Justia Securities Law Opinion Summaries

Articles Posted in Government & Administrative Law
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The United States Court of Appeals for the Fifth Circuit reversed and vacated parts of a judgment against EOX Holdings, L.L.C., and Andrew Gizienski ("Defendants") in a case initiated by the Commodity Futures Trading Commission ("CFTC"). The CFTC had accused the defendants of violating a rule that prevents commodities traders from "taking the other side of orders" without clients' consent. The court ruled that the defendants lacked fair notice of the CFTC's interpretation of this rule. The case revolved around Gizienski's actions while working as a broker for EOX, where he had discretion to make specific trades on behalf of one of his clients, Jason Vaccaro. The CFTC argued that Gizienski's actions violated the rule because he was making decisions to trade opposite the orders of other clients without their knowledge or consent. The court, however, ruled that the CFTC's interpretation of the rule was overly broad, as it did not provide sufficient notice that such conduct would be considered taking the other side of an order. The court reversed the penalty judgment against the defendants, vacated part of the injunction against them, and remanded the case for further proceedings. View "Commodity Futures v. EOX Holdings" on Justia Law

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The Nasdaq Stock Market, LLC (Nasdaq) proposed a rule that would require companies listed on its stock exchange to disclose information about their board members, as well as a rule that would give certain companies access to a board recruiting service. After the Securities and Exchange Commission (SEC or Commission) approved these rules, the Alliance for Fair Board Recruitment (AFBR) and the National Center for Public Policy Research (NCPPR) petitioned for review.   The Fifth Circuit denied the petitions because the SEC’s Approval Order complies with the Exchange Act and the Administrative Procedure Act (APA). The court wrote that the SEC’s point is that because the meaning of diversity varies globally, it is fair and desirable to let foreign issuers report diversity information according to nationally appropriate standards. Further, the court explained that AFBR does not explain how the SEC acted arbitrarily and capriciously in weighing burdens on competition against the purposes of the Exchange Act. Instead, AFBR argues that the SEC ignored “tremendous costs for firms that dare to defy the quotas. The court explained that the SEC did account for the costs that AFBR asserted in its comment letter. The SEC made a rational decision that those burdens on competition were “necessary or appropriate” to further the purposes of the Exchange Act. Therefore, AFBR has failed to meet its burden to show that the SEC’s Approval Order is arbitrary and capricious on this basis. View "Alliance for Fair Board Recruitment v. SEC" on Justia Law

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The Supreme Judicial Court held that the Secretary of the Commonwealth did not overstep the bounds of the authority granted to him under the Massachusetts Uniform Securities Act (MUSA), Mass. Gen. Laws ch. 110A, by promulgating the "fiduciary duty rule."The Secretary brought an administrative enforcement proceeding alleging that Plaintiff Robinhood Financial LLC violated the prohibition in Mass. Gen. Laws ch. 110A, 204(a)(2)(G) against "unethical or dishonest conduct or practices in the securities, commodities or insurance business" by dispensing ill-suited investment advice to unsophisticated investors. The Secretary defined the phrase in section 204(a)(2)(G) to require broker-dealers that provide investment advice to retail customers to comply with a statutorily-defined fiduciary duty. Thereafter, Plaintiff brought the instant action challenging the validity of the fiduciary duty rule. The superior court concluded that the Secretary acted ultra vires to promulgating the rule. The Supreme Judicial Court reversed, holding (1) the Secretary acted within his authority under MUSA; (2) the fiduciary rule does not override common-law protections available to investors; (3) MUSA is not an impermissible delegation of legislative power; and (4) the fiduciary rule is not invalid under the doctrine of conflict preemption. View "Robinhood Financial LLC v. Secretary of the Commonwealth" on Justia Law

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Defendant defrauded his former employer and its investors of some $65 million. He was indicted on unrelated insider trading charges, and a subsequent internal investigation revealed the full breadth of his wrongdoing. The Securities and Exchange Commission (“SEC”) brought a civil enforcement action against Defendant. To secure a potential disgorgement judgment, the SEC joined Defendant’s family and related entities as Relief Defendants, and the district court froze Defendant’s and the Relief Defendants’ assets. Defendant is currently a fugitive from justice, so the district court excluded him from discovery of the SEC’s investigative file. The district court granted the SEC’s motion for summary judgment and awarded disgorgement, supplemental enrichment, and civil penalties against Defendant. The district court also adopted the SEC’s theory that Defendant is the equitable owner of assets held in the name of the Relief Defendants as “nominees.” On appeal, Defendant and the Relief Defendants challenged the district court’s judgment and calculation of disgorgement.   The Second Circuit affirmed in part and vacated and remanded in part. The court affirmed the district court’s (1) exclusion of Defendant from discovery and denial of his access to frozen funds to hire counsel; (2) calculation of Defendant’s disgorgement obligation; and (3) retroactive application of the 2021 amendments to the Securities Exchange Act of 1934 to Defendant’s disgorgement obligation. However, the court held that the district court (4) failed to assess whether actual gains on the frozen assets were unduly remote from Defendant’s fraud and (5) should have applied an asset-by-asset approach to determine whether the Relief Defendants are, in fact, only nominal owners of their frozen assets. View "SEC v. Ahmed" on Justia Law

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In this civil enforcement action, the First Circuit affirmed the interlocutory order of the district court ruling that a violation of the right to poll each of the jurors individually under Civil Rule 48(c) is per se reversible and that, therefore, Defendant was entitled to a new trial, holding that there was no error.At issue was whether, under this Court's precedent, the district court's denial of Defendant's right to poll each juror individually after the jury had collectively been polled was per se reversible error. The trial court judge ruled that the error was per se reversible. The First Circuit affirmed, holding that the arguments raised by the Securities and Exchange Commission on appeal were unavailing. View "U.S. Securities & Exchange Comm'n v. Sargent" on Justia Law

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Congress passed the American Recovery and Reinvestment Act ARRA) to stabilize the U.S. economy following the 2008 financial crisis, 123 Stat. 115, creating two types of government-subsidized Build America Bonds (BABs). “Direct Payment BABs,” entitled bond issuers to a tax refund from the Treasury Department equal to 35 percent of the interest paid on their BABs. Treasury pays issuers of BABs annually. The payments are funded by the permanent, indefinite appropriation for refunds of internal revenue collections. 31 U.S.C. 1324. Local power agencies (Appellants) collectively issued over four billion dollars in qualifying Direct Payment BABs before 2011. Through 2012, Treasury paid the full 35 percent.In 2011 and 2013, Congress passed legislation reviving sequestration: “[T]he cancellation of budgetary resources provided by discretionary appropriations or direct spending law,” 2 U.S.C. 900(c)(2), 901(a). Treasury stopped making payments to Appellants at 35 percent. Since 2013, Appellants have been paid reduced rates as determined by the Office of Management and Budget’s calculations; for example, 2013 payments were reduced to 8.7 percent.Appellants sued, arguing a statutory theory that the government violates ARRA section 1531 by not making the full 35 percent payments and that the government breached a contract that arises out of section 1531. The Federal Circuit affirmed the Claims Court’s dismissal of the suit. No statutory claim existed because sequestration applied to these payments. No contractual claim existed because the ARRA did not create a contract between the government and Appellants. View "Indiana Municipal Power Agency v. United States" on Justia Law

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In 2005, the SEC promulgated a series of initiatives dubbed “Regulation NMS,” which stands for National Market System. One of those initiatives established the concept of the “[n]ational best bid and national best offer,” which are the best bid and best offer for a security, from the taker’s point of view, across all U.S. securities exchanges. Regulation NMS also classifies some providers’ orders as “protected” bids or offers (collectively “protected quotations”). Protected quotations are “automated,” publicly displayed, and the national best bid or offer.At issue is not whether companies like Petitioner may seek advantages in the market by using advanced technology and ingenious trading strategies, but instead whether the SEC may allow an exchange to innovate, with the D-Limit order, in a way that offers new opportunities to long-term investors.The D.C. Circuit approved the SEC's rule, finding that substantial evidence supported the SEC’s findings and the SEC’s conclusions were reasonable and reasonably explained. View "Citadel Securities LLC v. SEC" on Justia Law

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The United States Court of Appeals for the District of Columbia Circuit granted petitions for review as to two order issued by the Securities and Exchange Commission (Commission) aimed at consolidating existing national market system (NMS) plans governing the dissemination of equity market data into a single, consolidated plan (CT Plan) and modifying the governance structure to increase efficiencies and facilitate greater involvement by non-exchange stakeholders (Governance Plan), holding that Petitioners' petitions were granted as to one challenged provision.Petitioners, a group of national securities exchanges, brought this action challenging the Commission's orders, arguing that several of the provisions were arbitrary and capricious or were contrary to the the text and goals of the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. Specifically, Petitioners challenged a provision of the final Commission-approved CT Plan that included representatives that did not belong to "self-regulatory organizations" (SROs) as voting members of the CT Plan's operating committee. The District of Columbia Circuit granted Petitioners' petitions as to the non-SRO representation provision and denied them in all other respects, holding that the provision including non-SROs on the CT Plan's operating committee as voting members was invalid. View "Nasdaq Stock Market LLC v. Securities & Exchange Comm'n" on Justia Law

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In February 2021, the State of Oklahoma endured record cold temperatures. The severe cold weather resulted in a shortage of the natural gas supply and in turn extraordinary natural gas costs for regulated utilities operating in Oklahoma. The cost of natural gas for the Oklahoma utilities during the two weeks of extreme cold exceeded their entire fuel acquisition cost in 2020. As a result, the Oklahoma Legislature enacted the February 2021 Regulated Utility Consumer Protection Act, 74 O.S.2021, ch. 110A-1, sections 9070-9081, to provide financing options to lower the economic impact on the utility customers. Most Oklahomans could not afford a one-time, cost recovery payment imposed by the utility, and the Legislature provided a new mechanism to spread the fuel cost recovery over a longer period to minimize the financial impact on utility customers. The Act authorized the Oklahoma Corporation Commission (Commission) to approve the recovery of costs through securitization. The Oklahoma Development Finance Authority requested that the Oklahoma Supreme Court assume original jurisdiction and approve the issuance of ratepayer-backed bonds pursuant to the Act. The Supreme Court assumed original jurisdiction and held the ratepayer-backed bonds were properly authorized under the Act and were constitutional. View "In re: Application of OK Dev. Finance Auth." on Justia Law

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Taj Jerry Mahabub, founder and Chief Executive Officer (“CEO”) of GenAudio, Inc. (“GenAudio”; collectively referred to as “Appellants”) attempted to secure a software licensing deal with Apple, Inc. (“Apple”). Mahabub intended to integrate GenAudio’s three-dimensional audio software, “AstoundSound,” into Apple’s products. While Appellants were pursuing that collaboration, the Securities and Exchange Commission (“SEC”) commenced an investigation into Mr. Mahabub’s conduct: Mahabub was suspected of defrauding investors by fabricating statements about Apple’s interest in GenAudio’s software and violating registration provisions of the securities laws in connection with sales of GenAudio securities. The district court found Mahabub defrauded investors and violated the securities laws. The court determined that Appellants were liable for knowingly or recklessly making six fraudulent misstatements in connection with two offerings of GenAudio’s securities in violation of the antifraud provisions of the securities laws. Appellants appealed, but finding no reversible error, the Tenth Circuit affirmed the district court’s grant of summary judgment in favor of the SEC. View "SEC v. GenAudio Inc., et al." on Justia Law