Justia Securities Law Opinion Summaries

The case concerns a former CEO of a brand-management company who was prosecuted for allegedly orchestrating a scheme to inflate company revenues through secret “overpayments-for-givebacks” deals with a business partner. The government alleged that the CEO arranged for the partner to pay inflated prices for joint ventures, with a secret understanding that the excess would be returned later, thereby allowing the company to report higher revenues to investors. The CEO was also accused of making false filings with the SEC and improperly influencing audits. The central factual dispute was whether the CEO actually made these undisclosed agreements.In 2021, the United States District Court for the Southern District of New York held a jury trial. The jury acquitted the CEO of conspiracy to commit securities fraud, make false SEC filings, and interfere with audits, but could not reach a verdict on the substantive charges, resulting in a mistrial on those counts. The government retried the CEO in 2022 on the substantive counts, and the second jury convicted him on all charges. The CEO moved to bar the retrial, arguing that the Double Jeopardy Clause precluded it because the first jury’s acquittal necessarily decided factual issues essential to the government’s case.The United States Court of Appeals for the Second Circuit reviewed the case. It held that the first jury’s acquittal on the conspiracy charge necessarily decided that the CEO did not make the alleged secret agreements, which was a factual issue essential to the substantive charges. Because the government’s case at the second trial depended on proving those same secret agreements, the Double Jeopardy Clause’s issue-preclusion doctrine barred the retrial. The Second Circuit reversed the district court’s judgment, vacated the CEO’s convictions, and ordered dismissal of the indictment. View "United States v. Cole" on Justia Law

Shareholders of Fannie Mae and Freddie Mac, acting derivatively on behalf of these entities, challenged the federal government’s actions following the 2008 financial crisis. After the housing market collapse, Congress passed the Housing and Economic Recovery Act of 2008 (HERA), creating the Federal Housing Finance Agency (FHFA) and authorizing it to act as conservator for the Enterprises. The FHFA placed both entities into conservatorship, and the U.S. Treasury entered into agreements to provide financial support in exchange for senior preferred stock and other rights. In 2012, a “net worth sweep” was implemented, redirecting nearly all profits from the Enterprises to the Treasury, effectively eliminating dividends for other shareholders. The plaintiffs, as preferred shareholders, alleged that this arrangement constituted an unconstitutional taking under the Fifth Amendment.The United States Court of Federal Claims previously reviewed the case and granted the government’s motion to dismiss. The Claims Court relied on the Federal Circuit’s prior decision in Fairholme Funds, Inc. v. United States, which held that, under HERA, the Enterprises lost any cognizable property interest necessary to support a takings claim because the FHFA, as conservator, had broad authority over the Enterprises’ assets. The Claims Court found the plaintiffs’ claims indistinguishable from those in Fairholme and dismissed them accordingly.On appeal, the United States Court of Appeals for the Federal Circuit reviewed the dismissal de novo. The court affirmed the Claims Court’s decision, holding that claim preclusion barred the plaintiffs’ derivative takings claims because the issues had already been litigated in Fairholme. The court rejected arguments that the prior representation was inadequate or that the Supreme Court’s subsequent decision in Tyler v. Hennepin County fundamentally changed takings law. The Federal Circuit concluded that Fairholme remained binding precedent and affirmed the dismissal. View "FISHER v. US " on Justia Law

A group of individuals and organizations challenged a longstanding policy of the Securities and Exchange Commission (SEC), codified as Rule 202.5(e), which requires defendants in civil enforcement actions to agree not to publicly deny the allegations against them as a condition of settlement. This “no-deny” provision has been in place since 1972 and is incorporated into settlement agreements, with the SEC’s remedy for a breach being the ability to ask the court to reopen the case. The petitioners argued that this rule violates the First Amendment and was improperly adopted under the Administrative Procedure Act (APA).Previously, the New Civil Liberties Alliance (NCLA) petitioned the SEC to amend Rule 202.5(e) to remove the no-deny requirement, citing constitutional concerns. The SEC denied the petition, explaining that defendants can voluntarily waive constitutional rights in settlements and that the rule preserves the agency’s ability to litigate if a defendant later denies the allegations. After the denial, the petitioners sought review in the United States Court of Appeals for the Ninth Circuit, asserting both First Amendment and APA violations.The United States Court of Appeals for the Ninth Circuit reviewed the SEC’s denial. Applying the Supreme Court’s framework from Town of Newton v. Rumery, the court held that voluntary waivers of constitutional rights, including First Amendment rights, are generally permissible if knowing and voluntary. The court concluded that Rule 202.5(e) is not facially invalid under the First Amendment, as it is a limited restriction tied to the settlement context and does not preclude all speech. The court also found that the SEC had statutory authority for the rule, was not required to use notice-and-comment rulemaking, and provided a rational explanation for its decision. The petition for review was denied, but the court left open the possibility of future as-applied challenges. View "POWELL V. UNITED STATES SECURITIES AND EXCHANGE COMMISSION" on Justia Law

Alpine Securities Corporation, a securities broker-dealer and member of the Financial Industry Regulatory Authority (FINRA), faced sanctions from FINRA in 2022 for violating its rules. FINRA imposed a cease-and-desist order and sought to expel Alpine from membership. Alpine challenged the constitutionality of FINRA in federal court, arguing that FINRA's expedited expulsion process violated the private nondelegation doctrine and the Appointments Clause.The United States District Court for the District of Columbia denied Alpine's request for a preliminary injunction to halt FINRA's expedited proceeding. The court held that FINRA is a private entity, not subject to the Appointments Clause, and that the SEC's ability to review FINRA's decisions satisfied the private nondelegation doctrine.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court found that Alpine demonstrated a likelihood of success on its private nondelegation claim, as FINRA's expulsion orders take effect immediately without prior SEC review, effectively barring Alpine from the securities industry. The court held that this lack of governmental oversight likely violates the private nondelegation doctrine. The court also found that Alpine faced irreparable harm if expelled before SEC review, as it would be forced out of business.The court reversed the district court's denial of a preliminary injunction, instructing it to enjoin FINRA from expelling Alpine until the SEC reviews any expulsion order or the time for Alpine to seek SEC review lapses. However, the court did not grant a preliminary injunction on Alpine's Appointments Clause claims, as Alpine did not demonstrate irreparable harm from participating in FINRA's expedited proceeding itself. The case was remanded for further proceedings consistent with the appellate court's findings. View "Alpine Securities Corporation v. Financial Industry Regulatory Authority, Inc." on Justia Law

The case involves defendants Aghee William Smith II and David Alcorn, who were convicted in the Eastern District of Virginia for their roles in fraudulent schemes that defrauded investors of millions of dollars. The schemes included marketing and selling phony investments in a dental services marketing program and fraudulent spectrum investments. The fraudulent activities primarily targeted elderly victims, resulting in significant financial losses.In the district court, Smith and Alcorn were tried together before a jury in February 2022. They raised three main issues on appeal: a joint constitutional challenge to the district court’s COVID-19 trial protocol under the Public Trial Clause of the Sixth Amendment, Smith’s separate challenge to the admission of videotaped depositions under the Confrontation Clause, and Alcorn’s challenge to the imposition of supervised release conditions.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court rejected Smith and Alcorn’s joint contention that the COVID-19 trial protocol violated their rights under the Public Trial Clause, finding that the protocol did not constitute a partial courtroom closure and was justified by substantial public health reasons. The court also rejected Smith’s Confrontation Clause challenge, concluding that the government had made a good faith effort to secure the witnesses’ presence at trial and that the witnesses were unavailable due to health concerns.However, the court found merit in Alcorn’s challenge regarding the imposition of supervised release conditions. The district court had failed to properly incorporate the standard conditions of supervised release during the oral pronouncement of Alcorn’s sentence, leading to a Rogers error. As a result, the Fourth Circuit vacated Alcorn’s sentences and remanded for resentencing.In summary, the Fourth Circuit affirmed Smith’s convictions and sentences, affirmed Alcorn’s convictions, but vacated Alcorn’s sentences and remanded for resentencing. View "United States v. Smith" on Justia Law

Plaintiffs, property developers owning three hotels, alleged that Defendants, rival developers operating the Hollywood Athletic Club, abused the California Environmental Quality Act (CEQA) processes to extort funds in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). Defendants challenged several of Plaintiffs' hotel projects through CEQA objections and lawsuits, which Plaintiffs claimed were baseless and intended to obstruct their developments.The United States District Court for the Central District of California granted summary judgment in favor of Defendants, holding that the Noerr-Pennington doctrine protected Defendants' petitioning activities from statutory liability under the First Amendment. The district court found that Defendants' actions were not objectively baseless and thus did not fall within the sham litigation exception to the Noerr-Pennington doctrine. The case was transferred from Judge Wright to Judge Gutierrez, who reconsidered and reversed the prior denial of summary judgment, concluding that the previous decision was clearly erroneous and would result in manifest injustice.The United States Court of Appeals for the Ninth Circuit affirmed the district court's summary judgment. The court held that the district court did not abuse its discretion in reconsidering the prior judge's ruling. It also agreed that Defendants' CEQA challenges were not objectively baseless, as the actions had some merit and were not brought solely for an improper purpose. The court emphasized that the Noerr-Pennington doctrine provides broad protection to petitioning activities to avoid chilling First Amendment rights. Consequently, the court did not need to address Defendants' additional arguments regarding the applicability of RICO to litigation activities. View "RELEVANT GROUP, LLC V. NOURMAND" on Justia Law

The case involves the Securities and Exchange Commission (SEC) and investment adviser George Jarkesy, Jr., and his firm, Patriot28, LLC. The SEC initiated an enforcement action for civil penalties against Jarkesy and Patriot28 for alleged violations of the "antifraud provisions" contained in the federal securities laws. The SEC opted to adjudicate the matter in-house. The final order determined that Jarkesy and Patriot28 had committed securities violations and levied a civil penalty of $300,000. Jarkesy and Patriot28 petitioned for judicial review. The Fifth Circuit vacated the order on the ground that adjudicating the matter in-house violated the defendants’ Seventh Amendment right to a jury trial.The Fifth Circuit Court of Appeals ruled that the in-house adjudication by the SEC violated the defendants' Seventh Amendment right to a jury trial. The court applied a two-part test from Granfinanciera, S.A. v. Nordberg, determining that the SEC's antifraud claims were akin to traditional actions at common law, and thus required a jury trial. The court also concluded that the "public rights" exception did not apply, as the claims were not closely intertwined with the bankruptcy process.The Supreme Court of the United States affirmed the Fifth Circuit's decision. The Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial. The Court found that the SEC's antifraud provisions replicate common law fraud, and thus implicate the Seventh Amendment. The Court also concluded that the "public rights" exception to Article III jurisdiction did not apply, as the action did not fall within any of the distinctive areas involving governmental prerogatives where a matter may be resolved outside of an Article III court, without a jury. The Court did not reach the remaining constitutional issues and affirmed the ruling of the Fifth Circuit on the Seventh Amendment ground alone. View "SEC v. Jarkesy" on Justia Law

The case revolves around Justin Keener, who operated under the name JMJ Financial. Keener's business model involved purchasing convertible notes from microcap issuers, converting those notes into common stock, and selling that stock in the public market at a profit. This practice, known as "toxic" or "death spiral" financing, can harm microcap companies and existing investors by causing the stock price to drop significantly. Keener made over $7.7 million in profits from this practice. However, he never registered as a dealer with the Securities and Exchange Commission (SEC).The SEC filed a civil enforcement action against Keener, alleging that he operated as an unregistered dealer in violation of the Securities Exchange Act of 1934. The United States District Court for the Southern District of Florida granted summary judgment for the SEC, enjoining Keener from future securities transactions as an unregistered dealer and ordering him to disgorge the profits from his convertible-note business.In the United States Court of Appeals for the Eleventh Circuit, Keener appealed the district court's decision. He argued that he did not violate the Securities Exchange Act because he never effectuated securities orders for customers. He also claimed that the SEC violated his rights to due process and equal protection.The Court of Appeals affirmed the district court's decision. It held that Keener operated as an unregistered dealer in violation of the Securities Exchange Act. The court rejected Keener's argument that he could not have been a dealer because he never effectuated securities orders for customers. It also dismissed Keener's claims that the SEC violated his rights to due process and equal protection. The court upheld the district court's imposition of a permanent injunction and its order for Keener to disgorge his profits. View "Securities and Exchange Commission v. Keener" on Justia Law

After the enactment of AB 5 and the filing of Proposition 22 but before the effective date of AB 2257—Plaintiff filed suit against LPL Financial LLC under the Private Attorneys General Act (PAGA). LPL is a registered broker-dealer and registered investment adviser registered with Financial Industry Regulatory Authority, Inc. (‘FINRA’) and the Securities Exchange Commission. Plaintiff and all allegedly aggrieved individuals (the ‘Financial Professionals’) were ‘securities broker-dealers or investment advisers or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority. The parties stipulated that on its face, Labor Code Section 2750.3(i)(2) makes the exemption set forth in Section 2750.3(b)(4) retroactive, such that it would cover the entire proposed PAGA period in this action. However, Plaintiff claimed both of those sections are unconstitutional and thus unenforceable. The parties did not stipulate the results of these two tests—the ABC test versus the Borello test. LPL moved for summary adjudication. The trial court upheld the statute as constitutional.   The Second Appellate District affirmed and held that the challenged provisions are constitutional. The court explained that Plaintiff maintains the registration aspect of the exemption creates a nonsensically narrow classification. The court held that legislation may recognize different categories of people within a larger classification who present varying degrees of risk of harm and properly may limit regulation to those classes for whom the need for regulation is thought to be more important. Further, the court wrote that, unlike the situation with equal protection law, there may be a large divergence between state and federal substantive due process doctrines. View "Quinn v. LPL Financial LLC" on Justia Law

The Securities and Exchange Commission sued Defendant for trading Corporate Executive Board, Inc. (“CEB”) stock using inside information. The Commission alleged that Defendant aggressively traded CEB stock after he received inside information about a potential merger from co-Defendant, Defendant’s brother-in-law and CEB’s Corporate Controller. At trial, Defendant moved for judgment as a matter of law under Rule 50(a)1 at the conclusion of the Commission’s case. He argued the Commission failed to present evidence that co-Defendant possessed inside information about the merger at the time Defendant began the relevant trading. And if co-Defendant had no such information at that time, Defendant contended, co-Defendant could not have passed it on to Defendant The district court agreed and granted judgment for Defendant.   The Fourth Circuit reversed and remanded. The court explained the right to a trial by jury is enshrined by the Seventh Amendment. And the Federal Rules of Civil Procedure require that juries, not judges, decide cases so long as there is evidence from which a reasonable decision can be made. Here, evidence existed from which a reasonable jury could infer that Defendant engaged in prohibited insider trading beginning on December 9, 2016. View "SEC v. Christopher Clark" on Justia Law