Justia Securities Law Opinion SummariesArticles Posted in Civil Procedure
SEC v. Barton
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
Grayscale Investments, LLC v. SEC
The Securities and Exchange Commission recently approved the trading of two bitcoin futures funds on national exchanges but denied approval of Grayscale’s bitcoin fund. Petitioning for review of the Commission’s denial order, Grayscale maintains its proposed bitcoin exchange-traded product is materially similar to the bitcoin futures exchange-traded products and should have been approved to trade on NYSE Arca. The DC Circuit vacated the order and granted Grayscale’s petition. The court explained that the denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products. The court explained that to avoid arbitrariness and caprice, administrative adjudication must be consistent and predictable, following the basic principle that similar cases should be treated similarly. The court wrote that NYSE Arca presented substantial evidence that Grayscale is similar, across the relevant regulatory factors, to bitcoin futures ETPs. As such, the court found that the Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP. Accordingly, the court explained that in the absence of a coherent explanation, this, unlike regulatory treatment of like products, is unlawful. View "Grayscale Investments, LLC v. SEC" on Justia Law
E. OHMAN J:OR FONDER AB, ET AL V. NVIDIA CORPORATION, ET AL
Lead Plaintiff E. Öhman J:or Fonder AB and others (“Plaintiffs”) brought this putative class action on behalf of all persons or entities who purchased or otherwise acquired common stock of NVIDIA Corporation (“NVIDIA”) during the proposed Class Period. The district court dismissed Plaintiffs’ first complaint with leave to amend, holding that it failed to plead sufficiently that defendants’ statements were materially false or misleading, and that the statements were made knowingly or recklessly. The Ninth Circuit affirmed in part and reversed in part. The court explained that Section 20(a) assigns joint and several liability for any person who controls any person liable under Section 10(b). Because the panel held that the amended complaint did not sufficiently plead a cause of action under Section 10(b) and Rule 10b-5 against defendants Kress and Fisher, the only alleged primary violation was that committed by NVIDIA through defendant Huang. The panel affirmed the district court’s dismissal of plaintiffs’ Section 20(a) claims against Kress and Fisher, vacated the dismissal of the Section 20(a) claims as to Huang, and remanded for further proceedings as to those claims. View "E. OHMAN J:OR FONDER AB, ET AL V. NVIDIA CORPORATION, ET AL" on Justia Law
Meitav Dash Provident Funds and Pension Ltd., et al. v. Spirit AeroSystems Holdings, et al.
This appeal centered on claims for securities fraud against Spirit AeroSystems, Inc., and four of its executives. Spirit produced components for jetliners, including Boeing’s 737 MAX. But Boeing stopped producing the 737 MAX, and Spirit’s sales tumbled. At about the same time, Spirit acknowledged an unexpected loss from inadequate accounting controls. After learning about Spirit’s downturn in sales and the inadequacies in accounting controls, some investors sued Spirit and four executives for securities fraud. The district court dismissed the suit, and the investors appealed. "For claims involving securities fraud, pleaders bear a stiff burden when alleging scienter." In the Tenth Circuit's view, the investors did not satisfy that burden, so it affirmed the dismissal. View "Meitav Dash Provident Funds and Pension Ltd., et al. v. Spirit AeroSystems Holdings, et al." on Justia Law
CCSB Financial Corp. v. Totta
The corporate charter of a bank holding company capped at 10% the stock that could be voted by a “person” in any stockholder vote. During a proxy contest for three seats of a staggered board, the CCSB board of directors instructed the inspector of elections not to count 37,175 shares voted in favor of a dissident slate of directors. According to the board, the 37,175 shares exceeded the 10% voting limitation because certain stockholders were acting in concert with each other. If the votes had been counted, the dissident slate of directors would have been elected. The CCSB corporate charter also provided that the board’s “acting in concert” determination, if made in good faith and on information reasonably available, “shall be conclusive and binding on the Corporation and its stockholders.” In a summary proceeding brought by the plaintiffs, the Court of Chancery found: (1) the “conclusive and binding” charter provision invalid under Delaware corporate law; (2) the board’s instruction to the inspector of elections invalid because the individuals identified by the board were not acting in concert; and (3) the board’s election interference did not withstand enhanced scrutiny review. The court also awarded the plaintiffs attorneys’ fees for having conferred a benefit on CCSB. CCSB argued the Court of Chancery erred when it invalidated the charter provision and reinstated the excluded votes. The Delaware Supreme Court affirmed the Court of Chancery: plaintiffs proved that the board breached its duty of loyalty by instructing the inspector of elections to disregard the 37,175 votes. "The charter provision cannot be used to exculpate the CCSB directors from a breach of the duty of loyalty. Further, the court’s legal conclusion and factual findings that the stockholders did not act in concert withstand appellate review." View "CCSB Financial Corp. v. Totta" on Justia Law
Mimi Investors, LLC v. Tufano, P., et al.
Mimi Investors, LLC (“Mimi Investors”) sued Paul Tufano, David Crocker, Dennis Cronin, and Neil Matheson (“ORCA Officers”), the directors and officers of ORCA Steel, LLC (“ORCA Steel”), a now-defunct data storage company, alleging that ORCA Officers made material misrepresentations of fact in violation of the Pennsylvania common law and Section 1- 401(b) of the Pennsylvania Securities Act ("PSA"). Mimi Investors described a meeting held in February of 2014 during which ORCA Officers allegedly represented to Mimi Investors that they had received 400 orders for computer data storage space (“CDS Orders”) for ORCA Steel’s new data storage facility. To secure financing for the purpose of servicing the CDS Orders, ORCA Officers sought promissory notes to increase capital. In October 2014, ORCA Steel ceased making interest payments on the loan. ORCA Steel did not respond to Mimi Investors’ demand letter, sent in August 2015, which sought to cure the default. Mimi Investors asserted that neither “construction financing nor the fulfillment of the new orders materialized.” It also averred that, on October 21, 2014, ORCA Officers told Mimi Investors that they “had known for months that the loan to fund new construction was not viable” because the CDS Orders were “not investment grade.” Mimi Investors claimed that “these misrepresentations regarding available construction financing and committed orders, as well as other statements by” ORCA Officers, “were material and untrue within the meaning of the” PSA, and that Mimi Investors “relied on these misrepresentations in deciding to make the [l]oan[.]” In a matter of first impression, the Pennsylvania Supreme Court addressed whether a plaintiff must plead and prove scienter as an element of 70 P.S. § 1-401(b) of the PSA. After careful review, the Court held that under the plain language of its text, Section 1-401(b) of the PSA did not contain a scienter element. However, the PSA provided a defense to civil liability under Section 1-401(b) if the defendant could show they “did not know and in the exercise of reasonable care could not have known of the untruth or omission[.]” View "Mimi Investors, LLC v. Tufano, P., et al." on Justia Law
Hogan, et al. v. Pilgrim’s Pride Corporation, et al.
Plaintiff Patrick Hogan brought a putative federal securities-fraud class action against poultry producer Pilgrim’s Pride Corp., Pilgrim’s former chief executive officer and president William Lovette, and Pilgrim’s then chief financial officer Fabio Sandri (collectively, Defendants). Plaintiff accused Defendants of violating § 10(b) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 10b–5, 17 C.F.R. § 240.10b–5. Plaintiff also accused Lovette and Sandri of violating § 20(a) of the Act, 15 U.S.C. § 78t(a). Plaintiff appealed four decisions by the district court: (1) the grant of Defendants’ motion to dismiss the first amended complaint (the FAC) for failure to adequately plead a claim; (2) the denial of Plaintiff’s motion to reconsider "Hogan I" (but granting leave to amend the complaint without setting a deadline); (3) the grant of Defendants’ motion to dismiss the second amended complaint (the SAC) as barred by the applicable statute of repose; and (4) the denial of Plaintiff’s motion to reconsider "Hogan III." After review, the Tenth Circuit Court of Appeals reversed the district court’s order in Hogan III, dismissed as moot Plaintiff’s challenges to the orders in Hogan I, Hogan II, and Hogan IV, and remanded for further proceedings at the district court. Because (1) the SAC did not raise new claims or add any defendants and (2) the district court did not enter a final order after Hogan I and Hogan II (so Defendants’ right to repose had not vested), the SAC was not barred by the statute of repose. Because the SAC superseded the FAC, the Court found the sufficiency of the FAC was a moot issue. And because the district court did not address the sufficiency of the SAC, the case was remanded for the district court to address this issue in the first instance. View "Hogan, et al. v. Pilgrim's Pride Corporation, et al." on Justia Law
Carpenters Pension Fund of Illinois v. MiMedx Group, Inc., et al.
MiMedx is a Florida corporation headquartered in Marietta, Georgia. Carpenters Pension Fund of Illinois is the lead plaintiff in this consolidated securities class action. Carpenters purchased 41,080 shares of MiMedx common stock in three separate transactions between August 2017 and October 2017 and later sold those shares in December 2017. The district court dismissed Carpenters’s action, finding that none of the complaint’s allegations occurring before the date Carpenters sold its MiMedx stock constituted a partial corrective disclosure sufficient to demonstrate loss causation. Carpenters contend that the district court erred in its loss causation analysis. Carpenters further argued that the district court erred in denying its post-judgment motion for relief from judgment, as well as its post-judgment request for leave to amend its complaint. The Eleventh Circuit concluded that the district court erred in finding that Carpenters lacked standing to bring its Exchange Act claims against Defendants and vacated that portion of the district court’s order. The court affirmed the district court’s order dismissing Carpenters’ second amended complaint for failure to plead loss causation. The court explained that as to Rule 59(e), the district court did not abuse its discretion in determining that Carpenters sought to relitigate arguments it had already raised before the entry of judgment. As to Rule 60(b)(1) the court found no mistake in the district court’s application of the law in this case that would change the outcome of this case. And, as to Rule 60(b)(6), the district court found that Carpenters’ motion primarily focused on the court’s purported “mistakes in the application of the law,” which fall squarely under Rule 60(b)(1). View "Carpenters Pension Fund of Illinois v. MiMedx Group, Inc., et al." on Justia Law
City of Warren Police and Fire v. Prudential Financial Inc
A municipal retirement system that had purchased the company’s common stock before the announcement now alleges that the company knew beforehand of problems with its reserves and misled investors about those issues. The retirement system filed a putative class action against the company and three of its corporate executives, alleging securities fraud under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934. The insurance company and the executives moved to dismiss for failure to state a claim for relief. They argued that, under the heightened pleading standard for securities-fraud claims, the retirement system’s complaint failed to plausibly allege three necessary elements of its claims: false or misleading statements; loss causation, and scienter. The district court granted that motion and dismissed the complaint with prejudice. The Third Circuit partially vacated the district court’s judgment. It remanded the case to the district court to consider, in the first instance, the adequacy of the amended complaint’s allegations of loss causation and scienter concerning the CFO’s statement. The court explained that based on information from a confidential former employee, who qualifies as credible at the pleading stage, the complaint alleged that the insurance company was already contemplating a significant increase in reserves due to negative mortality experience at the time of the CFO’s statements. And the magnitude of the company’s reserve charge and its temporal proximity to the CFO’s statements further undercut the CFO’s assertion that recent mortality experience was within a normal range. Those particularized allegations satisfy the heightened standard for pleading falsity, and they plausibly allege the falsity of the CFO’s statement. View "City of Warren Police and Fire v. Prudential Financial Inc" on Justia Law
USSEC V. IMRAN HUSAIN, ET AL
Defendant and his attorney created publicly-traded shell corporations and sold them to privately-held companies. The Securities and Exchange Commission (SEC) filed suit against Defendants for violations of the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act), and SEC Rule 10b5. On cross-motions for summary judgment, the district court held that Defendant had violated the securities laws and imposed equitable statutory remedies, including a civil penalty of $1,757,000. The district court found that, as a matter of undisputed fact, Defendant had received $1,757,000 in gross pecuniary gain from his violations and used that amount for the civil penalty. On appeal, Defendant challenged the amount of that penalty. The Ninth Circuit reversed the district court’s imposition of the civil penalty. The panel held that Defendant’s declaration that legal fees of $287,500 were paid from the proceeds from the sale of five shell companies established a genuine issue of material fact whether such proceeds should be attributed to his—rather than his attorney’s—gross pecuniary gain. Because Defendant established a genuine issue of material fact whether he received or controlled the entire amount of the proceeds, the district court erred in finding on summary judgment that his gross pecuniary gain was $1,757,000. The panel further held that Defendant identified genuine issues of material fact on two additional factors that the district court considered in imposing the civil penalty: the degree of Defendant’s scienter and his recognition of the wrongful nature of his conduct. View "USSEC V. IMRAN HUSAIN, ET AL" on Justia Law