Justia Securities Law Opinion Summaries

This case revolves around a real estate Ponzi scheme run by Jerome and Shaun Cohen through their companies, EquityBuild, Inc. and EquityBuild Finance, LLC (EBF), from 2010 to 2018. The Cohens sold promissory notes to investors, each note representing a fractional interest in a specific real estate property. The properties were mostly located in underdeveloped areas of Chicago and were secured by mortgages. As the scheme became unsustainable, the Cohens began offering opportunities to invest in real estate funds. BC57, LLC, a private lender and investor, lent approximately $5.3 million to EquityBuild, allegedly in exchange for a first mortgage on five properties already owned by EquityBuild and subject to preexisting liens from individual investors.The Securities and Exchange Commission (SEC) filed suit against the Cohens, EquityBuild, and EBF after the scheme collapsed in 2018. A court-appointed receiver developed a plan for the recovery and liquidation of all remaining, recoverable receivership assets. The receiver sold the five properties and now holds the proceeds, over $3 million, pending the resolution of the claims process. The individual investors whose loans BC57’s investment purportedly paid off claim priority to those proceeds, arguing that they never received payment or released their interests, despite the releases signed by Shaun Cohen. BC57 disagrees and asserts that it has priority. The district court awarded priority to the individual investors, finding that the mortgage releases were facially defective and that EBF lacked the authority to execute them.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that under the Illinois Mortgage Act, payment alone does not extinguish any pre-existing interest absent a valid release. The court also found that the releases purportedly executed by EBF were facially invalid. The court concluded that the individual investors maintain their interests in these five properties. View "SEC v. BC57, LLC" on Justia Law

The Court of Appeals held that, for purposes of New York's Uniform Commercial Code (UCC) 9-406, an "assignee" includes the holder of a presently exercisable security interest in an assignor's receivables.New Style Contractors, Inc. engaged Checkmate Communications LLC as a subcontractor. Pursuant to a promissory note and security agreement, Checkmate could borrow up to $3 million from Worthy Lending LLC. Checkmate granted Worthy a security interest in its assets, and Worthy filed a UCC-1 financing statement against Checkmate perfecting its secured position regarding Checkmate's assets. Worthy then sent New Style a notice of its security interest and collateral assignment in the New Style accounts. When Checkmate defaulted on the note and filed for bankruptcy. Worthy brought this action against New Style pursuant to UCC 9-607, alleging that Worthy was entitled to recover all amounts New Style owed to Checkmate after New Style's receipt of the notice of assignment. Supreme Court dismissed the complaint. The Appellate Division affirmed, concluding that Worthy did not have an independent cause of action against New Style pursuant to UCC 9-607 because the statute does not authorized a secured creditor as distinct from an assigned, to recover from a nonparty debtor like New Style. The Court of Appeals reversed, holding that the language of the statute required reversal. View "Worthy Lending LLC v. New Style Contractors, Inc." on Justia Law

The Court of Appeals affirmed the judgment of the Appellate Division affirming Supreme Court's judgment dismissing HSBC Bank USA, National Association's claim against the sponsor of an underlying transaction seeking to "revive" an earlier action filed by two certificateholders pursuant to N.Y. C.P.L.R. 205(a), holding that there was no error.Defendant, as sponsor of a residential mortgage-backed securities trust transaction, purchased thousands of mortgage loans and sold them to ACE Securities Corp. pursuant to an agreement in which the sponsor made various representations and warranties. ACE Securities deposited the loans in the trust, and the loans served as collateral for $500 million in certificates issued by the trust. Those certificates paid principal and interest to certificateholders based on funds generated by the mortgages. After two certificateholders brought an action against the sponsor HSBC filed a complaint on behalf of the trust purporting to substitute as plaintiff for the certificateholders. Supreme Court denied sponsor's motion to dismiss the complaint as untimely. The Appellate Division reversed, concluding that the action was time-barred. The Court of Appeals affirmed, holding that HSBC could not invoke C.P.L.R. 205(a) to avoid dismissal of this time-barred claim. View "ACE Securities Corp. v. DB Structured Products, Inc." on Justia Law

In this residential mortgage-backed securities case, the Court of Appeals held that the contractual "sole remedy repurchase protocol" required that a trustee (Plaintiff) provide loan-specific pre-suit notice in order to invoke a sponsor's (Defendant) repurchase obligation and satisfy the contractual prerequisite to suit. Defendant moved for partial summary judgment on Plaintiff's claims, arguing that the trustee could not pursue recovery for loans not specifically identified in pre-suit letters to the extent the trustee relied on a notice rather than an independent discovery theory. Defendant further sought summary judgment with respect to the method of calculation of the repurchase price. Supreme Court denied the motion, and the appellate division affirmed. The Court of Appeals reversed, holding (1) Plaintiff could not seek recovery on the subject loans to the extent it asserted that Defendant's repurchase obligation was triggered by notice; (2) Plaintiff could not rely on the relation back doctrine to avoid the consequences of its failure to comply with the contractual condition precedent with respect to the loans in question before commencing this action; and (3) interest recoverable on liquidated loans was limited to interest that accrued prior to liquidation. View "U.S. Bank National Ass'n v. DLJ Mortgage Capital, Inc." on Justia Law

The Enterprises, Fannie Mae and Freddie Mac, suffered financial losses in 2008 when the housing market collapsed. The Housing and Economic Recovery Act of 2008 (HERA), created the Federal Housing Finance Agency (FHFA), an independent agency tasked with regulating the Enterprises, including stepping in as conservator, 12 U.S.C. 4511.With the consent of the Enterprises’ boards of directors, FHFA placed the Enterprises into conservatorship, then negotiated preferred stock purchase agreements (PSPAs) with the Treasury Department to allow the Enterprises to draw up to $100 billion in exchange for senior preferred non-voting stock having quarterly fixed-rate dividends. A “net worth sweep” under the PSPAs replaced the fixed-rate dividend formula with a variable one that required the Enterprises to make quarterly payments equal to their entire net worth, minus a small capital reserve amount, causing the Enterprises to transfer most of their equity to Treasury, leaving no residual value for shareholders.Shareholders challenged the net worth sweep. Barrett, an individual shareholder, separately asserted derivative claims on behalf of the Enterprises. The Claims Court dismissed the shareholders’ direct Fifth Amendment takings and illegal exaction claims for lack of standing; dismissed for lack of subject matter jurisdiction the shareholders’ direct claims for breach of fiduciary duty, and breach of implied-in-fact contract; and found that Barrett had standing to bring his derivative claims, notwithstanding HERA. The Federal Circuit affirmed the dismissal of shareholders’ direct claims but concluded that the shareholders’ derivatively pled allegations should also be dismissed. View "Fairholme Funds, Inc. v, United States" on Justia Law

The Enterprises, Fannie Mae and Freddie Mac, suffered financial losses in 2008 when the housing market collapsed. The Housing and Economic Recovery Act of 2008 (HERA), created the Federal Housing Finance Agency (FHFA), tasked with regulating the Enterprises, including stepping in as conservator, 12 U.S.C. 4511. FHFA placed the Enterprises into conservatorship, then negotiated preferred stock purchase agreements (PSPAs) with the Treasury Department to allow the Enterprises to draw up to $100 billion in exchange for senior preferred non-voting stock having quarterly fixed-rate dividends. A “net worth sweep” under the PSPAs replaced the fixed-rate dividend formula with a variable one that required the Enterprises to make quarterly payments equal to their entire net worth, minus a small capital reserve amount, causing the Enterprises to transfer most of their equity to Treasury, leaving no residual value for shareholders.In a companion case, the Federal Circuit affirmed the dismissal of shareholders’ direct claims challenging the net worth sweep and concluded that the shareholders’ derivatively pled allegations should also be dismissed.The Washington Federal Plaintiffs alleged direct takings and illegal exaction claims, predicated on the imposition of the conservatorships, rather than on FHFA's subsequent actions. The Federal Circuit affirmed the dismissal of those claims. Where Congress mandates the review process for an allegedly unlawful agency action, plaintiffs may not assert a takings claim asserting the agency acted in violation of a statute or regulation. These Plaintiffs also lack standing to assert their substantively derivative claims as direct claims. View "Washington Federal v. United States" on Justia Law

In this case arising from a failed attempt to restore and reopen the historic Cal Neva Lodge, the Supreme Court affirmed the district court's decision to deny relief on the claims brought by Plaintiff, an investor, against the developers and others involved in setting up Plaintiff's investment on the project, but reversed the damages award for Defendants, holding that the record did not support upholding the damages award.Plaintiff sued Defendants for breach of contract, breach of fiduciary duty, fraud, negligence, conversion, and securities fraud. After a bench trial, the trial judge ordered judgment in favor of Defendants and sua sponte awarded Defendants damages, along with attorney fees and costs. The Supreme Court reversed in part and affirmed in part, holding (1) the district court erred in awarding damages to Defendants in the absence of an express or implied counterclaim; and (2) the record supported the district court's denial of relief on Plaintiff's claims. View "Yount v. Criswell Radovan, LLC" on Justia Law

In these appeals stemming from two residential mortgage-back securities (RMBS) transactions the Court of Appeals affirmed the order of the Appellate Division reversing the judgment of Supreme Court and granting Defendants' motions to dismiss the complaints alleging breaches of representations and warranties made in underlying mortgage loans, holding that Plaintiff's causes of action accrued in California, and Plaintiff's actions were untimely pursuant to N.Y. C.P.L.R. 202.Defendants moved to dismiss Plaintiff's actions, contending that pursuant to section 202 Plaintiff's causes of action accrued in California and were therefore untimely. Plaintiff conceded that it was a resident of California but argued that the court should apply a multi-factor analysis to determine where the cause of action accrued. Supreme Court denied Defendants' motions to dismiss, noting that the parties had chosen New York substantive law to govern their rights. The Appellate Division reversed. The Court of Appeals affirmed, holding (1) this Court declines to apply the multi-factor test urged by Plaintiff and instead relies on the general rule that when an economic injury has occurred the place of injury is usually where the plaintiff residents; and (2) where Plaintiff is a resident of California, to satisfy section 202 Plaintiff's actions must be timely under California's statute of limitations. View "Deutsche Bank National Trust Co. v. Barclays Bank PLC" on Justia Law

The Supreme Court affirmed the judgment of the district court in favor of Defendants in two actions brought under Nebraska's Uniform Fraudulent Transfer Act (UFTA), Neb. Rev. Stat. 36-701 to 36-712, but reversed the court's grant of attorney fees as sanctions on the grounds that both actions were frivolous, holding that the fraudulent transfer actions lacked merit but that the district court abused its discretion in finding the actions as frivolous.The creditors here alleged that a blanket security agreement guaranteeing repayment of a loan by a wife to her husband was a fraudulent transfer under the UFTA. The district court concluded, after a trial, that there was no actual intent to hinder, delay, or defraud any creditor under the UFTA and that the wife had proved good faith. The court then granted the wife attorney fees. The Supreme Court (1) reversed the award of sanctions, holding that the actions were not frivolous under Neb. Rev. Stat. 25-824; and (2) affirmed the judgments of dismissal, holding that the creditors failed to identify and prove there was any "property" at issue in these cases and thus failed to prove that there was a "transfer" under the UFTA. View "Korth v. Luther" on Justia Law

The Court of Appeals affirmed the order of the Appellate Court affirming the judgment of Supreme Court dismissing this action filed by the trustee (Trustee) of three residential mortgage-backed securities (RMBS) alleging violations of representations and warranties regarding the quality of loans contained in the respective securitization trust instruments, holding that the Trustee’s untimely-filed complaint cannot relate back under N.Y. C.P.L.R. 203(f) to a certificate holder’s previously filed action.Defendant served as seller and sponsor of three RMBS securitization trusts, each governed by a separate pooling and servicing agreement. A certificate holder later filed a notice claiming violations of the representations and warranties for each of the trusts. After the limitations period elapsed, the Trustee filed this complaint. Supreme Court dismissed the action with prejudice. The Appellate Division affirmed, concluding that the complaint was time-barred and that the Trustee could not rely on the prior action because the certificate holder lacked standing to sues. The Court of Appeals affirmed, holding that the certificate holder’s action was subject to dismissal, and there was no valid pre-existing action to which a claim in a subsequent amended pleading may relate back. View "U.S. Bank National Ass’n v. DLJ Mortgage Capital, Inc." on Justia Law