Justia Securities Law Opinion Summaries

Three individuals served as sales agents for a California company that marketed and sold fractional interests in life settlements, which are transactions where investors purchase life insurance policies from insured individuals, pay the ongoing premiums, and receive the death benefit when the insured passes away. The company selected which policies to purchase, determined the purchase price, and managed a complex premium reserve system to fund ongoing premium payments. Investors relied on the company’s expertise in selecting policies and managing the reserve system, and their interests in each policy were fractionalized among multiple investors. When the reserve system failed due to insureds living longer than projected, the company made additional premium calls to investors, and some investors lost their investments if they did not pay.The United States District Court for the Central District of California granted summary judgment in favor of the Securities and Exchange Commission (SEC) against the three sales agents. The court found that the fractional interests in life settlements were securities under the Securities Act of 1933, that no exemption from registration applied, and that the sales agents had not registered as broker-dealers. The court ordered disgorgement of a portion of the agents’ commissions, imposed civil penalties, and enjoined one agent from future violations.The United States Court of Appeals for the Ninth Circuit affirmed the district court’s judgment. The Ninth Circuit held that the fractional interests in life settlements were investment contracts and thus securities, because investors’ profits depended on the company’s selection of policies, management of the premium reserve system, and the structure of the fractionalized interests. The court also held that the offerings were not exempt from registration as intrastate offerings, as they were integrated and included at least one out-of-state investor. The court affirmed the remedies, finding that investors suffered pecuniary harm through the loss of the time value of their money. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. BARRY" on Justia Law

A group of individuals and organizations challenged a longstanding policy of the Securities and Exchange Commission (SEC), codified as Rule 202.5(e), which requires defendants in civil enforcement actions to agree not to publicly deny the allegations against them as a condition of settlement. This “no-deny” provision has been in place since 1972 and is incorporated into settlement agreements, with the SEC’s remedy for a breach being the ability to ask the court to reopen the case. The petitioners argued that this rule violates the First Amendment and was improperly adopted under the Administrative Procedure Act (APA).Previously, the New Civil Liberties Alliance (NCLA) petitioned the SEC to amend Rule 202.5(e) to remove the no-deny requirement, citing constitutional concerns. The SEC denied the petition, explaining that defendants can voluntarily waive constitutional rights in settlements and that the rule preserves the agency’s ability to litigate if a defendant later denies the allegations. After the denial, the petitioners sought review in the United States Court of Appeals for the Ninth Circuit, asserting both First Amendment and APA violations.The United States Court of Appeals for the Ninth Circuit reviewed the SEC’s denial. Applying the Supreme Court’s framework from Town of Newton v. Rumery, the court held that voluntary waivers of constitutional rights, including First Amendment rights, are generally permissible if knowing and voluntary. The court concluded that Rule 202.5(e) is not facially invalid under the First Amendment, as it is a limited restriction tied to the settlement context and does not preclude all speech. The court also found that the SEC had statutory authority for the rule, was not required to use notice-and-comment rulemaking, and provided a rational explanation for its decision. The petition for review was denied, but the court left open the possibility of future as-applied challenges. View "POWELL V. UNITED STATES SECURITIES AND EXCHANGE COMMISSION" on Justia Law

Several investment funds based in the British Virgin Islands invested heavily in Bernard L. Madoff Investment Securities and were forced into liquidation after the Madoff Ponzi scheme was exposed in 2008. Liquidators were appointed in the BVI insolvency proceedings. Before the collapse, certain investors redeemed their shares in the funds for cash, receiving over $6 billion in payments. The liquidators, seeking to recover these redemption payments for equitable distribution among all investors, initiated approximately 300 actions in the United States, alleging that the payments were inflated due to fictitious Net Asset Value (NAV) calculations based on Madoff’s fraudulent statements.The U.S. Bankruptcy Court for the Southern District of New York consolidated the actions after recognizing the BVI proceedings under Chapter 15 of the Bankruptcy Code. The bankruptcy court dismissed most claims, finding it lacked personal jurisdiction over some defendants, that the liquidators were bound by the NAV calculations, and that the safe harbor for securities transactions under § 546(e) of the Bankruptcy Code barred the claims. However, it allowed constructive trust claims to proceed against certain defendants alleged to have known the NAVs were inflated. The U.S. District Court for the Southern District of New York affirmed the bankruptcy court’s judgment, leaving only the constructive trust claims.On appeal, the United States Court of Appeals for the Second Circuit held that all of the liquidators’ claims, including the constructive trust claims, should have been dismissed under the safe harbor provision of § 546(e), which applies extraterritorially via § 561(d) in Chapter 15 cases. The court concluded that the safe harbor bars both statutory and common-law claims seeking to avoid covered securities transactions, regardless of the legal theory or proof required. The Second Circuit reversed the district court’s judgment allowing the constructive trust claims and otherwise affirmed the dismissal of the remaining claims. View "In re Fairfield Sentry Ltd." on Justia Law

Plaintiffs filed a class action lawsuit in state court against Defendants, alleging violations of state securities laws. Defendants removed the case to federal court under the Securities Litigation Uniform Standards Act (SLUSA), arguing that the case involved covered securities. Plaintiffs amended their complaint to exclude any claims related to covered securities, leading the district court to remand the case to state court. After three years of state court litigation, Defendants removed the case again, citing an expert report that allegedly identified covered securities. The district court remanded the case again and awarded Plaintiffs $63,007.50 in attorneys' fees.The United States District Court for the District of South Carolina initially denied Plaintiffs' motion to remand but later granted it after Plaintiffs amended their complaint. The court found that the amended complaint excluded any claims related to covered securities, thus SLUSA did not apply, and no federal question remained. After Defendants removed the case a second time, the district court remanded it again and awarded attorneys' fees, finding the second removal lacked a reasonable basis.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the district court's award of attorneys' fees. The court held that the second removal was improper because the amended complaint explicitly excluded claims related to covered securities, and thus SLUSA did not apply. Additionally, the court found that the removal was objectively unreasonable, as the district court had already addressed the issues in its first remand order. The Fourth Circuit also denied Plaintiffs' request for additional attorneys' fees for defending the appeal, stating that 28 U.S.C. § 1447(c) does not authorize fee awards on appeal. View "Black v. Mantei & Associates, Ltd." on Justia Law

Michael Hild, the Defendant-Appellant, was convicted by a jury in 2021 of securities fraud, wire fraud, bank fraud, and conspiracy. Hild, as the CEO of Live Well Financial, Inc., engaged in a scheme to inflate the value of a bond portfolio used as collateral for loans. This scheme allowed Live Well to grow its bond portfolio significantly from 2014 to 2016. Hild appealed his conviction, arguing that the evidence was insufficient and that a new trial was warranted due to a Supreme Court decision invalidating one of the fraud theories used in his jury instructions.The United States District Court for the Southern District of New York denied Hild's post-trial motions for acquittal and a new trial. Hild then appealed to the United States Court of Appeals for the Second Circuit, challenging the sufficiency of the evidence and the jury instructions.The Second Circuit reviewed the case and found that sufficient evidence supported Hild's conviction. The court noted that Hild misrepresented the value of the bonds to secure loans and acted with fraudulent intent. The court also addressed Hild's argument regarding the jury instructions, acknowledging that the instructions included an invalid right-to-control theory of fraud as per the Supreme Court's decision in Ciminelli v. United States. However, the court concluded that this error did not affect Hild's substantial rights because the jury would have convicted him based on a valid theory of fraud.Ultimately, the Second Circuit affirmed the judgment of the district court, upholding Hild's conviction on all counts. View "United States v. Hild" on Justia Law

In this case, the defendant, a radio talk show host and church founder, began selling bitcoin in 2014. The government investigated his bitcoin sales and charged him with conspiracy to operate an unlicensed money transmitting business, operation of an unlicensed money transmitting business, conspiracy to commit money laundering, money laundering, and tax evasion. After a jury convicted him on all counts, the district court acquitted him of the substantive money laundering count due to insufficient evidence but upheld the other convictions.The defendant appealed, arguing that the district court should not have allowed the money-transmitting-business charges to proceed to trial, citing the "major questions doctrine" which he claimed should exempt virtual currencies like bitcoin from regulatory statutes. He also contended that the evidence was insufficient to support his tax evasion conviction and that he should be granted a new trial on the money laundering conspiracy count due to prejudicial evidentiary spillover. Additionally, he argued that his 96-month sentence was substantively unreasonable.The United States Court of Appeals for the First Circuit reviewed the case. The court rejected the defendant's major questions doctrine argument, holding that the statutory definition of "money transmitting business" under 31 U.S.C. § 5330 includes businesses dealing in virtual currencies like bitcoin. The court found that the plain meaning of "funds" encompasses virtual currencies and that the legislative history and subsequent congressional actions supported this interpretation.The court also found sufficient evidence to support the tax evasion conviction, noting that the defendant had substantial unreported income and engaged in conduct suggesting willful evasion of taxes. The court rejected the claim of prejudicial spillover, concluding that the evidence related to the money laundering conspiracy was admissible and relevant.Finally, the court upheld the 96-month sentence, finding it substantively reasonable given the defendant's conduct and the factors considered by the district court. The court affirmed the district court's rulings and the defendant's convictions and sentence. View "United States v. Freeman" on Justia Law

The case involves a challenge to the U.S. Securities and Exchange Commission's (SEC) 2023 Funding Order, which amended the funding structure for the Consolidated Audit Trail (CAT). The CAT was established to create a single electronic system for gathering and maintaining data on stock trades. Initially, the SEC estimated the cost of building and operating the CAT to be significantly lower than the actual costs incurred. The 2023 Funding Order allowed self-regulatory organizations (SROs) to pass all CAT costs to their broker-dealer members, a shift from the original plan that required both SROs and broker-dealers to share the costs.The American Securities Association and Citadel Securities, LLC challenged the 2023 Funding Order, arguing that it was arbitrary and capricious. They contended that the SEC failed to justify the decision to allow SROs to pass all CAT costs to broker-dealers and did not update its economic analysis to reflect the actual costs of the CAT, which had significantly increased since the original estimates.The United States Court of Appeals for the Eleventh Circuit reviewed the case. The court found that the SEC's 2023 Funding Order was internally inconsistent and represented an unexplained policy change from previous rules that required both SROs and broker-dealers to share CAT costs. The court also determined that the SEC failed to consider the effects of allowing SROs to pass all CAT costs to broker-dealers, creating a potential free-rider problem. Additionally, the court held that the SEC's reliance on outdated economic analysis was unreasonable given the significant increase in CAT costs.The Eleventh Circuit vacated the 2023 Funding Order, stayed its decision for sixty days to allow the SEC to address the issues, and remanded the matter to the SEC for further proceedings consistent with the court's opinion. View "American Securities Association v. Securities and Exchange Commission" on Justia Law

Keith Berman, the appellant, pleaded guilty to securities fraud, wire fraud, and obstruction of proceedings related to a scheme to fraudulently increase the share price of his company, Decision Diagnostics Corp. (DECN). Berman issued false press releases claiming DECN had developed a blood test for coronavirus, which led to a significant increase in the company's stock price. The Securities and Exchange Commission (SEC) investigated and suspended trading of DECN's stock, revealing that Berman's claims were false. Despite this, Berman continued to issue misleading statements and used aliases to discredit the SEC's investigation.The United States District Court for the District of Columbia sentenced Berman to 84 months' imprisonment. The court calculated the loss caused by Berman's fraud using the modified rescissory method, determining a loss amount of $27.8 million. This calculation was based on the difference in DECN's stock price before and after the fraud was disclosed, multiplied by the number of outstanding shares. The court also applied enhancements for sophisticated means and substantial financial hardship to five or more individuals, resulting in a Guidelines range of 168 to 210 months, but ultimately imposed a downward variance.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. Berman challenged the district court's calculation of the loss amount, arguing that the fraud was disclosed earlier and that the loss was not solely attributable to his fraudulent statements. The appellate court found that the district court did not commit clear error in determining the disclosure date or in its loss causation analysis. The court also upheld the enhancements for sophisticated means and substantial financial hardship, finding sufficient evidence to support these determinations. Consequently, the appellate court affirmed the district court's judgment. View "United States v. Berman" on Justia Law

The case involves plaintiffs-appellees, trustees of the Peter and Elizabeth C. Tower Foundation, who brought claims against UBS Financial Services, Inc. and Jay S. Blair (collectively, the "UBS Defendants") under the Investment Advisers Act of 1940 and New York state law. The plaintiffs allege that the UBS Defendants breached their fiduciary duties in managing the Foundation's investment advisory accounts. Specifically, they claim that John N. Blair, the father of Jay Blair, improperly used his position to place the Foundation’s assets with his son's investment firm, which later became affiliated with UBS.The United States District Court for the Western District of New York denied the UBS Defendants' motion to compel arbitration. The court found that the plaintiffs had presented sufficient evidence to question the validity of the arbitration agreement, warranting a trial on that issue. The UBS Defendants had previously moved to stay or dismiss the action under the Colorado River abstention doctrine, which was also denied.The United States Court of Appeals for the Second Circuit reviewed the case. The court applied the Supreme Court's 2022 decision in Morgan v. Sundance, Inc., which held that courts may not impose a prejudice requirement when evaluating whether a party has waived enforcement of an arbitration agreement. The Second Circuit concluded that the UBS Defendants waived their right to compel arbitration by seeking a resolution of their dispute in the District Court first, thus acting inconsistently with the right to arbitrate. Consequently, the Second Circuit affirmed the District Court’s denial of the UBS Defendants’ motion to compel arbitration on the alternative ground of waiver. View "Doyle v. UBS Financial Services, Inc." on Justia Law

Mark Schena operated Arrayit, a medical testing laboratory in Northern California, which focused on blood tests for allergies. Schena marketed these tests as superior to skin tests, despite their limitations, and billed insurance providers up to $10,000 per test. To maintain a steady flow of patient samples, Schena paid marketers a percentage of the revenue they generated by pitching Arrayit’s services to medical professionals, often misleading them about the tests' efficacy. During the COVID-19 pandemic, Schena transitioned to COVID testing, using similar deceptive marketing practices to bundle allergy tests with COVID tests.The United States District Court for the Northern District of California denied Schena’s motion to dismiss the EKRA counts, arguing that his conduct did not violate the statute as a matter of law. The jury convicted Schena on all counts, including conspiracy to commit healthcare fraud, healthcare fraud, conspiracy to violate EKRA, EKRA violations, and securities fraud. The district court sentenced Schena to 96 months in prison and ordered him to pay over $24 million in restitution.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed Schena’s convictions. The court held that 18 U.S.C. § 220(a)(2)(A) of EKRA covers payments to marketing intermediaries who interface with those who do the referrals, and there is no requirement that the payments be made to a person who interfaces directly with patients. The court also concluded that a percentage-based compensation structure for marketing agents does not violate EKRA per se, but the evidence showed wrongful inducement when Schena paid marketers to unduly influence doctors’ referrals through false or fraudulent representations. The court affirmed Schena’s EKRA and other convictions, vacated in part the restitution order, and remanded in part. View "United States v. Schena" on Justia Law