Justia Securities Law Opinion Summaries

Articles Posted in Securities Law
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This case arose from a Securities & Exchange Commission (SEC) enforcement action against Mohammed Ali Rashid, a former senior partner at the private equity firm Apollo Management L.P. Rashid was accused of breaching his fiduciary duties to the Apollo-affiliated private equity funds he advised by submitting fraudulent expense reports, which were eventually paid by the funds. The district court held that Rashid was not liable under § 206(1) of the Investment Advisers Act because he was not aware that the funds, rather than Apollo, would pay for his expenses. However, the court found Rashid liable under § 206(2) of the Act, concluding he was indifferent and therefore negligent as to which entity would pay for his expenses.The United States Court of Appeals for the Second Circuit reversed the district court's decision. The appellate court held that it was not reasonably foreseeable to Rashid that the funds would pay for his expenses, concluding that Rashid did not breach his duty of care to the funds or proximately cause their harm. The court noted that while Rashid's actions were serious and likely criminal, they did not constitute fraud against the funds as required under § 206(2) of the Investment Advisers Act. The court also found that Rashid did not breach his duty of care to the funds, as he could not have reasonably known that the funds would cover his expenses. The court concluded that Rashid did not proximately cause the funds' harm, as Apollo's intervening actions in overbilling the funds were not reasonably foreseeable to Rashid. View "SEC v. Rashid" on Justia Law

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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

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In this case, the United States Securities and Exchange Commission (SEC) sought to recover approximately $3.3 million from Raimund Gastauer, a German citizen residing in Germany, alleging that Gastauer received the money from his son, who had obtained the money through securities fraud in the United States. Gastauer challenged the jurisdiction of the United States District Court for the District of Massachusetts over him, contending that he had no relevant contacts with the United States. The district court, however, ruled it could assert jurisdiction over Gastauer because it had jurisdiction over his son, the primary defendant. The judgment ordered Gastauer to pay the $3.3 million, plus prejudgment interest, to the SEC.Gastauer appealed, and the United States Court of Appeals for the First Circuit reversed the district court's decision. The appellate court rejected the SEC's argument that a court may impute the jurisdictional contacts of a primary defendant to a relief defendant who received ill-gotten funds from the primary defendant. It held that such an approach would violate the relief defendant's due process rights, particularly where, as here, the relief defendant had no relevant contacts with the United States and was not accused of any wrongdoing. The appellate court also underscored that the relief defendant's status as a foreign resident further cautioned against an expansive view of the district court's jurisdiction, given the potential risks to international comity. The appellate court remanded the case to the district court for further proceedings consistent with its opinion. View "SEC v. Gastauer" on Justia Law

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Cobalt International Energy partnered with three Angolan companies to explore and produce oil and gas off the coast of West Africa. Later, the federal Securities and Exchange Commission announced it was investigating Cobalt for allegations of illegal payments to Angolan government officials and misrepresentation of the oil content of two of its exploratory wells. This led to a significant drop in Cobalt’s stock price and prompted a class action lawsuit from Cobalt's investors, led by GAMCO, a collection of investment funds that held Cobalt shares. Prior to these events, Cobalt had purchased multiple layers of liability insurance from a number of insurance companies, collectively referred to as the Insurers in this case. When the allegations surfaced, Cobalt notified the Insurers, who denied coverage on the grounds that Cobalt's notice was untimely and certain policy provisions excluded the claims from coverage.In 2017, Cobalt filed for bankruptcy and began settlement negotiations with GAMCO. Eventually, a settlement agreement was reached, which stipulated that Cobalt would pay a settlement amount of $220 million to GAMCO, but only from any insurance proceeds that might be recovered. Cobalt and GAMCO then jointly sought approval of the settlement from the federal court and the bankruptcy court, both of which granted approval.The Insurers then filed a petition for a writ of mandamus, arguing that the settlement agreement was not binding or admissible in the coverage litigation, that Cobalt had not suffered a "loss" under the policies, and that GAMCO could not sue the Insurers directly.The Supreme Court of Texas held that (1) Cobalt had suffered a “loss” under the policies because it was legally obligated to pay any recoverable insurance benefits to GAMCO, (2) GAMCO could assert claims directly against the Insurers, and (3) the settlement agreement was not binding or admissible in the coverage litigation to establish coverage or the amount of Cobalt’s loss. The court reasoned that the settlement was not the result of a "fully adversarial proceeding," as Cobalt bore no actual risk of liability for the damages agreed upon in the settlement. The court conditionally granted the Insurers' petition for a writ of mandamus in part, ordering the trial court to vacate its previous orders to the extent they relied on the holding that the settlement agreement was admissible and binding to establish coverage under the policies and the amount of any covered loss. View "IN RE ILLINOIS NATIONAL INSURANCE COMPANY" on Justia Law

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The case in question concerns the United States Court of Appeals for the Eleventh Circuit's decision on whether Ibrahim Almagarby and his company, Microcap Equity Group, LLC, violated the Securities Exchange Act of 1934 by buying and selling securities without registering as a "dealer". Almagarby was a so-called “toxic” lender who bought the convertible debt of penny-stock companies, converted the debt into common stock at a discount, and then sold the stock in high volumes. The Securities and Exchange Commission (SEC) filed a civil action against Almagarby, alleging that his conduct constituted dealing, which required registration. The district court ruled in favor of the SEC, ordered Almagarby to disgorge all profits, and permanently enjoined him from future securities law violations and participation in penny-stock offerings.On appeal, the Eleventh Circuit upheld the district court’s ruling that Almagarby was acting as an unregistered “dealer” in violation of the Exchange Act, but found that the district court abused its discretion by imposing a penny-stock ban. The court determined that Almagarby’s high volume of transactions, quick turnaround of sales, and the fact that his entire business relied on flipping penny stocks qualified him as a dealer under the Exchange Act. However, the court ruled that the district court overstepped in enjoining Almagarby from future participation in penny-stock offerings as his actions were not egregious enough to warrant such a bar. The court also rejected Almagarby's claim that the SEC's action violated his due process rights, noting that the Commission did not rely on a novel enforcement theory that contradicted longstanding agency guidance. The court affirmed in part and reversed in part, upholding the judgment against Almagarby but striking down the penny-stock ban. View "Securities and Exchange Commission v. Almagarby" on Justia Law

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In the case before the Court of Chancery of the State of Delaware, the plaintiff, West Palm Beach Firefighters' Pension Fund, filed a lawsuit against Moelis & Company on behalf of itself and other Class A stockholders of Moelis & Company. In 2014, Moelis & Company had entered into a stockholders agreement with three entities controlled by its CEO, Ken Moelis. The plaintiff argued that certain provisions in that agreement, which granted expansive rights to Ken Moelis, violated Section 141(a) of the Delaware General Corporation Law (DGCL).The Court found that the plaintiff's claims were not non-justiciable due to the plaintiff both suing too late and too early. The Court rejected the defendant's arguments that the plaintiff waited too long to file the lawsuit under the doctrine of laches, as the plaintiff's challenge to the legality of the provisions in the stockholders agreement was not time-barred. The Court also rejected the defendant's argument that the plaintiff sued too early, stating that the plaintiff could bring a facial challenge to the legality of the provisions in the agreement.The Court denied the defendant's motion for summary judgment on the basis of laches and ripeness. The Court held that the plaintiff's claim was ripe for adjudication and was not barred by the equitable defense of laches. The Court concluded that neither the passing of time nor the act of purchasing shares could validate a provision that is void as a violation of statutory law. The Court's decision is significant in affirming that claims challenging the validity of provisions in a corporate document that are contrary to statutory law are justiciable and cannot be barred by laches or ripeness defenses. The case now continues for further proceedings. View "West Palm Beach Firefighters' Pension Fund v. Moelis & Company" on Justia Law

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In this case before the United States Court of Appeals for the Second Circuit, the plaintiffs were U.S. investors who purchased Mexican government bonds. They alleged that the defendants, Mexican branches of several multinational banks, conspired to fix the prices of the bonds. The defendants sold the bonds to the plaintiffs through non-party broker-dealers. The defendants moved to dismiss the case for lack of personal jurisdiction, and the District Court granted the motion, concluding that it lacked jurisdiction as the alleged misconduct, price-fixing of bonds, occurred solely in Mexico.Upon appeal, the Second Circuit vacated and remanded the case. The court found that the defendants had sufficient minimum contacts with New York as they had solicited and executed bond sales through their agents, the broker-dealers. The plaintiffs' claims arose from or were related to these contacts. The court rejected the defendants' argument that the alleged wrongdoing must occur in the jurisdiction for personal jurisdiction to exist, stating that the defendants' alleged active sales of price-fixed bonds through their agents in New York sufficed to establish personal jurisdiction. The court remanded the case for further proceedings consistent with its opinion. View "In re: Mexican Government Bonds Antitrust Litigation" on Justia Law

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Trevor Murray worked as a research strategist at UBS, a securities firm. His job involved reporting on commercial mortgage-backed securities markets to current and future customers. Under SEC regulations, Murray was required to certify that his reports were produced independently and reflected his own views. When two leaders of the CMBS trading desk pressured him to make his reports more supportive of their business strategies, Murray told his supervisor about it. The supervisor told Murray not to alienate the trading desk and to write what the business line wanted. He eventually recommended that Murray be removed from his position, despite having recently given him a strong performance review. When the CMBS trading desk did not accept Murray as a transfer, he was fired.Murray argued that he was terminated in violation of the whistleblower protection provision in the Sarbanes-Oxley Act because UBS fired him in response to his internal reporting about fraud on shareholders. He prevailed at trial, but the Second Circuit Court of Appeals vacated the jury’s verdict and remanded for a new trial. It found that the whistleblower protection provision requires an employee to prove retaliatory intent, which a clarifying jury instruction had not properly indicated.The U.S. Supreme Court disagreed, instead agreeing with the Fifth and Ninth Circuits that the whistleblower protection provision does not impose this type of requirement. The Court acknowledged that a whistleblower must prove that his protected activity was a contributing factor in the adverse action against him, but it noted that the text of the statute does not include or refer to a requirement of proving retaliatory intent, which it treated as similar to “animus.” The Court noted that the statute contains a burden-shifting framework, requiring the whistleblower to show that their protected activity was a contributing factor in the adverse action, after which the employer must show that it would have taken the same action anyway. It found that a requirement of proving retaliatory intent would be incompatible with the burden-shifting framework. View "Murray v. UBS Securities, LLC" on Justia Law

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The case involves a whistleblower-retaliation action brought by Tayo Daramola, a Canadian citizen, under the Sarbanes-Oxley and Dodd-Frank Acts. Daramola was employed by Oracle Canada, a subsidiary of Oracle America, and worked remotely from Canada. He alleged that Oracle America and its employees retaliated against him for reporting suspected fraud related to one of Oracle's software products.The United States Court of Appeals for the Ninth Circuit affirmed the district court's dismissal of Daramola's action. The court held that the whistleblower anti-retaliation provisions in the Sarbanes-Oxley and Dodd-Frank Acts do not apply outside the United States. The court applied a presumption against extraterritoriality and concluded that the presumption was not overcome because Congress did not affirmatively and unmistakably instruct that the provisions should apply to foreign conduct.The court further held that this case did not involve a permissible domestic application of the statutes, given that Daramaola was a Canadian working out of Canada for a Canadian subsidiary of a U.S. parent company. The court agreed with other circuits that the focus of the Sarbanes-Oxley anti-retaliation provision is on protecting employees from employment-related retaliation, and the locus of Daramola's employment relationship was in Canada. The court also concluded that Daramola did not allege sufficient domestic conduct in the United States in connection with his Dodd-Frank claim. The same reasoning disposed of Daramola’s California state law claims. View "DARAMOLA V. ORACLE AMERICA, INC." on Justia Law

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A group of 18 pension and retirement funds and other investors alleged that 10 large banks conspired to rig U.S. Treasury auctions and boycott the emergence of direct, "all-to-all" trading between buy-side investors on the secondary market for Treasuries. The alleged conspiracies violated Section 1 of the Sherman Act. The investors failed to demonstrate that the banks formed an anticompetitive agreement, which is necessary to plead their antitrust claims. The allegations of wrongful information-sharing amounted to inconsequential market chatter and their statistical analyses were not sufficiently focused on the defendant banks. The United States Court of Appeals for the Second Circuit affirmed the district court's dismissal of the lawsuit, agreeing that the investors failed to plausibly allege that the banks engaged in a conspiracy to rig Treasury auctions or to conduct a boycott on the secondary market. View "In re Treasury Securities Auction Antitrust Litigation" on Justia Law