Justia Securities Law Opinion Summaries

Pacilio and Bases were senior traders on the precious metals trading desk at Bank of America. While working together in 2010-2011, and at times separately before and after that period, they engaged in “spoofing” to manipulate the prices of precious metals using an electronic trading platform, that allows traders to place buy or sell orders on certain numbers of futures contracts at a set price. It is assumed that every order is bona fide and placed with “intent to transact.” Spoofing consists of placing a (typically) large order, on one side of the market with intent to trade, and placing a spoof order, fully visible but not intended to be traded, on the other side. The spoof order pushes the market price to benefit the other order, allowing the trader to get the desired price. The spoof order is canceled before it can be filled.Pacilio and Bases challenged the constitutionality of their convictions for wire fraud affecting a financial institution and related charges, the sufficiency of the evidence, and evidentiary rulings relating to testimony about the Exchange’s and bank prohibitions on spoofing to support the government’s implied misrepresentation theory. The Seventh Circuit affirmed. The defendants had sufficient notice that their spoofing scheme was prohibited by law. View "United States v. Bases" on Justia Law

A jury convicted United Development Funding (“UDF”) executives (collectively “Appellants”) of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud. Jurors heard evidence that Appellants were involved in what the Government deemed “a classic Ponzi-like scheme,” in which Appellants transferred money out of one fund to pay distributions to another fund’s investors without disclosing this information to their investors or the Securities Exchange Commission (“SEC”). Appellants each filed separate appeals, challenging their convictions on several grounds. Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or, alternatively, (2) they are entitled to a new trial because the jury instructions were improper. Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during.   The Fifth Circuit affirmed the jury verdict in its entirety. The court explained that considering the evidence and drawing all reasonable inferences in the light most favorable to the verdict, a reasonable juror could have determined that Appellants made material misrepresentations in UDF III and UDF V’s filings that were sufficient to uphold their convictions. The court explained that multiple witnesses testified that the industry had shifted away from affiliate transactions because they were disfavored and that a no-affiliate-transaction policy in UDF V would enable it to participate in a larger network of brokers, dealers, and investors. View "USA v. Greenlaw" on Justia Law

Jumper, a securities broker-dealer, arranged financing on behalf of private investors for the purchase of a Pennsylvania fire-brick manufacturer. Jumper fraudulently obtained authority to transfer the company’s pension plan assets by forging the majority stakeholder’s signature on several documents. Between 2007-2016, Jumper transferred $5.7 million from the pension plan to accounts he controlled.The SEC filed a civil complaint against Jumper for securities fraud in the Western District of Tennessee. The Department of Justice filed criminal charges against Jumper in the Middle District of Pennsylvania. The Tennessee court entered a default judgment for the SEC and ordered Jumper to disgorge $5.7 million and to pay prejudgment interest of $726,758.79. In Pennsylvania, Jumper pleaded guilty to wire fraud and agreed to make full restitution; the parties stipulated a loss of $1.5-$3.5 million.The district court considered Jumper’s request for a downward departure based on medical issues, discussed the relevant 18 U.S.C. 3553(a) factors, and denied Jumper’s requests, explaining, the Bureau of Prisons (BOP) is equipped to provide consistent, adequate medical care. The court sentenced Jumper to 78 months’ incarceration, at the bottom of the Guidelines range of 78–97 months, and ordered him to pay $2,426,550 in restitution. The Third Circuit affirmed, rejecting arguments that the sentence violated the Double Jeopardy Clause and principles of collateral estoppel and that the court improperly concluded that the BOP could treat his medical issues. View "United States v. Jumper" on Justia Law

The Supreme Court reversed the decision of the court of appeals reversing Defendant's conviction for felony fleeing or attempting to elude a police officer, holding that the court of appeals misapplied the standard required to determine when an instructional error necessitates reversal and that that the district court's failure to give a lesser included offense instruction for the misdemeanor offense was not clearly erroneous.The court of appeals found that the district court erred by failing to give an unrequested jury instruction on a lesser included misdemeanor offense and that reversal was required because the jury could have reasonably reached a different verdict on the felony charge. The Supreme Court reversed, holding (1) the court of appeals erred by using a lower standard of doubt about the outcome to declare the unpreserved error reversible; and (2) the unpreserved error in the jury instructions was not clearly erroneous. View "State v. Berkstresser " on Justia Law

Armbruster, a CPA with experience working at a Big Four accounting firm, began serving as the controller for Roadrunner's predecessor in 1990 and became Roadrunner’s CFO. Roadrunner grew rapidly, acquiring transportation companies and going public in 2010. In 2014, Roadrunner’s then‐controller recognized shortcomings in a subsidiary's (Morgan) accounting and began investigating. In 2016, many deficiencies in Morgan’s accounting remained unresolved. The departing controller found that Morgan had inflated its balance sheet by at least $2 million and perhaps as much as $4–5 million. Armbruster filed Roadrunner's 2016 third quarter SEC Form 10‐Q with no adjustments of the carrying values of Morgan balance sheet items and including other misstatements. Roadrunner’s CEO learned of the misstatements and informed Roadrunner’s Board of Directors. Roadrunner informed its independent auditor. Roadrunner’s share price dropped significantly. Roadrunner filed restated financial statements, reporting a decrease of approximately $66.5 million in net income over the misstated periods.Criminal charges were brought against Armbruster and two former departmental controllers. A mixed verdict acquitted the departmental controllers on all counts but convicted Armbruster on four of 11 charges for knowingly falsifying Roadrunner‘s accounting records by materially misstating the carrying values of Morgan's receivable and prepaid taxes account, 15 U.S.C. 78m(b)(2), (5), i78ff(a), 18 U.S.C. 2, fraudulently influencing Roadrunner’s external auditor, and filing fraudulent SEC financial statements, 18 U.S.C.1348. The Seventh Circuit affirmed. While the case against Armbruster may not have been open‐and‐shut, a rational jury could have concluded that the government presented enough evidence to support the guilty verdicts. View "United States v. Armbruster" on Justia Law

Following proceedings in district court, the trial court t entered a final judgment, finding Defendant liable, ordering him to disgorge over $4,000,000 in funds, and placing two of his entities under receivership in order to sell and reorganize assets to repay investors. Later, a federal grand jury sitting in Miami returned a superseding indictment that described consistent with the district court’s findings of fact.   After an extradition request was filed by the United States, the Supreme Court of Brazil allowed him to be extradited. He returned to the United States, and on the eve of trial, following over a year of pretrial proceedings, Defendant entered into a plea agreement, agreeing to plead guilty to one count of mail fraud. The district court later sentenced Defendant to 220 months’ imprisonment and ordered him to pay $169,177,338 in restitution.   On appeal, Defendant broadly argues: (1) that the custodial sentence imposed and the order of restitution violate the extradition treaty; and (2) that his guilty plea was not made freely and voluntarily. The Eleventh Circuit affirmed. The court explained that the district court fully satisfied the core concerns of Rule 11, and the court could discern no reason to conclude that the district court plainly erred in finding that Defendant’s guilty plea was entered knowingly and voluntarily. The court explained that in this case, the record fully reflects that Defendant agreed to be sentenced subject to a 20-year maximum term, and his 220-month sentence is near the low end of his agreed-upon 210-to-240-month range. View "USA v. John J. Utsick" on Justia Law

Appellant was convicted of conspiracy to commit securities fraud, securities fraud, and first-degree fraud. On appeal, she mounted a single challenge: the prosecution made improper comments during its rebuttal closing argument that substantially prejudiced her and denied her a fair trial. Appellant objected to most of the prosecution’s statements in the district court, and the court sustained the objections.   The DC Circuit affirmed Appellant’s convictions, finding no reversible error in the district court’s response to the prosecution’s challenged statements. Appellant argued that the court should apply harmless-error review. However, the court explained that harmless-error review is inapplicable in the circumstances of this case. Harmless-error analysis generally applies when a district court erroneously rejects a defendant’s timely claim of an error. Here, though, the district court did not erroneously reject Appellant’s claim of an error. Indeed, the court did not reject any relevant claim of error at all. Appellant’s claim involves the four allegedly improper statements made by the prosecution in the rebuttal closing argument. But Appellant raised no objection in the district court to the fourth of those statements, so there was no claim of any error at trial as to that one. And while Appellant did object to the other three statements, the district court did not erroneously overrule her objections.   Further, Appellant cannot demonstrate plain error. The district court did not err, much less plainly err, in responding to the prosecution’s challenged statements. Lastly, even assuming the district court should have taken any additional actions, the court’s failure to do so did not affect Appellant’s substantial rights. View "USA v. Brynee Baylor" on Justia Law

Goulding, an accountant and lawyer, has a history of mail fraud and tax fraud. Goulding formed 15 funds that hired Nutmeg’s advisory services, which he managed. The funds invested in illiquid securities, many of which were close to insolvent. Gould wrote all of the disclosure documents, which overvalued the funds. Goulding made baseless statements about increases in value. Goulding did not use outside advisors and engaged in commingling, holding some securities in his own name.The Securities and Exchange Commission charged Goulding under the Investment Advisers Act of 1940, 15 U.S.C. 80b, with running Nutmeg through a pattern of fraud, including touting his supposed financial expertise while failing to disclose his crimes, in addition to violating the Act’s technical rules. The district court issued an injunction removing Goulding from the business and appointing a receiver. A magistrate judge enjoined Goulding from violating the securities laws, required him to disgorge $642,422 (plus interest), and imposed a $642,422 civil penalty. The Seventh Circuit affirmed the finding of liability and the financial awards. The extent of Goulding’s wrongdoing makes it hard to determine his net unjustified withdrawals; as the wrongdoer, he bears the consequence of uncertainty. The restitution reflects a conservative estimate of Goulding’s ill-got gains. Nor did the judge err by declining to trace funds from their source to Goulding’s pocket. View "Securities and Exchange Commission v. Goulding" on Justia Law

Weller was convicted of insider trading, Securities Exchange Act, 15 U.S.C. 78j(b). Fleming, a vice president of Life Time Fitness, had learned that his company was likely to be acquired by a private equity firm at an above-market price. Fleming told a friend, Beshey, who told Clark and Kourtis (who knew that the information had been misappropriated), who told others, including Weller. Most of them profited by trading on the information and showed their appreciation by “kickbacks.”Weller unsuccessfully argued that he did not know that Fleming violated a duty to his employer by passing the information to Beshey and that the government did not prove a financial benefit to Fleming. The Seventh Circuit affirmed his convictions. Although Weller did not interact with all of the others, he did conspire with at least Kourtis to misuse material non-public information for their own benefit. The court upheld Weller’s 366-day below-Guidelines sentence, noting that Weller profited more than the others. View "United States v. Weller" on Justia Law

The Mandatory Victims Restitution Act requires defendants convicted of certain crimes to reimburse their victims for “lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense,” 18 U.S.C. 3663A(b)(4). The Second Circuit previously held that “other expenses” could include attorneys’ fees incurred by victims while helping the government investigate and prosecute the defendant and costs incurred while privately investigating the defendant. The Supreme Court subsequently held that “the words ‘investigation’ and ‘proceedings’ are limited to government investigations and criminal proceedings.”Afriyie was convicted of securities fraud after trading on inside information he misappropriated from his employer, MSD. The district court entered the restitution order, covering the fees MSD paid its law firm to guide MSD’s compliance with investigations by the U.S. Attorney’s Office and the SEC; to help prepare four MSD witnesses to testify at Afriyie’s criminal trial; and to represent MSD during the post-verdict restitution proceedings.The Second Circuit held that attorneys’ fees can sometimes be “other expenses” but a victim cannot recover expenses incurred while participating in an SEC investigation. Restitution is appropriate only for expenses associated with criminal matters; civil matters, including SEC investigations, even if closely related to a criminal case do not qualify. View "United States v. Afriyie" on Justia Law