Justia Securities Law Opinion Summaries

Plaintiffs sued the former spouse of Stephen Walsh, who was a defendant in related actions brought by plaintiffs, alleging that the property derived from Walsh's illegal securities activities went into the former spouse's possession under the parties' separation agreement and divorce decree. At issue, in certified questions to the court, was whether the former spouse had a legitimate claim to those funds, which would prevent plaintiffs from obtaining disgorgement from her. The court held that an innocent spouse who received possession of tainted property in good faith and gave fair consideration for it should prevail over the claims of the original owner or owners consistent with the state's strong public policy of ensuring finality in divorce proceedings.View "Commodity Futures Trading Commission v. Walsh, et al." on Justia Law

This case stemmed from Reliance Group Holdings, Inc.'s ("RGH") and Reliance Financial Services Corporation's ("RFS") voluntary petitions in Bankruptcy Court seeking Chapter 11 bankruptcy protection and the trust that was established as a result. The trust subsequently filed an amended complaint alleging actuarial fraud and accounting fraud against respondents. At issue was whether the trust qualified for the so-called single-entity exemption that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. 77p(f)(2)(C); 78bb(f)(5)(D), afforded certain entities. The court held that the trust, established under the bankruptcy reorganization plan of RGH as the debtor's successor, was "one person" within the meaning of the single-entity exemption in SLUSA. As a result, SLUSA did not preclude the Supreme Court from adjudicating the state common law fraud claims that the trust had brought against respondents for the benefit of RGH's and RFS's bondholders. Accordingly, the court reversed and reinstated the order of the Supreme Court.View "The RGH Liquidating Trust v. Deloitte & Touche LLP, et al." on Justia Law

PFG and Acuvest had an agreement (later terminated) under which guaranteed Acuvest’s customers that Acuvest would conform its conduct to CEA mandates. Acuvest advised Prestwick with respect to an investment on which it suffered a substantial loss. Prestwick sued PFG, Acuvest, and two of Acuvest’s principals, alleging violations of the Commodity Exchange Act (CEA), 7 U.S.C. 1, a breach of fiduciary duty against the Acuvest defendants, and a guarantor liability claim against PFG. Prestwick argued that termination of PFG’s guarantee of Acuvest’s obligations under the CEA did not terminate protection “for existing accounts opened during the term of the guarantee.” The district court awarded summary judgment to PFG and dismissed the remaining defendants with prejudice so that Prestwick could appeal. The Seventh Circuit affirmed, stating that contracts between the parties were definitive and rejecting Prestwick’s assertion public policy and estoppel to overcome a decision that the guarantee agreement was properly terminated. View "Prestwick Capital Mgmt., Ltd. v. Peregrine Fin. Grp., Inc." on Justia Law

Pagliara, a licensed securities broker for more than 25 years, maintained a spotless record with the Financial Industry Regulatory Authority (FINRA) except for this case. Under a 2002 licensing agreement, Pagliara served both Capital Trust and NBC until 2008. During that time, Butler followed Pagliara’s recommendation to invest $100,000 in bank stocks that later lost value. Butler’s attorney threatened to sue NBC and Pagliara. NBC retained JBPR for defense. Unbeknownst to NBC and JBPR, Pagliara offered to settle the claim for $14,900, $100 below FINRA’s mandatory reporting threshold. Butler refused. Pagliara then informed NBC of his intent to defend the claim in FINRA Arbitration and objected to any settlement of the “frivolous claim.” NBC insisted that Pagliara not have any contact with Butler, based on the License Agreement signed by the parties, which stated that: “NBCS, at its sole option and without the prior approval of either [Capital Trust] or the applicable Representative, may settle or compromise any claim at any time.” JBPR finalized a $30,000 settlement without obtaining a release for Pagliara. Pagliara sued, alleging breach of fiduciary duty, violation of the Tennessee Consumer Protection Act, and intentional infliction of harm. The district court rejected the claims. The Sixth Circuit affirmed. View "Pagliara v. Johnston Barton Proctor & Rose, LLP" on Justia Law

Carilion initiated an arbitration proceeding against UBS and Citi under the Financial Industry Regulatory Authority, Inc. (FINRA) Rule 12200, which required FINRA members to arbitrate disputes with a customer at the customer's request. UBS and Citi commenced this action to enjoin the arbitration proceedings, contending that Carilion was not a "customer" as that term was used in FINRA Rule 12200 and that, in any event, Carilion waived any right to arbitrate by agreeing to the forum selection clause contained in written agreements with UBS and Citi. The court concluded that Carilion, by purchasing UBS and Citi's services, was indeed a "customer" entitled to arbitration under FINRA Rule 12200 and that the forum selection clause did not have the effect of superseding or waiving Carilion's right to arbitrate. Accordingly, the court affirmed the district court's denial of UBS and Citi's motion for injunctive relief. View "UBS Financial Services, Inc. v. Carilion Clinic" on Justia Law

During an eight-month period, Plaintiff and Counterclaim-Defendant Hemispherx Biopharma, Inc. (“Hemispherx”) hired three different investment brokers to raise capital for it. Hemispherx hired the first two brokers at a time when it was difficult to sell Hemispherx’s stock. Months later, when market forces made Hemispherx’s stock much more attractive, Hemispherx hired a third broker was able very quickly to raise $31 million in capital for Hemispherx through stock sales. All three brokers focused their capital-raising efforts on several of the same prospective investors and, when several of those investors eventually purchased Hemispherx stock, a dispute arose as to which of the three brokers was entitled to a commission on the stock sales. The first investment broker Hemispherx hired, Defendant and Counterclaimant Mid-South Capital, Inc. (“Mid-South”), sought to recover a commission for its efforts in identifying investors and introducing them to Hemispherx. Hemispherx contendsed that Mid-South and its employees, Defendants Robert Rosenstein and Adam Cabibi, tortiously interfered with Hemispherx’s business relationship with its investors and with the third investment broker who ultimately closed the stock deals at issue here. The district court denied each party relief, granting judgment on the pleadings to Hemispherx on Mid-South’s breach-of-contract claim, and summary judgment to Hemispherx on Mid-South’s remaining claims and to Mid-South on Hemispherx’s intentional interference with business relationships claim. After review of the matter, the Eleventh Circuit affirmed the district court in granting summary judgment to Mid-South on the tortious interference claim; reversed the judgment on the pleadings on Mid-South's breach-of-contract claim; and reversed the grant of summary judgment for Hemispherx on Mid-South's promissory estoppel, quantum meruit and unjust enrichment claims. The case was remanded for further proceedings. View "Hemispherx Biopharma, Inc. v. Mid-South Capital, Inc." on Justia Law

Aladdin’s purportedly gross mismanagement allegedly caused plaintiffs to lose their entire $60 million investment in a collateralized debt obligation. A CDO pays investors based on performance of an underlying asset. The CDO at issue was “synthetic” in that its asset was not a traditional asset like a stock or bond, but was a derivative instrument, whose value was determined in reference to still other assets. The derivative instrument was a “credit default swap” between Aladdin CDO and Goldman Sachs based on the debt of approximately 100 corporate entities and sovereign states. The district court held that, because of a contract provision limiting intended third-party beneficiaries to those “specifically provided herein,” plaintiffs could not bring a third-party beneficiary breach of contract claim and could not “recast” their claim in tort. The Second Circuit reversed. Plaintiffs plausibly alleged that the parties intended the contract to benefit investors in the CDO directly and create obligations running from Aladdin to the investors; that the relationship between Aladdin and plaintiffs was sufficiently close to create a duty in tort; and that Aladdin acted with gross negligence in managing the investment portfolio, leading to the failure of the investment vehicle and plaintiffs’ losses. View "Bayerische Landesbank, NY v. Aladdin Capital Mgmt., LLC" on Justia Law

Plaintiff owned a rental center and retained defendants, who provide investment banking services to the equipment rental industry, to help him obtain an investor or buyer. Defendants’ advice culminated in sale of a majority of plaintiff’s stock for about $30 million. Defendants billed plaintiff $758,675. Plaintiff paid without complaint but later sued for return of the entire fee on the ground that defendants lacked a brokerage license required by Wis. Stats. 452.01(2)(a), 452.03. The district court dismissed, finding the parties equally at fault. The Seventh Circuit affirmed, declining to definitively answer whether a license was required under the circumstances that a negotiated sale of assets fell through in favor of a sale of stock. Plaintiff is not entitled to relief even if there was a violation. Referring to the classic Highwayman’s Case, the court rejected claims of in pari delicto and unclean hands; plaintiff was not equally at fault. To bar relief, however, is not punishing a victim. Plaintiff did not incur damages and is not entitled to restitution. Plaintiff sought compensation for spotting a violation and incurring expenses to punish the violator, a bounty-hunter or private attorney general theory, not recognized under Wisconsin law. The voluntary-payment doctrine is inapplicable. View "Schlueter v. Latek" on Justia Law

This case concerned the applicability of a standard "no-action clause" in a trust indenture governing a company's notes. The clause at issue stated that a noteholder could not "pursue any remedy with respect to this Indenture or the Securities" unless the noteholder fell within one of two exceptions. At issue was whether noteholders who did not fall within a stated exception to the clause could nonetheless bring fraudulent transfer claims against the issuer of the securities and its directors and officers. Although the district court found the no-action clause inapplicable to the claims, the court disagreed and held that the language of the no-action clause controlled, barring noteholders from bringing suit. View "Akanthos Capital Mgmt., LLC, et al. v. CompuCredit Holdings Corp., et al." on Justia Law

In addition to about $4 million invested through his family corporation, Nonneman personally invested about $15 million in OKO for domestic oil and gas exploration, although he had no experience in such businesses, was showing signs of dementia, and suffered disabilities. In 2003, Nolfi assumed management of Nonneman’s affairs and it was apparent that the OKO investments would yield no returns. Of 128 wells, only 11 produced oil, and did not produce enough to recoup the investment. Nolfi filed suit in Ohio state court and learned facts that gave rise to federal and state securities claims. He filed in federal court, alleging violations of the Securities Act of 1933, 15 U.S.C. 78j(b) and 77l(a)(1); violations of the Ohio Blue Sky laws by the sale of unregistered securities; federal securities fraud; misrepresentation; common law fraud; breach of fiduciary duties; and breach of contract. The cases were consolidated and, after complicated rulings concerning limitations periods, the district court entered judgment for Nonneman. Despite having stated rescissory damages as more than $7 million, the jury only listed an award of $1,777,909 on its verdict form. The court held that plaintiffs had waived their right to challenge the verdict. Sixth Circuit affirmed.View "Nolfi v. OH KY Oil Corp." on Justia Law