Justia Securities Law Opinion Summaries

Plaintiff Curtis Ridlon was formerly employed as an investment adviser. In April 2017, the New Hampshire Bureau of Securities Regulation (Bureau) brought an administrative enforcement action against Ridlon, alleging that he charged clients approximately $2.8 million in improper fees. The relief sought by the Bureau included civil penalties of up to $3,235,000, restitution in the amount of $1,343,427.20, and disgorgement of up to $1,513,711.09. By agreement of the parties, Ridlon filed a declaratory judgment petition in the trial court asserting that he was constitutionally entitled to a jury trial and seeking to enjoin the administrative proceedings from continuing. In response, the Bureau filed a motion to dismiss. The trial court denied the Bureau’s motion, ruling that Part I, Article 20 of the State Constitution afforded Ridlon the right to a jury trial, and enjoining any further administrative proceedings by the Bureau. The New Hampshire Supreme Court disagreed with the superior court’s judgment: “the cases cited by the trial court, and relied upon by Ridlon on appeal for the proposition that claims involving statutory penalties above the constitutional limit obligate a trial by jury, do not address the applicability of the jury trial right under the State Constitution to what we have described as “purely statutory” causes of action. When assessing the right to a jury trial in such circumstances, we have explained that we must “consider the comprehensive nature of the statutory framework to determine whether the jury trial right extends to the action. . . . the statutory procedures established by the legislature for the regulation of securities ‘militate[ ] against any implication of a trial by jury.’” The trial court’s judgment was reversed and the matter remanded for further proceedings. View "Ridlon v. New Hampshire Bureau of Securities Regulation" on Justia Law

Tibet, a holding company, “effectively control[led]” Yunnan, a manufacturer. Tibet attempted to raise capital for Yunnan's operations through an initial public offering (IPO). Zou was an investor in Tibet and the sole director of CT, a wholly-owned subsidiary of Tibet. Tibet’s control of Yunnan flowed through CT. Zou told Downs, a managing director at the investment bank A&S, about the IPO. A&S agreed to serve as Tibet’s placement agent. Zou and downs were neither signatories to Tibet’s IPO registration statement nor named as directors of Tibet but were listed as non-voting board observers chosen by A&S without formal powers or duties. The registration statement explained, “they may nevertheless significantly influence the outcome of matters submitted to the Board.” The registration statement omitted information that Yunnan had defaulted on a loan from the Chinese government months earlier. Before Tibet filed its amended final prospectus, the Chinese government froze Yunnan’s assets. Tibet did not disclose that. The IPO closed, offering three million public shares at $5.50 per share. The Agricultural Bank of China auctioned off Yunnan’s assets, which prompted the NASDAQ to halt trading in Tibet’s stock. Plaintiffs sued Zou, Downs, Tibet, A&S, and others on behalf of a class of stock purchasers under the Securities Act of 1933, 15 U.S.C. 77k(a). The Third Circuit directed the entry of summary judgment in favor of Zou and Downs, holding that a nonvoting board observer affiliated with an issuer’s placement agent is not a “person who, with his consent, is named in the registration statement as being or about to become a director[ ] [or] person performing similar functions,” under section 77k(a). The court noted the registration statement’s description of the defendants, whose functions are not “similar” to those of board directors. View "Obasi Investment Ltd v. Tibet Pharmaceuticals Inc" on Justia Law

These consolidated cases stemmed from an SEC complaint against Robert Allen Stanford, the Stanford International Bank, and other Stanford entities, alleging a massive, ongoing fraud. The receiver subsequently filed suit against two of Stanford's insurance brokers as participants in the fraudulent scheme. The district court entered bar orders and approved settlements after the insurance brokers ultimately agreed to settle conditioned on bar orders enjoining related Ponzi-scheme suits filed against the brokers. Objectors appealed.The Fifth Circuit affirmed the district court's judgment, holding that the district court had subject matter jurisdiction to enjoin third party investors' claims in order to effectuate and preserve the coordinating function of the receivership. The court also held that the bar orders did not violate the Anti-Injunction Act where they prevented Florida and Texas state-court proceedings from interfering with the res in custody of the federal district court and aided the district court's jurisdiction over the receivership entities. Finally, the court held that objectors were not deprived of due process; rejected objectors' contention that the settlement agreements and bar orders were de facto class settlements; held that a right to a jury does not create a right to proceed outside the receivership proceeding; and held that the district court did not abuse its discretion in approving the settlement agreements. View "SEC v. Stanford International Bank, Ltd." on Justia Law

The Supreme Court reversed the decision of the court of appeals reversing the judgment of the district court in this action alleging that Defendants sold or offered to sell unregistered securities and committed fraud in selling or offering to sell securities, holding that Kansas courts did not have jurisdiction to prosecute the criminal charges in this case.Defendants David Lundberg and Michael Elzufon were Minnesota residents who sold as principals for Kansas limited liability corporations what the State alleged to be securities by using intermediaries who resided in California. The California intermediaries, in turn, made sales presentations in California and sold the securities from California to individuals who were not Kansas residents. The district court dismissed the counts against Defendants related to the sales involving the California intermediaries. The court of appeals reversed, holding that the sales originated in Kansas and thus Kansas had territorial jurisdiction. The Supreme Court reversed, holding that the Kansas Uniform Securities Act, Kan. Stat. Ann. 17-21a101 et seq., did not allow Kansas courts to exercise jurisdiction over Defendants because neither an offer to sell nor a sale of securities occurred in Kansas. View "State v. Lundberg" on Justia Law

The Ninth Circuit reversed the district court's dismissal of a putative class action against Northern Trust, alleging violations of state law involving breaches of fiduciary duty by a trustee. The district court determined that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) barred the case from proceeding in federal court.The panel held that SLUSA did not preclude plaintiffs' imprudent investment claims, because these claims did not meet the "in connection with' requirement for SLUSA preclusion. The panel also held that SLUSA did not preclude plaintiffs' fee-related claims, as well as plaintiffs' elder abuse claims and claims against NT Corp. The panel remanded for further proceedings. View "Banks v. Northern Trust Corp." on Justia Law

The First Circuit affirmed the judgment of the district court dismissing this federal securities class action under the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78a-4, for failing adequately to plead scienter, holding that Plaintiffs failed to plead facts such that one could draw the "strong inference" of scienter required by the PSLRA.Plaintiffs brought this suit against Biogen Inc. and three Biogen executives alleging that Defendants committed fraud in violation of regulations promulgated by the Securities and Exchange Commission pursuant to the Securities and Exchange Act, 15 U.S.C. 78a et seq., by falsely stating that Tecfidera, Biogen's product, was safer and more widely used than it was. The district court granted Defendants' motion to dismiss for failing to plead facts "giving rise to a strong inference" of scienter, 15 U.S.C. 78a-4(b)(2)(A). The First Circuit affirmed, holding that the district court properly ruled that, under the PSLRA, Plaintiffs failed adequately to plead scienter for purposes of surviving a motion to dismiss for failure to state a claim. View "Metzler Asset Management GMBH v. Kingsley" on Justia Law

The Fifth Circuit withdrew its prior panel opinion and substituted the following opinion.The court reversed the district court's grant of summary judgment for the SEC in a civil enforcement action against defendants. At issue was whether investors expected to profit solely from the efforts of managers. The court held that defendants put forth enough evidence to raise genuine issues of fact regarding the three Williamson factors, which addressed situations were investors depend on a third-party manager for their investment's success. Accordingly, the court reversed the district court's ruling on the Williamson factors: whether the drilling projects left the investors so little power that the arrangement in fact distributes power as would a limited partnership; whether the drilling project investors were so inexperienced and unknowledgeable in business affairs that they were incapable of intelligently exercising their powers; and whether the investors are so dependent on some unique entrepreneurial or managerial ability of the managers that they cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers. View "SEC v. Arcturus Corp." on Justia Law

StoneMor sells funeral products and services and is required by state law to hold in trust a percentage of proceeds from “pre-need sales.” Under Generally Accepted Accounting Principles (GAAP), preneed sales held in trusts may not be represented as current revenue StoneMor issued nonGAAP financials that represented pre-need sales as a portion of current revenue; borrowed cash to distribute to investors the proceeds of preneed sales in the same quarter the sale was made; and used proceeds from equity sales to pay down the borrowed cash that funded those distributions. In 2016, StoneMor announced that it would restate about three years of previously-reported financial statements. Under GAAP regulations, StoneMor was temporarily prohibited from selling units and receiving corresponding equity proceeds. Plaintiffs allege that this prohibition caused StoneMor’s October 2016 unit distribution to fall by nearly half; StoneMor blamed the cut on salesforce issues. StoneMor’s unit price dropped by 45%. Investors sued under the Securities and Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5, alleging that Defendants made false or misleading statements, with scienter, which Plaintiffs relied on to their financial detriment. The Third Circuit affirmed the dismissal of the case for failure to satisfy the heightened pleading standards of the Private Securities Litigation Reform Act, 15 U.S.C. 78u-4. In a securities fraud case, a defendant’s sufficient disclosure of information can render alleged misrepresentations immaterial. StoneMor’s disclosures sufficiently informed reasonable investors of the risks inherent in its business. View "Fan v. Stonemor Partners LP" on Justia Law

Blue Bell Creameries USA, Inc. suffered a listeria outbreak in early 2015, causing the company to recall all of its products, shut down production at all of its plants, and lay off over a third of its workforce. Three people died as a result of the listeria outbreak. Pertinent here, stockholders also suffered losses because, after the operational shutdown, Blue Bell suffered a liquidity crisis that forced it to accept a dilutive private equity investment. Based on these unfortunate events, a stockholder brought a derivative suit against two key executives and against Blue Bell’s directors claiming breaches of the defendants’ fiduciary duties. The complaint alleges that the executives breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to oversee the safety of Blue Bell’s food-making operations, and that the directors breached their duty of loyalty. The defendants moved to dismiss the complaint for failure to plead demand futility. The Court of Chancery granted the motion as to both claims. The Delaware reversed: "the mundane reality that Blue Bell is in a highly regulated industry and complied with some of the applicable regulations does not foreclose any pleading-stage inference that the directors’ lack of attentiveness rose to the level of bad faith indifference required to state a 'Caremark' claim. ... The complaint pled facts supporting a fair inference that no board-level system of monitoring or reporting on food safety existed." View "Marchand v. Barnhill, et al." on Justia Law

Individual retail-brokerage customers of Paine-Webber who purchased Enron securities, and Enron employees who acquired employee stock options, filed suit against subsidiaries of UBS, alleging violations of the securities laws for their role as a broker of Enron's employee stock option plan and for failure to disclose material information about Enron's financial manipulations to its retail investors.The Fifth Circuit affirmed the district court's dismissal of the complaint for failure to state a claim under the Securities Act of 1933 and the Securities Exchange Act of 1934. The court held that plaintiffs failed to demonstrate that the grant of Enron options amounted to the sale of a security, and failed to establish that either defendant had material, nonpublic knowledge to disclose and a duty to disclose. Furthermore, the district court did not abuse its discretion in denying plaintiffs an additional chance to amend their complaint. View "Lampkin v. UBS Financial Services, Inc." on Justia Law