Justia Securities Law Opinion Summaries

Articles Posted in Business Law
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In a putative securities-fraud class action, Union Asset Management Holding AG and Teamsters Local 710 Pension Fund (the “Investors”), co-lead plaintiffs, alleged that Philip Morris International Inc. (“PMI”) and several of its current and former executives (the “Defendants”) made false and misleading statements about PMI’s “IQOS” smoke-free tobacco products. The United States Court of Appeals for the Second Circuit affirmed the district court's dismissal of the Investors' complaints. The court found that PMI's statements about its scientific studies complied with a methodological standard and were properly analyzed as statements of opinion, rather than fact. The court also determined that the Defendants' interpretation of scientific data, which was ultimately endorsed by the Food and Drug Administration (FDA), was per se reasonable as a matter of law. Further, the court held that the Investors had either failed to plead material falsity or abandoned their challenges on appeal regarding PMI’s statements about its projections for IQOS’s performance in Japanese markets. Finally, the court concluded that the Investors' claim for control-person liability under section 20(a) of the Exchange Act also failed because they had not established a primary violation by the controlled person. View "In re Philip Morris Int'l Inc. Sec. Litig." on Justia Law

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In this case, the Supreme Court of the State of Delaware reversed the decision of the Superior Court of the State of Delaware. The case centered around an insurance dispute involving Verizon Communications, Inc. and several of its insurers. The dispute arose after Verizon settled a lawsuit brought by a litigation trust, which was pursuing claims against Verizon arising out of a transaction Verizon had made with FairPoint Communications Inc. The litigation trust had alleged that Verizon made fraudulent transfers in the course of the transaction, which harmed FairPoint's creditors. After settling the lawsuit, Verizon sought coverage for the settlement payment and defense costs from its insurers.The insurers denied coverage, arguing that the litigation trust's claims did not qualify as a "Securities Claim" under the relevant insurance policies. The Superior Court disagreed, ruling that the litigation trust's claims were brought derivatively on behalf of FairPoint by a security holder of FairPoint, as required to qualify as a Securities Claim under the policies.The Supreme Court of Delaware reversed this decision, finding that the litigation trust's claims were direct, not derivative. The court reasoned that the trust's claims were brought on behalf of the creditors, not FairPoint or its subsidiary, and the relief sought would benefit the creditors, not the business entity. Therefore, the claims did not meet the definition of a Securities Claim under the insurance policies. Consequently, the Supreme Court held that the insurers were not obligated to cover Verizon's settlement payment and defense costs. View "In re Fairpoint Insurance Coverage Appeals" on Justia Law

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In 2021, the Securities and Exchange Commission (SEC) sued Luis Jimenez Carrillo for securities violations he allegedly committed well after his divorce from Yolanda Sanchez-Diaz. Sanchez-Diaz was named as a relief defendant in the suit and the SEC sought to recover from her the value of a car she received four years earlier, claiming Carrillo paid for it with illicit funds. The SEC did not accuse Sanchez-Diaz of any wrongdoing but argued she had no legitimate claim to the car because she had not provided any consideration for it. The district court agreed and ordered her to pay almost $170,000, including interest.On appeal, the United States Court of Appeals for the First Circuit held that a relief defendant in an SEC enforcement action has a legitimate claim to funds if they have provided something of value in exchange and the value they provided is more than nominal in relation to the money received. In this case, the court concluded that through a 2016 child support agreement, Sanchez-Diaz provided more than nominal value in exchange for Carrillo's promise to purchase the car. The court found that the district court erred in its finding that Sanchez-Diaz provided no value at all. Accordingly, the Appeals Court reversed the district court's disgorgement order. View "SEC v. Sanchez Diaz Monge" on Justia Law

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In this case, the plaintiffs, who are shareholders of Facebook, Inc., brought a securities fraud action against the company and its executives, alleging that they made materially misleading statements and omissions about the risk of improper access to Facebook users' data, Facebook's internal investigation into the actions of Cambridge Analytica, and the control Facebook users have over their data. The United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the decision of the District Court for the Northern District of California.The Circuit Court held that the shareholders adequately pleaded falsity as to the challenged risk statements in Facebook's 2016 Form 10-K. The court held that these statements were materially misleading because Facebook knew at the time of filing that the risk of improper third-party misuse of Facebook users' data was not hypothetical, but had already occurred.As to the statements regarding Facebook's investigation into Cambridge Analytica, the court affirmed the district court's decision, holding that the shareholders failed to plead scienter, or intent to defraud.Lastly, the court held that the shareholders adequately pleaded loss causation as to the statements assuring users that they controlled their data on the platform. The court found that the shareholders had adequately pleaded that the March 2018 revelation about Cambridge Analytica and the June 2018 revelation about Facebook's whitelisting policy were the first times Facebook investors were alerted that Facebook users did not have complete control over their own data, causing significant stock price drops.The case was remanded to the district court for further proceedings. View "AMALGAMATED BANK V. FACEBOOK, INC." on Justia Law

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Plaintiff filed a putative shareholder class action complaint in New York State Supreme Court, alleging Maryland state law claims on behalf of himself and all similarly situated preferred stockholders of Cedar Realty Trust, Inc. (“Cedar”), a New York-based corporation incorporated in Maryland, following its August 2022 merger with Wheeler Real Estate Investment Trusts, Inc. (“Wheeler”) (collectively, “Defendants”). The complaint alleged Cedar and its leadership breached fiduciary duties owed to, and a contract with, shareholders such as Plaintiff and that Wheeler both aided and abetted the breach and tortiously interfered with the relevant contract. The Defendants collectively removed the case, invoking federal jurisdiction under the Class Action Fairness Act (CAFA), but the district court remanded the case to state court after Krasner argued that an exception to CAFA jurisdiction applied to his claims.   The Second Circuit dismissed Defendants’ appeal and concluded that the “securities-related” exception applies. The court explained that here, the securities created a relationship between Cedar and Plaintiff that gave rise to fiduciary duties on the part of Cedar and the potential for additional claims against those parties who aid and abet Cedar’s breach of those duties. Thus, the aiding and abetting claim—and by the same logic, the tortious interference with contract claim—“seek enforcement of a right that arises from an appropriate instrument.” As such, the securities-related exception applies, and the district court properly remanded the case to state court. View "Krasner v. Cedar Realty Trust, Inc." on Justia Law

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Defendant-Appellant Aron Govil engaged in several fraudulent securities offerings through his company, Cemtrex. Pursuant to a settlement agreement with Cemtrex, Govil agreed to pay back the proceeds of his fraud in part by surrendering his Cemtrex securities to the company. The district court later granted a motion by the SEC for additional disgorgement. The district court concluded that disgorgement was authorized and that the value of the securities Govil surrendered to Cemtrex should not offset the disgorgement award. Govil argues that neither U.S.C. Section 78u(d)(5) nor 15 U.S.C. § 78u(d)(7) authorize disgorgement here.   The Second Circuit vacated the judgment of the district court and remanded with instructions to determine whether the defrauded investors suffered pecuniary harm. The court explained that the Second Circuit recently held that the disgorgement remedies under Section 78u(d)(5) and Section 78u(d)(7) are subject to the “traditional equitable limitations” that the Supreme Court recognized in Liu v. SEC, 140 S. Ct. 1936 (2020). SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023). One of those equitable limitations is that disgorgement must be “awarded for victims.” Liu, 140 S. Ct. at 1940. Further, the court wrote that a wrongdoer makes a payment in satisfaction of a disgorgement remedy when he returns the property to a wronged party. Accordingly, if on remand, the district court decides that disgorgement is authorized, it must value the surrendered securities and credit that value against the overall disgorgement award. View "SEC v. Govil" on Justia Law

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The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law

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The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him. A central dispute between the parties is what test the district court should have applied before imposing a receivership. Defendant argued the district court abused its discretion because it did not apply the standard or make the proper findings under the factors set forth in Netsphere (“Netsphere factors”). The SEC responded that Netsphere is inapplicable and the district court’s findings were sufficient under First Financial.   The Fifth Circuit vacated the district court’s order appointing a receiver. The court granted in part Defendant’s motion for a partial stay pending appeal. The court explained that, as Defendant points out, the district court’s order denying the stay discussed events and actions that took place after the receivership was already in place. Accordingly, the court vacated the appointment of the receiver and remanded so that the district court may consider whether to appoint a new receivership under the Netsphere factors. The court immediately suspended the receiver’s power to sell or dispose of property belonging to receivership entities, including the power to complete sales or disposals of property already approved by the district court. The court explained that the suspension does not apply to activities in furtherance of sales or dispositions of property that have already occurred or been approved by the district court. The court clarified that “activities in furtherance” do not include the completion of the sale of any property. View "SEC v. Barton" on Justia Law

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The Supreme Judicial Court held that the Secretary of the Commonwealth did not overstep the bounds of the authority granted to him under the Massachusetts Uniform Securities Act (MUSA), Mass. Gen. Laws ch. 110A, by promulgating the "fiduciary duty rule."The Secretary brought an administrative enforcement proceeding alleging that Plaintiff Robinhood Financial LLC violated the prohibition in Mass. Gen. Laws ch. 110A, 204(a)(2)(G) against "unethical or dishonest conduct or practices in the securities, commodities or insurance business" by dispensing ill-suited investment advice to unsophisticated investors. The Secretary defined the phrase in section 204(a)(2)(G) to require broker-dealers that provide investment advice to retail customers to comply with a statutorily-defined fiduciary duty. Thereafter, Plaintiff brought the instant action challenging the validity of the fiduciary duty rule. The superior court concluded that the Secretary acted ultra vires to promulgating the rule. The Supreme Judicial Court reversed, holding (1) the Secretary acted within his authority under MUSA; (2) the fiduciary rule does not override common-law protections available to investors; (3) MUSA is not an impermissible delegation of legislative power; and (4) the fiduciary rule is not invalid under the doctrine of conflict preemption. View "Robinhood Financial LLC v. Secretary of the Commonwealth" on Justia Law

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Plaintiff brought a series of claims in New York state court arising out of a syndicated loan transaction facilitated by Defendants, a group of financial institutions. Plaintiff’s appeal presents two issues. The first issue presented is whether the United States District Court for the Southern District of New York had subject matter jurisdiction over this action pursuant to the Edge Act, 12 U.S.C. Section 632. The second issue presented is whether the District Court erroneously dismissed Plaintiff’s state-law securities claims on the ground that he failed to plausibly suggest that notes issued as part of the syndicated loan transaction are securities under Reves v. Ernst & Young, 494 U.S. 56 (1990).   The Second Circuit affirmed. The court held that the district court had jurisdiction under the Edge Act because Defendant JP Morgan Chase Bank, N.A. engaged in international or foreign banking as part of the transaction giving rise to this suit. The court also held that the district court did not erroneously dismiss Plaintiff’s state-law securities claims because Plaintiff failed to plausibly suggest that the notes are securities under Reves. View "Kirschner v. JP Morgan Chase Bank, N.A." on Justia Law