Justia Securities Law Opinion Summaries

The Lindsays were minority shareholders of the 304 Corporation; its principal asset was Mid City Bank. In 2010, the Nebraska Department of Banking and Finance and the FDIC began an examination of the bank. In 2011, the Department appointed the FDIC as the bank's receiver, stating that “‘large commercial real estate loan and poor management practices . . . led to a deterioration of the bank’s capital’” so that there was “‘no option but to declare the insolvent institution receivership.’” The bank reopened and regained good standing. In 2014, the FDIC filed suit, alleging that Fitl “was grossly negligent and breached his fiduciary duties,” 12 U.S.C. 1821(d)(2)(A)(i). The Lindsays also filed suit, alleging breach of fiduciary duties. The court dismissed. The Nebraska Supreme Court affirmed. The Lindsays’ claims are similar to all other shareholders’ claims and did not arise from a special duty, since the injury was not “separate and distinct.” The district court correctly concluded that the Lindsays’ claims were derivative in nature and that as a result of the FDIC lawsuit, the Lindsays had no standing to bring a derivative action on behalf of the corporation. View "Lindsay v. Fitl" on Justia Law

When the five investment funds at issue lost nearly 90 percent of their value in 2007-2008, investors lost large sums. Various plaintiffs (investors) initially filed claims with the Financial Industry Regulatory Authority, participated in arbitration, or filed state suits. In 2013, they filed suit under the Securities Act of 1933, 15 U.S.C. 77k, 77l, and 77o, the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) and 78t(a), and SEC Rule 10b-5. They alleged that the funds were overvalued and concentrated in risky securities and that investors relied on misrepresentations in purchasing the funds. The district court initially granted class certification, but dismissed the claims as barred by the statutes of limitations. The Sixth Circuit affirmed, holding that the suits were barred by the applicable statutes of repose. The court declined to “toll” those statutes View "Stein v. Regions Morgan Keegan Select High Income Fund, Inc." on Justia Law

Manning held 2,000,000 shares of Escala stock. He claims that he lost most of his investment when its price plummeted after Merrill Lynch devalued Escala through “naked short sales.” Unlike a typical short sale, where a person borrows stock from a broker, sells it to a buyer on the open market, and later purchases the same number of shares to return to the broker, the seller in a “naked” short sale does not borrow the stock he puts on the market, and never delivers the promised shares to the buyer. Securities and Exchange Commission’s Regulation SHO prohibits short-sellers from intentionally failing to deliver securities. Manning claimed violation of New Jersey law, but referred explicitly to Regulation SHO, citing past accusations against Merrill Lynch and suggesting that the transactions at issue had again violated the regulation. Merrill Lynch removed the case, invoking general federal-question jurisdiction, 28 U. S. C. 1331, and the Securities Exchange Act of 1934, 15 U.S.C. 78aa(a). The Third Circuit ordered remand, holding that Manning’s claims did not necessarily raise any federal issues and that the Exchange Act covers only cases that would satisfy the “arising under” test for general federal jurisdiction. The Supreme Court affirmed. The jurisdictional test established by Section 27 is the same as Section 1331’s test for deciding if a case “arises under” a federal law. Section 27 confers federal jurisdiction over suits brought under the Exchange Act and the rare suit in which a state-law claim rises and falls on the plaintiff’s ability to prove the violation of a federal duty. View "Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning" on Justia Law

Magruder bought 940,000 shares of Bancorp through his Fidelity account, paying $9,298. Years later he asked Fidelity for a certificate showing his ownership. When Fidelity did not comply, Magruder initiated arbitration through the Financial Industry Regulatory Authority. Magruder and Fidelity chose simplified arbitration, in which the arbitrator cannot award more than $50,000 in damages or order specific performance that would cost more than $50,000. Magruder had demanded $28,000 (actual plus punitive damages). The arbitrator directed Fidelity to deliver a stock certificate or explain why it could not do so. Fidelity explained that in 2005 the Depository Trust & Clearing Corporation, responsible for issuing Bancorp paper certificates, had placed a “global lock” on that activity as a result of Bancorp reporting that fraudulent shares bearing identification number 106 were flooding the market. In 2012 Bancorp offered to swap series 106 shares for new series 205 shares, but by then Bancorp had been delisted from stock exchanges and FINRA blocked the swaps. The arbitrator accepted this explanation. Magruder then filed suit. The district judge sided with Fidelity. The Seventh Circuit vacated for lack of jurisdiction. Even assuming that the parties are of diverse citizenship, the stakes cannot exceed $50,000, and the minimum under 28 U.S.C. 1332(a) is $75,000. View "Magruder v. Fidelity Brokerage Servs., LLC" on Justia Law

American Fidelity Assurance Company sued the Bank of New York Mellon (“BNYM”) for claims arising from BNYM’s conduct as Trustee of a trust holding mortgage-backed securities owned by American Fidelity. BNYM did not assert a personal jurisdiction defense in its first two motions to dismiss or in its answer. In its third motion to dismiss, BNYM argued it was not subject to general jurisdiction in Oklahoma. The district court denied the motion, concluding BNYM had waived the defense by failing to raise it in prior filings. BNYM challenges that decision in an interlocutory appeal. Finding no reversible error, the Tenth Circuit affirmed. View "American Fidelity Assurance v. Bank of New York Mellon" on Justia Law

Defendants are national securities exchanges registered with the U.S. Securities and Exchange Commission (SEC) and operate as self‐regulatory organizations that regulate markets in conformance with securities laws under the Securities Exchange Act of 1934, 15 U.S.C. 78a. Plaintiffs are securities firms and members of the defendant exchanges. They compete for customer order flow by displaying buy and sell quotations for particular stocks. Between at least January 2004 and June 2011, each defendant charged “payment for order flow” (PFOF) fees. Each defendant exchange imposes PFOF fees when a trade is made for a customer; however, these fees are not imposed for proprietary “house trades,” where a firm trades on its own behalf. The Seventh Circuit affirmed dismissal of plaintiffs’ suit, in which they sought to recover PFOF fees they claim were improperly charged. The district court lacked subject matter jurisdiction based on plaintiffs’ failure to exhaust administrative remedies before the SEC. View "Citadel Sec., LLC v. Chicago Bd. Options Exch., Inc." on Justia Law

TriQuint Semiconductor, Inc., and its directors were defendants in two consolidated shareholder derivative suits filed in Washington State. TriQuint moved to dismiss those suits on the ground that its corporate bylaws establish Delaware as the exclusive forum for shareholder derivative suits. The trial court denied TriQuint’s motion to dismiss, and the Supreme Court allowed TriQuint’s petition for an alternative writ of mandamus. After review, the Supreme Court concluded that, as a matter of Delaware law, TriQuint’s bylaw was a valid forum-selection clause and bound its shareholders. The Court also concluded that, as a matter of Oregon law, the bylaw was enforceable. The Court issued a peremptory writ of mandamus directing the trial court to grant TriQuint’s motion to dismiss. View "Roberts v. TriQuint Semiconductor, Inc." on Justia Law

Forquest Ventures was formed to operate a placer mining enterprise in Helena, Montana. Ken Hagman relied on purported assay reports of the site allegedly performed by Advanced Analytical before incorporating Forquest. Following incorporation, Forquest sold or issued stock to investors, including Investors. Because there was little precious metal content at the site, Forquest realized no profits and Investors received no return on their investments. Emilio and Candice Garza, individually and on behalf of all similarly situated Forquest investors, sued. The Garzas then filed an amended complaint adding the other Investors as named plaintiffs. Forquest filed a third-party complaint against Advanced Analytical. The district court granted summary judgment to Investors on their Montana Securities Act (Act) claims and granted Advanced Analytical’s motion to dismiss. The Supreme Court affirmed in part and reversed in part, holding that the district court (1) correctly determined that Investors timely asserted their claims under the Act; (2) did not err in determining that the non-Garza Investors’ claims relate back to the original complaint’s filing date; (3) correctly determined that there were no genuine issues of material fact regarding Forquest’s failure to use reasonable care in the sale of securities to Investors; but (4) erred in dismissing Advanced Analytical for lack of personal jurisdiction. View "Garza v. Forquest Ventures, Inc." on Justia Law

Bebo is the respondent in an administrative enforcement proceeding before the Securities and Exchange Commission, alleging that she violated federal law by manipulating internal books and records, making false representations to auditors, and making false disclosures to the SEC. Rather than wait for a final decision in the administrative enforcement proceeding, Bebo filed suit in federal court challenging on constitutional grounds the authority of the SEC to conduct the proceeding. She invoked federal question jurisdiction under 28 U.S.C. 1331. The district court dismissed for lack of subject matter jurisdiction, based on the administrative review scheme. The Seventh Circuit affirmed. The administrative law judge assigned to the case is expected to issue an initial decision within the coming months. If the decision is adverse to Bebo, she will have the right to file a petition for review with the SEC. The SEC will then have the power either to adopt the ALJ’s initial decision as the final decision of the agency or to grant the petition and conduct de novo review. If the SEC’s final decision is adverse, Bebo will then have the right under 15 U.S.C. 78y(a)(1) to seek judicial review and will be able to raise her constitutional claims. View "Bebo v. Sec. Exchange Comm'n" on Justia Law

In 2003, the SEC filed a civil suit against Custable, charging fraud involving “penny stocks” that yielded him at least $4 million. Criminal proceedings resulted in a long prison sentence for Custable. In 2010 he consented to entry of a judgment that ordered him to pay a $120,000 penalty plus $6.4 million in disgorgement of profits, 15 U.S.C. 78u(d). The SEC may either to remit the penalty money to the Treasury or to place it in the same fund as the disgorged profits, 15 U.S.C. 7246. Deciding that locating the defrauded victims would not be feasible, the Commission asked the court to allow it to pay to the Treasury all the disgorged profits that it had recovered. Hare, a purported victim of another Custable fraud and not a party, claimed to have an interest in the fund and asked the court to allow him to respond to any motion to disburse. The judge rejected Hare’s argument and granted the SEC’s motion to disburse the entire fund to the Treasury. The Seventh Circuit dismissed an appeal. Hare failed to establish that he is within an exception to the rule that forbids a nonparty to appeal; the grounds that he advanced for relief were frivolous View "Sec. & Exch. Comm'n v. Custable" on Justia Law