Justia Securities Law Opinion Summaries

In response to the Congo war, Congress created Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. 78m(p), which requires the SEC to issue regulations requiring firms using "conflict minerals" to investigate and disclose the origin of those minerals. The Association challenged the SEC's final rule implementing the Act, raising claims under the Administrative Procedure Act (APA), 5 U.S.C. 500 et seq.; the Securities Exchange Act, 15 U.S.C. 78a et seq.; and the First Amendment. The district court rejected all of the Association's claims and granted summary judgment for the Commission and intervenor Amnesty International. The court concluded that the Commission did not act arbitrarily and capriciously by choosing not to include a de minimus exception for use of conflict materials; the Commission could use its delegated authority to fill in gaps where the statute was silent with respect to both a threshold for conducting due diligence and the obligations of uncertain issuers; the court rejected the Association's argument that the Commission's due diligence threshold was arbitrary and capricious; the Commission did not act arbitrarily and capriciously and its interpretation of sections 78m(p)(2) and 78m(p)(1)(A)(i) was reasonable because it reconciled these provisions in an expansive fashion, applying the final rule not only to issuers that manufacture their own products, but also to those that only contract to manufacture; and the court rejected the Association's challenge to the final rule's temporary phase-in period, which allowed issuers to describe certain products as "DRC conflict undeterminable." The court also concluded that it did not see any problems with the Commission's cost-side analysis. The Commission determined that Congress intended the rule to achieve "compelling social benefits," but it was "unable to readily quantify" those benefits because it lacked data about the rule's effects. The court determined that this benefit-side analysis was reasonable. The court held that section 15 U.S.C. § 78m(p)(1)(A)(ii) & (E), and the Commission’s final rule violated the First Amendment to the extent the statute and rule required regulated entities to report to the Commission and to state on their website that any of their products have “not been found to be 'DRC conflict free.'" The label "conflict free" is a metaphor that conveys moral responsibility for the Congo war. By compelling an issuer to confess blood on its hands, the statute interferes with the exercise of the freedom of speech under the First Amendment. Accordingly, the court affirmed in part, reversed in part, and remanded for further proceedings. View "Nat'l Assoc. of Manufacturers, et al. v. SEC, et al." on Justia Law

This appeal stemmed from the City's offering of municipal bonds to finance the development of a cable and Internet system. Nuveen subsequently brought federal and state securities claims against the City, alleging that the City misrepresented the risks to investors. The court concluded that Nuveen has not shown a triable issue of fact on the issue of loss calculation in regards to its federal claims under Section 10b-5 and Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78u-4(b)(4); the City enjoys statutory immunity from suit on Nuveen's state claims where California courts have applied section 818.8 of California's Government Claims Act to immunize public entities from liability for misrepresentations sanctioned by those entities; and, although the City was entitled to summary judgment, Nuveen had reasonable cause to bring suit and the evidence suffices to establish its good faith. Accordingly, the court affirmed the district court's denial of the City's motion for defense costs, as well as the district court's grant of summary judgment in favor of the City.View "Nuveen Municipal v. City of Alameda" on Justia Law

The National Credit Union Administration (NCUA) placed two credit unions, U.S. Central Federal Credit Union and Western Corporate Federal Credit Union (WesCorp), into conservatorship. Then, as liquidating agent, NCUA sued 11 defendants on behalf of U.S. Central, alleging federal and state securities violations.In a separate matter, NCUA sued one defendant on behalf of U.S. Central and WesCorp, alleging similar federal and state securities violations. The United States District Court for the District of Kansas consolidated the cases. All defendants moved for dismissal, arguing that NCUA’s claims were time-barred. The district court denied the motion, concluding that the "Extender Statute" applied to NCUA’s claims. Defendants moved for an interlocutory appeal for the Tenth Circuit to determine whether the Extender Statute applied to NCUA's claims. Finding that it did, the Tenth Circuit affirmed. View "National Credit Union Admin. v. Nomura Home Equity Loan, et al" on Justia Law

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Defendant-Appellees GeoDynamics, Inc., its managing director Jeffory Shields, and several other business entities affiliated with Shields, alleging securities fraud in connection with four oil and gas exploration and drilling ventures Shields marketed to thousands of investors as Joint Venture Agreements (JVAs). The district court granted defendants' 12(b)(6) motion to dismiss. The SEC appealed, contending that despite their labels as JVAs, the investment agreements were actually "investment contracts" and thus "securities" subject to federal securities regulations. Because it could not be said as a matter of law that the investments at issue were not "investment contracts," the Tenth Circuit reversed. View "SEC v. Shields, et al" on Justia Law

The Securities and Charities Division of the Mississippi Secretary of State Office brought charges against Marshall Wolfe and Jack Harrington for securities violations pertaining to their operation of SteadiVest, LLC. The Secretary of State found that Wolfe and Harrington had violated Mississippi securities laws, and fines were levied against them. Wolfe and Harrington appealed, and the Chancery Court affirmed. Wolfe and Harrington then appealed to the Supreme Court. After review of the Circuit and Chancery Court records, the Supreme Court found that the chancellor did not err in affirming the Secretary of State's finding that Wolfe and Harrington had violated Mississippi Code Section 75-71-501. The Secretary of State's decision was supported by substantial evidence, was not arbitrary or capricious, did not go beyond the Secretary of State's power, and did not violate Wolfe's or Harrington's statutory or constitutional rights. However, the Court found the method used to assess penalties against Wolfe and Harrington was improper, and reversed on that issue. View "Harrington v. Ofc. of Mississippi Sec'y of State" on Justia Law

The Investment Advisers Act makes it illegal to defraud clients, 15 U.S.C. 10b–6(1),(2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers and against individuals who aid and abet violations. If the SEC seeks civil penalties, it must file suit “within five years from the date when the claim first accrued,” 28 U. S. C. 2462. In 2008 the SEC sought civil penalties, alleging that individuals aided and abetted investment adviser fraud from 1999 until 2002. The district court dismissed the claim as time barred. The Second Circuit reversed, reasoning that the underlying violations sounded in fraud, so the “discovery rule” applied, and the limitations period did not begin to run until the SEC discovered or reasonably could have discovered the fraud. The Supreme Court reversed. The limitation period begins to run when the fraud occurs, not when it is discovered. In common parlance a right accrues when it comes into existence. The discovery rule is an exception to the standard rule and has never been applied where the plaintiff is not a defrauded victim seeking recompense, but is the government bringing an enforcement action for civil penalties. The government is a different kind of plaintiff. The SEC’s very purpose is to root out fraud. The discovery rule helps to ensure that the injured receive recompense, but civil penalties go beyond compensation and are intended to punish. Deciding when the government knew or reasonably should have known of a fraud would also present particular challenges for the courts. View "Gabelli v. Sec. & Exch. Comm'n" on Justia Law

The Securities and Exchange Commission (SEC) Office of Investigations (OIG) found that the SEC had received numerous substantive complaints since 1992 that raised significant concerns about Madoff’s hedge fund operations that should have led to a thorough investigation of the possibility that Madoff was operating a Ponzi scheme. The SEC conducted five examinations and investigations, but never took the steps necessary to determine whether Madoff was misrepresenting his trading. The OIG found that had these efforts been made, the SEC could have uncovered the Ponzi scheme. Madoff’s clients filed suit under the Federal Tort Claims Act, 28 U.S.C. 1346(b), 2671, to recover damages resulting from the SEC’s failure to uncover and terminate the scheme in a timely manner. The district court dismissed for lack of subject matter jurisdiction, finding that the claims were barred by the discretionary function exception to the FTCA. The Third Circuit affirmed, reasoning that SEC regulations afford examiners discretion regarding the timing, manner, and scope of investigations and that there is a strong presumption that the SEC’s conduct is susceptible to policy analysis. View "Baer v. United States" on Justia Law

Plaintiffs brought this action against the Commission seeking a declaratory judgment that recently adopted regulations of the Commission regarding derivatives trading were unlawfully adopted and invalid, and seeking to vacate and set aside those regulations and to enjoin their enforcement. Plaintiffs contended that the Commission violated the Administrative Procedure Act, 5 U.S.C. 500 et seq., in its rulemaking by: (1) failing to address rationales for broadening Commodity Pool Operators (CPOs) exemptions; (2) failing to comply with the Commodity Exchange Act, 7 U.S.C. 2(a), and offering an inadequate evaluation of the rule's costs and benefits; (3) including swaps in the trading threshold, restricting its definition of bona fide hedging, and failing to justify the five percent threshold; and (4) failing to provide an adequate opportunity for notice and comment. The court concluded, however, that the Commission did not act unlawfully in promulgating the regulations at issue. Accordingly, the court affirmed the district court's grant of summary judgment in favor of the Commission. View "Investment Company Inst., et al. v. CFTC" on Justia Law

Plaintiff filed a 42 U.S.C. 1983 action against Defendant, the Secretary of the Commonwealth of Massachusetts, alleging that, in retaliation for Plaintiff's anti-regulatory stance, Defendant used his oversight powers to retaliate unlawfully against Plaintiff. The federal district court dismissed the complaint on immunity grounds. At issue before the First Circuit Court of Appeals was the scope and extent of the immunities offered to state officials, such as Defendant, whose duties encompass both prosecutorial and adjudicatory functions. The First Circuit affirmed the district court, holding that, notwithstanding Defendant's dual roles, Defendant was, with one exception, entitled to absolute immunity from Plaintiff's suit. View "Goldstein v. Galvin" on Justia Law

Three securities exchanges filed with the SEC proposed changes to their fee-setting rules for the acquisition of certain proprietary market data. Petitioners, two trade associations, requested the Commission to suspend the rules pursuant to its authority under the Securities Exchange Act of 1934, 15 U.S.C. 78s(b)(3)(C), contending that they were unlawful under NetCoalition I. When the SEC failed to do so, petitioners sought review in this court. The court held that the plain text of section 19(b)(3)(C), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, was clear and convincing evidence to the court of Congress's intent to preclude review of a rule change at the filing stage. Further, petitioners failed to demonstrate extraordinary circumstances for mandamus relief. The court declined to reach any other justiciability or jurisdictional question presented by the petitions. Accordingly, the court dismissed the petitions. View "NetCoalition v. SEC" on Justia Law