Justia Securities Law Opinion Summaries

Customers of a securities firm made claims against that firm based on real estate investments the firm’s broker-dealers recommended. An entity that had an interest in and operated each of the real estate investments filed for bankruptcy, and at least some of the real estate investments became debtors in that bankruptcy proceeding. The appointed examiner in the bankruptcy proceeding found that the entity was engaged in a fraudulent “Ponzi scheme.” When the securities firm applied for professional liability insurance, it disclosed one of the customer claims but not the facts that would support other potential customer claims arising out of investments through the same entity as that involved in the disclosed claim. The insurer refused to defend against undisclosed claims because the policy’s application included an exclusion for nondisclosure of facts that might lead to a claim. The court of appeal affirmed judgment in favor of the insurer: There was no insurance coverage because all of the undisclosed claims arose out of the same events as the disclosed claim. The securities firm was aware of facts and circumstances that might result in a claim or claims being made against it, which awareness it was required to disclose. View "Crown Capital Secs., L.P. v. Endurance Am. Specialty Ins. Co." on Justia Law

NASDAQ conducted the initial public offering (IPO) for Facebook in May 2012. UBS subsequently initiated an arbitration proceeding against NASDAQ seeking indemnification for injuries sustained in the Facebook IPO, as well as damages for breach of contract, breach of an implied duty of good faith and fair dealing, and gross negligence. NASDAQ initiated a declaratory judgment action to preclude UBS from pursuing arbitration. The district court granted a preliminary injunction and UBS appealed. The court concluded that federal jurisdiction is properly exercised in this case; the district court properly decided the question of arbitrability because the parties never clearly unmistakably expressed an intent to submit that question to arbitration, and such an intent cannot be inferred where, as here, a broad arbitration clause contains a carved-out provision that, at least arguably covers the instant dispute; UBS's claims against NASDAQ are not subject to arbitration because they fall within the preclusive language of NASDAQ Rule 4626(a), and the parties specifically agreed that their arbitration agreement was subject to limitations identified in, among other things, NASDAQ Rules; and, therefore, the court affirmed the district court's order preliminarily enjoining UBS from pursuing arbitration against NASDAQ. The court remanded for further proceedings. View "NASDAQ OMX Grp., Inc. v. UBS Sec., LLC" on Justia Law

At issue in this case was whether alleged misrepresentations made by Defendants were made “in connection with” a transaction in covered securities under the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Plaintiffs, investors in a licensed non-diversified investment company, filed a putative class action in Puerto Rico court against the Fund and others alleging fraud or misrepresentation in violation of Puerto Rico law after the Fund invested the majority of its assets in notes sold by Lehman Brothers, resulting in the Fund adopting a plan of liquidation. Defendants removed the action to the federal district court, asserting that it fell within the ambit of the SLUSA. Plaintiffs unsuccessfully sought remand on jurisdictional grounds. Ultimately, the district court granted Defendants’ motions to dismiss premised on SLUSA preclusion. The First Circuit vacated the judgment of dismissal and remitted with instructions to return the case to the Puerto Rico Court, holding that the link between the misrepresentations alleged and the covered securities in the Fund’s portfolio was too fragile to support a finding of SLUSA preclusion under Chadbourne & Parke LLP v. Troice. View "Hidalgo-Velez v. San Juan Asset Mgmt., Inc." on Justia Law

Plaintiff sued several defendants in the Delaware Court of Chancery for alleged wrongdoing related to notes purchased by Plaintiff and issued by one of the defendants. Defendants moved to dismiss, claiming that Plaintiff’s claims were barred by a no-action clause contained in the indenture agreement governing Plaintiff’s notes. The Delaware Supreme Court remanded the case for the Court of Chancery for consideration of the issues under New York law. On remand, the Court of Chancery concluded that the majority of Plaintiff’s claims were not barred under the no-action clause and that dismissal and partial dismissal were warranted with respect to the remaining claims because only those claims arose under the indenture. In response to certified questions from the Delaware Supreme Court, the Court of Appeals concluded (1) a trust indenture’s no-action clause that specifically precludes enforcement of contractual claims arising under the indenture, but omits reference to “the Securities,” does not bar a securityholder’s independent common law or statutory claims; and (2) the Court of Chancery correctly found that the no-action clause in this case, which referred only to “this Indenture,” precluded enforcement only of contractual claims arising under the Indenture. View "Quadrant Structured Prods. Co., Ltd. v. Vertin" on Justia Law

Petitioner and Ajmal Khan, principal of Verus Investment Holdings, purchased securities in a company to arbitrage a merger between that company and another company (the trade). Petitioner and Khal used Verus' account at Jefferies & Co. and Winton Capital Holding to complete the purchase. After the merger, Jefferies wired to Verus the original investment and profits attributable to the Winton funds. Verus wired the investment money to Winton and the profits to Doris Lindbergh, a friend of Petitioner. Tax authorities later informed Jefferies it owed withholding tax on the trade. Pursuant to an arbitration clause in an agreement between Jefferies and Verus, Jefferies commenced an arbitration against Verus for the unpaid taxes. Verus, in turn, asserted thirty-party arbitration claims against Petitioner, Lindbergh, and others for their share of the taxes. After a hearing, Supreme Court determined that nonsignatories Petitioner and Lindbergh could not be compelled to arbitrate. The Appellate Division reversed, concluding that Petitioner should be estopped from avoiding arbitration because he knowingly exploited and received direct benefits from the agreement between Jefferies and Verus. The Court of Appeals reversed, holding that Petitioner did not receive a direct benefit from the arbitration agreement and could not be compelled to arbitrate.View "Belzberg v. Verus Invs. Holdings Inc." on Justia Law

Plaintiff (the customer) filed suit against State Street (the custodian bank), alleging in essence that it had a duty to notify him that the securities in his account were worthless. The district court granted State Street's motion to dismiss the contract claims on the ground that State Street had a merely administrative role in managing plaintiff's accounts and thus owed him no duty to guard against his investment advisor's misconduct. The district court concluded that plaintiff's negligence claims were barred by Florida's economic loss rule and plaintiff had not sufficiently alleged knowledge on the part of State Street in regards to the aiding and abetting claims. The court affirmed, holding that, under these facts, the custodian bank breached no duty, contractual or otherwise, by accepting on behalf of its customer securities that later turn out to be fraudulent and listing those securities on monthly account statements issued to the customer. Plaintiff's allegations failed to state claims for breach of contract; plaintiff failed to establish that State Street owed him an independent duty to monitor the investments in his account, verify their market value, or ensure they were in valid form; therefore, he failed to state valid negligence claims; plaintiff's allegations were insufficient to state a claim for aiding and abetting; and plaintiff's claims for breach of fiduciary duty and negligent misrepresentation also failed. View "Lamm v. State Street Bank and Trust" on Justia Law

Plaintiffs Michael Hirsch, Robyn Hirsch, and Hirsch, LLP, claimed that they lost money invested in securities that were part of a "Ponzi" scheme. In 2002, plaintiffs' accountant, EisnerAmper LLP, referred them to Marc Scudillo, a financial advisor employed by Amper Financial Services, LLC (AFS), for investment planning. Scudillo also served as a representative for Securities America, Inc. (SAI), a separate corporation that served as a broker-dealer handling securities transactions. Plaintiffs hired Scudillo and invested in a portfolio with a conservative investment strategy. Their relationship was not reduced to a written contract. On Scudillo's recommendation, plaintiffs purchased securitized notes from Medical Provider Financial Corporation (Med Cap) totaling $550,000. Plaintiffs signed two applications with SAI for the purchase of the Med Cap notes. Each SAI application contained an arbitration clause requiring disputes to be arbitrated by the Financial Industry Regulatory Authority (FINRA). The issue before the Supreme Court in this appeal was whether it was proper to compel arbitration between a non-signatory and a signatory to a contract containing an arbitration clause on the basis that the parties and claims were sufficiently intertwined to warrant application of equitable estoppel. The Supreme Court held that although traditional contract principles may in certain cases warrant compelling arbitration absent an arbitration clause, the relationship of the parties in this case and the claims in dispute here, viewed alone, was insufficient to warrant application of equitable estoppel to compel arbitration.View "Hirsch v. Amper Financial Services, LLC" on Justia Law

Mike Richey sold his interest in Richey Oilfield Construction, Inc. to Nighthawk Oilfield Services, Ltd. Richey remained employed as president of Richey Oil and became a limited partner in Nighthawk. The primary agreements regarding the transaction were a stock purchase agreement, an agreement for the purchase of Richey Oil’s goodwill, and a promissory note. Each of the acquisition agreements contained a forum selection clause naming Tarrant County as the venue for state court actions. When the business did not go as well as the parties had hoped, Richey filed suit in Wise County, where Richey resided, against two Nighthawk executives (together, Relators) for, among other claims, breach of fiduciary duty, common law fraud, statutory fraud, and violations of the Texas Securities Act. Relators responded by unsuccessfully moving the trial court to transfer venue to Tarrant County or dismiss the suit pursuant to the mandatory venue selection clauses in the acquisition agreements. Relators subsequently sought mandamus relief. The Supreme Court conditionally granted relief, holding that the trial court abused its discretion by failing to enforce the forum selection clauses in the acquisition agreements. View "In re Fisher" on Justia Law

The Attorney General (AG) sued two of the former officers of American International Group, Inc. (AIG), alleging that Defendants violated the Martin Act and committed common law fraud. Specifically, the AG claimed that Defendants helped cause AIG to enter into a sham transaction with General Reinsurance Corporation (GenRe) in which AIG purported to reinsure GenRe on certain insurance contracts. The AG withdrew his claims for damages and now sought only equitable relief. The Appellate Division denied Defendants' motion for summary judgment. The Court of Appeals affirmed, holding (1) the evidence of Defendants' knowledge of the fraudulent nature of the transaction was sufficient to raise a triable issue of fact; and (2) the AG was not barred as a matter of law from obtaining equitable relief.View "People v. Greenberg" on Justia Law

Legacy Resources, Inc. brought several claims against Liberty Pioneer Energy Source, Inc. The district court dismissed Legacy's breach of contract and trade secret claims on summary judgment, determining (1) Legacy violated the securities laws by acting as an unlicensed broker in recruiting investors on behalf of Liberty; and (2) Legacy's securities violations rendered its contract unenforceable under Utah Code 61-1-22(8). The Supreme Court affirmed in part and reversed in part, holding (1) the undisputed facts sustained the conclusion that Legacy acted as an unlicensed broker, which violation foreclosed the enforcement of one of its contracts; but (2) another of Legacy's contracts was not implicated by the securities violation, and thus the district court erred by granting summary judgment on Legacy's claim under that contract, along with its trade secret claim. View "Legacy Res., Inc. v. Liberty Pioneer Energy Source, Inc." on Justia Law