Justia Securities Law Opinion Summaries

Two law firms that represented Plaintiffs in this litigation, Schlichter Bogard & Denton LLP (“SBD”) and Schneider Wallace Cottrell Konecky LLP (“SWCK”), appealed the district court’s order imposing sanctions against them under 28 U.S.C. § 1927. Plaintiffs’ counsel represented individual shareholders and an employee retirement plan in a lawsuit claiming that the investment company, investment adviser, and recordkeeper (collectively “Empower”) servicing their mutual funds charged excessive fees in violation of its fiduciary duties under § 36(b) of the Investment Company Act. Following denial of Empower’s summary judgment and Daubert motions, the case proceeded to a bench trial where the district court ruled in favor of Empower. Thereafter, the court sanctioned Plaintiffs’ counsel for “recklessly pursu[ing] their claims through trial despite the fact that they were lacking in merit” and held SWCK and SBD jointly and severally liable for $1.5 million in Empower’s trial costs, expenses, and attorneys’ fees. After review, the Tenth Circuit concluded the district court abused its discretion and therefore reversed the order imposing sanctions. Accordingly, the Court did not reach the issues of SWCK and SBD’s joint and several liability or the court’s denial of SWCK’s motion to amend the judgment. View "Obeslo, et al. v. Empower Capital, et al." on Justia Law

Defendant-Appellant Aron Govil engaged in several fraudulent securities offerings through his company, Cemtrex. Pursuant to a settlement agreement with Cemtrex, Govil agreed to pay back the proceeds of his fraud in part by surrendering his Cemtrex securities to the company. The district court later granted a motion by the SEC for additional disgorgement. The district court concluded that disgorgement was authorized and that the value of the securities Govil surrendered to Cemtrex should not offset the disgorgement award. Govil argues that neither U.S.C. Section 78u(d)(5) nor 15 U.S.C. § 78u(d)(7) authorize disgorgement here.   The Second Circuit vacated the judgment of the district court and remanded with instructions to determine whether the defrauded investors suffered pecuniary harm. The court explained that the Second Circuit recently held that the disgorgement remedies under Section 78u(d)(5) and Section 78u(d)(7) are subject to the “traditional equitable limitations” that the Supreme Court recognized in Liu v. SEC, 140 S. Ct. 1936 (2020). SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023). One of those equitable limitations is that disgorgement must be “awarded for victims.” Liu, 140 S. Ct. at 1940. Further, the court wrote that a wrongdoer makes a payment in satisfaction of a disgorgement remedy when he returns the property to a wronged party. Accordingly, if on remand, the district court decides that disgorgement is authorized, it must value the surrendered securities and credit that value against the overall disgorgement award. View "SEC v. Govil" on Justia Law

Pacilio and Bases were senior traders on the precious metals trading desk at Bank of America. While working together in 2010-2011, and at times separately before and after that period, they engaged in “spoofing” to manipulate the prices of precious metals using an electronic trading platform, that allows traders to place buy or sell orders on certain numbers of futures contracts at a set price. It is assumed that every order is bona fide and placed with “intent to transact.” Spoofing consists of placing a (typically) large order, on one side of the market with intent to trade, and placing a spoof order, fully visible but not intended to be traded, on the other side. The spoof order pushes the market price to benefit the other order, allowing the trader to get the desired price. The spoof order is canceled before it can be filled.Pacilio and Bases challenged the constitutionality of their convictions for wire fraud affecting a financial institution and related charges, the sufficiency of the evidence, and evidentiary rulings relating to testimony about the Exchange’s and bank prohibitions on spoofing to support the government’s implied misrepresentation theory. The Seventh Circuit affirmed. The defendants had sufficient notice that their spoofing scheme was prohibited by law. View "United States v. Bases" on Justia Law

The Nasdaq Stock Market, LLC (Nasdaq) proposed a rule that would require companies listed on its stock exchange to disclose information about their board members, as well as a rule that would give certain companies access to a board recruiting service. After the Securities and Exchange Commission (SEC or Commission) approved these rules, the Alliance for Fair Board Recruitment (AFBR) and the National Center for Public Policy Research (NCPPR) petitioned for review.   The Fifth Circuit denied the petitions because the SEC’s Approval Order complies with the Exchange Act and the Administrative Procedure Act (APA). The court wrote that the SEC’s point is that because the meaning of diversity varies globally, it is fair and desirable to let foreign issuers report diversity information according to nationally appropriate standards. Further, the court explained that AFBR does not explain how the SEC acted arbitrarily and capriciously in weighing burdens on competition against the purposes of the Exchange Act. Instead, AFBR argues that the SEC ignored “tremendous costs for firms that dare to defy the quotas. The court explained that the SEC did account for the costs that AFBR asserted in its comment letter. The SEC made a rational decision that those burdens on competition were “necessary or appropriate” to further the purposes of the Exchange Act. Therefore, AFBR has failed to meet its burden to show that the SEC’s Approval Order is arbitrary and capricious on this basis. View "Alliance for Fair Board Recruitment v. SEC" on Justia Law

Appellants, collectively “the shareholders,” purchased shares of Facebook common stock between February 3, 2017, and July 25, 2018. Soon after the first stock drop in March 2018, they filed a securities fraud action against Facebook and three of its executives. The shareholders allege that Facebook and the executives violated Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5 of the Exchange Acts. The district court dismissed for failure to state a claim.   The Ninth Circuit affirmed in part and reversed in part. The panel considered whether, under the heightened standard of the Private Securities Litigation Reform Act, the shareholders (1) adequately pleaded falsity as to the challenged risk statements, (2) adequately pleaded scienter as to the Cambridge Analytica investigation statements, and (3) adequately pleaded loss causation as to the user control statements. First, the panel held that the shareholders adequately pleaded falsity as to the statements warning that misuse of Facebook users’ data could harm Facebook’s business, reputation, and competitive position, and the district court erred by dismissing the complaint as to those statements. Second, the panel agreed with the district court that the shareholders failed to plead scienter as to Cambridge Analytica investigation statements, including ones made by a Facebook spokesperson to journalists in March 2017 that Facebook’s internal investigation into Cambridge Analytica had “not uncovered anything that suggested wrongdoing” related to Cambridge Analytica’s work on the Brexit and Trump campaigns. The panel affirmed the dismissal as to statements related to Facebook’s goals of transparency and control— statements that were not false when they were made. View "AMALGAMATED BANK, ET AL V. FACEBOOK, INC., ET AL" on Justia Law

A jury convicted United Development Funding (“UDF”) executives (collectively “Appellants”) of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud. Jurors heard evidence that Appellants were involved in what the Government deemed “a classic Ponzi-like scheme,” in which Appellants transferred money out of one fund to pay distributions to another fund’s investors without disclosing this information to their investors or the Securities Exchange Commission (“SEC”). Appellants each filed separate appeals, challenging their convictions on several grounds. Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or, alternatively, (2) they are entitled to a new trial because the jury instructions were improper. Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during.   The Fifth Circuit affirmed the jury verdict in its entirety. The court explained that considering the evidence and drawing all reasonable inferences in the light most favorable to the verdict, a reasonable juror could have determined that Appellants made material misrepresentations in UDF III and UDF V’s filings that were sufficient to uphold their convictions. The court explained that multiple witnesses testified that the industry had shifted away from affiliate transactions because they were disfavored and that a no-affiliate-transaction policy in UDF V would enable it to participate in a larger network of brokers, dealers, and investors. View "USA v. Greenlaw" on Justia Law

The First Circuit affirmed the judgment of the district court dismissing Investors' securities fraud claims, with one exception with respect to one particular statement for which the Court concluded that Investors' pleadings adequately stated a claim, holding that the district court correctly dismissed Investors' remaining fraud claims.Investors brought this class action following a significant drop in Biogen Inc.'s stock price, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Investors specifically alleged that Defendants' statements regarding its Alzheimer's disease drug's clinical trials were misleading. The district court granted Defendants' motion to dismiss, concluding that Investors failed adequately to allege a materially false or misleading statement or omission, loss causation, and scienter. The First Circuit (1) reversed the judgment of the district court dismissing the section 10(b) and section 20(a) claims predicated upon a certain statement, holding that dismissal was not warranted as to this issue; and (2) otherwise affirmed the dismissal of the remaining fraud claims, holding that the district court did not err as to these claims. View "Shash v. Biogen Inc." on Justia Law

iRhythm Technologies, Inc.’s (iRhythm) stock price fell after it received a historically low Medicare reimbursement rate for one of its products. Appellant, an investor in iRhythm, filed a putative securities fraud class action against iRhythm and one of its former Chief Executive Officers, alleging that investors were misled during the regulatory process preceding this stock price collapse. Pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA), the district court appointed Public Employees’ Retirement System of Mississippi (PERSM) as the lead plaintiff in the action. PERSM filed a first and then second amended complaint (SAC, the operative pleading) alleging securities fraud claims against iRhythm and additional corporate officers (together, Defendants). Defendants filed a motion to dismiss PERSM’s SAC for failure to state a claim. PERSM did not appeal the district court’s grant of this motion. Appellant appealed.   The Ninth Circuit dismissed, for lack of jurisdiction due to Appellant’s lack of standing, an appeal from the district court’s dismissal of a putative securities fraud class action. The panel held that Appellant lacked standing to appeal because he was not a party to the action. Appellant’s filing of the initial complaint and his listing in the caption of the second amended complaint were insufficient to confer party status upon him. The body of the operative complaint made clear that PERSM was the sole plaintiff, and Appellant’s status as a putative class member did not give him standing to appeal. The panel further held that Appelant failed to demonstrate exceptional circumstances conferring upon him standing to appeal as a non-party. View "MARK HABELT, ET AL V. IRHYTHM TECHNOLOGIES, INC., ET AL" on Justia Law

Pest-control company Terminix faced a “super termite” crisis from 2018-2019 that predominately affected homeowners in Alabama. The Fund alleged that Terminix’s parent company, ServiceMaster and its executives (Defendants), violated federal securities laws through a series of misrepresentations and omissions that understated ServiceMaster’s liability for the resulting termite-damage claims, concealed the risk of such claims from investors, and falsely touted the company’s customer-retention and growth efforts while strategically using price increases to cause affected customers to drop their service contracts in an attempt to limit future liability. The Fund claims that these actions and omissions constituted a scheme to defraud ServiceMaster’s investors by inflating the company’s reported financial results relative to its true financial condition, causing a financial loss to investors in ServiceMaster’s stock.The Sixth Circuit affirmed the dismissal of the suit. Although the Fund alleged potentially actionable misstatements and omissions, it had failed to plead a “strong inference” that the Defendants had acted with the scienter required by the Private Securities Litigation Reform Act, 109 Stat. 737. The Fund’s “allegations can be read to plausibly suggest that Defendants knew they had a problem in Alabama and then misled investors about the extent of the problem” but the opposing inference is also plausible–that the Defendants had developed what they thought was a solution to larger problems at Terminix and disclosed the existence of the Alabama problem with reasonable promptness. View "Teamsters Loc. 237 Welfare Fund v. ServiceMaster Global Holdings, Inc." on Justia Law

The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law