Justia Securities Law Opinion Summaries

The Eleventh Circuit vacated its original opinion in this case and issued the following opinion in its place.The CFTC begain investigating defendants in response to a customer's complaint of commodities fraud. The NFA also opened an investigation, which proceeded in tandem with the CFTC's, but ended in a settlement. The CFTC then filed suit alleging that defendants violated the Commodities Exchange Act (CEA) when they failed to register as futures commission merchants, transacted the purchase and sale of contracts for the future delivery of a commodity (futures) outside of a registered exchange, and promised to invest customers' money in precious metals (metals) but instead invested the funds in so-called "off-exchange margined metals derivatives" (metals derivatives). The court affirmed the district court's judgment except as to the restitution award for the group of investors whose losses were associated solely with the registration violations. In regard to the restitution award, the court vacated and remanded with instructions to consider other equitable remedies. View "U.S. Commodity Futures Trading Commission v. Southern Trust Metals, Inc." on Justia Law

The Securities and Exchange Commission (SEC) has authority to enforce securities laws by instituting an administrative proceeding against an alleged wrongdoer, typically overseen by an administrative law judge (ALJ). Other staff members, rather than the Commission, selected all of the five current ALJs, who have “authority to do all things necessary and appropriate” to ensure a “fair and orderly” adversarial proceeding, 17 CFR 201.111, 200.14(a). After a hearing, the ALJ issues an initial decision. The Commission can review that decision, but if it opts against review, it issues an order that the initial decision is “deemed the action of the Commission,” 15 U.S.C. 78d–1(c). The SEC charged Lucia and assigned ALJ Elliot to adjudicate the case. Following a hearing, Elliot issued an initial decision concluding that Lucia had violated the law and imposing sanctions. Lucia argued that the proceeding was invalid because SEC ALJs are “Officers of the United States,” subject to the Appointments Clause. Under that Clause, only the President, “Courts of Law,” or “Heads of Departments” can appoint “Officers.” The SEC and the D. C. Circuit rejected Lucia’s argument. The Supreme Court reversed. SEC ALJs are subject to the Appointments Clause. To qualify as an officer, rather than an employee, an individual must occupy a “continuing” position established by law, and must “exercis[e] significant authority pursuant to the laws of the United States,” SEC ALJs hold a continuing office established 5 U.S.C. 556–557, 5372, 3105, and exercise “significant discretion." The ALJs have nearly all the tools of federal trial judges: they take testimony, conduct trials, rule on the admissibility of evidence, can enforce compliance with discovery orders, and prepare proposed findings and an opinion including remedies. Judge Elliot heard and decided Lucia’s case without a constitutional appointment. View "Lucia v. Securities and Exchange Commission" on Justia Law

In “Citadel” the Seventh Circuit held that “the district court did not abuse its discretion in dismissing [the] case [of certain securities firms] for failure to exhaust administrative remedies.” After that decision, Securities Firms filed a petition before the Securities and Exchange Commission (SEC) seeking damages, claiming the Exchanges improperly imposed fees under Payment for Order Flow programs. The SEC dismissed that petition for lack of jurisdiction. The Exchanges, citing CitadeI, maintained the SEC had jurisdiction under Section 19(h)(1) of the Securities Exchange Act because the petition sought a determination that the Exchanges had violated their own rules. The SEC reasoned that Section 19(d), which authorizes it to review allegations that a national exchange has unduly “prohibit[ed] or limit[ed] … access to services,” 15 U.S.C. 78s(d)(1), did not apply; the petition did not allege that the Exchanges had denied or limited access to any service. The SEC further stated that seeking damages was “incongruous with” the SEC’s Section 19(d) remedial authority and that section 78s(h)(1) does not authorize claims by private parties. The Seventh Circuit affirmed, “the Petition alleges, in effect, a billing dispute” between two private parties, and requests the SEC order the Exchanges to pay damages for improperly charging fees under their PFOF programs. View "Chicago Board Options Exchange v. Securities and Exchange Commission" on Justia Law

In 2011 and 2012, a number of individuals and closely held corporations known as Treasure Your Success (TYS) operated a fraudulent credit card interest reduction scheme. Universal Processing Services of Wisconsin, LLC (Universal) violated the Telemarketing Sales Rule (TSR), 16 C.F.R. 310.1 et seq., by providing substantial assistance to the TYS schemers. The district court found that a violation of the TSR constitutes an “unfair or deceptive act or practice” in violation of the Federal Trade Commission Act. As such, the district court was authorized to order restitution and disgorgement. Furthermore, the court clarified that substantial assistance under the TSR was itself sufficient to justify joint and several liability. The court reaffirmed its order holding Universal jointly and severally liable; Universal contended that was error and joint and several liability can only lie where the defendant is a participant in a common enterprise with the primary violators. The Eleventh Circuit concluded after review the district court did not abuse its discretion in holding Universal jointly and severally liable with the members of the TYS scheme. View "Federal Trade Comm'r v. Universal Processing Services of Wisconsin, LLC" on Justia Law

Between 2000 and 2001, plaintiff-appellant Troy Flowers's application for a securities sales license was rejected by Ohio state officials because they found that he was "not of 'good business repute.'" In addition, Flowers was subjected to discipline by securities regulators with respect to his violation of securities laws and regulations and his failure to cooperate in a securities investigation. Flowers filed a complaint against the Financial Industry Regulatory Authority, Inc. (FINRA), seeking an order that FINRA expunge his disciplinary history from its records. The trial court sustained without leave to amend FINRA's demurrer to Flowers's complaint. Because federal securities laws and regulations provided Flowers with a process by which he may challenge FINRA's publication of his disciplinary history, and Flowers has not pursued that process, the Court of Appeal concluded he may not now, by way of a civil action, seek that relief from the trial court. Accordingly, the Court affirmed the trial court's order sustaining the demurrer and its judgment in favor of FINRA. View "Flowers v. Financial Industry Regulatory Authority, Inc." on Justia Law

A New Mexico county board filed a lawsuit in state court against its securities broker and registered agent. The board refrained, however, from serving process while it determined whether arbitration was available. The securities broker and agent nonetheless removed the case to federal court and moved to dismiss the suit. Four days after briefing was complete and about three months after the board had filed suit, the board voluntarily dismissed the case and filed for arbitration. The securities broker and agent then filed this action to enjoin arbitration, arguing the board waived its right to demand arbitration when it filed the state court action. The district court disagreed and instead granted the board’s counterclaim to compel arbitration. The broker and registered agent appealed the waiver issue. Finding no reversible error, the Tenth Circuit affirmed. View "BOSC v. Board of County Commissioners" on Justia Law

In 2015, the Securities and Exchange Commission instituted an administrative proceeding against Dawn Bennett and her law firm (collectively, Bennett) to determine whether Bennett had violated the anti-fraud provisions of the federal securities laws. The Commission assigned the initial stages of the proceeding to an ALJ, and the ALJ scheduled a hearing on the merits of Bennett’s case. Bennett subsequently filed suit challenging the constitutionality of the administrative enforcement proceeding. Specifically, the Complaint alleged that the SEC’s administrative enforcement proceedings violated Article II of the United States Constitution. The district court dismissed the suit on jurisdictional grounds. The Fourth Circuit affirmed, holding that Congress has impliedly divested district-court jurisdiction over the agency action. View "Bennett v. U.S. Securities & Exchange Commission" on Justia Law

The Goldmans, proceeding before an arbitration panel operating under the auspices of the Financial Industry Regulatory Authority (FINRA), alleged that their financial advisor and Citigroup had violated federal securities law in their management of the Goldmans’ brokerage accounts. The district court dismissed their motion to vacate an adverse award for lack of subject-matter jurisdiction, stating the Goldmans’ motion failed to raise a substantial federal question. The Third Circuit affirmed. Nothing about the Goldmans’ case is likely to affect the securities markets broadly. That the allegedly-misbehaving arbitration panel happened to be affiliated with a self-regulatory organization does not meaningfully distinguish this case from any other suit alleging arbitrator partiality in a securities dispute. The court noted “the flood of cases that would enter federal courts if the involvement of a self-regulatory organization were itself sufficient to support jurisdiction.” View "Goldman v. Citigroup Global Mkts., Inc" on Justia Law

Witter contends that in August 2007 he telephoned Skelton, an employee of his broker, TransAct, with instructions to cancel several standing orders. Skelton did not do so, and Witter lost $23,000 on the resulting market position. Skelton claims that Witter never told him to cancel all seven of the working orders at issue. Witter filed a complaint with the Commodity Futures Trading Commission, 7 U.S.C. 18(a), which found no violation. The judgment officer refused to draw an adverse inference based on TransAct’s failure to produce a recording of the “one crucial conversation” because TransAct was not required to record the call; he found that Skelton’s version was more plausible and Witter had a “propensity to confuse trading terms” like “position” and “order.” The Seventh Circuit affirmed, finding the Commission’s decision was supported by the evidence. Federal regulations require that, before buying or selling a commodity, a merchant must receive either “specific authorization” or “authorization in writing,” 17 C.F.R. 166.2. No regulation requires the merchant to record phone calls to cancel previously authorized orders to buy or sell. View "Witter v. Commodity Futures Trading Comm'n" on Justia Law

The SEC created a new class of securities offerings freed from federal-registration requirements so long as the issuers of these securities comply with certain investor safeguards (Regulation A-Plus). Petitioners, the chief securities regulators for Massachusetts and Montana, seek review of Regulation A-Plus. The court concluded that, because Regulation A-Plus does not conflict with Congress’s unambiguous intent, it does not falter at Chevron Step 1. Furthermore, because the Commission’s qualified-purchaser definition is not “arbitrary, capricious, or manifestly contrary to the statute,” it does not fail Chevron Step 2. By providing a reasoned analysis of how its qualified-purchaser definition strikes the “appropriate balance between mitigating cost and time demands on issuers and providing investor protections,” the court concluded that the Commission has complied with its statutory obligation under the Administrative Procedure Act, 5 U.S.C. 702. Accordingly, the court denied the consolidated petitions for review. View "Lindeen v. SEC" on Justia Law