Justia Securities Law Opinion Summaries

The case involves a group of plaintiffs who used the online cryptocurrency exchange, Binance, to purchase crypto-assets known as "tokens". They allege Binance violated the Securities Act of 1933 and the "Blue Sky" securities laws of various states by selling these tokens without registration. They also sought to rescind contracts they entered into with Binance under the Securities and Exchange Act of 1934, alleging Binance contracted to sell securities without being registered as a securities exchange or broker-dealer.The United States District Court for the Southern District of New York dismissed the plaintiffs' claims as impermissible extraterritorial applications of these statutes and also dismissed their federal claims as untimely. However, the United States Court of Appeals for the Second Circuit reversed this decision. The appellate court found that the plaintiffs had adequately alleged that their transactions on Binance were domestic transactions, thereby making the application of federal and state securities laws permissible. The court also concluded that the plaintiffs' federal claims did not accrue until after they made the relevant purchases, and therefore their claims arising from purchases made during the year before filing suit were timely.This case is significant as it addresses the application of federal and state securities laws to transactions involving cryptocurrencies, and the extraterritorial reach of these laws in the context of online cryptocurrency exchanges. View "Williams v. Binance" on Justia Law

Following a data breach targeting servers owned by Defendant, Plaintiffs alleged that Defendant violated federal securities laws by omitting material information about data vulnerabilities in their public statements.The Fourth Circuit affirmed the district court’s dismissal of the complaint, finding that the investors did not adequately allege that any of Defendant’s statements were false or misleading when made.The court explained that to state a claim under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, a plaintiff must first allege a “material misrepresentation or omission by the defendant.” However, not all material omissions give rise to a cause of action. Here, Plaintiffs focus on statements about the importance of protecting customer data; privacy statements on Defendant's website; and cybersecurity-related risk disclosures. The court found that Plaintiffs failed to allege that any of the challenged statements were false or rendered Defendant's public statement misleading. Although Defendant could have disseminated more information to the public about its vulnerability to cyberattacks, federal securities law does not require it to do so. View "Construction Laborers Pension Trust Southern CA v. Marriott International, Inc." on Justia Law

An online promotions team posted thousands of videos to persuade people to buy BitConnect Coin, a new cryptocurrency. BitConnect coin was not a sound investment; it was a Ponzi scheme. BitConnect’s original investors received “returns” from the money paid by new investors. The promoters were siphoning off money. At one point, BitConnect was bringing in around $10 million per week in investments from the United States.Two victims of the BitConnect collapse filed a putative class action, alleging that the promoters were liable under section 12 of the Securities Act for selling unregistered securities through their BitConnect videos, 15 U.S.C. 77l(a)(1); 77e(a)(1). The district court dismissed because the plaintiffs based their case on interactions with the promoters’ “publicly available content,” the plaintiffs had never received a “personal solicitation” from the promoters. The Eleventh Circuit reversed. Neither the Securities Act nor precedent imposes that kind of limitation. Solicitation has long occurred through mass communications, and online videos are merely a new way of doing an old thing. The Securities Act provides no free pass for online solicitations. View "Parks v. BitConnect International PLC" on Justia Law

After Cambridge Analytica improperly harvested user data from Facebook's social network, Google discovered that a security glitch in its Google+ social network had left the private data of some hundreds of thousands of users exposed to third-party developers. Google and its holding company, Alphabet, chose to conceal this discovery, made generic statements about how cybersecurity risks could affect their business, and stated that there had been no material changes to Alphabet's risk factors since 2017.Rhode Island, in a consolidated amended complaint, filed suit against Alphabet, Google, and others, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 for securities fraud, as well as violations of Section 20(a) of the Exchange Act. The district court granted Alphabet's motion to dismiss on the grounds that Rhode Island failed to adequately allege a materially misleading misrepresentation or omission and that Rhode Island failed to adequately allege scienter.The Ninth Circuit concluded that the complaint adequately alleged that Google, Alphabet, and individual defendants made materially misleading statements by omitting to disclose these security problems and that defendants did so with sufficient scienter, meaning with an intent to deceive, manipulate, or defraud. Applying an objective materiality standard, the panel concluded that Rhode Island's complaint plausibly alleges the materiality of the costs and consequences associated with the Privacy Bug, and its public disclosure, and how Alphabet's decision to omit information about the Privacy Bug in its 10-Qs significantly altered the total mix of information available for decisionmaking by a reasonable investor. Furthermore, the complaint adequately alleges scienter for the materially misleading omissions from the 10-Q statements. The panel also concluded that Rhode Island adequately alleged falsity, materiality, and scienter for the April 2018 and July 2018 10-Q statements. Accordingly, the panel reversed the district court's holdings to the contrary and reversed the dismissal of the section 20(a) control-person claims based on the 10-Q statements.Because the complaint does not plausibly allege that the remaining statements at issue are misleading material misrepresentations or omissions, the panel affirmed the district court's dismissal of the Section 10(b) and Rule 10b-5(b) statement liability claims based on these statements. The panel also affirmed the district court's dismissal of the Section 20(a) controlling-person claims for these statements. Finally, because the district court erred in sua sponte dismissing Rhode Island's claims under Rule 10b-5(a) and (c) when Alphabet had not targeted those claims in its motion to dismiss, the panel reversed the dismissal of the claims under Section 10(b) and Rule 10b-5(a) and (c) against all defendants and remanded to the district court. The panel also reversed the dismissal of Rhode Island's claims under Section 20(a) to the extent those claims depend on claims alleging violations of Rule 10b-5(a) and (c). View "Rhode Island v. Alphabet, Inc." on Justia Law

The Ninth Circuit affirmed the dismissal of an action alleging that when Yahoo! invested in Alibaba.com, a Chinese retail website, Yahoo! violated the conditions of its exemption, granted by the SEC, from the registration requirements of the Investment Company Act (ICA). Plaintiff brought derivative claims against Yahoo!'s board of directors and certain corporate officers, as well as one direct claim against Yahoo!, under the ICA. The panel held that plaintiff failed to state a claim because the ICA does not establish a private right of action for challenging the continued validity of an ICA exemption. View "UFCW Local 1500 Pension Fund v. Mayer" on Justia Law

American Century, a mutual fund, offers investment portfolios, including Ultra Fund. Ultra Fund invested in PartyGaming, a Gibraltar company that facilitated internet gambling. In 2005, PartyGaming made an initial public offering of its stock, which was listed on the London Stock Exchange. In its prospectus, PartyGaming noted that the legality of online gaming was uncertain in several countries, including the U.S.; 87 percent of its revenue came from U.S. customers. PartyGaming acknowledged that “action by US authorities … prohibiting or restricting PartyGaming from offering online gaming in the US . . . could result in investors losing all or a very substantial part of their investment.” Ultra Fund purchased shares in PartyGaming totaling over $81 million. In 2006, following increased government enforcement against illegal internet gambling, the stock price dropped. Ultra Fund divested itself of PartyGaming, losing $16 million. Seidl, a shareholder, claimed negligence, waste, and breach of fiduciary duty against American Century. The company refused her demand to bring an action. Seidl brought a shareholder’s derivative action. The Eighth Circuit affirmed summary judgment for the defendants, concluding that Seidl could not bring suit where the company had declined to do so in a valid exercise of business judgment. The litigation committee adopted a reasonable methodology in conducting its investigation and reaching its conclusion. View "Seidl v. Am. Century Co., Inc" on Justia Law

The Secretary filed an administrative complaint alleging that three hedge funds offered by Bulldog Investors violated section 301 of G.L.c. 110A by offering unregistered securities to a Massachusetts resident through a publicly available website and an e-mail message. The Secretary adopted the hearing officer's finding of a violation and ordered Bulldog Investors to cease and desist from committing any further violations and to take all necessary actions to ensure that future offers and sales of securities complied with section 301. The court held that the challenged provisions of the Massachusetts law were part of a constitutionally permissible disclosure scheme and, to the extent that they restricted speech, they were tailored in a reasonable manner to serve a substantial state interest in promoting the integrity of capital markets by ensuring a fully informed investing public. Accordingly, the court affirmed the judgment.View "Bulldog Investors, et al. v. Secretary of the Commonwealth" on Justia Law

Defendant sells brokerage and investment products and services, typically to registered broker-dealers and investment advisers that trade securities for clients. One of its services, NetExchange Pro, an interface for research and managing brokerage accounts via the Internet, can be used for remote access to market dynamics and customer accounts. A firm may make its clients' personal information, including social security numbers and taxpayer identification numbers, accessible to end-users in NetExchange Pro. Some of defendant's employees also have access to this information. Plaintiff, a brokerage customer with NPC, which made its customer account information accessible in NetExchange Pro, received notice of the company's policy and filed a putative class action, alleging breach of contract, breach of implied contract, negligent breach of contractual duties, and violations of Massachusetts consumer protection laws. The district court dismissed. The First Circuit affirmed. Despite "dire forebodings" about access to personal information, plaintiff failed to state any contractual claim for relief and lacks constitutional standing to assert a violation of any arguably applicable consumer protection law. View "Katz v. Pershing, LLC" on Justia Law

The court issued an order and amended the opinion replacing [The district court excluded this evidence under its Alternative Dispute Resolution (ADR) Local Rule 6-11, which it read to create a "privilege" for "evidence regarding the details of the parties' negotiations in their mediation."] in lines 20-24, page 4909, with [The district court excluded this evidence under its Alternative Dispute Resolution (ADR) local rule on "confidential information," which it read to create a "privilege" for "evidence regarding the details of the parties' negotiations in their mediation." A local rule, like any court order, can impose a duty of confidentiality as to any aspect of litigation, including mediation. See N.D. Cal. ADR L.R. 6-12(a); see also 28 U.S.C. 652(d).] The petition for rehearing en banc was denied and no further petitions for rehearing or rehearing en banc may be filed.

Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra ("Winklevosses") sought to intervene after a district court entered judgment enforcing the Term Sheet and Settlement Agreement ("Settlement Agreement") signed by Facebook, the Winklevosses, and the Winklevosses' competing social network site, ConnectU, where the Settlement Agreement envisioned that Facebook would acquire all of ConnectU's shares in exchange for cash and a percentage of Facebook's common stock. At issue was whether the Settlement Agreement was enforceable where the Winklevosses claimed that they did not discover the facts that gave rise to their Rule 10b-5 claims under the Securities and Exchange Act of 1934 ("Act") until after they signed the Settlement Agreement's release of claims and whether the releases foreclosed their challenge to the Settlement Agreement where section 29(a) of the Act precluded a mutual release of unknown securities fraud claims arising out of negotiations to settle a pending lawsuit. The court held that the district court correctly concluded that the Settlement Agreement was enforceable and intended to release claims arising out of the settlement negotiations where the release was valid under section 29(a) when the Settlement Agreement was meant to end a dispute between sophisticated parties acting in an adversarial setting that was characteristic of litigation and could not be interpreted as leaving open the door to litigation about the settlement process.