Justia Securities Law Opinion Summaries

This case arose when Commerzbank agreed to acquire Dresdner Bank in September 2008. As part of the deal, Commerzbank also acquired Dresdner Bank's trust preferred structures, and holders of Dresdner's trust preferred securities received distributions in both 2009 and 2010. Plaintiff claimed that paying those distributions "pushed," or required Commerzbank to make distributions on, a class of its owned preferred securities in which plaintiff had an interest, and, by the complaint, plaintiff asked the court to enforce that alleged obligation. Plaintiff also sought specific performance of a support agreement that was argued to require the elevation of the liquidation preference of Commerzbank's trust preferred securities in response to a restructuring of one class of the Dresdner securities. The parties filed cross-motions for summary judgment. The court held, among other things, that because the DresCap Trust Certificates did not qualify as either Parity Securities, defendants were entitled to judgment in their favor as a matter of law regarding plaintiff's claim under the Pusher Provision. The court also held that because DresCap Trust Certificates did not qualify as either Parity Securities or Junior Securities, Section 6 of the Support Undertaking was not triggered by amendment of the DresCap Trust IV Certificates. Accordingly, defendants were entitled to judgment in their favor as a matter of law regarding plaintiff's claim that the amendment of the DresCap Trust IV Certificates required defendants to amend the Trusted Preferred Securities.View "The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al." on Justia Law

Plaintiffs James Adams, Stanley Dye and Ed Holcombe were all shareholders in Altrust Financial Services, Inc. They sued Altrust, the Peoples Bank of Alabama (collectively, Altrust) and Dixon Hughes, LLC, Altrust's public-accounting firm, for violating the Alabama Securities Act. Altrust is a holding company that fully owns, controls and directs the operations of the Bank. Altrust and the Bank share common officers and directors and issue consolidated financial statements. Shareholders voted to reorganize the company in 2008 from a publicly held company to a privately held company. The move would have freed the company of certain reporting obligations imposed by the federal Securities Exchange Act and allowed the company to elect Subchapter S status for tax purposes. Relying on information in a proxy statement, Plaintiffs elected not to sell their shares of Altrust stock and instead voted for reorganization. Plaintiffs alleged that the proxy statement and financial reports contained material misrepresentations and omissions that induced them to ultimately sign shareholder agreements that made them shareholders in the newly reorganized Altrust. Plaintiffs contended that if (in their view) instances of mismanagement, self-dealing, interested-party transactions and "skewing" of company liabilities had been fully disclosed, they would have elected to sell their shares rather than remain as shareholders. Upon review, the Supreme Court found that Plaintiffs' allegations were not specific to them but to all shareholders, and as such, they did not have standing to assert a direct action against the company. Because Plaintiffs did not have standing to assert claims against Altrust, they also lacked standing to assert professional negligence claims against the accounting firm. The Court remanded the case for further proceedings. View "Altrust Financial Services, Inc. v. Adams" on Justia Law

This case involved a stockholder challenge to the decision of two funds within the Vanguard mutual fund complex to purchase shares of allegedly illegal foreign online gambling businesses that were publicly traded in overseas capital markets. Plaintiffs' complaint asserted both derivative and direct claims based on their allegations that defendants' actions constituted a violation of their fiduciary duties, negligence, and waste. Defendants moved to dismiss the complaint on the grounds that the court could not assert personal jurisdiction over the individual defendants named in the complaint; all plaintiffs' claims were derivative in nature and therefore, the complaint must be dismissed for plaintiffs' failure to make demand on the board of trustees or demonstrate why a demand would be futile; and the complaint failed to state a claim. The court granted defendants' motions and dismissed with prejudice all of the claims in the complaint based on the first two grounds. Consequently, the court did not address defendants' additional argument that the complaint failed to state a claim.View "Hartsel, et al. v. The Vanguard Group, Inc., et al." on Justia Law

Fifth Third maintains a defined-contribution retirement savings plan for its employees. Participants may direct their contributions into any of several investment options, including an “employee stock ownership plan” (ESOP), which invests primarily in Fifth Third stock. Former participants sued, alleging breach of the fiduciary duty of prudence imposed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1104(a)(1)(B) in that the defendants should have known—on the basis of both public information and inside information available to Fifth Third officers—that the stock was overpriced and risky. The price of Fifth Third stock fell, reducing plaintiffs’ retirement savings. The district court dismissed; the Sixth Circuit reversed. A unanimous Supreme Court vacated. ESOP fiduciaries are not entitled to any special presumption of prudence, but are subject to the same duty that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets. There is no requirement that plaintiffs allege that the employer was, for example, on the “brink of collapse.” Where a stock is publicly traded, allegations that a fiduciary should have recognized, on the basis of publicly available information, that the market was over- or under-valuing the stock are generally implausible and insufficient to state a claim. To state a claim, a complaint must plausibly allege an alternative action that could have been taken, that would have been legal, and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. ERISA’s duty of prudence never requires a fiduciary to break the law, so a fiduciary cannot be imprudent for failing to buy or sell in violation of insider trading laws. An allegation that fiduciaries failed to decide, based on negative inside information, to refrain from making additional stock purchases or failed to publicly disclose that information so that the stock would no longer be overvalued, requires courts to consider possible conflicts with complex insider trading and corporate disclosure laws. Courts confronted with such claims must also consider whether the complaint has plausibly alleged that a prudent fiduciary in the same position could not have concluded that stopping purchases or publicly disclosing negative information would do more harm than good to the fund. View "Fifth Third Bancorp v. Dudenhoeffer" on Justia Law

To safeguard investors and restore trust in financial markets after the Enron collapse, Congress passed the Sarbanes-Oxley Act of 2002, which provides that no public company nor any contractor or subcontractor of such a company, may discharge, demote, suspend, threaten, harass, or discriminate against an employee in the terms and conditions of employment because of whistleblowing activity, 18 U. S. C. 1514A(a). Plaintiffs are former employees of FMR, private companies that contract to advise or manage mutual funds. As is common in the industry, those mutual funds are public companies with no employees. Plaintiffs allege that they blew the whistle on putative fraud relating to the mutual funds and suffered retaliation by FMR. FMR argued that the Act protects only employees of public companies, and not employees of private companies that contract with public companies. The district court denied FMR’s motion to dismiss. The First Circuit reversed, concluding that the term “an employee” refers only to employees of public companies. The Supreme Court reversed and remanded, concluding that section 1514A’s whistleblower protection includes employees of a public company’s private contractors and subcontractors. FMR’s interpretation would shrink the protection against retaliation by contractors to insignificance. The Court stated that its reading fits the goal of warding off another Enron debacle; fear of retaliation was the primary deterrent to reporting by the employees of Enron’s contractors. FMR’s reading would insulate the entire mutual fund industry from section 1514A. Virtually all mutual funds are structured to have no employees of their own and are managed, instead, by independent investment advisors. View "Lawson v. FMR LLC" on Justia Law

Fifth Third maintains a defined-contribution retirement savings plan for its employees. Participants may direct their contributions into any of several investment options, including an “employee stock ownership plan” (ESOP), which invests primarily in Fifth Third stock. Former participants sued, alleging breach of the fiduciary duty of prudence imposed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1104(a)(1)(B) in that the defendants should have known—on the basis of both public information and inside information available to Fifth Third officers—that the stock was overpriced and risky. The price of Fifth Third stock fell, reducing plaintiffs’ retirement savings. The district court dismissed; the Sixth Circuit reversed. A unanimous Supreme Court vacated. ESOP fiduciaries are not entitled to any special presumption of prudence, but are subject to the same duty that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets. There is no requirement that plaintiffs allege that the employer was, for example, on the “brink of collapse.” Where a stock is publicly traded, allegations that a fiduciary should have recognized, on the basis of publicly available information, that the market was over- or under-valuing the stock are generally implausible and insufficient to state a claim. To state a claim, a complaint must plausibly allege an alternative action that could have been taken, that would have been legal, and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. ERISA’s duty of prudence never requires a fiduciary to break the law, so a fiduciary cannot be imprudent for failing to buy or sell in violation of insider trading laws. An allegation that fiduciaries failed to decide, based on negative inside information, to refrain from making additional stock purchases or failed to publicly disclose that information so that the stock would no longer be overvalued, requires courts to consider possible conflicts with complex insider trading and corporate disclosure laws. Courts confronted with such claims must also consider whether the complaint has plausibly alleged that a prudent fiduciary in the same position could not have concluded that stopping purchases or publicly disclosing negative information would do more harm than good to the fund. View "Fifth Third Bancorp v. Dudenhoeffer" on Justia Law

To safeguard investors and restore trust in financial markets after the Enron collapse, Congress passed the Sarbanes-Oxley Act of 2002, which provides that no public company nor any contractor or subcontractor of such a company, may discharge, demote, suspend, threaten, harass, or discriminate against an employee in the terms and conditions of employment because of whistleblowing activity, 18 U. S. C. 1514A(a). Plaintiffs are former employees of FMR, private companies that contract to advise or manage mutual funds. As is common in the industry, those mutual funds are public companies with no employees. Plaintiffs allege that they blew the whistle on putative fraud relating to the mutual funds and suffered retaliation by FMR. FMR argued that the Act protects only employees of public companies, and not employees of private companies that contract with public companies. The district court denied FMR’s motion to dismiss. The First Circuit reversed, concluding that the term “an employee” refers only to employees of public companies. The Supreme Court reversed and remanded, concluding that section 1514A’s whistleblower protection includes employees of a public company’s private contractors and subcontractors. FMR’s interpretation would shrink the protection against retaliation by contractors to insignificance. The Court stated that its reading fits the goal of warding off another Enron debacle; fear of retaliation was the primary deterrent to reporting by the employees of Enron’s contractors. FMR’s reading would insulate the entire mutual fund industry from section 1514A. Virtually all mutual funds are structured to have no employees of their own and are managed, instead, by independent investment advisors. View "Lawson v. FMR LLC" on Justia Law

Walsh and Martin, principals of a futures and foreign currency trading company that acted as a “futures commission merchant” and as a “forex dealer member,” used customer funds for personal expenses, then concealed the company’s insolvency and their criminal conduct by misleading customers about the company’s ability to meet its obligations. Existing customers got account statements that falsely stated their available margin funds, and they solicited new customers by making false statements. They also used a Ponzi-like scheme for redemptions. Shortly before it was shut down, the company had $17,654,486 in unpaid customer liabilities and only $677,932 in assets. Walsh and Martin pleaded guilty to wire fraud, tax evasion, and to making false statements in a report to the Commodities Futures and Trading Commission, a Commodities Exchange Act (7 U.S.C. 6d(a)) violation. The district court sentenced them to terms of imprisonment of 150 and 204 months, respectively, and ordered each to pay $16,976,554 in restitution. The Seventh Circuit affirmed, rejecting challenges to a finding as to the amount of loss and restitution and to application of a sentencing enhancement based upon a finding that each was an officer or director of a futures commission merchant. View "United States v. Walsh" on Justia Law

This is an adversary proceeding arising out of the bankruptcy of debtor (Derivium). Plaintiff (Grayson), assignee of the Chapter 7 bankruptcy trustee, appealed from a district court judgment affirming the bankruptcy court's decision to grant summary judgment for defendants (Wachovia). The court concluded that the district court did not err in affirming the grant of summary judgment for Wachovia on Grayson's Customer Transfers claim; summary judgment for Wachovia on Grayson's Cash Transfers claim; the bankruptcy court's determinations that the stockbroker defense applied to commissions; and the bankruptcy court's ruling that in pari delicto barred Grayson's tort claims against Wachovia. View "Grayson Consulting, Inc. v. Wachovia Securities, LLC" on Justia Law

Plaintiffs are investors who purchased Omnicare securities in a 2005 public offering. They sold their securities a few weeks later and sought relief under the Securities Act of 1933,15 U.S.C. 77k, alleging that the registration statement was materially misleading. Omnicare is the nation’s largest provider of pharmaceutical care services for the elderly and other residents of long-term care facilities in the U.S. and Canada. Plaintiffs claimed that Omnicare was engaged in a variety of illegal activities including kickback arrangements with pharmaceutical manufacturers and submission of false claims to Medicare and Medicaid. The Registration Statement stated “that [Omnicare’s] therapeutic interchanges were meant to provide [patients with] . . . more efficacious and/or safer drugs than those presently being prescribed” and that its contracts with drug companies were “legally and economically valid arrangements that bring value to the healthcare system and patients that we serve.” The district court dismissed the suit against Omnicare, its officers, and directors, holding that plaintiffs had not adequately pleaded knowledge of wrongdoing. The Sixth Circuit reversed with regard to claims of material misstatements or omissions of legal compliance, but affirmed with respect to claims that revenue was substantially overstated in violation of Generally Accepted Accounting Principles. View "IN State Dist. Counsel v. Omnicare, Inc." on Justia Law