Justia Securities Law Opinion Summaries

Articles Posted in Criminal Law
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Shaun Lawrence met D.B. at a casino, where she worked as a cashier. During their conversations, Lawrence told D.B. that he ran several successful businesses and that he was looking for people to work for him and for investors to help grow a private investigations business called Advert Investigations (“Advert”). The parties eventually signed two “Investment and Business Agreement,” which provided that D.B. would invest cash money in exchange for an ownership interest in Advert. At no time prior to D.B.’s investments did Lawrence tell her that he would use the money to pay for personal and gambling expenses. Nor did he ever advise her that he had outstanding civil judgments against him totaling over $100,000. D.B. filed a complaint with the State Division of Securities, which subsequently referred the case to the district attorney’s office for prosecution. The State then charged Lawrence with two counts of securities fraud, and one count of theft. The jury ultimately convicted Lawrence as charged, and Lawrence appealed. In his appeal, he contended, among other things, that (1) the evidence did not establish that the transaction at issue involved a security (namely, an investment contract); (2) Colorado Securities Commissioner Rome’s expert testimony usurped the jury’s role as factfinder because the Commissioner was improperly permitted to opine on the ultimate factual issues in this case; and (3) Lawrence was entitled to the ameliorative benefit of the amendments to the theft statute and, as a result, he could only stand convicted of a class 1 misdemeanor because that was the lowest degree of theft that the jury’s verdict supported. The Colorado Supreme Court concurred with the appellate court’s determination that: (1) the agreement at issue here was an investment contract, and therefore a security; (2) Commissioner’s testimony was admissible, and any error by the trial court in admitting that testimony was harmless; and (3) the trial court erred in instructing the jury as to the value of the property taken. View "Lawrence v. Colorado" on Justia Law

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In 1999-2016, Wilkinson convinced approximately 30 people to invest $13.5 million in two hedge funds that he created. By 2008, Wilkinson lost the vast majority of their money. Wilkinson told them that the funds’ assets included a $12 million note with an Australian hedge fund, Pengana. The “Pengana Note” did not exist. Wilkinson provided fraudulent K-1 federal income tax forms showing that the investments had interest payments on the Pengana Note. To pay back suspicious investors, Wilkinson solicited about $3 million from new investors using private placement memoranda (PPMs) falsely saying that Wilkinson intended to use their investments “to trade a variety of stock indexes and options, futures, and options on futures on such stock indexes on a variety of national securities and futures exchanges.” In 2016, the Commodity Futures Trading Commission filed a civil enforcement action against Wilkinson, 7 U.S.C. 6p(1).Indicted under 18 U.S.C. 1341, 1343, Wilkinson pleaded guilty to wire fraud, admitting that he sent fraudulent K-1 forms and induced investment of $115,000 using fraudulent PPMs. The court applied a four-level enhancement because the offense “involved … a violation of commodities law and ... the defendant was … a commodity pool operator,” U.S.S.G. 2B1.1(b)(20)(B). Wilkinson argued that he did not qualify as a commodity pool operator because he traded only broad-based indexes like S&P 500 futures, which fit the Commodity Exchange Act’s definition of an “excluded commodity,” “not based … on the value of a narrow group of commodities.” The Seventh Circuit affirmed. Wilkinson’s plea agreement and PSR established that Wilkinson was a commodity pool operator. View "United States v. Wilkinson" on Justia Law

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The First Circuit affirmed Defendants' convictions for securities fraud and conspiracy to commit securities fraud, holding that Defendants' claims of trial and sentencing error were unavailing.Defendants were two biostaticians employed by two publicly traded biopharmaceutical companies. The jury found Defendants guilty of conspiracy of commit securities fraud and all counts of securities fraud with which they were charged. The First Circuit affirmed, holding that the district court (1) did not err in denying Defendants' motions for judgments of acquittal as to the conspiracy and securities fraud convictions; (2) did not abuse its discretion in denying Defendants' motion to compel production of a letter from the Financial Industry Regulatory Authority; (3) imposed sentences that were without error; and (4) did not err in awarding restitution. View "United States v. Chan" on Justia Law

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Steven Thompson was a real estate developer and sole member and manager of SGD Timber Canyon, LLC (“Timber Canyon”), a real estate company that held an interest in a number of undeveloped lots in Castle Rock, Colorado. To buy those properties, Timber Canyon initially obtained a $11.9 million loan from Flagstar Bank. The properties went into foreclosure in October 2009. In February 2010, Timber Canyon filed for bankruptcy; Flagstar Bank sought relief from the automatic stay to allow it to proceed with the foreclosure. In the spring of 2010, Thompson met John Witt (“John”), who had worked in the construction industry in Denver but wanted to become a real estate developer. John eventually began working with Thompson and signed a letter of intent indicating that John would eventually obtain an ownership interest in Thompson’s company. Shortly thereafter, and without disclosing the fact that the Timber Ridge properties were in foreclosure and subject to a forbearance agreement, Thompson obtained an “investment” from John’s parents, Thomas and Debra Witt (“the Witts”). Ultimately, the Witts agreed to increase their initial $400,000 investment to $2.4 million. At no point did Thompson disclose to the Witts that Timber Canyon's properties were already highly leveraged; the company was in bankruptcy, the properties were in foreclosure, and the properties had been valued at only $6.75 million (an amount significantly less than the $31 million value that Thompson had represented to the Witts during negotiations). When the Witts’ note ultimately came due in the winter of 2011, Thompson defaulted. The Witts filed a civil lawsuit against him and contacted law enforcement. Thereafter, the State charged Thompson with two counts of securities fraud and one count of theft. A jury convicted Thompson on all counts, and the court sentenced him to the Department of Corrections for twelve years on each of the securities fraud counts, to be served concurrently, and eighteen years on the theft count, to be served consecutively to the securities fraud counts. As pertinent here, Thompson argued on appeal: (1) because the note at issue was not a security, insufficient evidence supported his securities fraud convictions; (2) the trial court erred by tendering an incorrect jury instruction regarding the meaning of “security”; and (3) his theft conviction had to run concurrently with his securities fraud convictions. The issue this case presented for the Colorado Supreme Court's review was whether: (1) the promissory note at issue was a security under the "family resemblance" test; (2) any error in the jury instruction defining “security” was not plain; and (3) consecutive sentences were permissible because different evidence supported defendant Steven Thompson’s securities fraud and theft convictions. Finding the note at issue was indeed a security under Colorado law, and no other reversible error, the Supreme Court affirmed Thompson's convictions. View "Thompson v. Colorado" on Justia Law

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In 2015, the SEC initiated enforcement proceedings in the District of Arizona against appellant for illegitimate investment activities. In 2017, appellant entered into a consent agreement with the SEC, and the United States District Court for the District of Arizona ultimately held appellant liable for disgorgement in the amount of $4,494,900. Then the grand jury in the Eastern District of Virginia returned an indictment charging appellant with, inter alia, securities fraud and unlawful sale of securities, based in part on the same conduct underlying the SEC proceeding. Appellant filed a motion to dismiss the indictment, which the district court denied.The Fourth Circuit joined with every other circuit to have decided the issue in holding that disgorgement in an SEC proceeding is not a criminal penalty pursuant to the Double Jeopardy Clause, such that an individual cannot be later prosecuted for the conduct underlying the disgorgement. Accordingly, the court affirmed the district court's denial of appellant's motion to dismiss the indictment. View "United States v. Bank" on Justia Law

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The Second Circuit certified two questions to the New York Court of Appeals: 1) Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates N.Y. Penal Law 190.40, the criminal usury law. 2) If the interest charged on a loan is determined to be criminally usurious under N.Y. Penal Law 190.40, whether the contract is void ab initio pursuant to N.Y. Gen. Oblig. Law 5-511. View "Adar Bays, LLC v. GeneSYS ID, Inc." on Justia Law

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The First Circuit affirmed Defendant's convictions of securities and wire fraud and conspiracy to commit securities and wire fraud, holding that there was no reversible error in the proceedings below.Specifically, the First Circuit held (1) there was sufficient evidence to sustain Defendant's convictions and that, to the extent that the jury instructions may have been overbroad, any error was harmless; (2) this Court need not address whether the wire fraud statute, 18 U.S.C. 1343, applies extraterritorially because Defendant was convicted under a proper domestic application of the statute; and (3) the district court correctly determined that it lacked the authority to order the government to lodge Mutual Legal Assistance Treaties requests with the United Kingdom and the Republic of Ireland to seek evidence that may have been favorable to Defendant's defense. View "United States v. McLellan" on Justia Law

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Fishoff began trading securities in the 1990s. By 2009, he had earned enough money to establish his own firm, with one full-time employee and several independent contractors. Fishoff had no formal training in securities markets, regulations, or compliance. Nor did he hold any professional license. He operated without expert advice. Fishoff engaged in short-selling stock in anticipation of the issuer making a secondary offering. Secondary offerings are confidential but a company, through its underwriter, may contact potential buyers to assess interest. When a salesperson provides confidential information, such as the issuer's name, the recipient is barred by SEC Rule 10b-5-2, from trading the issuer’s securities or disclosing the information before the offering is publicly announced. Fishoff’s associates opened accounts at investment banking firms in order to receive solicitations to invest in secondary offerings. They agreed to keep the information confidential but shared it with Fishoff, who would short-sell the company’s shares.Fishoff pled guilty to securities fraud (15 U.S.C. 78j(b), 78ff; 17 C.F.R. 240.10b-5 (Rule 10b-5); 18 U.S.C. 2), stipulating that he and his associates made $1.5 to $3.5 million by short-selling Synergy stock based on confidential information. Fishoff unsuccessfully claimed that he had no knowledge of Rule 10b5-2 and was entitled to the affirmative defense against imprisonment under Securities Exchange Act Section 32, as a person who violated a Rule having “no knowledge of such rule or regulation”. The Third Circuit affirmed his 30-month sentence. Fishoff adequately presented his defense. The court’s ruling was sufficient; the government never agreed that the non-imprisonment defense applied. Fishoff did not establish a lack of knowledge. His attempts to conceal his scheme suggests that he was aware that it was wrong. View "United States v. Fishoff" on Justia Law

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The Second Circuit affirmed the district court's order requiring defendant to pay a civil penalty of almost $93 million in a civil suit brought by the SEC. Defendant was the managing general partner and portfolio manager of Galleon Management and its affiliated hedgefunds. Defendant was found to have executed trades in Galleon's accounts and in the account of Rajiv Goel, an Intel executive who had provided tips to defendant, in the stock of five companies on the basis of inside information.The court held that a plain reading of Section 21A(a)(2) of the Securities and Exchange Act indicates that it permits a civil penalty to be based on the total profit resulting from the violation. In this case, defendant executed Galleon's and Goel's illegal trades and thus his civil penalty could be calculated under subsection (a)(2) based on the profit gained or loss avoided as a result of defendant's unlawful purchases and sales. The court also held that the district court did not abuse its discretion by determining that every factor in SEC v. Haligiannis, 470 F. Supp. 2d 373, 386 (S.D.N.Y. 2007), favored the use of a treble penalty. View "SEC v. Rajaratnam" on Justia Law

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In 7 U.S.C. 13(a)(4), a provision within the Commodity Exchange Act, "willfully" must have the traditional meaning ascribed to the term in the context of criminal prohibitions against fraud: intentionally undertaking an act that one knows to be wrongful. This appeal arose from a civil enforcement action brought by the Commission against defendant, the co-founder of the Paron investment firm.The Ninth Circuit affirmed the district court's grant of summary judgment to the Commission and, after applying the correct meaning of "willfully," held that there were no genuine issues of material fact as to whether defendant acted willfully when he made three separate false statements to the National Futures Association (NFA) during its investigation of Paron. The panel also held that the district court properly awarded restitution. However, the court vacated in part the district court's order issuing a permanent injunction against defendant and remanded for further explanation as to certain parts of the permanent injunction. View "U.S. Commodity Futures Trading Commission v. Crombie" on Justia Law