Justia Securities Law Opinion Summaries

The First Circuit affirmed the judgment of the district court entering judgment upon the jury verdict finding Defendant liable for three undue statements of a material fact in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and SEC Rule 10b-5, 17 C.F.R. 240.10b-5, holding that Defendant was not entitled to relief on his claims of error.The U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against Defendant. Defendant was found liable by a jury for three untrue statements of a material fact, and the district court judge ordered him to pay a civil penalty and enjoined him from violating Section 10(b) and Rule 10b-5 for five years. The First Circuit affirmed, holding (1) the SEC presented sufficient evidence to support the jury's determination that the statements were of fact rather than opinion, material, and made with scienter; and (2) the district court did not abuse its discretion or commit an error of law in entering the injunction. View "US Securities & Exchange Comm'n v. Lemelson" on Justia Law

Plaintiff was employed through various foreign subsidiaries of Morgan Stanely between 2006 and 2016. Plaintiff claims that, between 2014 and 2016, he raised concerns about U.S. securities violations, which occurred overseas but affected U.S. markets. After receiving a pay cut and a recommendation that he find employment elsewhere. In January 2016, Plaintiff resigned. Plaintiff then hired counsel. However, counsel withdrew after Morgan Stanley threatened to pursue an action against counsel for violations of his professional obligations.The Department of Labor Administrative Review Board dismissed Plaintiff's claim under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes–Oxley Act, finding that Section 806 did not apply because he was not an "employee" at the time of any alleged retaliation. The D.C. Circuit affirmed, finding that Plaintiff did not meet the definition of "employee" at any time during the alleged retaliation. View "Christopher Garvey v. Administrative Review Board" on Justia Law

Plaintiff brought claims under Section 12(a)(2) of the Securities Act against all Defendants, and a claim pursuant to Section 15 of the Securities Act against Cardone and Cardone Capital. At issue was whether Cardone and Cardone Capital count as persons who “offer or sell” securities under Section 12(a) based on their social media communications to prospective investors. The district court concluded that Cardone and Cardone Capital did not qualify as statutory sellers.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). The panel concluded that Section 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, held that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in mass communication. Because the First Amended Complaint sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI, the district court erred in dismissing Plaintiff’s claim against Cardone and Cardone Capital under Section 12(a)(2), and also erred in dismissing his Section 15 claim for lack of a primary violation of the Securities Act. View "LUIS PINO V. CARDONE CAPITAL, LLC, ET AL" on Justia Law

International Flavors & Fragrances Inc. (“IFF”), a U.S.-based seller of flavoring and fragrance products, acquired Frutarom Industries Ltd. (“Frutarom”), an Israeli firm in the same industry. Leading up to the merger, Frutarom allegedly made material misstatements about its compliance with anti-bribery laws and the source of its business growth. Plaintiffs, who bought stock in IFF, sued Frutarom, alleging that those misstatements violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.   The Second Circuit affirmed. The court held that Plaintiffs here lack standing to sue based on alleged misstatements about Frutarom because they never bought or sold shares of Frutarom. The court explained that Section 10(b) standing does not depend on the significance or directness of the relationship between two companies. Rather, the question is whether Plaintiff bought or sold the securities about which the misstatements were made. Here, Plaintiffs did not purchase the securities about which misstatements were made, so they did not have standing to sue under Section 10(b) or Rule 10b-5. View "Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd." on Justia Law

Walworth, a former stockholder, sued Mu Sigma, a privately held data analytics company, and Rajaram, the company’s founder, CEO, and board chairman, alleging that after reaping the benefits of Walworth’s $1.5 million investment and reputational capital, the defendants embarked on a fraudulent scheme to oust Walworth of its substantial ownership interest in the company.The Cook County circuit court dismissed the complaint, citing the stock repurchase agreement (SRA), which included anti-reliance and general release provisions. The appellate court reversed, holding that the anti-reliance language was ambiguous. The Illinois Supreme Court reinstated the dismissal, stating that “the broad and comprehensive release agreed to by [Walworth], a sophisticated party represented by experienced counsel, unambiguously encompasses” the unjust enrichment and breach of contract claims. The bargained-for anti-reliance provisions reflected the understanding that there may be undisclosed information but that Walworth was satisfied by the information provided. Walworth had direct access to Rajaram to negotiate the arm’s-length transaction at issue and Rajaram was not acting as a fiduciary for Walworth. A corporation owes no fiduciary duty to its shareholder and Delaware law does not impose “an affirmative fiduciary duty of disclosure for individual transactions.” View "Walworth Investments-LG, LLC v. Mu Sigma, Inc." on Justia Law

This securities fraud lawsuit arises from a series of statements made by K12, Inc., and two of its executives over the spring and summer of 2020. Plaintiffs, a class of K12 shareholders who acquired stock during that time, allege that the statements fraudulently misrepresented the state of K12’s business, thereby artificially inflating the cost of their shares. To survive dismissal under the Private Securities Litigation Reform Act (PSLRA), however, they must plead a “strong inference” of scienter, which requires establishing an inference of fraud to be “cogent and at least as compelling as any opposing inference.”   The Fourth Circuit affirmed the district court’s dismissal of Plaintiffs claims because Plaintiffs do not satisfy the “heightened pleading instruction”. The court explained by including the language of “we believe,” the statement reflected not an incontestable fact but an individual perspective. The statement was couched as opinion, not as fact. While it is true that the prefatory clause contains an embedded assertion—that K12 is “an innovator in K-12 online education”— plaintiffs do not seriously contest this point. Nor do Plaintiffs deny, in more than conclusory fashion, that K12 “actually holds” its stated belief. Finally, Plaintiffs fail to show that K12’s opinion omitted necessary context. The company’s opinion was not simply emitted into the ether. It was made within the framework of a 10-K filing, where investors could have parsed the ample disclosures at their fingertips before succumbing to K12’s stated view. View "James Boykin v. K12, Inc." 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 question this case presented for the Colorado Supreme Court's review centered on whether the court of appeals misapplied federal case law when it concluded that respondent Oklahoma Police Pension and Retirement System (“Oklahoma”) stated a plausible claim for relief under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77l(a)(2), 77o, notwithstanding petitioners’ assertions that the alleged misrepresentations at issue constituted immaterial “puffery” and amounted to claims based on hindsight, which were not actionable under federal law. Jagged Peak Energy Inc. (“Jagged”) was a Denver-based company that specializes in the exploration, development, and production of crude oil and natural gas. In January 2017, Jagged conducted an initial public offering (“IPO”), during which it sold over 31 million shares at a price to the public of $15.00 per share. Oklahoma, a governmental pension system that provides pension and disability benefits for municipal police officers in the state of Oklahoma, purchased Jagged shares “pursuant to and/or traceable to the [IPO].” According to Oklahoma, within a short time after its investment, facts came to light indicating that Jagged, the individual defendants, and the underwriter defendants (collectively, “defendants”) had negligently overstated Jagged’s ability to increase its oil and gas production. As a result, the price of Jagged shares saw several notable declines, and except for a brief surge, Jagged’s stock has traded well below its IPO price. Oklahoma filed a class action lawsuit in Denver District Court, alleging that defendants had made materially untrue statements and omissions in their offering documents. The Colorado Supreme Court concluded the appellate court's conclusion was consistent with applicable federal precedent, and therefore affirmed that court's judgment. View "Jagged Peak Energy v. Oklahoma Police Pension" on Justia Law

Appellants alleged they were not “brokers,” and thus did not have to register with the SEC because their client called the shots. Appellants appealed the district court’s liability and remedies orders. The Ninth Circuit affirmed the district court’s judgment in favor of the SEC in its enforcement action against Appellants alleging violations of the Securities Exchange Act of 1934.   The panel held that under the Exchange Act, the term “broker” encompassed much broader conduct: it included any person trading securities “for the account of others.” 15 U.S.C. Section 78c(a)(4)(A). Because Appellants put their client’s capital at risk on their trades and acted as his agents, they behaved as “brokers” under the Exchange Act. By not registering as brokers with the SEC, Appellants appeared as if they were merely retail investors (who receive priority for municipal bonds), allowing them to circumvent municipal bond purchasing order priority. The panel affirmed the civil penalties imposed against Appellants. Though it appears that no individual investor suffered financial harm, Appellants’ conduct undermined the SEC’s system of broker-dealer oversight and circumvented retail priority regulations allowing municipalities to raise capital at the lowest possible price. View "USSEC V. JOCELYN MURPHY, ET AL" on Justia Law

International Flavors & Fragrances Inc. (“IFF”), a U.S.-based seller of flavoring and fragrance products, acquired Frutarom Industries Ltd. (“Frutarom”), an Israeli firm in the same industry. Leading up to the merger, Frutarom allegedly made material misstatements about its compliance with anti-bribery laws and the source of its business growth. Plaintiffs, who bought stock in IFF, sued Frutarom, alleging that those misstatements violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.   The Second Circuit affirmed the district court’s dismissal of Plaintiffs’ complaint. The court concluded that Plaintiffs lack statutory standing to sue. Under the purchaser-seller rule, standing to bring a claim under Section 10(b) is limited to purchasers or sellers of securities issued by the company about which a misstatement was made. Plaintiffs here lack standing to sue based on alleged misstatements that Frutarom made about itself because they never bought or sold shares of Frutarom. View "Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd." on Justia Law