Justia Securities Law Opinion Summaries

Plaintiff, a stockholder in DeVry, which operates for-profit colleges and universities, filed a shareholders’ derivative suit against DeVry’s board of directors. A 2005 incentive plan authorized awards of stock options to key employees, including the CEO. The plan limited awards to 150,000 shares per employee per year. Nonetheless, the company granted Hamburger, who became its CEO in 2006, options on 184,100 shares in 2010, 170,200 in 2011, and 255,425 in 2012. DeVry, discovering its mistake, reduced each grant under the 2005 plan to 150,000 shares, but allocated Hamburger 87,910 shares available under the company’s 2003 incentive plan, which held shares that had not been allocated. Only the company’s Plan Committee, not the Compensation Committee, was authorized to grant stock options under the 2003 plan; there was no Plan Committee in 2012. The grant of 87,910 stock options was approved by the Compensation Committee, and then by the independent directors as a whole. The Seventh Circuit affirmed dismissal. The directors who approved the Compensation Committee’s recommendation were disinterested: the recommendation was a valid exercise of business judgment. Administration of the 2003 plan by the Compensation Committee, given the nonexistence of the Plan Committee, was not “a clear or intentional violation of a compensation plan,” View "Donnawell v. Hamburger" on Justia Law

In 2005, the Harrises bought tens of thousands of shares in Bancorp through a TD Ameritrade account. Six years later, the Harrises sought to hold some of their Bancorp stock in another form, registered in their name and reflected in a physical copy of a certificate signifying their ownership. TD Ameritrade refused to convert the Harrises’ form of ownership, stating that all Bancorp stock was in a “global lock,” prohibiting activity in the stock, including changing the Harrises’ form of ownership. The lock was created because someone had fraudulently created hundreds of millions of invalid shares of Bancorp stock. The Harrises sued, alleging that TD Ameritrade had violated SEC Rule 15c3-3 and Nebraska’s version of the Uniform Commercial Code. The Sixth Circuit affirmed dismissal.. Neither the SEC Rule nor Nebraska’s Commercial Code creates a private right of action to vindicate the alleged problem. View "Harris v. TD Ameritrade, Inc." on Justia Law

American Century, a mutual fund, offers investment portfolios, including Ultra Fund. Ultra Fund invested in PartyGaming, a Gibraltar company that facilitated internet gambling. In 2005, PartyGaming made an initial public offering of its stock, which was listed on the London Stock Exchange. In its prospectus, PartyGaming noted that the legality of online gaming was uncertain in several countries, including the U.S.; 87 percent of its revenue came from U.S. customers. PartyGaming acknowledged that “action by US authorities … prohibiting or restricting PartyGaming from offering online gaming in the US . . . could result in investors losing all or a very substantial part of their investment.” Ultra Fund purchased shares in PartyGaming totaling over $81 million. In 2006, following increased government enforcement against illegal internet gambling, the stock price dropped. Ultra Fund divested itself of PartyGaming, losing $16 million. Seidl, a shareholder, claimed negligence, waste, and breach of fiduciary duty against American Century. The company refused her demand to bring an action. Seidl brought a shareholder’s derivative action. The Eighth Circuit affirmed summary judgment for the defendants, concluding that Seidl could not bring suit where the company had declined to do so in a valid exercise of business judgment. The litigation committee adopted a reasonable methodology in conducting its investigation and reaching its conclusion. View "Seidl v. Am. Century Co., Inc" on Justia Law

Plaintiffs appealed the district court’s dismissal of a securities class action against ZAGG, Inc. and its former CEO and Chairman, Robert Pedersen, alleging violations of the antifraud provisions of the securities laws. The plaintiffs alleged Pedersen failed to disclose in several of ZAGG’s SEC filings the fact that he had pledged nearly half of his ZAGG shares (or approximately 9 percent of the company), as collateral in a margin account. The district court dismissed the complaint for a failure to plead particularized facts giving rise to a strong inference that Pedersen acted with an intent to defraud as required by the Private Securities Litigation Reform Act of 1995 (PSLRA). The Tenth Circuit found that the PSLRA subjected plaintiffs to a heightened pleading requirement of alleging intent to defraud with particularized facts that give rise to an inference that is at least as cogent as any competing, nonculpable explanations for a defendant’s conduct. After review, the Tenth Circuit agreed with the district court that the plaintiffs did not meet that standard here. View "Swabb v. ZAGG, Inc." on Justia Law

Trinity, a New York Episcopal parish, owns Wal-Mart stock and requested that Wal-Mart include its shareholder proposal in Wal-Mart’s proxy materials. Trinity’s proposal, linked to Wal-Mart’s sale of high-capacity firearms at about one-third of its 3,000 stores, asked Board of Directors to develop and implement standards for use in deciding whether to sell a product that “especially endangers public safety,” “has the substantial potential to impair the reputation of Wal-Mart,” and/or “would reasonably be considered by many offensive to the family and community values integral to the Company’s promotion of its brand.” The Securities and Exchange Commission’s “ordinary business” exclusion lets a company omit a shareholder proposal from proxy materials if the proposal relates to ordinary business operations. Wal-Mart obtained a “no-action letter” from the SEC, indicating that there would be no recommendation of an enforcement action against Wal-Mart if it omitted the proposal from its proxy materials. Trinity filed suit. The district court held that, because the proposal concerned the company’s Board (rather than management) and focused principally on governance (rather than how Wal-Mart decides what to sell), it was outside ordinary business operations. The Third Circuit reversed. “Stripped to its essence, Trinity’s proposal goes to the heart of Wal-Mart’s business: what it sells on its shelves.” View "Trinity Wall Street v. Wal-Mart Stores, Inc" on Justia Law

Because a 1999 issue of cumulative preferred stock was impairing the company’s ability to raise capital, Emmis signed holders of 60% of the preferred shares to swaps. Emmis purchased shares; the owners delivered their shares to an escrow. Closing was deferred for five years, during which the sellers agreed to vote their shares as Emmis instructed. Emmis did this because, once it purchased any share outright, it would be retired and lose voting rights, Ind. Code 23-1-25-3(a). Emmis repurchased addition preferred stock in a tender offer and reissued it to a trust for bonuses to workers who stuck with the firm through the financial downturn. The trustee was to vote this stock at management’s direction. Senior managers and members of the board were excluded, leaving them free to propose and vote without a conflict of interest. The plans allowed Emmis to control more than 2/3 of the votes. Emmis then called on owners of common and preferred stock to vote on whether the terms of the preferred stock should be changed. The cumulative feature of the stock’s dividends and other rights were eliminated. Plaintiffs, who own remaining preferred stock, sued. The district court rejected claims under federal and Indiana law. The Seventh Circuit affirmed. Indiana, apparently alone among the states, allows a corporation to vote its own shares, which may be good, or may be bad, but the ability to negotiate better terms, or invest elsewhere, rather than judicially imposed “best practices,” is how corporate law protects investors View "Corre Opportunities Fund, LP v. Emmis Commc'ns Corp." on Justia Law

DMK Biodiesel, LLC and Lanoha RVBF, LLC (collectively, Plaintiffs) brought an action against Renewable Fuels Technology, LLC and several individual defendants (collectively, Defendants), alleging that Defendants violated violated Neb. Rev. Stat. 8-1118(1) by selling a security by means of an untrue statement of material fact. Specifically, Plaintiffs alleged that Defendants, acting in concert as members and the manager of Republican Valley Biofuels, LLC (RVBF), made false oral representations and omissions in connection with RVBF and a proposed biodiesel facility that induced their investment. The district court granted Defendants’ motion to dismiss. The Supreme Court reversed because, in granting the motion to dismiss, the district court considered matters outside the pleadings without conducting an evidentiary hearing. On remand, the district court granted summary judgment for Defendants. The Supreme Court reversed, holding that the district court erred in entering summary judgment with respect to Plaintiff’s section 8-1118(1) claim because there remained genuine issues of material fact precluding summary judgment. View "DMK Biodiesel, LLC v. McCoy" on Justia Law

Pilgrim's Pride was the successor-in-interest to Pilgrim's Pride Corporation of Georgia f/k/a Gold Kist, Inc., which was the successor-in-interest to Gold Kist, Inc. In 1998, Gold Kist sold its agriservices business to Southern States Cooperative, Inc. To facilitate the purchase, Southern States obtained a bridge loan that was secured by a commitment letter between Southern States and Gold Kist. The letter permitted Southern States to require Gold Kist to purchase certain securities from Southern States. In early 2004, Gold Kist and Southern States negotiated a price at which Southern States would redeem the securities. Gold Kist’s Board of Directors, instead of accepting the offer, decided to abandon the securities for no consideration. The issue this case presented for the Fifth Circuit's review centered on whether whether Pilgrim’s Pride Corporation's loss from its abandonment of securities was an ordinary loss or a capital loss. The Tax Court (in what appeared to be the first ruling of its kind by any court) ruled that 26 U.S.C. 1234A(1) applied to the abandonment loss and required that it be classified as capital. However, the Fifth Circuit disagreed. Because section 1234A(1) only applied to the termination of contractual or derivative rights, and not to the abandonment of capital assets, the Court reversed the Tax Court and rendered judgment in favor of Pilgrim's Pride. View "Pilgrim's Pride Corporation v. CIR" on Justia Law

This shareholder derivative suit was one of several suits alleging that Smith & Wesson Holding Corporation, a major gun manufacturer incorporated in Nevada, made misleading public statements in 2007 about demand for its products. In reaction to these cases, Smith & Wesson formed a Special Litigation Committee (SLC) to investigate and evaluate the viability of any of these claims and to make a recommendation to Smith & Wesson’s Board whether to pursue any of these claims. The SLC issued a final report recommending against filing any claims. In 2010, Plaintiff asserted Nevada state law claims against Smith & Wesson’s officers and directors, including breach of fiduciary duty and waste of corporate assets. On the basis of the SLC’s conclusions, Defendants, former and current officers and directors of Smith & Wesson, moved for summary dismissal under Delaware law, as adopted by Nevada. The district court granted the motion. The First Circuit affirmed, holding that the district court did not err in finding as a matter of law that the SLC was independent and that the SLC’s investigation was reasonable and conducted in good faith. View "Sarnacki v. Golden" on Justia Law

This appeal stemmed from a putative securities fraud class action brought by lead plaintiff Nitesh Banker on behalf of all persons who purchased common stock in Gold Resource Corporation (GRC) during the class period between January 30, 2012, and November 8, 2012. GRC, a Colorado corporation, was a publicly traded mining company engaged in Mexico in the exploration and production of precious metals, including gold and silver. GRC’s aggressive business plan called for a dramatic increase in mining production during its initial years. Plaintiff alleged the "El Aguila" project experienced severe production problems during the class period, and that defendants knew about these problems but concealed them from investors. Plaintiff alleged GRC and four of its officers and directors committed securities fraud in violation of federal securities laws. He also asserted claims against individual defendants as "control persons." The district court dismissed the complaint with prejudice pursuant to Fed. R. Civ. P. 12(b)(6), holding that plaintiff failed to meet the heightened pleading standard for scienter required by the Private Securities Litigation Reform Act of 1995. Plaintiff appealed. But finding no reversible error, the Tenth Circuit affirmed. View "In re: Gold Resource Corp." on Justia Law