Justia Securities Law Opinion Summaries

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

The Enterprises, Fannie Mae and Freddie Mac, suffered financial losses in 2008 when the housing market collapsed. The Housing and Economic Recovery Act of 2008 (HERA), created the Federal Housing Finance Agency (FHFA), an independent agency tasked with regulating the Enterprises, including stepping in as conservator, 12 U.S.C. 4511.With the consent of the Enterprises’ boards of directors, FHFA placed the Enterprises into conservatorship, then negotiated preferred stock purchase agreements (PSPAs) with the Treasury Department to allow the Enterprises to draw up to $100 billion in exchange for senior preferred non-voting stock having quarterly fixed-rate dividends. A “net worth sweep” under the PSPAs replaced the fixed-rate dividend formula with a variable one that required the Enterprises to make quarterly payments equal to their entire net worth, minus a small capital reserve amount, causing the Enterprises to transfer most of their equity to Treasury, leaving no residual value for shareholders.Shareholders challenged the net worth sweep. Barrett, an individual shareholder, separately asserted derivative claims on behalf of the Enterprises. The Claims Court dismissed the shareholders’ direct Fifth Amendment takings and illegal exaction claims for lack of standing; dismissed for lack of subject matter jurisdiction the shareholders’ direct claims for breach of fiduciary duty, and breach of implied-in-fact contract; and found that Barrett had standing to bring his derivative claims, notwithstanding HERA. The Federal Circuit affirmed the dismissal of shareholders’ direct claims but concluded that the shareholders’ derivatively pled allegations should also be dismissed. View "Fairholme Funds, Inc. v, United States" on Justia Law

The Enterprises, Fannie Mae and Freddie Mac, suffered financial losses in 2008 when the housing market collapsed. The Housing and Economic Recovery Act of 2008 (HERA), created the Federal Housing Finance Agency (FHFA), tasked with regulating the Enterprises, including stepping in as conservator, 12 U.S.C. 4511. FHFA placed the Enterprises into conservatorship, then negotiated preferred stock purchase agreements (PSPAs) with the Treasury Department to allow the Enterprises to draw up to $100 billion in exchange for senior preferred non-voting stock having quarterly fixed-rate dividends. A “net worth sweep” under the PSPAs replaced the fixed-rate dividend formula with a variable one that required the Enterprises to make quarterly payments equal to their entire net worth, minus a small capital reserve amount, causing the Enterprises to transfer most of their equity to Treasury, leaving no residual value for shareholders.In a companion case, the Federal Circuit affirmed the dismissal of shareholders’ direct claims challenging the net worth sweep and concluded that the shareholders’ derivatively pled allegations should also be dismissed.The Washington Federal Plaintiffs alleged direct takings and illegal exaction claims, predicated on the imposition of the conservatorships, rather than on FHFA's subsequent actions. The Federal Circuit affirmed the dismissal of those claims. Where Congress mandates the review process for an allegedly unlawful agency action, plaintiffs may not assert a takings claim asserting the agency acted in violation of a statute or regulation. These Plaintiffs also lack standing to assert their substantively derivative claims as direct claims. View "Washington Federal v. United States" on Justia Law

Five registered national securities exchanges filed proposed rules with the SEC to establish fee schedules for Wireless Bandwidth Connections, which connect a customer’s equipment located on the premises of a petitioner-exchange with the customer’s equipment located on the premises of a third-party data center, and Wireless Market Data Connections, which connect a customer to the proprietary data feed of a petitioner-exchange. SEC’s Final Order asserted jurisdiction over the services and approved the proposed rules.The exchanges argued that the SEC’s assertion of jurisdiction over the services was based upon an erroneous interpretation of the statutes that define “exchange” and “facility,” that SEC arbitrarily and capriciously ignored the effect of the Final Rule upon the ability of the wireless services to compete, and that SEC ignored regulations defining “exchange” and arbitrarily departed from relevant agency precedents.The D.C. Circuit upheld the order. The Connections are subject to the SEC’s jurisdiction as “facilities” of an exchange--a market facility maintained by an exchange for bringing together purchasers and sellers of an exchange. The SEC correctly concluded that the fee schedules for the Connections had to be filed as “rules of an exchange,” consistent with SEC regulations and precedent. View "Intercontinental Exchange, Inc v. Securities and Exchange Commission" on Justia Law

Defendants who enter into SEC consent decrees gain certain benefits: they may settle a complaint without admitting the SEC’s allegations, and often receive concessions. The SEC does not permit a defendant to consent to a judgment or order that imposes a sanction while denying the allegations, 17 C.F.R. 202.5(e)). Cato alleged that SEC defendants are, therefore, unable to report publicly that the SEC threatened them with unfounded charges or otherwise coerced them into entering into consent decrees, impermissibly stifling public discussion of the SEC’s prosecutorial tactics. Cato has not entered into any SEC consent decree but alleges that it has contracted to publish a manuscript written by someone who is subject to such a consent decree and has been contacted by other such individuals, who would otherwise participate in panel discussions hosted by Cato on the topic of the SEC’s prosecutorial overreach, and allow Cato to publish their testimonials.Cato’s complaint invoked the First Amendment and the Declaratory Judgment Act. The D.C. Circuit affirmed the dismissal of Cato’s complaint for lack of standing. Cato’s alleged injury is not redressable through this lawsuit; the no-deny provisions that bind the SEC defendants whose speech Cato wishes to publish would remain unable to allow Cato to publish their speech, given their consent decrees. View "Cato Institute v. Securities and Exchange Commission" on Justia Law

Thirteen nationally registered stock exchanges sought review of four orders issued by the Securities and Exchange Commission concerning national market system plans that govern the collection, processing, and distribution of stock quotation and transaction information. Under the Securities Exchange Act, a final order of the Commission must be challenged “within sixty days after the entry of the order,” 15 U.S.C. 78y(a)(1).The exchanges filed their challenges 65 days after the orders were entered, arguing that the challenged orders are not actually orders but rather rules, which are subject to a different filing deadline. The D.C. Circuit dismissed the petitions as untimely. Instead of focusing on the amendment’s substance or the procedure used to effectuate it, the court gave conclusive weight to the Commission’s designation. Construing section 78y(a)(1)’s use of “order” to mean “order identified as such” promotes predictability and clarity. Deferring to the Commission’s designation affects only the deadline by which the Amendments can be challenged, not the Amendments’ judicial reviewability or the substantive legal standard applicable to their merits. View "New York Stock Exchange LLC v. Securities and Exchange Commission" on Justia Law

The DC Circuit dismissed, based on lack of jurisdiction, petitions for review of the SEC's order directing stock exchanges to submit a proposal to replace three plans that govern the dissemination of certain types of data with a single, consolidated plan. The exchanges specifically challenge provisions of the order requiring them to include three features relating to plan governance.The court concluded that the Commission has yet to decide whether the challenged features will make it into the new plan, and that section 25(a) of the Securities Exchange Act confers authority on the courts of appeals to review only final orders. In this case, although the Governance Order was definitive on the question whether the three challenged plan elements had to be included in the proposal, it was not a "definitive statement of position" on the question the Commission had initiated proceedings to answer—whether the three features should be included in the eventual plan. View "The Nasdaq Stock Market LLC v. Securities and Exchange Commission" on Justia Law

The First Circuit affirmed the district court's denial of Defendant's motion for judgment as a matter of law and for a new trial in this civil enforcement action brought by the Securities and Exchange Commission, holding that the evidence was sufficient to support the verdict.At issue was whether Defendant, the CFO of AVEO Pharmaceuticals, knowingly misled investors by the manner in which he responded to investor inquiries about the substance of AVEO's discussions with the Food and Drug Administration (FDA) about the results of AVEO's clinical trial for tivozanib, a kidney cancer drug candidate. A jury found against Defendant. On appeal, Defendant argued (1) he was entitled to judgment as a matter of law because he had no duty to disclose the substance of the FDA discussions and because the evidence of scienter was insufficient, and (2) he was entitled to a new trial because the district court improperly instructed the jury. The Supreme Judicial Court affirmed, holding (1) the evidence of fraud and scienter was sufficient to support the verdict; and (2) the challenged instructions were not given in error. View "Securities & Exchange Commission v. Johnston" on Justia Law

The Alaska Division of Banking and Securities civilly fined Sitnasuak Native Corporation shareholder Austin Ahmasuk for submitting a newspaper opinion letter about Sitnasuak’s shareholder proxy voting procedures without filing that letter with the Division as a shareholder proxy solicitation. Ahmasuk filed an agency appeal, arguing that the Division wrongly interpreted its proxy solicitation regulation to cover his letter and violated his constitutional due process and free speech rights. An administrative law judge upheld the Division’s sanction in an order that became the final agency decision, and the superior court upheld that decision in a subsequent appeal. Ahmasuk raised his same arguments on appeal to the Alaska Supreme Court. After review, the Supreme Court concluded Ahmasuk’s opinion letter was not a proxy solicitation under the Division’s controlling regulations, therefore reversing the superior court’s decision upholding the Division’s civil sanction against Ahmasuk without reaching the constitutional arguments. View "Ahmasuk v. Division of Banking and Securities" on Justia Law

Between 1983-2015, Heneghan was an associated person (AP) of 14 different National Futures Association (NFA)-member firms. Troyer invested hundreds of thousands of dollars in financial derivatives through NFA Members. The first interaction between Troyer and Heneghan was in 2008. After receiving an unsolicited phone call from Heneghan, Troyer invested more than $160,000. Despite changes in Heneghan’s entity affiliation, his working relationship with Troyer remained constant. At one point, Heneghan’s then-firm, Statewide, withdrew from the NFA following an investigation. Heneghan was the subject of a four-month NFA approval-hold in 2012. Troyer began sending money to Heneghan personally in 2013, allegedly to obtain trading firm employee discounts; these investments totaled $82,000. Troyer neither received nor asked for any investment documentation for this investment. In 2016-2015, NFA investigated Heneghan’s then-firm, PMI, Despite Troyer’s alleged substantial investment, no PMI accounts were listed for either Troyer or Heneghan. In 2015, Troyer directed Heneghan to cash out the fund; “all hell broke loose.” In 2016, the NFA permanently barred Heneghan from NFA membership. Troyer filed suit under the Commodities Exchange Act. 7 U.S.C. 25(b).The Seventh Circuit affirmed the summary judgment rejection of Troyer’s claim. NFA Bylaw 301(a)(ii)(D), which bars persons from becoming or remaining NFA Members if their conduct was the cause of NFA expulsion, is inapplicable. Statewide’s agreement not to reapply represented a distinct sanction from expulsion and did not trigger Bylaw 301(a)(ii)(D). View "Troyer v. National Futures Association" on Justia Law