Justia Securities Law Opinion Summaries

The case involves a group of pension funds (plaintiffs) who filed a lawsuit against Inovalon Holdings, Inc., and its board of directors (defendants), challenging an acquisition of Inovalon by a private equity consortium led by Nordic Capital. The plaintiffs claimed that the defendants breached their fiduciary duties and unjustly enriched themselves through the transaction. They also alleged that the company's charter was violated because the transaction treated Class A and Class B stockholders unequally.In the lower court, the Court of Chancery of the State of Delaware, the defendants moved to dismiss the case. They argued that the transaction satisfied the elements of a legal framework known as MFW, which would subject the board's actions to business judgment review. The Court of Chancery granted the defendants' motions to dismiss in full.On appeal, the Supreme Court of the State of Delaware reversed the decision of the Court of Chancery. The Supreme Court found that the lower court erred in holding that the vote of the minority stockholders was adequately informed. The Supreme Court determined that the proxy statement issued to stockholders failed to adequately disclose certain conflicts of interest of the Special Committee’s advisors. Therefore, the Supreme Court concluded that the transaction did not comply with the MFW framework, and the case was remanded for further proceedings. View "City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc." on Justia Law

This case involves Commerzbank AG, a German bank, and U.S. Bank, N.A., an American bank. Commerzbank sued U.S. Bank, alleging that it had failed to fulfill its duties as a trustee for residential mortgage-backed securities (RMBS) that Commerzbank had purchased. The case revolved around three main issues: whether Commerzbank could bring claims related to trusts with "No Action Clauses"; whether Commerzbank's claims related to certificates held through German entities were timely; and whether Commerzbank could bring claims related to certificates it had sold to third parties.The district court had previously dismissed Commerzbank's claims related to trusts with No Action Clauses, granted judgment in favor of U.S. Bank on the timeliness of Commerzbank's claims related to the German certificates, and denied Commerzbank's claims related to the sold certificates. Commerzbank appealed these decisions.The United States Court of Appeals for the Second Circuit affirmed the district court's decisions on the timeliness of the German certificate claims and the denial of the sold certificate claims. However, it vacated the district court's dismissal of Commerzbank's claims related to trusts with No Action Clauses and remanded the case for further proceedings. The court found that Commerzbank's failure to make pre-suit demands on parties other than trustees could be excused in certain circumstances where these parties are sufficiently conflicted. View "Commerzbank AG v. U.S. Bank, N.A." on Justia Law

The case involves a technology company, Root Inc., which sought to disrupt the traditional car insurance market. The plaintiff, Plumber’s Local 290 Pension Trust Fund, invested in Root around the time of its initial public offering (IPO). The plaintiff alleged that Root made misleading statements about its customer acquisition cost (CAC), a key performance metric. Root's CAC was lower than traditional car insurance companies, giving it a competitive advantage. However, the plaintiff claimed that Root's CAC increased after its IPO, ending its competitive advantage. The plaintiff argued that Root had a duty to update investors about its CAC because it was higher than its historical average at the time of the IPO.The case was initially heard in the United States District Court for the Southern District of Ohio, which dismissed all of the plaintiff's claims for failure to state a claim for relief. The court found that the statements made by Root were not actionable because they were based on past performance or historical data, and were not false or misleading.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the lower court's decision. The appellate court held that the plaintiff's claims sounded in fraud and thus were subject to the heightened pleading standard of Rule 9(b). The court also found that Root's statements about its CAC were not misleading. Two of the statements were protected as statements of past or historical performance, and the third was protected by the "Bespeaks Caution" doctrine, which shields companies from liability when they make forward-looking statements accompanied by meaningful cautionary language. The court concluded that Root had no duty to update its CAC because the statements were about past performance and did not predict the future. View "Kolominsky v. Root, Inc." on Justia Law

A class of stock purchasers alleged that Anadarko Petroleum Corporation fraudulently misrepresented the potential value of its Shenandoah oil field project in the Gulf of Mexico, violating federal securities law. The plaintiffs claimed that a decline in Anadarko’s stock price resulted from the company's disclosure that the Shenandoah project was dry and that Anadarko was taking a significant write-off for the project. The plaintiffs invoked the Basic presumption, a legal principle that allows courts to presume an investor's reliance on any public material misrepresentations if certain requirements are met.The District Court for the Southern District of Texas certified the class, relying on new evidence presented by the plaintiffs in their reply brief. Anadarko argued that it was not given a fair opportunity to respond to this new evidence and appealed the decision.The United States Court of Appeals for the Fifth Circuit agreed with Anadarko, stating that the district court should have allowed a sur-reply when the plaintiffs presented new evidence in their reply brief. The court held that when a party raises new arguments or evidence for the first time in a reply, the district court must either give the other party an opportunity to respond or decline to rely on the new arguments and evidence. The court also agreed that the district court failed to perform a full Daubert analysis, a standard for admitting expert scientific testimony. The court vacated the class certification order and remanded the case for further proceedings. View "Georgia Firefighters' Pension Fund v. Anadarko Petroleum Corp." on Justia Law

The case involves Jonathan Espy, a shareholder of J2 Global, Inc., who alleged that the company and its individual defendants committed securities fraud. Espy claimed that J2 made materially misleading statements by omitting key facts about a 2015 acquisition and a 2017 investment, and concealed underperforming acquisitions through consolidated accounting practices. He also alleged that investors learned of J2’s corporate mismanagement and deception not from J2’s disclosures, but from two short-seller reports.The district court dismissed Espy's complaint twice, stating that he failed to sufficiently plead scienter, which is the intent to deceive or act with deliberate recklessness. The court found that Espy's allegations, including statements from two confidential former employees, did not establish reliability or personal knowledge, or demonstrate that J2 acted with the intent to deceive or with deliberate recklessness.The United States Court of Appeals for the Ninth Circuit affirmed the district court's decision. The appellate court held that Espy failed to sufficiently plead scienter because he did not state with particularity facts giving rise to a strong inference that J2 acted with the intent to deceive or with deliberate recklessness. The court also held that Espy failed to sufficiently plead loss causation by showing that J2’s misstatement, as opposed to some other fact, foreseeably caused Espy’s loss. The court concluded that the two short-sellers’ reports did not qualify as corrective disclosures because one did not relate back to the alleged misrepresentations in Espy’s complaint, and the other’s analysis was based entirely on public information and required no expertise or specialized skills beyond what a typical market participant would possess. View "Espy v. J2 Global, Inc." on Justia Law

In 2016, Jesse Benton, a political operative, received funds from Roman Vasilenko, a foreign national, and contributed those funds to a fundraiser supporting then-Presidential candidate Donald Trump. Benton was subsequently convicted of six felonies related to the unlawful contribution and related campaign finance filings. Benton appealed his conviction on several grounds, including challenges to the government’s decision to prosecute campaign finance crimes under the Sarbanes-Oxley Act, the admissibility of an earlier pardoned conviction, the sufficiency of the evidence, and the jury charge.The District Court denied Benton's motion to dismiss the charges, ruling that the Sarbanes-Oxley Act could be applied to false campaign finance filings. The court also allowed the admission of Benton's earlier pardoned conviction under Federal Rule of Evidence 404(b) and its use at sentencing. After a three-day jury trial, Benton was found guilty on all counts. He was sentenced to eighteen months' incarceration and twenty-four months' supervised release.On appeal, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court's decision. The court held that the government had discretion to prosecute under either the Sarbanes-Oxley Act or the Federal Election Campaign Act (FECA). The court also found no error in the district court's admission of Benton's pardoned conviction under Rule 404(b) and declined to review Benton's challenge to the use of the pardoned conviction at sentencing. Finally, the court rejected Benton's challenges to the jury instructions, finding that any error was invited by Benton himself. View "United States v. Benton" on Justia Law

The case revolves around Macquarie Infrastructure Corporation and its subsidiary's business of storing liquid commodities, including No. 6 fuel oil. In 2016, the United Nations' International Maritime Organization adopted a regulation, IMO 2020, which capped the sulfur content of fuel oil used in shipping at 0.5% by 2020. No. 6 fuel oil typically has a sulfur content closer to 3%. Macquarie did not discuss IMO 2020 in its public offering documents. In 2018, Macquarie announced a drop in the amount of storage capacity contracted for use by its subsidiary's customers, partly due to the decline in the No. 6 fuel oil market, leading to a 41% fall in Macquarie's stock price.Moab Partners, L.P. sued Macquarie and various officer defendants, alleging a violation of §10(b) and Rule 10b–5. Moab argued that Macquarie's public statements were misleading as it concealed the impact of IMO 2020 on its subsidiary's business. The District Court dismissed Moab's complaint, but the Second Circuit reversed the decision, stating that Macquarie had a duty to disclose under Item 303 and that its violation could sustain Moab’s §10(b) and Rule 10b–5 claim.The Supreme Court of the United States held that the failure to disclose information required by Item 303 cannot support a private action under Rule 10b–5(b) if the failure does not render any "statements made" misleading. The Court clarified that Rule 10b–5(b) does not proscribe pure omissions, but only covers half-truths. The Court vacated the judgment of the Court of Appeals for the Second Circuit and remanded the case for further proceedings consistent with its opinion. View "Macquarie Infrastructure Corp. v. Moab Partners, L. P." on Justia Law

The case involves Francis M. Reynolds, who was convicted of three counts of obstruction of a United States Securities and Exchange Commission proceeding and one count of securities fraud. The District Court sentenced him to seven years of imprisonment plus three years of supervised release, ordered him to pay restitution to the victims of his fraud in the amount of $7,551,757, a special assessment of $400, and to forfeit $280,000 to the United States. Reynolds appealed his conviction, but he died while the appeal was pending.Reynolds was convicted in the United States District Court for the District of Massachusetts. He appealed his conviction to the United States Court of Appeals for the First Circuit. While the appeal was pending, Reynolds died. The government suggested that the court should either dismiss the appeal as moot or follow the practice of the Supreme Judicial Court of Massachusetts and dismiss the appeal as moot while instructing the District Court to add a notation in the record.The United States Court of Appeals for the First Circuit had to decide whether to apply the doctrine of abatement ab initio, which holds that when a criminal defendant dies during the pendency of a direct appeal from his conviction, his death abates not only the appeal but also all proceedings had in the prosecution from its inception. The court decided to apply the doctrine, aligning itself with other federal courts of appeals and its own past decisions. The court dismissed the appeal and remanded the case to the District Court to vacate the convictions and dismiss the indictment. The court also instructed the District Court to vacate the orders of restitution and criminal forfeiture that were imposed in this case, as well as the special assessment. View "United States v. Reynolds" on Justia Law

The case involves shareholders of Genius Brands International, Inc., a children's entertainment company, who alleged that the company violated the Securities Exchange Act of 1934 by making fraudulent statements and omissions. The shareholders claimed that Genius concealed its relationship with a stock promoter, PennyStocks.com, misrepresented its relationship with Arnold Schwarzenegger, exaggerated the frequency of its show Rainbow Rangers on Nickelodeon Jr., falsely suggested that Disney or Netflix would acquire Genius, and overstated its rights to the works of comic book author Stan Lee.The United States District Court for the Central District of California dismissed the shareholders' complaint, finding that they failed to adequately allege that Genius's representations were misleading or that they caused the shareholders' losses.On appeal, the United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court's decision. The appellate court held that the shareholders adequately alleged that Genius's representations regarding PennyStocks were misleading and that they caused the shareholders' losses with respect to the Rainbow Rangers, Disney/Netflix, and Stan Lee claims. However, the court affirmed the dismissal of the claim regarding Genius's relationship with Schwarzenegger, finding that the shareholders did not adequately allege loss causation. The case was remanded for further proceedings. View "In re Alavi v. Genius Brands International, Inc." on Justia Law

The case involves a shareholder lawsuit challenging the fairness of IAC/InterActiveCorp’s separation from its controlled subsidiary, Match Group, Inc. The plaintiffs alleged that the transaction was unfair because IAC, a controlling shareholder of Match, received benefits in the transaction at the expense of the Match minority shareholders. The defendants claimed that business judgment review applied because they followed the MFW framework, which included approval by an independent and disinterested “separation committee” and a majority of uncoerced, fully informed, and unaffiliated Match shareholders. The Court of Chancery agreed and dismissed the complaint.On appeal, the Supreme Court of Delaware concluded that in a suit claiming that a controlling shareholder stood on both sides of a transaction with the controlled corporation and received a non-ratable benefit, entire fairness is the presumptive standard of review. The controlling shareholder can shift the burden of proof to the plaintiff by properly employing a special committee or an unaffiliated shareholder vote. But the use of just one of these procedural devices does not change the standard of review. If the controlling shareholder wants to secure the benefits of business judgment review, it must follow all MFW’s requirements. The court reversed the lower court's finding that the separation committee functioned as an independent negotiating body. The case was remanded for further proceedings. View "In re Match Group, Inc. Derivative Litigation" on Justia Law