Justia Securities Law Opinion Summaries

Petitioner Cboe Futures Exchange (CFE) announced plans to list futures contracts based on the Cboe Volatility Index, more commonly known as the “VIX Index.” The following year, the SEC and the CFTC issued a joint order “excluding certain indexes comprised of options on broad-based security indexes”—including the VIX—“from the definition of the term narrow-based security index.” The petition, in this case, challenged the SEC’s 2020 order treating SPIKES futures as futures.   The DC Circuit granted the petition. The court explained that the SEC did not adequately explain why SPIKES futures must be regulated as futures to promote competition with VIX futures. However, the court wrote that while it vacates the Commission’s order, it will withhold issuance of our mandate for three calendar months to allow market participants sufficient time to wind down existing SPIKES futures transactions with offsetting transactions. The court explained that the Exemptive Order never mentions the futures disclosures. And at any rate, those disclosures only partially fill the void left by the absence of the Disclosure Statement. As with the Exemptive Order’s exceptions and conditions, the futures disclosures do not address any number of matters covered by the Disclosure Statement. And even when the two sets of disclosures overlap, the Disclosure Statement tends to provide much greater detail than the futures disclosures. View "Cboe Futures Exchange, LLC v. SEC" on Justia Law

Edelweiss brought a qui tam action against financial institutions (California False Claims Act (Gov. Code 12650) (CFCA)), alleging that the defendants contracted to serve as remarketing agents (RMAs) to manage California variable rate demand obligations (VRDOs): tax-exempt municipal bonds with interest rates periodically reset by RMAs. Edelweiss claims that the defendants submitted false claims for payment for these remarketing services, knowing they had failed their obligation to reset the interest rate at the lowest possible rate that would enable them to sell the series at par (face value), and “engaged in a coordinated ‘Robo-Resetting’ scheme where they mechanically set the rates en masse without any consideration of the individual characteristics of the bonds or the associated market conditions or investor demand” and “impose[d] artificially high interest rates on California VRDOs.” Edelweiss alleged that it performed a forensic analysis of rate resetting during a four-year period and that former employees of the defendants “stated and corroborated” this robo-resetting scheme.The trial court dismissed the complaint, concluding that the allegations lacked particularized allegations about how the defendants set their VRDO rates and did not support a reasonable inference that the observed conditions were caused by fraud, rather than other factors.The court of appeal reversed. While allegations of a CFCA claim must be pleaded with particularity, the court required too much to satisfy this standard. The court rejected an alternative argument that Edelweiss’s claims are foreclosed by CFCA’s public disclosure bar. View "Edelweiss Fund LLC v. JPMorgan Chase & Co." on Justia Law

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

Ginnie Mae (GM), established by 12 U.S.C. 1717(a)(2)(A) to provide stability in the secondary residential mortgage market and promote access to mortgage credit, guarantees mortgage-backed securities (MBS). FMC, a private corporation, was an originator and servicer of government-guaranteed home mortgages and an issuer of MBS in GM’s program. GM learned of FMC actions that constituted the immediate default of the Guaranty Agreements. FMC undertook an investigation and provided the results to GM, while also complying with SEC requests. GM later terminated FMC from its program. The SEC initiated a civil enforcement action, which terminated in a consent agreement, without FMC admitting or denying the allegations but paying disgorgement and penalties. The Consent Agreement provided that it did not affect FMC’s right to take positions in proceedings in which the SEC is not a party but FMC agreed to not take any action or permit any public statement denying any allegation in the SEC complaint FMC later sued, alleging that GM had breached Guaranty Agreements when it terminated FMC from its program and denied violating those Agreements.The Federal Circuit affirmed the Claims Court’s dismissal. FMC’s breach of contract claims are precluded under the doctrine of res judicata. FMC’s action is essentially a collateral attack on the judgment entered in the SEC action. The SEC and GM are in privity for the purposes of precluding FMC’s claims and “successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action.” View "First Mortgage Corp. v. United States" on Justia Law

In this case concerning the scope of the Expedited Declaratory Judgment Act (EDJA), the Supreme Court held that the EDJA gives the trial court jurisdiction to declare whether the execution of contracts entered into by the San Jacinto River Authority to sell water to cities and other customers was legal and valid but not whether the Authority complied with the contracts in setting specific rates.The Authority, which used the revenue from the contracts to pay off its bonds, sought declarations regarding the contract and the specific water rates set forth pursuant to the contracts. Several cities filed pleas to the jurisdiction, arguing that the trial court lacked subject matter jurisdiction to adjudicate SJRA's claims under the EDJA. The trial court denied the pleas to the jurisdiction. On appeal, the court of appeals held primarily for the Authority. The Supreme Court reversed in part, holding (1) the trial court may exercise jurisdiction over the Authority's execution of the contracts - which met the statutory definition of "public security authorization" - but may not exercise jurisdiction over whether the Authority complied with the contracts in setting the water rates; and (2) the Cities' governmental immunity did not bar this EDJA suit, which was brought in rem to adjudicate interests in property. View "City of Conroe, Texas v. San Jacinto River Authority" on Justia Law

Community, the nation’s largest for-profit hospital system, obtained about 30 percent of its revenue from Medicare reimbursement. Instead of using one of the systems commonly in use for determining whether Medicare patients need in-patient care, Community used its own system, Blue Book, which directed doctors to provide inpatient services for many conditions that other hospitals would treat as outpatient cases. Community paid higher bonuses to doctors who admitted more inpatients and fired doctors who did not meet quotas. Community’s internal audits found that its hospitals were improperly classifying many patients; its Medicare consultant told management that the Blue Book put the company at risk of a fraud suit. Community attempted a hostile takeover of a competitor, Tenet. Tenet publicly disclosed to the SEC, expert analyses and other information suggesting that Community’s profits depended largely on Medicare fraud. Community issued press releases, denying Tenet’s allegations, but ultimately corroborated many of Tenet’s claims. Community’s shareholders sued Community and its CFO and CEO, alleging that the disclosure caused a decline in stock prices. The district court rejected the claim. The Sixth Circuit reversed. The Tenet complaint at least plausibly presents an exception to the general rule that a disclosure in the form of a complaint would be regarded, by the market, as comprising mere allegations rather than truth. The plaintiffs plausibly alleged that the value of Community’s shares fell because of revelations about practices that Community had previously concealed. View "Norfolk County Retirement System v. Community Health Systems, Inc." on Justia Law

In 2006,Jefferson County purchased securities through Capital Securities, Inc., Jerry Manning, and Adam Alves a purchase later determined unlawful under section 24-75-601.1, C.R.S. (2008). The county sued Capital Securities and, among other things, sought to disgorge the commissions earned by Capital Securities under a theory of common law restitution. Both the trial court and the court of appeals concluded that restitution was appropriate and ordered Capital Securities to disgorge their commissions. The Supreme Court granted certiorari to examine whether restitution is an appropriate remedy in this context. Upon review, the Court held that it was not, and reversed the court of appeals: "The statutory scheme adopted by the General Assembly expressly sets forth a number of remedies available to a public entity against a seller when . . .the public entity unlawfully purchases securities under section 24-75-601.1. These remedies include forcing the seller to repurchase the securities 'for the greater of the original purchase principal amount or the original face value, plus any and all accrued interest, within one business day of the demand.' . . . Further, the securities commissioner may, inter alia, suspend or revoke a seller's license or license exemption if he 'knew or should have known' the securities were unlawful under section 24-75-601.1. sec. 11-51-410(k), C.R.S. (2011); sec. 11-51-402(4)(a), C.R.S. (2011)."View "Capital Securities, Inc. v. Griffin" on Justia Law