Justia Securities Law Opinion Summaries

Several individuals orchestrated microcap securities fraud schemes by creating nineteen shell companies with no genuine business operations or assets, selling their securities at inflated prices once publicly tradable. Two firms, operated by Carl Dilley and Micah Eldred—Spartan Securities Group, Ltd. (a broker-dealer) and Island Capital Management (a transfer agent)—facilitated this process. Spartan submitted Form 211 applications to FINRA for each shell company, enabling public trading, while Island managed applications for Depository Trust Company (DTC) eligibility. The U.S. Securities and Exchange Commission (SEC) brought an enforcement action against Dilley, Eldred, Spartan, and Island, alleging, among other claims, that they made false statements to obtain FINRA clearance and DTC eligibility, violating Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5(b).The United States District Court for the Middle District of Florida denied the defendants’ pretrial motions to exclude the SEC’s expert witness and for special jury interrogatories, and allowed the case to proceed to trial. The jury found all defendants liable on the count concerning false statements or omissions under Section 10(b) and Rule 10b-5(b. The district court subsequently denied the defendants’ motions for judgment as a matter of law, and imposed remedies including injunctions against future violations, penny stock bars, civil penalties, and ordered Island to disgorge profits to the U.S. Treasury.On appeal to the United States Court of Appeals for the Eleventh Circuit, the defendants challenged the admission of expert testimony, denial of judgment as a matter of law, and the remedies imposed. The Eleventh Circuit affirmed the district court’s rulings, holding that sufficient evidence supported the jury’s finding of material misrepresentations made in connection with the purchase or sale of securities. The court further held that the SEC was authorized to seek disgorgement to the Treasury and that the remedies, including civil penalties, were timely and equitable. View "Securities and Exchange Commission v. Spartan Securities Group, LTD" on Justia Law

A businessman from Kazakhstan alleged that he was wrongfully detained and psychologically coerced by the country’s National Security Committee into signing unfavorable business agreements, including waivers of legal claims and a forced transfer of valuable company shares. The business at issue, CAPEC, operated in Kazakhstan’s energy sector and held significant assets, some of which were allegedly misappropriated by fellow shareholders and transferred through U.S. financial institutions. The plaintiff claimed these actions harmed him economically, including the loss of potential U.S.-based legal claims.Following unsuccessful litigation in Kazakhstan, the plaintiff initiated suit in the United States District Court for the Eastern District of New York, seeking to invalidate the coerced agreements and recover damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), the Alien Tort Statute, and other state and federal laws. The district court dismissed the complaint for lack of subject-matter jurisdiction, finding that the plaintiff, as a permanent resident alien, could not establish diversity jurisdiction against foreign defendants, that the alleged torts occurred outside the U.S., and that the plaintiff failed to allege a domestic injury required for civil RICO claims. The court denied leave to amend, determining that any amendment would be futile.The United States Court of Appeals for the Second Circuit reviewed the matter de novo, affirming the district court’s judgment. The Second Circuit held that claims against the National Security Committee were barred by the Foreign Sovereign Immunities Act, as its conduct was sovereign rather than commercial. For the individual defendants, the court found that the plaintiff failed to allege a domestic injury under RICO, as the harm and racketeering activity occurred primarily in Kazakhstan. The court further concluded that amendment of the complaint would have been futile. The judgment was affirmed. View "Yerkyn v. Yakovlevich" on Justia Law

On February 5, 2018, an abrupt spike in market volatility led to a sharp decline in the S&P 500 and a rapid increase in the VIX index. LJM Partners, Ltd. and Two Roads Shared Trust pursued trading strategies on the Chicago Mercantile Exchange that assumed low volatility and suffered catastrophic losses when volatility soared. They alleged that several market makers manipulated the VIX by quoting inflated bid-ask prices for certain options, which artificially increased volatility and caused losses exceeding one billion dollars in managed assets over two days.Both LJM and Two Roads filed suit in the United States District Court for the Northern District of Illinois, initially naming “John Doe” defendants. The cases were coordinated into multidistrict litigation, and the plaintiffs sought expedited discovery to identify the defendants. After extensive litigation, they amended their complaints to name eight firms as defendants. The defendants moved to dismiss. The district court found that LJM lacked Article III standing, as its complaint only alleged injuries suffered by its clients, not by LJM itself. The court denied LJM’s request for leave to substitute the real party in interest and dismissed its complaint without prejudice. For Two Roads, the court found that its claims were barred by the Commodity Exchange Act’s two-year statute of limitations, declined to apply equitable tolling, and also dismissed for failure to state a claim.On appeal, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s judgment. The Seventh Circuit held that LJM did not allege a concrete injury in fact sufficient for Article III standing, as its complaint failed to distinguish between its own losses and those of its clients. The court also held that Two Roads’s complaint was untimely and that the district court did not abuse its discretion in denying equitable tolling. The court declined to reach the merits of the underlying Commodity Exchange Act claims. View "Two Roads Shared Trust v. Barclays Capital Inc." on Justia Law

LJM Partners, Ltd. and Two Roads Shared Trust, both involved in options trading on the Chicago Mercantile Exchange, experienced catastrophic losses on February 5 and 6, 2018, when volatility in the S&P 500 surged unexpectedly; LJM lost approximately 86.5% of its managed assets and the Preservation Fund (managed by Two Roads) lost around 80%. The plaintiffs alleged that eight defendant firms, acting as market makers, manipulated the VIX index by submitting inflated bid-ask quotes for certain SPX Options, which artificially raised volatility and resulted in inflated prices on the plaintiffs' trades, causing over one billion dollars in combined losses.After initially filing complaints against unnamed "John Doe" defendants in the United States District Court for the Northern District of Illinois, the plaintiffs pursued extensive discovery to identify the responsible parties. The cases were swept into a multidistrict litigation proceeding (VIX MDL), which delayed discovery. Eventually, after several rounds of amended complaints, the plaintiffs identified and named eight defendant firms. The defendants moved to dismiss. The district court found that LJM lacked Article III standing because it failed to allege an injury in fact, as the losses belonged to its clients, not LJM itself. For Two Roads, the district court held that its claims were time-barred under the Commodity Exchange Act’s two-year statute of limitations, and equitable tolling was denied due to lack of diligence.The United States Court of Appeals for the Seventh Circuit affirmed the district court’s judgment. It held that LJM’s complaint failed to establish Article III standing, as it did not allege that LJM itself—not just its clients—suffered actual losses. The court further held that Two Roads’s complaint was untimely and that the district court did not abuse its discretion in refusing equitable tolling. Both dismissals were affirmed. View "LJM Partners, Ltd. v. Barclays Capital, Inc." on Justia Law

An individual who founded a Michigan biomedical research company sold a majority stake in 2019 to four defendants but retained a minority interest, later becoming dissatisfied with the company’s management and moving out of state. The new owners aimed to expand the company but withheld information from the plaintiff about their efforts to secure financing, including discussions with Avista Capital Partners, a venture capital firm that ultimately made a large investment. The plaintiff sold his shares in December 2020 for a price based on an annual valuation, prior to Avista’s capital infusion that significantly increased the company’s value. The plaintiff later sued, alleging violations of federal and state securities laws, breach of fiduciary duty under Michigan law, and various fraud and contract claims based on the defendants’ failure to disclose material facts about the company’s pursuit of equity financing and Avista’s interest.The case was first heard in the United States District Court for the Western District of Michigan. That court denied the defendants’ motion to dismiss but, following discovery, granted summary judgment in favor of the defendants on all counts. The court concluded that the omissions were not material under federal securities law and, applying Delaware law and a federal standard, also found no materiality for the breach of fiduciary duty claim under Michigan law.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the district court’s summary judgment as to the federal securities law claims, the Michigan Uniform Securities Act claim, and the contract-based claims, holding that the omissions were not material under the applicable federal standards. However, the Sixth Circuit reversed the summary judgment for the Michigan common-law fiduciary duty and fraud claims, finding the district court had applied an incorrect legal standard and that genuine disputes of material fact remained. The case was remanded for further proceedings on the fiduciary duty and fraud counts. View "Boyd v. Northern Biomedical Research Inc." on Justia Law

Getty Images Holdings, Inc. became a publicly traded company after merging with CC Neuberger Principal Holdings II, a special purpose acquisition company. Alta Partners, LLC and CRCM Institutional Master Fund (BVI) Ltd., along with CRCM SPAC Opportunity Fund LP, acquired warrants to purchase Getty stock. The warrants’ exercise was governed by a warrant agreement requiring both an effective registration statement and a current prospectus for the underlying shares. After the merger, Getty filed two relevant registration statements: a Form S-4 and a Form S-1. Alta and CRCM attempted to exercise their warrants in August 2022, when Getty’s stock price was significantly higher than the warrant strike price, but Getty refused, claiming the contractual conditions for exercise were unmet.The United States District Court for the Southern District of New York reviewed breach of contract claims brought by Alta and CRCM. The court granted summary judgment for the plaintiffs, finding as a matter of law that the conditions of the warrant agreement had been satisfied. Specifically, it held the Form S-4 was an effective registration statement for the warrant shares and the accompanying prospectus was current at the time the plaintiffs attempted to exercise their warrants. The court awarded damages based on the stock price at the time of the breach but limited Alta’s recovery, denying damages for warrants purchased after Getty’s refusal to honor the redemption.The United States Court of Appeals for the Second Circuit affirmed the district court’s judgment. It held that Getty breached the warrant agreement because the required registration statement and prospectus conditions were met on the relevant dates. The court concluded that damages should be calculated using the market price of the shares at the time of breach and upheld the limitation on Alta’s damages for post-breach warrant purchases. The affirmance applies to all aspects of the district court’s rulings challenged on appeal. View "Alta Partners, LLC v. Getty Images Holdings, Inc." on Justia Law

A Malaysian national who worked as a managing director for Goldman Sachs in Malaysia was prosecuted for his role in a large-scale financial scheme involving 1Malaysia Development Berhad (1MDB), a Malaysian state-owned investment fund. The government presented evidence showing that, along with other conspirators, he participated in three major bond offerings raising $6.5 billion, from which more than $2.5 billion was diverted for bribes and kickbacks to officials and participants, including himself. The funds were laundered through shell companies, and the defendant received $35.1 million that was deposited in an account controlled by his family members. The defendant’s wife asserted at trial that these funds were legitimate investment returns, not criminal proceeds.Prior to this appeal, the United States District Court for the Eastern District of New York denied several motions by the defendant. The court rejected his arguments that the indictment should be dismissed for lack of venue, concluding that acts in furtherance of the conspiracy passed through the Eastern District of New York. The court also found that the government did not breach an agreement regarding his extradition from Malaysia, since the superseding indictments did not charge new offenses. The district court excluded a video recording offered by the defense as inadmissible hearsay, and ultimately, a jury found him guilty on all counts. He was sentenced to 120 months’ imprisonment and ordered to forfeit $35.1 million.On appeal to the United States Court of Appeals for the Second Circuit, the defendant argued improper venue, breach of extradition agreement, erroneous exclusion of evidence, and that the forfeiture was an excessive fine under the Eighth Amendment. The Second Circuit held that the district court had not erred in any respect. Venue was proper, the extradition agreement was not breached, the evidentiary ruling was not an abuse of discretion, and the forfeiture was not grossly disproportionate to the offense. Accordingly, the judgment of conviction and forfeiture order were affirmed. View "USA v. NG CHONG HWA" on Justia Law

Jerome and Shaun Cohen operated a Ponzi scheme through their companies, EquityBuild, Inc. and EquityBuild Finance, LLC, from 2010 to 2018. They solicited funds from individual investors and institutional lenders, promising high returns secured by real estate, primarily in Chicago. In reality, the Cohens used new investors’ funds to pay earlier investors and overvalued properties to retain excess capital. By 2018, the scheme collapsed, leaving over $75 million in unpaid obligations. The Securities and Exchange Commission intervened, obtaining a temporary restraining order and having a receiver appointed to liquidate assets and distribute proceeds to victims.The United States District Court for the Northern District of Illinois oversaw the receivership and determined how proceeds from the sale of two properties—7749 South Yates and 5450 South Indiana—should be distributed. Both a group of individual investors and Shatar Capital Partners claimed priority to the proceeds, with Shatar arguing its mortgages were recorded before those of the individual investors. The district court found that Shatar was on inquiry notice of the individual investors’ preexisting interests and thus not entitled to priority, limiting all claimants’ recoveries to their contributed principal, minus any amounts previously received.On appeal, the United States Court of Appeals for the Seventh Circuit reviewed the district court’s distribution order. The appellate court affirmed, holding that under Illinois law, Shatar was on inquiry notice of the individual investors’ interests in both properties at the time it invested, given multiple red flags about the properties’ financing and EquityBuild’s business model. As a result, the individual investors were entitled to priority in the distribution of proceeds. The court also found Shatar’s challenge to the distribution plan moot, as there were insufficient funds to benefit Shatar after satisfying the investors’ claims. View "Securities and Exchange Commission v. Duff" on Justia Law

Investors in a major energy company alleged that the company and several executives misled them about involvement in a Florida election-interference scheme. The alleged scheme included tactics such as supporting “ghost” candidates in state and local elections, bribery, covert payments, and manipulating media outlets. These actions were reportedly orchestrated by the company’s main subsidiary and its CEO, with assistance from a political consulting firm. When reports of the scheme began to surface, the company and its executives publicly denied any involvement or wrongdoing, including direct statements to the press and investors. However, after further scrutiny and media coverage, the company’s leadership changed course, abruptly terminating the subsidiary’s CEO and filing updated risk disclosures with the Securities and Exchange Commission (SEC) that acknowledged potential legal and reputational risks associated with the allegations. On the same day as these disclosures, the company’s stock price fell sharply, resulting in significant losses for investors.Previously, the United States District Court for the Southern District of Florida dismissed the investors’ complaint, concluding that the plaintiffs failed to adequately plead loss causation—a necessary element of securities fraud. The District Court found that the investors did not identify a sufficient corrective disclosure linking the alleged fraud to the stock price decline.The United States Court of Appeals for the Eleventh Circuit reviewed the case and disagreed with the District Court. The Eleventh Circuit held that the plaintiffs plausibly alleged loss causation by identifying corrective disclosures—namely, the company’s risk disclosures, the CEO’s abrupt departure, and a unique compensation claw-back provision—that collectively revealed enough truth to the market to undermine prior denials. The court found the alleged sequence of disclosures, price drop, and market analyst reactions sufficient at the pleading stage. The Eleventh Circuit reversed the District Court’s dismissal and remanded for further proceedings. View "City of Hollywood Police Officers Retirement Syst v. NextEra Energy, Inc." on Justia Law

Craig Medoff, after a history of violating federal securities laws and failing to comply with prior court orders and penalties, was subject to a 2016 consent judgment in the District of Massachusetts that barred him and any entity he controlled from participating in the issuance, offer, or sale of any security for ten years. Despite this, Medoff continued to control Nova Capital International LLC and engaged in securities-related activities, using an alias and receiving substantial fees in violation of the judgment. The SEC initiated civil contempt proceedings, but the district court, concerned about the futility of further civil sanctions given Medoff’s history and financial situation, instead initiated criminal contempt proceedings under 18 U.S.C. § 401(3) and Federal Rule of Criminal Procedure 42(a).The United States District Court for the District of Massachusetts appointed the U.S. Attorney to prosecute the criminal contempt case. Medoff’s counsel moved for the judge’s recusal under 28 U.S.C. § 455(a), arguing that the judge’s impartiality might reasonably be questioned due to his comments and conduct during the proceedings. The district court denied the recusal motion, finding no reasonable basis for doubting its impartiality, and proceeded with the criminal case. Medoff ultimately pleaded guilty to criminal contempt and was sentenced to twenty months in prison, a variance above the guideline range, and thirty-six months of supervised release, along with a fine.On appeal to the United States Court of Appeals for the First Circuit, Medoff challenged the denial of the recusal motion and the reasonableness of his sentence. The First Circuit held that the district court did not abuse its discretion in denying recusal, as the judge’s actions did not display deep-seated antagonism or favoritism. The court also found the sentence both procedurally and substantively reasonable, affirming the district court’s judgment. View "United States v. Medoff" on Justia Law