Justia Securities Law Opinion Summaries

This appeal concerned the maintenance of a suit for rescission under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., by plaintiffs Kenneth Weiss and his wholly-owned corporation. The district court granted summary judgment to defendants on all claims and awarded defendants attorneys' fees. The court held that a plaintiff suing under section 10(b) seeking rescission must demonstrate economic loss and that the misrepresentation or fraud conduct caused the loss. The court found that the record revealed that rescission was not feasible in the instant case. Yet employing a rescissionary measure of damages, Weiss would be able to convince the finder of fact that he was entitled to relief. On that basis, the court reversed the district court's grant of summary judgment of Weiss's federal and state securities claims and remanded for consideration under a rescissionary measure of damages. With respect to the statue of limitations issue, the court remanded for consideration in light of Merck & Co., Inc. v. Reynolds. The court affirmed the district court's judgment on Weiss's state law claims of common law fraud, negligent misrepresentation, mutual mistake, and unjust enrichment. The court vacated the district court's attorneys' fee award and dismissed the appeal of this award as moot. View "Strategic Diversity, Inc., et al. v. Alchemix Corp., et al." on Justia Law

Defendants appealed from a judgment of the district court in favor of plaintiff on claims of Section 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78p(b). At issue was whether a beneficial owner's acquisition of securities directly from an issuer - at the issuer's request and with the board's approval - should be exempt from the definition of a "purchase" under Section 16(b), on the theory that such a transaction lacked the "potential for speculative abuse" that Section 16(b) was designed to curb. The court held that such transactions were covered by Section 16(b) and that defendants, who were limited partnerships, were beneficial owners for the purpose of Section 16(b) liability, notwithstanding their delegation of voting and investment control over their securities portfolios to their general partners' agents. Accordingly, the court affirmed the judgment of the district court. View "Huppe v. WPCS Int'l, Inc." 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

This appeal concerned the maintenance of a suit for rescission under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., by plaintiffs. The district court granted summary judgments to defendants on all claims and awarded defendants attorneys' fees. The court held that a plaintiff suing under section 10(b) seeking rescission must demonstrate economic loss and that the misrepresentation of fraudulent conduct caused the loss. In this case, the court found that the record revealed the rescission was not feasible. Yet employing a rescissionary measure of damages, plaintiffs could be able to convince the finder of fact that plaintiffs were entitled to relief. On that basis, the court reversed the district court's grant of summary judgment on plaintiffs' federal and state securities claims and remanded for consideration under rescissionary measure of damages. With respect to the statute of limitations issue, the court remanded for consideration in light of Merck & Co. The court affirmed the district court's judgment on plaintiffs' state law claims of common law fraud, negligent misrepresentation, mutual mistake, failure of a condition precedent, and unjust enrichment. The court vacated the district court's attorneys' fee award and dismissed the appeal of the award as moot. View "Strategic Diversity, Inc., et al. v. Alchemix Corp., et al." on Justia Law

In 2003, the Securities and Exchange Commission (SEC) sought a preliminary injunction against ClearOne Communications, Inc. based on suspicions of irregular accounting practices and securities law violations. During a hearing on the preliminary injunction, Defendant and former CEO Susie Strohm was asked if she was involved in a particular sale by ClearOne that was the focus of the SEC’s case. She said she was not and approximated that she learned of the sale either before or after the end of ClearOne’s fiscal year. Based on this testimony, Defendant was later convicted of one count of perjury. She argued on appeal to the Tenth Circuit that her conviction should be reversed because (1) the questioning at issue was ambiguous, (2) her testimony was literally true, and (3) even if false, her testimony was not material to the court’s decision to grant the preliminary injunction. The Tenth Circuit disagreed on all three points. The Court found the questions were not ambiguous and there was sufficient evidence to demonstrate Defendant knowingly made false statements. Also, Defendant's testimony was material to the preliminary injunction hearing because it related to a transaction the SEC believed demonstrated ClearOne’s accounting irregularities. The Court therefore affirmed Defendant's conviction. View "United States v. Strohm" on Justia Law

UBS appealed the denial of their motion for a preliminary injunction enjoining defendants from proceeding with an arbitration before the Financial Industry Regulatory Authority (FINRA), and alternatively requiring that the arbitration proceed in New York County. In the arbitration, defendants sought damages for UBS's alleged fraud in connection with defendants' issuances of auction rate securities. The court held that defendants were entitled to arbitration because they became UBS's "customer" under FINRA's rules when they undertook to purchase auction services from UBS. The court also held that the enforceability of the forum selection clause was a procedural issue for FINRA arbitrators to address and that the district court lacked jurisdiction to resolve it. View "UBS Financial Servs, Inc. v. West Virginia University Hosp." on Justia Law

In this securities fraud class action, the investor plaintiffs sued the defendant company and three of its principal officers, alleging that they had made a series of eleven false or misleading statements to the public, in violation of section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, 15 U.S.C. 78a et seq. Plaintiffs claimed that the false statements had the effect of artificially inflating the price of defendant's stock until the truth belatedly came out, at which time the stock price dropped and plaintiffs suffered substantial financial losses. The court held that the district court properly dismissed plaintiffs' claims arising from the alleged misstatements made on March 5, 2004 and July 26, 2004, because plaintiffs have inadequately pled scienter and falsity. However, as for plaintiffs' claims arising out of defendant's February 23, 2005 and March 16, 2005 statements, the court vacated the district court's entry of summary judgment. The court held that the securities laws prohibited corporate representatives from knowingly peddling material misrepresentations to the public, regardless of whether the statements introduced a new falsehood to the market or merely confirmed misinformation already in the marketplace. Accordingly, the court affirmed in part, vacated in part, and remanded for further proceedings. View "Findwhat Investor Group, et al. v. Findwhat.com, et al." on Justia Law

This case involved a fallout of a $3.65 billion Ponzi scheme perpetrated by Minnesota businessman Thomas J. Petters. Appellants, investment funds (collectively, Ritchie), incurred substantial losses as a result of participating in Petters' investment scheme. Ritchie subsequently sued two officers of Petters' companies, alleging that they assisted Petters in getting Ritchie to loan over $100 million to Petters' company. Ritchie's five-count complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(a), (c)-(d), common law fraud, and tortious inference with the contract. The court held that the district court erred in concluding that Ritchie's action was barred by a Receivership Order. The court also rejected arguments challenging the sufficiency of Ritchie's pleadings in the common law fraud count and did not to address other arguments related to abstention, lack of causation, and absolute privilege. Accordingly, the court reversed the judgment of the district court and remanded for further proceedings. View "Ritchie Capital Mgmt., et al. v. Jeffries, et al." on Justia Law

This case concerned the bankruptcy estate of Qualia Clinical Service, Inc. The estate's Chapter 7 Trustee sought to avoid as a preferential transfer a security interest recorded by one of Qualia's creditors shortly before the bankruptcy petition. The bankruptcy court and the Bankruptcy Appellate Panel (BAP) held the security interest voidable. The court held that the bankruptcy court and the BAP properly applied 11 U.S.C. 547(c)(5)(A) to conclude that the preferential transfer in this case, though it concerned an interest in accounts receivable, improved Inova Capital Funding, LLC's position as against Qualia's other creditors and so was not exempt from avoidance under that subsection. The court found Inova's remaining arguments unpersuasive. View "Lange v. Inova Capital Funding, LLC, et al." on Justia Law

Jack Katz and Infinity Clark Street Operating were minority shareholders in a real estate investment trust (REIT) owned by Archstone Smith Trust, a public company. Archstone entered into a merger agreement in which two investors acquired all of Archstone’s outstanding public shares. As part of the merger, Katz and Infinity were squeezed out of the REIT and had the option of receiving either cash or stock in the newly formed entity in exchange for their shares. Katz opted for cash; Infinity chose stock. Claiming the offering documents associated with the merger contained false and misleading statements or omissions, Katz and Infinity separately sued. In Colorado, Infinity filed a federal class action lawsuit alleging breaches of contract and fiduciary duty relating to the merger and would later be sent to arbitration. Meanwhile, Katz filed a class action lawsuit in Illinois state court asserting securities law claims arising from the merger. The Illinois case was removed to federal court and eventually transferred to Colorado. Katz then filed an amended complaint joining Infinity as a party plaintiff, even though Infinity’s case was still waiting the outcome of arbitration. The district court dismissed Katz’s complaint, ruling that by joining the case, Infinity was improperly splitting claims that should have been alleged in its earlier action. The court also found Katz lacked standing to bring his securities law claims since he was not a purchaser when he opted to sell his shares. Katz and Infinity challenged the district court’s decision on appeal. The issue before the Tenth Circuit was whether a plaintiff can split potential legal claims against a defendant by bringing them in two different lawsuits. The Court concluded that related claims must be brought in a single cause of action, and the district court properly dismissed the claim-splitting plaintiffs. View "Katz v. Gerardi" on Justia Law