Justia Securities Law Opinion SummariesArticles Posted in Business Law
Walworth Investments-LG, LLC v. Mu Sigma, Inc.
Walworth, a former stockholder, sued Mu Sigma, a privately held data analytics company, and Rajaram, the company’s founder, CEO, and board chairman, alleging that after reaping the benefits of Walworth’s $1.5 million investment and reputational capital, the defendants embarked on a fraudulent scheme to oust Walworth of its substantial ownership interest in the company.The Cook County circuit court dismissed the complaint, citing the stock repurchase agreement (SRA), which included anti-reliance and general release provisions. The appellate court reversed, holding that the anti-reliance language was ambiguous. The Illinois Supreme Court reinstated the dismissal, stating that “the broad and comprehensive release agreed to by [Walworth], a sophisticated party represented by experienced counsel, unambiguously encompasses” the unjust enrichment and breach of contract claims. The bargained-for anti-reliance provisions reflected the understanding that there may be undisclosed information but that Walworth was satisfied by the information provided. Walworth had direct access to Rajaram to negotiate the arm’s-length transaction at issue and Rajaram was not acting as a fiduciary for Walworth. A corporation owes no fiduciary duty to its shareholder and Delaware law does not impose “an affirmative fiduciary duty of disclosure for individual transactions.” View "Walworth Investments-LG, LLC v. Mu Sigma, Inc." on Justia Law
Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd.
International Flavors & Fragrances Inc. (“IFF”), a U.S.-based seller of flavoring and fragrance products, acquired Frutarom Industries Ltd. (“Frutarom”), an Israeli firm in the same industry. Leading up to the merger, Frutarom allegedly made material misstatements about its compliance with anti-bribery laws and the source of its business growth. Plaintiffs, who bought stock in IFF, sued Frutarom, alleging that those misstatements violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. The Second Circuit affirmed the district court’s dismissal of Plaintiffs’ complaint. The court concluded that Plaintiffs lack statutory standing to sue. Under the purchaser-seller rule, standing to bring a claim under Section 10(b) is limited to purchasers or sellers of securities issued by the company about which a misstatement was made. Plaintiffs here lack standing to sue based on alleged misstatements that Frutarom made about itself because they never bought or sold shares of Frutarom. View "Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd." on Justia Law
1944 Beach Boulevard, LLC v. Live Oak Banking Company
The case-at-hand returned to the Eleventh Circuit for disposition from the Florida Supreme Court, to which the court certified three questions of Florida law. In considering the court’s certified questions, the Florida Supreme Court found dispositive a threshold issue that the court did not expressly address: “Is the filing office’s use of a ‘standard search logic’ necessary to trigger the safe harbor protection of section 679.5061(3)?” The Florida Supreme Court answered that question in the affirmative. And the court further determined that Florida does not employ a “standard search logic.” The Florida Supreme Court thus concluded that the statutory safe harbor for financing statements that fail to correctly name the debtor cannot apply, “which means that a financing statement that fails to correctly name the debtor as required by Florida law is ‘seriously misleading’ under Florida Statute Section 679.5061(2) and therefore ineffective. The Eleventh Circuit reversed the district court’s order affirming the bankruptcy court’s grant of Live Oak Banking Company’s cross-motion for summary judgment and remand for further proceedings. The court held that Live Oak did not perfect its security interest in 1944 Beach Boulevard, LLC’s, assets because the two UCC-1 Financing Statements filed with the Florida Secured Transaction Registry (the “Registry”) were “seriously misleading” under Florida Statute Section 679.5061(2), as the Registry does not implement a “standard search logic” necessary to trigger the safe harbor exception set forth in Florida Statute Section 679.5061(3). View "1944 Beach Boulevard, LLC v. Live Oak Banking Company" on Justia Law
Pederson v. Arctic Slope Regional Corporation
A corporate shareholder alleged the corporation violated his statutory right to inspect certain records and documents. The superior court found that the shareholder did not assert a proper purpose in his request. The shareholder appealed, arguing the superior court erred by finding his inspection request stated an improper purpose, sanctioning him for failing to appear for his deposition, and violating his rights to due process and equal protection by being biased against him. After review, the Alaska Supreme Court reversed the superior court’s order finding that the shareholder did not have a proper purpose when he requested the information at issue from the corporation, but it affirmed the superior court’s discovery sanctions. View "Pederson v. Arctic Slope Regional Corporation" on Justia Law
Michael Johnston v. SEC
Petitioner petitioned for review of the Securities and Exchange Commission order granting him a whistleblower award for providing original information leading to successful enforcement action against Citigroup, Inc. Although the SEC agreed the original information Petitioner and his team provided to the Commission warranted an award equal to 15 percent of the fine levied against Citigroup, Petitioner objected to the Commission’s determination that he and his former co-worker were to divide the award equally as joint whistleblowers. The DC Circuit dismissed Petitioner’s petition for want of jurisdiction insofar as he challenges the amount of the award granted to his co-worker. The court denied the petition insofar as it challenges the co-worker’s eligibility for an award because the Commission’s decision was not arbitrary and capricious, or otherwise contrary to law, nor was its finding of fact unsupported by substantial evidence. The court explained that the SEC whistleblower statute does not ask who developed the original information that led to a successful resolution of a covered action; instead, it asks who provided that information to the Commission. The SEC did not err as to the law, nor did it lack substantial evidence as to the facts, in determining that both parties acted as joint whistleblowers when they provided information to the Commission, making the co-worker eligible for an award. View "Michael Johnston v. SEC" on Justia Law
In re: Bernard L. Madoff Investment Securities LLC
Defendants JABA Associates LP and its general partners appealed the district court’s judgment granting summary judgment to Plaintiff, (“Trustee”), pursuant to the Securities Investor Protection Act of 1970 (“SIPA”). JABA was a good faith customer of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and held BLMIS Account Number 1EM357 (the “JABA Account”). The Trustee brought this action to recover the allegedly fictitious profits transferred from BLMIS to Defendants in the two years prior to BLMIS’s filing for bankruptcy. The district court granted recovery of $2,925,000 that BLMIS transferred to Defendants in the two years prior to BLMIS’s filing for bankruptcy, which made it recoverable property under SIPA.Defendants appealed the district court’s grant of summary judgment. The Second Appellate District affirmed reasoning that because is no genuine dispute of material fact that Bernard L. Madoff transferred the assets of his business to Defendants, which made it recoverable property under SIPA, the district court properly granted summary judgment to Plaintiff. The court reasoned that here Here, Defendants argue that the Bankruptcy Code does not authorize an award of prejudgment interest because the statute is silent. Yet Defendants do not make any argument that this silence is dispositive. Further, the court wrote that prejudgment interest has been awarded against other similarly situated defendants in related SIPA litigation. Thus, the district court appropriately balanced the equities between the parties. Given this, the district court did not abuse its discretion in granting an award of 4 percent prejudgment interest to the Trustee. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law
City of Miami Fire Fighters’ & Police Officers’ Retirement Trust v. CVS Health Corp.
The First Circuit affirmed the judgment of the district court dismissing the complaint brought by two retirement funds in this putative securities fraud class action against CVS Health Corporation and the court's subsequent denial of Plaintiffs' motion to reconsider, holding that there was no error.In this action arising out of difficulties CVS Health experienced in the wake of its acquisition of Omnicare, Inc., Plaintiffs alleged that CVS Health's executives and its newly-acquired subsidiary used false statements and misleading nondisclosures to conceal from investors the disintegration of Omnicare's customer base. The complaint included claims for violations of the Securities Exchange Act and its implementing rule. The district dismissed the complaint after finding that it failed to allege any materially false or misleading statements and denied Plaintiffs' ensuing motion to reconsider. The Supreme Court affirmed, holding that the district court did not abuse its discretion or commit legal error in dismissing Plaintiffs' complaint and denying the motion to reconsider. View "City of Miami Fire Fighters' & Police Officers' Retirement Trust v. CVS Health Corp." on Justia Law
Thant v. Karyopharm Therapeutics Inc.
The First Circuit affirmed the judgment of the district court dismissing this complaint against Karoypharm Therapuetics, Inc. and its corporate officers (collectively, Defendants) alleging securities fraud in violation of sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j(b) and 78t(a), and Securities and Exchange Commission (SEC) Rule 10-b, 18 C.F.R. 240.10b-5, holding that the district court correctly dismissed the complaint for failure to state a claim.Plaintiff-investors brought this action following a decline in Karyopharm's stock price, alleging that Karyopharm materially misled them as to the safety and efficacy of the company's cancer-fighting drug candidate selinexor. The district court dismissed the complaint for failure to state a claim, concluding that Plaintiffs failed adequately to plead scienter with respect to Defendants' statements about a certain study of the drug as a treatment for pinta-refractory multiple myeloma. The First Circuit affirmed on other grounds, holding that Plaintiffs did not plausibly allege an actionable statement or omission with respect to the trial disclosures, and therefore, dismissal was appropriate. View "Thant v. Karyopharm Therapeutics Inc." on Justia Law
SEC v. World Tree
This appeal arises from an enforcement action brought by the Securities and Exchange Commission (SEC) against Appellants World Tree Financial, L.L.C. (World Tree) and its principals. After a bench trial, the district court found that the principal and World Tree engaged in a fraudulent “cherry-picking” scheme, in which they allocated favorable trades to themselves and favored clients and unfavorable trades to disfavored clients. It also found that all three Appellants made false and misleading statements about the firm’s allocation and trading practices. The court entered permanent injunctions against the principal and World Tree, ordered them to disgorge ill-gotten gains, and imposed civil penalties on each Appellant. The Fifth Circuit affirmed, holding that Liu v. SEC, 140 S. Ct. 1936, 1940 (2020) does not require the district court to conduct its own search for business deductions that Appellants have not identified. Accordingly, the court held that the district court did not abuse its discretion in ordering disgorgement. The court explained that unlike in Liu, in this case, Appellants did not challenge the SEC’s proposed disgorgement amount in their pretrial or posttrial submissions—instead, they argued only that there was no “basis for disgorgement.” Nor did the principal and World Tree propose specific deduction amounts, either before the district court or to this court. View "SEC v. World Tree" on Justia Law
SEC v. Mark Johnson
Defendant challenged the district court’s disgorgement order against him and Owings Group, LLC, the entity he founded and controlled. Together, Defendant, Owings, and three codefendants perpetrated a fraudulent scheme in violation of federal securities laws. After Defendant consented to an entry of judgment, the court ordered him to disgorge $681,554 and imposed a monetary penalty in the same amount.Defendant argued that the disgorgement order violates Liu v. SEC, 140 S. Ct. 1936 (2020) and that the district court erroneously premised the associated monetary penalty on joint-and-several liability. The Fourth Circuit affirmed the district court’s disgorgement order and its monetary penalty.The court explained that it agreed with the district court that Defendant and Owings were “partners engaged in concerted wrongdoing". The court wrote that Owings’s conduct in the scheme generated its ill-gotten gains—and Defendant controlled that conduct. Further, the district court didn’t order a joint-and-several penalty. It ordered a penalty equal to Defendant's disgorgement, which happened to be joint and several.Finally, the court concluded that it found no abuse of discretion. Though the district court didn’t explicitly discuss Defendant's financial situation, it’s clear to the court that the district court considered it, along with the remaining factors. The district court understood that all the defendants were insolvent but decided that Defendant's substantially more serious role in the scheme warranted a penalty all the same. View "SEC v. Mark Johnson" on Justia Law