Justia Securities Law Opinion SummariesArticles Posted in Injury Law
Stevens v. Interactive Fin. Advisors, Inc.
Stevens, an insurance salesman, wanted to sell investment products. Because he was not registered with the SEC, Stevens needed to associate himself with a registered investment advisor, 15 U.S.C. 80b-3(a). In 2003, he associated with IFA, a loosely confederated investment advisory firm. In exchange for sharing clientele and fees with IFA, Stevens had access to IFA’s market resources and proprietary information, including access to a cloud-based data system. Stevens uploaded sensitive nonpublic information, concerning both investment clients and insurance clients (who were not IFA clients). IFA did not know that Stevens had entered the non-IFA client information into the database. IFA learned that Stevens was involved in a Ponzi scheme, severed its association with Stevens, and blocked Stevens from accessing the database. Stevens sued, alleging conversion, violation of the Illinois Trade Secrets Act, and tortious interference with business expectancy. The Seventh Circuit affirmed summary judgment for IFA on claims relating to securities clients. Federal law prevents a financial institution from disclosing nonpublic information of its clients to a nonaffiliated third party like Stevens. The court also affirmed a verdict in favor of IFA concerning insurance clients, upholding the trial court’s response to a question sent by the jury during deliberations, “Can we consider [filing] the lawsuit a demand for property?” The court stated that filing did not constitute a demand for the purposes of an Illinois law conversion claim. View "Stevens v. Interactive Fin. Advisors, Inc." on Justia Law
Citigroup Inc., et al. v. AHW Investment Partnership, MFS, Inc., et al.
The plaintiffs were all affiliates of Arthur and Angela Williams, who owned stock in Citigroup. The defendants were Citigroup and eight of its officers and directors. In 1998, Citicorp and Travelers Group, Inc. merged, forming Citigroup. At that point, Arthur Williams's shares in Travelers Group were converted into 17.6 million shares of Citigroup common stock, which were valued at the time of the merger at $35 per share. In 2007, the Williamses had these shares transferred into AHW Investment Partnership, MFS Inc., and seven grantor-retained annuity trusts, all of which the Williamses controlled. In 2007, the Williamses sold one million shares at $55 per share. But, the Williamses halted their plan to sell all of their Citigroup stock because, based on Citigroup's filings and financial statements, they concluded that there was little downside to retaining their remaining 16.6 million shares. The Williamses allegedly held those shares for the next twenty-two months, finally selling them in March 2009 for $3.09 per share. After selling their 16.6 million shares, the Williamses sued Citigroup in the U.S. District Court for the Southern District of New York, arguing that their decision not to sell all of their shares in May 2007, and their similar decisions to hold on at least three later dates, were due to Citigroup‘s failure to disclose accurate information about its true financial condition from 2007 to 2009. The Second Circuit certified a question of Delaware law to the Delaware Supreme Court arising from an appeal of a New York District Court decision. The Second Circuit asked whether the claims of a plaintiff against a corporate defendant alleging damages based on the plaintiff‘s continuing to hold the corporation's stock in reliance on the defendant's misstatements as the stock diminished in value properly brought as direct or derivative claims. The Delaware Court answered: the holder claims in this action were direct. "This is because under the laws governing those claims [(]those of either New York or Florida[)] the claims belong to the stockholder who allegedly relied on the corporation's misstatements to her detriment. Under those state laws, the holder claims are not derivative because they are personal to the stockholder and do not belong to the corporation itself." View "Citigroup Inc., et al. v. AHW Investment Partnership, MFS, Inc., et al." on Justia Law
Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC
Financial Guaranty Insurance Company (FGIC) sued Putnam Advisory for fraud, negligent misrepresentation, and negligence, claiming that Putnam misrepresented its management of a collateralized debt obligation called Pyxis to induce FGIC to provide financial guaranty insurance for Pyxis. According to FGIC’s complaint, Putnam stated that it would select the collateral for Pyxis independently and in the interests of long investors (i.e., investors who profit when the investment succeeds), but in fact permitted the collateral selection and acquisition process to be controlled by a hedge fund that maintained significant short positions in Pyxis (i.e., investments that would pay off if Pyxis defaulted). Essentially, FGIC alleged that Putnam misrepresented the independence of its management of a structured finance product, which, upon default, caused FGIC millions of dollars in losses. The district court dismissed FGIC’s fraud claim on the ground that the complaint did not adequately plead loss causation and dismissed FGIC’s negligence claims on the ground that the complaint failed to allege a special or privity‐like relationship between FGIC and Putnam. The Second Circuit vacated, holding that FGIC sufficiently alleged both its fraud and negligence‐based claims. View "Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC" on Justia Law
Zelaya v. United States
The plaintiffs in this case, Carlos Zelaya and George Glantz, were victims of one of the largest Ponzi schemes in American history: the Ponzi scheme orchestrated by R. Allen Stanford. Plaintiffs were taken by surprise, yet, according to Plaintiffs, the federal agency entrusted with the duty of trying to prevent, or at least reveal, Ponzi schemes was not all that surprised. To the contrary, the United States Securities and Exchange Commission (“SEC”), had been alerted over a decade before that Stanford was likely running a Ponzi operation. According to Plaintiffs, notwithstanding its knowledge of Stanford’s likely nefarious dealings, the SEC dithered for twelve years, "content not to call out Stanford and protect future investors from his fraud." And though the SEC eventually took action in 2009, many people lost most of their investments. Pursuant to the Federal Tort Claims Act, Plaintiffs sued the United States in federal court, alleging that the SEC had acted negligently. The federal government moved to dismiss, arguing that it enjoyed sovereign immunity from the lawsuit. The district court agreed, and dismissed Plaintiffs’ case. Plaintiffs appealed that dismissal to the Eleventh Circuit Court of Appeals. In reviewing the district court’s dismissal, the Court reached no conclusions as to the SEC’s conduct, or whether the latter’s actions deserved Plaintiffs’ condemnation. The Court did, however, conclude that the United States was shielded from liability for the SEC’s alleged negligence in this case. The Court therefore affirmed the district court’s dismissal of the Plaintiffs’ complaint. View "Zelaya v. United States" on Justia Law
Burdick v. Townsend
Jeffrey Campbell sold investments in Beverly Hills Development Corporation (BHDC) while he was a registered agent of Horner, Townsend & Kent, Inc. (HTK), a broker-dealer licensed to sell securities in the state. After resigning from HTK, Campbell began soliciting investments from and selling BHDC notes to Plaintiffs. When they discovered that they had been scammed, Plaintiffs filed suit against Campbell and HTK. During discovery, Campbell pleaded no contest to selling unregistered securities and was ordered to pay restitution. The district court granted summary judgment for HTK on Plaintiffs’ claims of securities violations, negligent misrepresentation, and negligent training and supervision, and regarding a release signed by one investor; and (2) denied Plaintiffs’ motion for reconsideration in which they alleged negligence, control-person liability, and material aid. The Supreme Court remanded in part, holding that the district court erred when it denied all of Plaintiffs’ requests for attorney fees. The Court otherwise affirmed. Remanded. View "Burdick v. Townsend" on Justia Law
MHC Mutual Conversion Fund, et al v. Sandler O’Neill & Partners, et al
In 2009, Bancorp sought to conduct a secondary stock offering to raise about $90 million. In its securities filings the company alerted potential investors that it had significant investments in mortgage backed securities, and that these investments had suffered badly during the financial crisis of 2008. The company stated that it had conducted internal analyses and consulted independent experts and now expected the level of delinquencies and defaults to level off and the market for its securities to rebound soon. But the company also stressed that if adverse market conditions persisted longer than the company expected it would have to recognize further losses. Bancorp’s opinion about the immediate future didn’t bear out. In the fifteen months after the offering, the company had to recognize about $69 million more in losses. Plaintiffs alleged in their lawsuit against Bancorp that the statements rendered in the offering statement about the prospects for its securities portfolio was false and should have given rise to liability under section 11 of the Securities Act of 1933. The district court disagreed, holding that Bancorp’s failed market predictions, without more, weren’t enough to trigger liability. "To establish liability for an opinion about the future more is required. But what?" Agreeing with the district court, the Tenth Circuit affirmed. View "MHC Mutual Conversion Fund, et al v. Sandler O'Neill & Partners, et al" on Justia Law
Lamm v. State Street Bank and Trust
Plaintiff (the customer) filed suit against State Street (the custodian bank), alleging in essence that it had a duty to notify him that the securities in his account were worthless. The district court granted State Street's motion to dismiss the contract claims on the ground that State Street had a merely administrative role in managing plaintiff's accounts and thus owed him no duty to guard against his investment advisor's misconduct. The district court concluded that plaintiff's negligence claims were barred by Florida's economic loss rule and plaintiff had not sufficiently alleged knowledge on the part of State Street in regards to the aiding and abetting claims. The court affirmed, holding that, under these facts, the custodian bank breached no duty, contractual or otherwise, by accepting on behalf of its customer securities that later turn out to be fraudulent and listing those securities on monthly account statements issued to the customer. Plaintiff's allegations failed to state claims for breach of contract; plaintiff failed to establish that State Street owed him an independent duty to monitor the investments in his account, verify their market value, or ensure they were in valid form; therefore, he failed to state valid negligence claims; plaintiff's allegations were insufficient to state a claim for aiding and abetting; and plaintiff's claims for breach of fiduciary duty and negligent misrepresentation also failed. View "Lamm v. State Street Bank and Trust" on Justia Law
W. Reserve Life Assurance Co. of Ohio v. ADM Assocs., LLC
To shield himself from the adverse effects of losses while speculating in high-risk securities, Joseph Caramdare exploited a perceived loophole in certain annuities issued by Appellant. Charles Buckman accepted a cash payment to identify himself as the annuitant on an application for one of these annuities, and Appellee, a Caramadre nominee and a stranger to Buckman, was designated as the prospective owner and beneficiary of the annuity. Appellant approved the application and issued an annuity (the Policy). Appellant later learned of Caramdre's scheme and sued Appellee in federal court, asserting certain tort claims and seeking rescission of the Policy and a declaration that the Policy was either void ab initio or had been properly rescinded. The court dismissed the claims. On appeal, the First Circuit Court certified to the Rhode Island Supreme Court the following questions of state law: (1) whether an annuity with a death benefit is infirm for want of an insurable interest if the owner and beneficiary of the annuity is a stranger to the annuitant; and (2) whether a clause in an annuity that purports to make the annuity incontestable from the date of its issuance precludes the maintenance of an action based on the lack of an insurable interest. View "W. Reserve Life Assurance Co. of Ohio v. ADM Assocs., LLC" on Justia Law
Cooper v. Glasser
Plaintiff filed suit against Defendants in California state court for business-related torts. Plaintiff then voluntarily dismissed his complaint and re-filed his action in the federal district court, alleging several federal securities law violations. The federal court exercised supplemental jurisdiction over Plaintiff's state-law claims. Thereafter, Plaintiff voluntarily dismissed his complaint and filed the present action in a Tennessee state court, pleading three of the state-law claims that formed the basis for his two previously dismissed lawsuits. The trial court granted summary judgment for Defendants, concluding that Plaintiff's claims were barred by Plaintiff's second voluntary dismissal in federal court. The court of appeals affirmed. The Supreme Court reversed, holding that a plaintiff's second voluntary dismissal of supplemental state-law claims filed in federal court does not preclude the plaintiff from later re-filing an action based on the same claims in Tennessee state court. Remanded. View "Cooper v. Glasser" on Justia Law
Mathews v. Cassidy Turley Md., Inc.
After Petitioner sold certain properties, he used the proceeds to purchase fractional interests in commercial office buildings. The fractional interests were called Tenants in Common Interests (TICs), and each of the TICs was promoted by a company called DBSI, Inc. DBSI later filed a petition for bankruptcy, and the properties underlying Petitioner's TICs became the subject of foreclosure proceedings. The bankruptcy court determined that many of DBSI's transactions were fraudulent. Petitioner filed a complaint against Cassidy Turley Maryland (Defendant), under whose advice Petitioner acted in purchasing the TICs, alleging that Defendant failed to disclose material facts regarding the investment. The circuit court granted summary judgment for Defendant. The Court of Appeals affirmed in part and reversed in part, holding (1) Petitioner's investment in this case was a "security" for purposes of the Maryland Securities Act; (2) the circuit court erred in determining that Petitioner's claims under the Act relating to fraud and misrepresentation by Defendant were barred by limitations; (3) the court erred in concluding that Petitioner's common law tort claims were time-barred as a matter of law; and (4) the court did not err in deciding to reserve judgment on the admissibility of a bankruptcy examiner's report until it had further information. View "Mathews v. Cassidy Turley Md., Inc." on Justia Law