Justia Securities Law Opinion Summaries

In 2017, Plaintiffs filed suit against the Defendants. Between 2002 and 2005, Plaintiffs (all retirees from BellSouth) rolled most of their retirement assets over to Steven Savell, their financial advisor at Morgan Keegan. Savell assured Plaintiffs “he would invest [their] money in a way that would provide [them] with income for the remainder of [their] life and that [their] principal would grow over time.” Savell remained in control of these accounts until 2013. During the years Savell handled these accounts, the Plaintiffs continually sustained sizeable losses. Plaintiffs claimed that Savell improperly recommended that they invest in two unsuitable penny stocks and then marked the purchases “unsolicited” so as to prevent detection by the brokerage firm’s policy against soliciting such stock. Plaintiffs also alleged that Savell purchased for them certain annuities designed to be held for the long term, which Savell had them cash out early in order to purchase new annuities that would pay him and Morgan Keegan and/or Raymond James large commissions. The trial court granted summary judgment in favor of Defendants, finding that all of the Plaintiffs’ claims were time-barred. The Court of Appeals reversed with respect to the Plaintiffs’ common-law claims, finding that a genuine issue of material fact existed as to when Plaintiffs learned or through reasonable diligence should have learned of Defendants’ alleged malfeasance. The Mississippi Supreme Court granted certiorari on Defendants’ claim that the Court of Appeals misapplied the latent-injury discovery-rule exception to the catch-all three-year limitations period provided by Mississippi Code Section 15-1-49 (Rev. 2019). Because the Supreme Court found no genuine issue of material fact existed as to whether Plaintiffs’ common-law claims were time barred, it reversed the Court of Appeals’ decision and reinstated the trial court’s judgment. View "Baker v. Raymond James & Associates Inc." on Justia Law

The Ninth Circuit reversed the district court's dismissal of a class action brought by investors with a financial services firm. Plaintiffs alleged that Edward Jones breached its fiduciary duties under Missouri and California law, but the district court concluded that it did not have subject matter jurisdiction because the Securities Litigation Uniform Standards Act (SLUSA) prevents plaintiffs from bringing their claims as a class action consisting of fifty or more persons.The panel concluded that SLUSA does not bar plaintiffs' state law fiduciary duty claims because Edward Jones's alleged misrepresentation or omission that forms the basis for plaintiffs' fiduciary duty claims is not "in connection with the purchase or sale of a covered security." In this case, plaintiffs claim that Edward Jones breached its fiduciary duties under Missouri and California law by failing to conduct a suitability analysis, and they allege that this lack of suitability analysis caused them to move their assets from commission-based accounts to fee-based accounts, which was not in their best financial interest as low-volume traders. The panel explained that the alleged failure to conduct a suitability analysis was not material to the decision to buy or sell any covered securities. Accordingly, the panel remanded for further proceedings. View "Anderson v. Edward D. Jones & Co., LP" on Justia Law

This appeal arose from petitioner's mismanagement of two related businesses, Commonwealth Capital and Commonwealth Securities. After FINRA determined that petitioner misused investor funds and tried to cover it up, FINRA barred petitioner from the securities industry, fined her, and ordered her to disgorge certain misused expenses. The SEC affirmed the industry bar and disgorgement order.The DC Circuit affirmed, concluding that petitioner's ambitious constitutional arguments are futile for a simple reason: Congress has prohibited the court from considering issues not raised before the SEC. Furthermore, petitioner has not provided any reasonable grounds that would excuse her failure to exhaust her constitutional claims before the Commission. Nor has there been an intervening change in law that might have excused her failure to press these contentions below. The court also concluded that Saad v. SEC, 980 F.3d 103 (D.C. Cir. 2020), foreclosed petitioner's argument that her lifetime bar is impermissibly punitive. In this case, the SEC's remedial justification finds adequate support in the record. The court rejected petitioner's assertion that continuing education expenses misallocated to the funds—rather than to her companies—were not "net profit," and thus not appropriate for remedial disgorgement after Liu v. SEC, 140 S. Ct. 1936 (2020). Rather, by paying for continuing education expenses out of the funds, instead of her wholly-owned business, the court concluded that petitioner enriched herself by the amount of the savings. View "Springsteen-Abbott v. Securities and Exchange Commission" on Justia Law

Plaintiff Jed Goldfarb claimed defendant David Solimine reneged on a promise of employment after Goldfarb quit his job to accept the promised position managing the sizeable investment portfolio of defendant’s family. The key issue in this appeal involved whether plaintiff could bring a promissory estoppel claim because he relied on defendant’s promise in quitting his prior employment even though, under New Jersey’s Uniform Securities Law of 1997 (Securities Law or the Act), he could not bring a suit on the employment agreement itself. The New Jersey Supreme Court determined the Securities Law did not bar plaintiff’s promissory estoppel claim for reliance damages. The Court affirmed the liability judgment on that claim and the remanded for a new damages trial in which plaintiff would have the opportunity to prove reliance damages. The Court found he was not entitled to benefit-of-the-bargain damages. To the extent that the Appellate Division relied on an alternative basis for its liability holding -- that a later-adopted federal law “family office” exception had been incorporated into the Securities Law -- the Court rejected that reasoning and voided that portion of the appellate court’s analysis. View "Goldfarb v. Solimine" on Justia Law

LifeWise, a shareholder in Triangle, filed a securities fraud class action against Triangle, alleging that defendants knew or should have known of the risks of certain investments but defrauded them by failing to disclose such alleged risks. The district court dismissed the amended complaint and subsequently denied leave to amend as futile.The Fourth Circuit affirmed, concluding that LifeWise has not satisfied the Private Securities Litigation Reform Act of 1995's (PSLRA) heightened burden of pleading scienter and this failure is fatal to both its securities fraud claim against Triangle and its director liability claims against Defendants Poole, Lilly, and Tucker. The court considered LifeWise's allegations holistically and in their proper context and held that Lifewise failed to allege a strong inference of scienter. Rather, the court explained that the much stronger inference is that defendants had an honest debate about the merits of a subjective business judgment, and in hindsight, simply made the wrong choice with some investments. View "LifeWise Family Financial Security, Inc. v. Triangle Capital Corp." on Justia Law

Plaintiffs filed suit alleging that Synchrony Financial and others involved in a December 2017 promissory note offering are liable for materially misrepresenting the scope and degree of changes to the company's underwriting practices beginning in mid-2016 and the impact these changes had on its business relationships with retail companies. The district court dismissed the case in its entirety.With one exception, the Second Circuit agreed with the district court that, from the face of the amended complaint, many allegations were too vague to constitute material misrepresentations on which a reasonable investor would rely. The court also agreed that many alleged material misstatements were properly contextualized by the total mix of publicly available information and appropriately dismissed. However, in regard to one alleged misstatement claiming that a corporate representative of Synchrony Financial publicly stated that the company had received no "pushback" from retail partners during negotiations, the court found that the alleged statement was sufficiently specific to plausibly allege a violation of the Securities Exchange Act of 1934. The court explained that because the alleged statement purported to make a factual assertion about events that had already transpired or were currently in progress, it is materially distinct from the other allegations. Furthermore, particularized allegations in the amended complaint explain how and why this statement may have been false at the time it was made. View "In re: Synchrony Financial Securities Litigation" on Justia Law

The Ninth Circuit affirmed the district court's dismissal with prejudice of a putative securities fraud class action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint alleged that Tesla, Inc., and two of its officers, misled the investing public during 2017 about Tesla's progress in building production capacity for the Model 3, its first mass-market electric vehicle.The panel concluded that, to the limited extent that the specific statements challenged in plaintiffs' operative Second Amended Complaint are not protected by the "safe harbor" for forward-looking statements in the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-5(c), plaintiffs have failed adequately to plead falsity. The panel also held that plaintiffs' proposal to amend the complaint further, to challenge an additional statement, fails for lack of the requisite loss causation. View "Friedman v. Tesla, Inc." on Justia Law

In 1999-2016, Wilkinson convinced approximately 30 people to invest $13.5 million in two hedge funds that he created. By 2008, Wilkinson lost the vast majority of their money. Wilkinson told them that the funds’ assets included a $12 million note with an Australian hedge fund, Pengana. The “Pengana Note” did not exist. Wilkinson provided fraudulent K-1 federal income tax forms showing that the investments had interest payments on the Pengana Note. To pay back suspicious investors, Wilkinson solicited about $3 million from new investors using private placement memoranda (PPMs) falsely saying that Wilkinson intended to use their investments “to trade a variety of stock indexes and options, futures, and options on futures on such stock indexes on a variety of national securities and futures exchanges.” In 2016, the Commodity Futures Trading Commission filed a civil enforcement action against Wilkinson, 7 U.S.C. 6p(1).Indicted under 18 U.S.C. 1341, 1343, Wilkinson pleaded guilty to wire fraud, admitting that he sent fraudulent K-1 forms and induced investment of $115,000 using fraudulent PPMs. The court applied a four-level enhancement because the offense “involved … a violation of commodities law and ... the defendant was … a commodity pool operator,” U.S.S.G. 2B1.1(b)(20)(B). Wilkinson argued that he did not qualify as a commodity pool operator because he traded only broad-based indexes like S&P 500 futures, which fit the Commodity Exchange Act’s definition of an “excluded commodity,” “not based … on the value of a narrow group of commodities.” The Seventh Circuit affirmed. Wilkinson’s plea agreement and PSR established that Wilkinson was a commodity pool operator. View "United States v. Wilkinson" on Justia Law

The Second Circuit affirmed the district court's dismissal of Cavello Bay's claims of securities fraud for failure to plead a domestic application of the law. The court assumed without deciding that the transaction was "domestic," and agreed with the district court that Cavello Bay's claims are predominantly foreign under Parkcentral Global HUB Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198 (2d Cir. 2014). In this case, the claims are based on a private agreement for a private offering between a Bermudan investor (Cavello Bay) and a Bermudan issuer (Spencer Capital); Cavello Bay purchased restricted shares in Spencer Capital in a private offering; and the shares reflect only an interest in Spencer Capital, and they are listed on no U.S. exchange and are not otherwise traded in the United States. The court explained that it is not enough for Cavello Bay to allege that Spencer Capital made a misstatement from New York (through defendant); planned to use the funds to invest in U.S. insurance services; had its principal place of business and CEO and directors in New York; and was managed by a U.S. company. The court concluded that the contacts that matter are those that relate to the purchase and sale of securities. View "Cavello Bay Reinsurance Ltd. v. Stein" on Justia Law

After a $3.3 billion “roll up” of minority-held units involving a merger between Enbridge, Inc. and Spectra Energy Partners L.P. (“SEP”), Paul Morris, a former SEP minority unitholder, lost standing to litigate an alleged $661 million derivative suit on behalf of SEP against its general partner, Spectra Energy Partners (DE) GP, LP (“SEP GP”). Morris repeated the derivative claim dismissal by filing a new class action complaint that alleged the Enbridge/SEP merger exchange ratio was unfair because SEP GP agreed to a merger that did not reflect the material value of his derivative claims. The Court of Chancery granted SEP GP’s motion to dismiss the new complaint for lack of standing. The court held that, to have standing to bring a post-merger claim, Morris had to allege a viable and material derivative claim that the buyer would not assert and provided no value for in the merger. Focusing on the materiality requirement, the court first discounted the $661 million recovery to $112 million to reflect the public unitholders’ beneficial interest in the derivative litigation recovery. The court then discounted the $112 million further to $28 million to reflect what the court estimated was a one in four chance of success in the litigation. After the discounting, the $28 million, less than 1% of the merger consideration, was immaterial to a $3.3 billion merger. On appeal, Morris argued the trial court should not have dismissed the plaintiff’s direct claims for lack of standing. After its review, the Delaware Supreme Court agreed with Morris finding that, on a motion to dismiss for lack of standing, he sufficiently pled a direct claim attacking the fairness of the merger itself for SEP GP’s failure to secure value for his pending derivative claims. The Court of Chancery’s judgment was reversed and the matter remanded for further proceedings. View "Morris v. Spectra Energy Partners" on Justia Law