Justia Securities Law Opinion Summaries

Plaintiff brought an action against The Gap, Inc. and its directors “derivatively on behalf of Gap.” Plaintiff’s action alleged that Gap violated Section 14(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Securities and Exchange Commission (SEC) Rule 14a-9 by making false or misleading statements to shareholders about its commitment to diversity. Gap’s bylaws contain a forum-selection clause stating that the Delaware Court of Chancery “shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation.” Lee nevertheless brought her putative derivative action in a California district court. The district court granted Gap’s motion to dismiss Lee’s complaint on forum nonconveniens ground.   The Ninth Circuit affirmed the district court’s judgment. The en banc court rejected Plaintiff’s argument that her right to bring a derivative Section 14(a) action is stymied by Gap’s forum-selection clause, which alone amounts to Gap “waiving compliance with a provision of [the Exchange Act] or of any rule or regulation thereunder.” The en banc court explained that the Supreme Court made clear in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), that Section 29(a) forbids only the waiver of substantive obligations imposed by the Exchange Act, not the waiver of a particular procedure for enforcing such duties. McMahon also disposes of Plaintiff’s argument that Gap’s forum-selection clause is void under Section 29(a) because it waives compliance with Section 27(a) of the Exchange Act, which gives federal courts exclusive jurisdiction over Section 14(a) claims. View "NOELLE LEE V. ROBERT FISHER, ET AL" on Justia Law

Slack, a technology company, conducted a direct listing to sell its shares to the public on the New York Stock Exchange. Pursuant to the Securities Act of 1933, Slack filed a registration statement, containing information about its business and financial health, with the SEC, 15 U.S.C. 77, for a specified number of shares. Under the direct listing process, holders of preexisting unregistered shares were free to sell them to the public immediately. Slack’s direct listing offered 118 million registered shares and 165 million unregistered shares. Pirani bought 250,000 Slack shares. When the stock price dropped, Pirani filed a class action alleging violations of the Act, Section 11, by filing a materially misleading registration statement. Slack argued that Pirani had not alleged that he purchased shares traceable to the allegedly misleading registration statement, leaving open the possibility that he purchased shares unconnected to the registration statement. The Ninth Circuit affirmed the denial of a motion to dismiss.The Supreme Court vacated and remanded. Section 11 requires a plaintiff to plead and prove that he purchased securities registered under a materially misleading registration statement. It authorizes an individual to sue for a material misstatement or omission in a registration statement when the individual has acquired “such security.” Contextual clues indicate that section 11(a) liability extends only to shares that are traceable to an allegedly defective registration, not “other securities that bear some sort of minimal relationship to a defective registration statement.” View "Slack Technologies, LLC v. Pirani" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "GMAG v. Janvey" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "Janvey v. GMAG" on Justia Law

After the enactment of AB 5 and the filing of Proposition 22 but before the effective date of AB 2257—Plaintiff filed suit against LPL Financial LLC under the Private Attorneys General Act (PAGA). LPL is a registered broker-dealer and registered investment adviser registered with Financial Industry Regulatory Authority, Inc. (‘FINRA’) and the Securities Exchange Commission. Plaintiff and all allegedly aggrieved individuals (the ‘Financial Professionals’) were ‘securities broker-dealers or investment advisers or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority. The parties stipulated that on its face, Labor Code Section 2750.3(i)(2) makes the exemption set forth in Section 2750.3(b)(4) retroactive, such that it would cover the entire proposed PAGA period in this action. However, Plaintiff claimed both of those sections are unconstitutional and thus unenforceable. The parties did not stipulate the results of these two tests—the ABC test versus the Borello test. LPL moved for summary adjudication. The trial court upheld the statute as constitutional.   The Second Appellate District affirmed and held that the challenged provisions are constitutional. The court explained that Plaintiff maintains the registration aspect of the exemption creates a nonsensically narrow classification. The court held that legislation may recognize different categories of people within a larger classification who present varying degrees of risk of harm and properly may limit regulation to those classes for whom the need for regulation is thought to be more important. Further, the court wrote that, unlike the situation with equal protection law, there may be a large divergence between state and federal substantive due process doctrines. View "Quinn v. LPL Financial LLC" on Justia Law

Edelweiss brought a qui tam action against financial institutions (California False Claims Act (Gov. Code 12650) (CFCA)), alleging that the defendants contracted to serve as remarketing agents (RMAs) to manage California variable rate demand obligations (VRDOs): tax-exempt municipal bonds with interest rates periodically reset by RMAs. Edelweiss claims that the defendants submitted false claims for payment for these remarketing services, knowing they had failed their obligation to reset the interest rate at the lowest possible rate that would enable them to sell the series at par (face value), and “engaged in a coordinated ‘Robo-Resetting’ scheme where they mechanically set the rates en masse without any consideration of the individual characteristics of the bonds or the associated market conditions or investor demand” and “impose[d] artificially high interest rates on California VRDOs.” Edelweiss alleged that it performed a forensic analysis of rate resetting during a four-year period and that former employees of the defendants “stated and corroborated” this robo-resetting scheme.The trial court dismissed the complaint, concluding that the allegations lacked particularized allegations about how the defendants set their VRDO rates and did not support a reasonable inference that the observed conditions were caused by fraud, rather than other factors.The court of appeal reversed. While allegations of a CFCA claim must be pleaded with particularity, the court required too much to satisfy this standard. The court rejected an alternative argument that Edelweiss’s claims are foreclosed by CFCA’s public disclosure bar. View "Edelweiss Fund LLC v. JPMorgan Chase & Co." on Justia Law

Askew formed Vantage to trade securities. He recruited investors, including the plaintiffs. Vantage filed a Securities and Exchange Commission (SEC) Form D to sell unregistered securities in a 2016 SEC Rule 506(b) stock offering. The plaintiffs became concerned because Askew was not providing sufficient information but they had no right, based on their stock agreements, to rescind those investments. They decided to threaten litigation and to report Vantage to the SEC to pressure Askew and Vantage to return their investments. Before filing suit, the plaintiffs engaged an independent accountant who reviewed some of Vantage’s financial documents and concluded that he could not say “whether anything nefarious is going" on but that the “‘smell factor’ is definitely present.”The Third Circuit affirmed summary judgment for the defendants in subsequent litigation. The district court then conducted an inquiry mandated by the Private Securities Litigation Reform Act (PSLRA) and determined that the plaintiffs violated FRCP 11 but chose not to impose any sanctions. The Third Circuit affirmed that the plaintiffs violated Rule 11 in bringing their federal securities claims for an improper purpose (to force a settlement). The plaintiffs’ Unregistered Securities and Misrepresentation Claims lacked factual support. Askew was not entitled to attorney’s fees because the violations were not substantial. The PSLRA, however, mandates the imposition of some form of sanctions when parties violate Rule 11 so the court remanded for the imposition of “some form of Rule 11 sanctions.” View "Scott v. Vantage Corp" on Justia Law

Plaintiffs – issuers of collateralized debt obligations secured by certificates in residential-mortgage-backed securities trusts – appealed from three separate judgments dismissing actions brought against The Bank of New York Mellon, Deutsche Bank National Trust Company, and Deutsche Bank Trust Company Americas. In each case, the district courts assumed that Plaintiffs had Article III standing but found that Plaintiffs were precluded from relitigating the issue of prudential standing due to a prior case Plaintiffs had brought against U.S. Bank National Association.   The Second Circuit affirmed the district court’s orders. The court explained that it joined the Ninth Circuit in concluding that the district courts permissibly bypassed the question of Article III standing to address issue preclusion, which offered a threshold, non-merits basis for dismissal. The court also concluded that the district courts’ application of issue preclusion was correct. The court wrote that it fully agreed with the district courts that Plaintiffs were not entitled to a second bite at the prudential-standing apple after the U.S. Bank Action. The district courts, therefore, did not err in taking this straightforward, if not “textbook,” path to dismissal. View "Phx. Light SF Ltd. v. Bank of N.Y. Mellon; Phx. Light SF DAC v. Bank of N." on Justia Law

In this civil enforcement action, the First Circuit affirmed the interlocutory order of the district court ruling that a violation of the right to poll each of the jurors individually under Civil Rule 48(c) is per se reversible and that, therefore, Defendant was entitled to a new trial, holding that there was no error.At issue was whether, under this Court's precedent, the district court's denial of Defendant's right to poll each juror individually after the jury had collectively been polled was per se reversible error. The trial court judge ruled that the error was per se reversible. The First Circuit affirmed, holding that the arguments raised by the Securities and Exchange Commission on appeal were unavailing. View "U.S. Securities & Exchange Comm'n v. Sargent" on Justia Law

Lead plaintiff Maryland Electrical Industry Pension Fund alleged that HP and individual Defendants made fraudulent statements about HP’s printing supplies business. The district court concluded that the complaint, filed in 2020, was barred by the two-year statute of limitations, 28 U.S.C. Section 1658(b)(1), because the public statements, loss in profits, and reductions in channel inventory at the heart of Maryland Electrical’s claims had all taken place by 2016.   The Ninth Circuit reversed the district court’s dismissal. The panel held that under the discovery rule discussed in Merck & Co., Inc. v. Reynolds, 559 U.S. 633 (2010), a reasonably diligent plaintiff has not “discovered” one of the facts constituting a securities fraud violation until he can plead that fact with sufficient detail and particularity to survive a motion to dismiss for failure to state a claim. The panel held that a defendant establishes that a complaint is time-barred under Section 1658(b)(1) if it conclusively shows that either (1) the plaintiff could have pleaded an adequate complaint based on facts discovered prior to the critical date two years before the complaint was filed and failed to do so, or (2) the complaint does not include any facts necessary to plead an adequate complaint that was discovered following the critical date.   The panel held that Defendants’ allegedly fraudulent statements, on their own, were insufficient to start the clock on the statute of limitations. Instead, Maryland Electrical could not have discovered the facts necessary to plead its claims, including the “fact” of scienter, until after the publication of a Securities and Exchange Commission order in 2020. View "YORK COUNTY, ET AL V. HP, INC., ET AL" on Justia Law