assets. The derivative instrument was a “credit default swap” between Aladdin CDO and Goldman Sachs based on the debt of approximately 100 corporate entities and sovereign states. The district court held that, because of a contract provision limiting intended third-party beneficiaries to those “specifically provided herein,” plaintiffs could not bring a third-party beneficiary breach of contract claim and could not “recast” their claim in tort. The Second Circuit reversed. Plaintiffs plausibly alleged that the parties intended the contract to benefit investors in the CDO directly and create obligations running from Aladdin to the investors; that the relationship between Aladdin and plaintiffs was sufficiently close to create a duty in tort; and that Aladdin acted with gross negligence in managing the investment portfolio, leading to the failure of the investment vehicle and plaintiffs’ losses. View "Bayerische Landesbank, NY v. Aladdin Capital Mgmt., LLC" on Justia Law

The issue before the Eleventh Circuit concerned a private securities fraud class action suit brought against a bank holding company and its management. State-Boston Retirement System, a shareholder and lead plaintiff, sought to prove that the holding company had misrepresented the level of risk associated with commercial real estate loans held by its subsidiary. After the trial, the District Court submitted the case to the jury on a verdict form seeking general verdicts and answers to special interrogatories. When the jury returned a verdict partially in favor of State-Boston, the holding company moved for judgment as a matter of law. Perceiving an inconsistency between two of the jury's interrogatory answers, the District Court discarded one of them and granted the motion on the basis of the remaining findings. The Eleventh Circuit concluded that was error: "[w]hen a court considers a motion for judgment as a matter of law -even after the jury has rendered a verdict- only the sufficiency of the evidence matters. . . .The jury’s findings are irrelevant." Despite the District Court’s error, the Eleventh Circuit concluded that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim. The Court therefore affirmed. View "State-Boston Retirement System v. BankAtlantic Bancorp, Inc." on Justia Law

Griffin, a futures commission merchant, went bankrupt in 1998 after one of its customers, Park, sustained trading losses of several million dollars and neither Park nor Griffin had enough capital to cover the obligations. The Bankruptcy Court first relied on admissions by the controlling Griffin partners that they failed to block a wire transfer, allowing segregated customer funds to be used to help cover Park’s (and thus Griffin’s) losses. On remand, the court reversed itself and held that the trustee failed to establish that the partners actually caused the loss of customer funds and failed to establish damages. The district court affirmed, applying the Illinois version of the Uniform Commercial Code to a series of transactions that was initiated by the margin call that caused Griffin’s downfall. The Seventh Circuit affirmed, stating that there is no reason why the transactions at issue (which involved banks in England, Canada, France, and Germany, but not Illinois) would be governed by Illinois law. The Bankruptcy Court’s first decision appropriately relied on the partners’ admission that they failed in their obligation to protect customer funds, which was enough to hold them liable for the entire value of the wire transfer. View "Inskeep v. Griffin" on Justia Law

Republic bought more than $50 million worth of residential-mortgage-backed securities from Bear Stearns. It did not read the relevant offering documents before investing. As the national economy crumbled in 2007 and 2008, so did the value of the investments. Republic brought suit in 2009, alleging that Bear Stearns and one of its employees fraudulently induced it to buy, and then to retain, the securities. It claimed that a series of misrepresentations and omissions, both oral and in the written offering documents, were actionable under common-law theories of fraud and negligent misrepresentation, and under the Blue Sky Law, Kentucky’s securities statute. The district court dismissed. The Sixth Circuit affirmed. Republic cannot maintain any of its common-law fraud, negligent-misrepresentation, or Kentucky Blue Sky Law claims. It failed to adequately plead actionable misrepresentations or omissions of fact, complained of risks disclosed in offering documents that it failed to read before investing tens of millions of dollars in risky securities, and attempted to maintain claims that are time-barred. View "Republic Bank & Tr. Co. v. Bear Stearns & Co., Inc." on Justia Law

Defendant sells brokerage and investment products and services, typically to registered broker-dealers and investment advisers that trade securities for clients. One of its services, NetExchange Pro, an interface for research and managing brokerage accounts via the Internet, can be used for remote access to market dynamics and customer accounts. A firm may make its clients' personal information, including social security numbers and taxpayer identification numbers, accessible to end-users in NetExchange Pro. Some of defendant's employees also have access to this information. Plaintiff, a brokerage customer with NPC, which made its customer account information accessible in NetExchange Pro, received notice of the company's policy and filed a putative class action, alleging breach of contract, breach of implied contract, negligent breach of contractual duties, and violations of Massachusetts consumer protection laws. The district court dismissed. The First Circuit affirmed. Despite "dire forebodings" about access to personal information, plaintiff failed to state any contractual claim for relief and lacks constitutional standing to assert a violation of any arguably applicable consumer protection law. View "Katz v. Pershing, LLC" on Justia Law

Appellant, a former shareholder in Wachovia, sought to recover personally for the decline in value of his shares of Wachovia stock during the recent financial crisis. The district court dismissed the suit, concluding that appellant's complaint stated a claim derivative of injury to the corporation and that he was therefore barred from bringing a direct or individual cause of action against defendants. The court held that because appellant's varied attempts to recast his derivative claim as individual were unavailing, the judgment of the district court was affirmed. View "Rivers, Jr. v. Wachovia Corp., et al." on Justia Law

Defendant, a licensed financial adviser, pled guilty to 34 counts of mail fraud (18 U.S.C. 1341), wire fraud (18 U.S.C. 1343), and bank fraud (18 U.S.C. 1344) based on his solicitation of bank clients to invest in speculative real estate transactions that he controlled, unrelated to bank products, an illegal practice in the securities industry known as "selling away." The Government accused him of collecting $1.55 million between October 2002 and January 2006. The district court denied his motion to withdraw the plea when he claimed that his prior attorney, unprepared to go to trial, had browbeaten him. The court imposed a sentence of 180 months and $1.3 million in restitution. The Third Circuit affirmed. With no evidence of actual innocence and the death of some of the government's elderly witnesses, there was no "fair and just" reason to allow withdrawal of the plea. Because defendant was an investment advisor when he initiated the fraud, the court properly applied a four-level enhancement at section 2B1.1(b)(16)(A); an obstruction of justice enhancement was justified by defendant's lies concerning his guilty plea and his contact with witnesses. View "United States v. Siddon" on Justia Law