Justia Securities Law Opinion Summaries

This case involved an alleged worldwide Ponzi scheme and the antifraud provisions of the federal Securities Act of 1933 and the Securities Exchange Act of 1934. Defendant Charles Scoville operated an internet traffic exchange business through his Utah company, Defendant Traffic Monsoon, LLC. The Securities and Exchange Commission (“SEC”) initiated this civil enforcement action, alleging Defendants were instead operating an unlawful online Ponzi scheme involving the fraudulent sale of securities. In this interlocutory appeal, Scoville challenged several preliminary orders the district court issued at the outset, including orders freezing Defendants’ assets, appointing a receiver, and preliminarily enjoining Defendants from continuing to operate their business. The Tenth Circuit upheld those preliminary rulings, finding the SEC asserted sufficient evidence to make it likely that the SEC would be able to prove that Defendants were operating a Ponzi scheme. View "SEC v. Traffic Monsoon" on Justia Law

Nielen-Thomas, on behalf of herself and others similarly situated, filed a complaint in Wisconsin state court alleging she and other class members were defrauded by their investment advisor. Defendants removed the case to federal court and argued the action should be dismissed because it was a “covered class action” precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. 78bb(f)(1), (f)(5)(B), According to Nielen-Thomas, her lawsuit did not meet SLUSA’s “covered class action” definition because she alleged a proposed class with fewer than 50 members. The district court held that Nielen-Thomas’s suit was a “covered class action” because she brought her claims in a representative capacity, section 78bb(f)(5)(B)(i)(II), and dismissed her claims. The Seventh Circuit affirmed. The plain language of SLUSA’s “covered class action” definition includes any class action brought by a named plaintiff on a representative basis, regardless of the proposed class size, which includes Nielen-Thomas’s class action lawsuit and her complaint meets all other statutory requirements, her lawsuit is precluded by SLUSA. View "Nielen-Thomas v. Concorde Investment Services, LLC" on Justia Law

The SEC alleged that defendants violated the Securities Exchange Act because they failed to register interests in their drilling projects as securities. Williamson v. Tucker set out three factors for determining whether investors expect to profit solely from third-party efforts. The Fifth Circuit reversed the district court's grant of the SEC's motion for summary judgment, holding that defendants raised significant issues of material fact.The court applied the first factor in Williamson and held that the investors had formal powers, they used these powers, the voting structure was not necessarily coercive, the investors received information, they communicated with each other, and the number of investors was not so high that it eliminated all of their power. In regard to the second Williamson factor, the court held that there was a genuine issue about the investors' knowledge and experience. In regard to the third Williamson factor, the court held that there was a genuine issue concerning whether the managers were effectively irreplaceable. View "SEC v. Arcturus Corp." on Justia Law

In 2008, Fisker, a manufacturer of luxury hybrid electric cars, became part of a trend in venture capital investments toward green energy technology start-ups. The Department of Energy advanced Fisker $192 million on a $528.7 million loan, secured with assistance from the Kleiner venture capital firm, a Fisker controlling shareholder. Tech-industry rainmakers and A-list movie stars invested in Fisker, which was competing with another emerging player, Tesla. In 2009, before sales began on its first-generation vehicles, Fisker announced that its second-generation vehicles would be built in Delaware. Delaware agreed to $21.5 million in state subsidies. Vice President Biden and Delaware Governor Markell participated in Fisker’s media unveiling of the collaboration. Riding this publicity, Fisker secured funding from additional venture capital firms and high net worth investors, including the five plaintiffs, who collectively purchased over $10 million in Fisker securities. In 2011, Fisker began selling its flagship automobile. In 2012, it stopped all manufacturing. In April 2013, Fisker laid off 75% of its remaining workforce; the U.S. Government seized $21 million in cash for Fisker’s first loan payment. The Energy Department put Fisker’s remaining unpaid loan amount ($168 million) out to bid. Fisker filed for bankruptcy. In October 2016, the plaintiffs filed a class action, alleging fraud, breach of fiduciary duty, and negligent misrepresentation. The Seventh Circuit affirmed the dismissal of plaintiffs’ claims as precluded by Illinois law’s three-year limitations period. Those claims accrued no later than April 2013. View "Orgone Capital III, LLC v. Daubenspeck" on Justia Law

The class representative of federal securities class actions appealed the dismissal of the unsecured creditor claim and amended claim he filed in the pending Chapter 7 bankruptcy proceeding of lead class counsel, Green Jacobson, P.C. The Eighth Circuit held that the claim for the cy pres distribution was no longer an issue because the distribution had been returned by the charity and deposited with the district court clerk for ultimate distribution for the benefit of the NationsBank class; the negligent supervision claim was time-barred; the disgorgement claim was not time-barred by Missouri's five year statute of limitations; and the bankruptcy court did not err in disallowing the bankruptcy claim as premature and lacking in supporting foundation. Accordingly, the court affirmed in part, reversed in part, and remanded. View "Oetting v. Sosne" on Justia Law

Kathryn Honea purported to appeal a judgment in favor of Raymond James Financial Services, Inc. ("Raymond James"), and Bernard Michaud, an employee of Raymond James (collectively, "RJFS"), in the underlying action seeking to vacate an arbitration award. In 1997, Honea opened several investment accounts with Raymond James. In March 2006, Honea sued RJFS alleging that her accounts had been mismanaged. She sought damages for breach of contract, breach of fiduciary duty, negligence, wantonness, fraud, and violations of the Alabama Securities Act. The case went to arbitration. An arbitration panel entered an award in favor of RJFS, and on January 14, 2008, Honea filed in the trial court a motion to vacate that arbitration award. In this case's fourth trip before the Alabama Supreme Court, Honea's 2017 motion to vacate interjected issues and sought relief beyond the scope of the remand action ordered in "Raymond James III," which directed a Rule 59(g) hearing. "The trial court would have no jurisdiction to rule on it, and any ruling, whether express or a denial by operation of law, would be void." Accordingly, the Court dismissed this appeal. View "Honea v. Raymond James Financial Services, Inc." on Justia Law

This appeal grew out of a battle between the majority and minority owners of units in an investment vehicle. The majority unitholder wanted to merge, but this would require the minority to sell their units or convert them to shares in a newly created entity. The minority unitholders balked because they wanted to retain their original units, but the majority unitholder approved the merger, terminating the minority’s units in the process. The termination of these units led the minority to sue. The issue presented for the Tenth Circuit’s review reduced to one of “classic” contract interpretation: did the contract empower the majority unitholder to approve a merger that eliminated and replaced the minority unitholders’ units without providing an opportunity for a class vote? The district court concluded “yes,” and the Tenth Circuit concurred. View "Stender v. Archstone-Smith" on Justia Law

The Fifth Circuit affirmed the district court's grant of the SEC's motion for summary judgment, holding that defendant offered securities and committed securities fraud in violation of the Securities and Exchange Act. The court held that interests in defendant's drilling projects qualified as securities. In this case, the district court correctly concluded that defendant's drilling projects distributed power as if they were limited partnerships where the SEC provided unrebutted evidence showing that investors could not use their legal powers. The court also held that the district court correctly found that defendant made material misstatements to investors when he knowingly misrepresented his relationships with major oil companies. View "SEC v. Sethi" on Justia Law

Former shareholders alleged that Altisource and several of its officers (collectively AAMC) inflated the price of its stock through false and misleading statements. When these mistruths were revealed to the market, they claimed, the price of AAMC’s stock plummeted, costing shareholders billions of dollars. The district court dismissed the complaint, concluding that Plaintiffs failed to satisfy the requirements of the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u– 4. The Third Circuit affirmed. Plaintiffs failed to adequately plead three elements of a Rule 10b-5 claim: a material misrepresentation (or omission), scienter, and loss causation, with “particularity” as required by PSLRA. The economic harm suffered by AAMC’s investors is "regrettable," but plaintiffs failed to plausibly allege that this harm arose from fraud. When a stock experiences the rapid rise and fall that occurred here, it will not usually prove difficult to mine from the economic wreckage a few discrepancies in the now-deflated company’s records. View "City of Cambridge Retirement System v. Altisource Asset Management Corp." on Justia Law

Olagues is a self-proclaimed stock options expert, traveling the country to file pro se claims under section 16(b) of the Securities and Exchange Act of 1934, which permits a shareholder to bring an insider trading action to disgorge “short-swing” profits that an insider obtained improperly. Any recovery goes only to the company. In one such suit, the district court granted a motion to strike Olagues’ complaint and dismiss the action, stating Olagues, as a pro se litigant, could not pursue a section 16(b) claim on behalf of TimkenSteel because he would be representing the interests of the company. The Sixth Circuit affirmed that Olagues cannot proceed pro se but remanded to give Olagues the opportunity to retain counsel and file an amended complaint with counsel. View "Olagues v. Timken" on Justia Law