Justia Securities Law Opinion Summaries

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

In this case before the United States Court of Appeals For the Second Circuit, two investment firms, held debt securities issued by FriendFinder Networks, Inc., and an affiliate. Several years later, FriendFinder’s founder, through a trust in his own name, unilaterally reduced the securities’ payment terms under the governing Indenture. The investment firms sued, alleging that the Trust Indenture Act (TIA) barred FriendFinder and its founder from changing the payment terms without their consent. The district court dismissed the case, holding that the TIA did not protect this Indenture because the underlying exchange offer was a private placement under the Securities Act of 1933, and the TIA does not apply to private placements. On appeal, the Second Circuit affirmed the district court's decision. The court held that, since the securities were issued through a private offering rather than a public one, the TIA did not apply. Therefore, the no-action clause in the Indenture, which barred the plaintiffs' lawsuit unless certain conditions were met, was not invalidated by the TIA. The court also determined that the plaintiffs' claim did not fall within the payment carve-out from the no-action clause, which allows suit for the enforcement of the right to receive payment of principal or interest on the securities. The court concluded that the plaintiffs' lawsuit was barred by the no-action clause and that the TIA did not invalidate that clause. View "Chatham Capital Holdings, Inc. v. Conru" on Justia Law

The United States Court of Appeals for the Fifth Circuit reversed and vacated parts of a judgment against EOX Holdings, L.L.C., and Andrew Gizienski ("Defendants") in a case initiated by the Commodity Futures Trading Commission ("CFTC"). The CFTC had accused the defendants of violating a rule that prevents commodities traders from "taking the other side of orders" without clients' consent. The court ruled that the defendants lacked fair notice of the CFTC's interpretation of this rule. The case revolved around Gizienski's actions while working as a broker for EOX, where he had discretion to make specific trades on behalf of one of his clients, Jason Vaccaro. The CFTC argued that Gizienski's actions violated the rule because he was making decisions to trade opposite the orders of other clients without their knowledge or consent. The court, however, ruled that the CFTC's interpretation of the rule was overly broad, as it did not provide sufficient notice that such conduct would be considered taking the other side of an order. The court reversed the penalty judgment against the defendants, vacated part of the injunction against them, and remanded the case for further proceedings. View "Commodity Futures v. EOX Holdings" on Justia Law

In the case of a contested divorce between Quin Whitman and Douglas F. Whitman, the founder of a once successful hedge fund, the Court of Appeal of the State of California ruled on several issues. The court affirmed that Doug failed to prove he retained any separate property interest in the hedge fund at the time of dissolution, despite an initial $300,000 investment of his own separate funds. The court also ruled that the community was not financially responsible for any of the legal fees Doug incurred to defend against criminal charges brought against him for insider trading or the $250,000 fine imposed on him in that case. However, the court erred in holding the community responsible for the $935,000 penalty imposed by the Securities and Exchange Commission for illegal insider trading. Quin did not demonstrate that the court erred in holding the community responsible for legal fees expended by the hedge fund when it intervened as a third party into these proceedings. The court also concluded that Quin failed to prove her claim that Doug breached his fiduciary duty in connection with the sale of the couple’s luxury home. The court concluded that the couple’s entire interest in the hedge fund is community property, subject to equal division. The court also found that Doug's legal expenses incurred in defending against insider trading charges and the $250,000 fine imposed on him were his separate debts. View "In re Whitman" on Justia Law

The Court of Chancery of the State of Delaware has selected the Friedlander Team as lead counsel and the NYC/Oregon Funds as lead plaintiffs in a derivative lawsuit against Fox Corporation. After the 2020 presidential election, Fox News broadcasted statements accusing two voting machine companies of facilitating election fraud, leading to defamation lawsuits against the network. Fox Corporation paid $787.5 million to settle one lawsuit, with another still pending. As a result, various stockholders filed derivative complaints, seeking to shift the losses from the corporation to the directors and officers allegedly responsible for the harm. The court was required to choose between two competing teams of attorneys to lead the consolidated actions. After evaluating the teams according to recently amended Rule 23.1, which identifies factors for consideration when resolving leadership disputes, the court selected the Friedlander Team and the NYC/Oregon Funds. The court noted the deliberate, client-driven process through which these entities were chosen, their resources and expertise, and the legitimacy conferred by the involvement of public officials. View "In re Fox Corporation Derivative Litigation" on Justia Law

In this case, Robert Sproat was convicted on ten counts of securities fraud. On appeal, Sproat argued that the district court improperly coerced the jurors into reaching a unanimous guilty verdict by instructing them to return the next day after they had reported an impasse in their deliberations.The United States Court of Appeals for the Ninth Circuit affirmed the conviction, rejecting Sproat's argument. The court held that merely instructing a jury that reported an impasse to return the next day is not unconstitutionally coercive. The court found that the district court's instruction to return did not amount to an Allen charge, an instruction encouraging jurors to reach a unanimous verdict. The court explained that no such encouragement was explicit or implicit in the district court's instruction.The court also observed that the district court had not asked the jury to identify the nature of its impasse or the vote count before excusing them for the evening, and that any theoretical risk of coercion was cured by the partial Allen instruction the district court gave the following day, emphasizing the jurors' freedom to maintain their honest beliefs and their ability to be excused if they could not overcome their impasse. The court concluded that the district court's instruction to return the next day and the partial Allen instruction the following day did not coerce the jurors into reaching a unanimous guilty verdict. View "USA V. SPROAT" on Justia Law

In a putative securities-fraud class action, Union Asset Management Holding AG and Teamsters Local 710 Pension Fund (the “Investors”), co-lead plaintiffs, alleged that Philip Morris International Inc. (“PMI”) and several of its current and former executives (the “Defendants”) made false and misleading statements about PMI’s “IQOS” smoke-free tobacco products. The United States Court of Appeals for the Second Circuit affirmed the district court's dismissal of the Investors' complaints. The court found that PMI's statements about its scientific studies complied with a methodological standard and were properly analyzed as statements of opinion, rather than fact. The court also determined that the Defendants' interpretation of scientific data, which was ultimately endorsed by the Food and Drug Administration (FDA), was per se reasonable as a matter of law. Further, the court held that the Investors had either failed to plead material falsity or abandoned their challenges on appeal regarding PMI’s statements about its projections for IQOS’s performance in Japanese markets. Finally, the court concluded that the Investors' claim for control-person liability under section 20(a) of the Exchange Act also failed because they had not established a primary violation by the controlled person. View "In re Philip Morris Int'l Inc. Sec. Litig." on Justia Law

In this case, the Supreme Court of the State of Delaware reversed the decision of the Superior Court of the State of Delaware. The case centered around an insurance dispute involving Verizon Communications, Inc. and several of its insurers. The dispute arose after Verizon settled a lawsuit brought by a litigation trust, which was pursuing claims against Verizon arising out of a transaction Verizon had made with FairPoint Communications Inc. The litigation trust had alleged that Verizon made fraudulent transfers in the course of the transaction, which harmed FairPoint's creditors. After settling the lawsuit, Verizon sought coverage for the settlement payment and defense costs from its insurers.The insurers denied coverage, arguing that the litigation trust's claims did not qualify as a "Securities Claim" under the relevant insurance policies. The Superior Court disagreed, ruling that the litigation trust's claims were brought derivatively on behalf of FairPoint by a security holder of FairPoint, as required to qualify as a Securities Claim under the policies.The Supreme Court of Delaware reversed this decision, finding that the litigation trust's claims were direct, not derivative. The court reasoned that the trust's claims were brought on behalf of the creditors, not FairPoint or its subsidiary, and the relief sought would benefit the creditors, not the business entity. Therefore, the claims did not meet the definition of a Securities Claim under the insurance policies. Consequently, the Supreme Court held that the insurers were not obligated to cover Verizon's settlement payment and defense costs. View "In re Fairpoint Insurance Coverage Appeals" on Justia Law

In 2021, the Securities and Exchange Commission (SEC) sued Luis Jimenez Carrillo for securities violations he allegedly committed well after his divorce from Yolanda Sanchez-Diaz. Sanchez-Diaz was named as a relief defendant in the suit and the SEC sought to recover from her the value of a car she received four years earlier, claiming Carrillo paid for it with illicit funds. The SEC did not accuse Sanchez-Diaz of any wrongdoing but argued she had no legitimate claim to the car because she had not provided any consideration for it. The district court agreed and ordered her to pay almost $170,000, including interest.On appeal, the United States Court of Appeals for the First Circuit held that a relief defendant in an SEC enforcement action has a legitimate claim to funds if they have provided something of value in exchange and the value they provided is more than nominal in relation to the money received. In this case, the court concluded that through a 2016 child support agreement, Sanchez-Diaz provided more than nominal value in exchange for Carrillo's promise to purchase the car. The court found that the district court erred in its finding that Sanchez-Diaz provided no value at all. Accordingly, the Appeals Court reversed the district court's disgorgement order. View "SEC v. Sanchez Diaz Monge" on Justia Law

In this case, the plaintiffs, who are shareholders of Facebook, Inc., brought a securities fraud action against the company and its executives, alleging that they made materially misleading statements and omissions about the risk of improper access to Facebook users' data, Facebook's internal investigation into the actions of Cambridge Analytica, and the control Facebook users have over their data. The United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the decision of the District Court for the Northern District of California.The Circuit Court held that the shareholders adequately pleaded falsity as to the challenged risk statements in Facebook's 2016 Form 10-K. The court held that these statements were materially misleading because Facebook knew at the time of filing that the risk of improper third-party misuse of Facebook users' data was not hypothetical, but had already occurred.As to the statements regarding Facebook's investigation into Cambridge Analytica, the court affirmed the district court's decision, holding that the shareholders failed to plead scienter, or intent to defraud.Lastly, the court held that the shareholders adequately pleaded loss causation as to the statements assuring users that they controlled their data on the platform. The court found that the shareholders had adequately pleaded that the March 2018 revelation about Cambridge Analytica and the June 2018 revelation about Facebook's whitelisting policy were the first times Facebook investors were alerted that Facebook users did not have complete control over their own data, causing significant stock price drops.The case was remanded to the district court for further proceedings. View "AMALGAMATED BANK V. FACEBOOK, INC." on Justia Law