Justia Securities Law Opinion Summaries

The Kepleys owned 30% of ATA’s outstanding capital stock. Lanz bought one share of Series A Convertible Preferred Stock in the corporation and a right to purchase common stock. At that time, Lanz, ATA, and its shareholders entered into an agreement, prohibiting sale of restricted shares (including Lanz’s share) to ATA’s competitors. In 2010, the Kepleys learned that Lanz sought to sell his share and purchase option to Crimson, an ATA competitor, for $2,799,000. The Kepleys sued, contending that Crimson’s president told them that they could not afford the Lanz shares or litigation and that Crimson would “shut it down or squeeze them out.” The Kepleys sold their shares to Crimson. Lanz did not complete the sale of his stock and remained a shareholder in ATA, 30 percent of which Crimson then owned. The Kepleys sought the difference between the sale price and the fair market value of the shares. The district court dismissed, finding that the Kepleys lacked standing because their alleged injury amounted to diminution in stock value, suffered by the corporation, and only derivatively shared by the Kepleys. The Sixth Circuit reversed, holding that the Kepleys, who are no longer shareholders and cannot pursue derivative claims, have standing for a direct suit. View "Kepley v. Lanz" on Justia Law

The Securities and Exchange Commission filed a civil enforcement action against 12 defendants, alleging that they violated registration, disclosure, and anti-fraud provisions of federal securities law, in connection with a “reverse merger” that involved creation of a shell company for the purpose of OTC trading, followed my merger of a private company into the shell, with an exchange of stock. A reverse merger enables a private company to access public markets without undertaking the expensive process of an initial public offering. One of the defendants, Tsai, has formed more than 100 shell companies.The district court granted the SEC partial summary judgment and granted permanent injunctions against the defendants. Tsai appealed. The Sixth Circuit affirmed entry of the injunction. Tsai’s failure to challenge findings with respect to his industry experience and education means the court did not abuse its discretion in finding he had at least some degree of scienter. View "Secs. & Exch. Comm'n v. Sierra Brokerage Servs, Inc." on Justia Law

National Elevator, lead plaintiff on behalf of investors who purchased VeriFone stock, appealed the dismissal of its securities fraud class action. National Elevator alleged that VeriFone, the CEO and former Chairman of the Board of Directors, and the company's former CFO and Executive Vice President, violated sections 10(b), 20(a), and 20A of the Securities and Exchange Act of 1934, 15 U.S.C. 78j(b), 78t-1(a), and 78t(a), and Securities and Exchange Commission Rule 10-b, 17 C.F.R. 240.10b-5(b), in connection with a December 2007 restatement of financial results. The court held that National Elevator adequately pleaded violations of section 10B and Rule 10b as to all defendants; its section 20A claim against the individual defendants was sufficiently pled; but the section 20(a) claim was properly dismissed. Accordingly, the court affirmed in part and dismissed in part. View "National Elevator Industry Pension Fund v. VeriFone Holdings, Inc., et al" on Justia Law

Plaintiffs are five pension funds operated by the State of Ohio for public employees that invested hundreds of millions of dollars in 308 mortgage-backed securities (MBS) between 2005 and 2008, all of which received a “AAA” or equivalent credit rating from one of the three major credit-rating agencies. The value of MBS collapsed during this period, leaving the Funds with estimated losses of $457 million. The Funds sued under Ohio’s “blue sky” laws and a common-law theory of negligent misrepresentation, alleging that the Agencies’ ratings were false and misleading and that the Funds’ reasonable reliance on those ratings caused their losses. The district court dismissed. The Sixth Circuit affirmed. Even if a credit rating can serve as an actionable misrepresentation, the Agencies owed no duty to the Funds and the Funds’ allegations of bad business practices did not establish a reasonable inference of wrongdoing View "OH Police & Fire Pension Fund v. Standard & Poor's Fin. Servs., LLC" on Justia Law

Terex manufactures equipment. Apuzzo was its Chief Financial Officer. URI is an equipment rental company. Nolan was URI’s Chief Financial Officer. URI and Nolan, carried out fraudulent “sale-leaseback” transactions, to allow URI to recognize revenue prematurely and inflate profits. URI sold used equipment to GECC, a financing corporation, and leased it back. To obtain GECC’s participation, URI convinced Terex to agree to resell the equipment after the lease periods. Terex guaranteed that GECC would receive at least 96 percent of the purchase price for the equipment. URI secretly agreed to indemnify Terex for losses from the guarantee and to purchase new equipment from Terex. Apuzzo knew that if the extent of the transactions was transparent, URI would not be able to claim increased revenue under Generally Accepted Accounting Principles. Apuzzo disguised URI’s risks and obligations, and approved inflated invoices to conceal indemnifications. Following transactions under the scheme, the SEC charged that Apuzzo aided and abetted securities laws violations through his role in a fraudulent accounting scheme. The district court dismissed; the complaint plausibly alleged that Apuzzo had actual knowledge of the primary violation, but did not allege “substantial assistance.” The Second Circuit reversed, holding that Apuzzo associated himself with the venture, participated in it as in something that he wished to bring about, sought by his action to make it succeed. . View "Sec. & Exch. Comm'n v. Apuzzo" on Justia Law

A corporation that wants its shares to be traded on an exchange or through broker-dealers that make national markets must register the securities under the Securities Act of 1933, 15 U.S.C. 77j. Section 13(a) of the 1934 Act, 15 U.S.C. 8m(a), requires the issuer to file periodic reports. Plaintiff registered securities and persuaded broker-dealers to make markets in them, but fell behind with its filings. After eight years, during which plaintiff fell farther behind, the SEC opened a formal proceeding. After a hearing and disclosure that plaintiff could not pay an auditor to certify recent financial statements, the SEC revoked plaintiff's registration; trading in its shares came to a halt. While judicial review was pending, plaintiff filed a new registration, which has not been revoked despite plaintiff's failure to catch up on reports. The Seventh Circuit dismissed the case as moot. To commence trading in any newly registered stock, a broker-dealer needs approval from the Financial Industry Regulatory Authority. When a potential market-maker sought approval, it noted SEC comments on plaintiff's new registration. Setting aside the SEC revocation decision would not oblige FINRA to allow trading to resume. View "Tara Gold Resources Corp. v. Sec. & Exch. Comm'n" on Justia Law

In 2010 the Seventh Circuit held that California law applied to plaintiff’s securities fraud claims and remanded because California, unlike federal securities law, permits a person who did not purchase or sell stock in reliance on a fraudulent representation to sue for damages. On remand the district court dismissed, ruling that the complaint did not adequately allege defendants' state of mind and plaintiff's reliance on particular false statements. The Seventh Circuit affirmed. Plaintiff never explained how he could have avoided loss on his shares, had there been earlier disclosure. Mismanagement, not fraud, caused the loss. Any fraud just delayed the inevitable and affected which investors bore the loss. Plaintiff cannot show that earlier disclosure would have enabled him to sell and shift the loss to others before the price dropped.View "Anderson v. AON Corp." on Justia Law

Karen Cook was appointed receiver over the assets of a number of related corporations and individuals, who the SEC alleged violated multiple federal securities laws. Cook discovered that before the SEC filed its civil complaint, the corporate entities involved had made charitable contributions to the American Cancer Society (ACS). Cook moved to recover the donations on behalf of the receivership, arguing that they qualified as fraudulent transfers under Texas' Uniform Fraudulent Transfer Act (TUFTA), Tex. Bus. & Co. Code 24.005(a). The court held that the receiver's attempt to liken the scheme in question to a "Ponzi-like fraud," and therefore reduce her burden to proving "presumed intent to defraud," failed for lack of evidence. Accordingly, the court reversed the judgment of the district court. View "The American Cancer Society v. Cook" on Justia Law

A class representing purchasers of securities sued the company and two high-ranking officers, alleging that the company issued false or misleading public statements about demand for its products in violation of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and related regulations. The district court granted summary judgment to the company. The First Circuit affirmed. Once a downward trend became clear, the company explicitly acknowledged that its forecasts had been undermined. Whether it was negligent to have remained too sanguine earlier, there was no evidence of anything close to fraud. View "OK Firefighters Pension v. Smith & Wesson Holding Corp." on Justia Law

In November 2010 Ladish agreed to be acquired by Allegheny for $24 cash plus .4556 shares of Allegheny stock per share. At the closing price after the announcement, the package was worth $46.75 per Ladish share, a premium of 59% relative to Ladish's trading price before the announcement. The transaction closed in May, 2011. Ladish became ATI. Investors' reactions implied that Allegheny bid too high: the price of its shares fell when the merger was announced. No Ladish shareholder dissented and demanded an appraisal. But one shareholder filed a suit seeking damages, claiming breach of federal securities law and Wisconsin corporate law by failing to disclose material facts. The district court granted judgment on the pleadings in defendants' favor. On appeal, the shareholder abandoned federal claims. The Seventh Circuit affirmed on the state law claims, citing the business judgment rule. View "Dixon v. Ladish Co. Inc." on Justia Law