Justia Securities Law Opinion Summaries

The SEC filed suit against Peter Jensen and Thomas Tekulve, the former Chief Executive Officer and Chief Financial Officer of the now-defunct Basin Water, Inc., alleging that they had participated in a scheme to defraud Basin investors by reporting millions of dollars in revenue that were never realized. On appeal, the SEC challenged the district court's judgment in favor of defendants. The court reversed the district court’s rulings interpreting Rule 13a–14 of the Securities Exchange Act (Exchange Act), 17 C.F.R. 240.13a-14, and Section 304 of the Sarbanes-Oxley Act (SOX 304),15 U.S.C. 7201 et seq. The court concluded that Rule 13a–14 provides the SEC with a cause of action not only against CEOs and CFOs who do not file the required certifications, but also against CEOs and CFOs who certify false or misleading statements. The court also concluded that the disgorgement remedy authorized under SOX 304 applies regardless of whether a restatement was caused by the personal misconduct of an issuer’s CEO and CFO or by other issuer misconduct. The court reversed the district court’s bench trial order, vacated the judgment, and remanded for a jury trial, concluding that the SEC was entitled to a jury trial and did not consent to Jensen and Tekulve’s withdrawal of their jury demand. Nor did the SEC waive its right to a jury trial when it objected consistently and repeatedly before trial to the district court’s decision to hold a bench trial. The court approved the district court’s grant of defendants’ motion in limine to exclude evidence about the injunction against Basin’s Director of Finance. Accordingly, the court vacated and remanded. View "SEC v. Jensen" on Justia Law

The Securities and Exchange Commission (SEC) brought an enforcement action against Defendant Charles Kokesh for misappropriating funds from four SEC-registered business development companies (BDCs) in violation of federal securities laws. After a jury returned a verdict in favor of the SEC, the district court entered a final judgment permanently enjoining Defendant from violating certain provisions of federal securities laws, ordering disgorgement of $34.9 million plus prejudgment interest of $18.1 million, and imposing a civil penalty of $2.4 million. Defendant appealed, arguing that the court’s imposition of the disgorgement and permanent injunction was barred by 28 U.S.C. 2462, which set a five-year limitations period for suits “for the enforcement of any civil fine, penalty, or forfeiture.” He also argued that the district court erred by precluding him from presenting evidence of attorney and accountant participation to show his lack of knowledge of the misconduct. After review, the Tenth Circuit held that both the permanent injunction and the disgorgement order were remedial and not subject to section 2462. The Court rejected the evidentiary claim. View "SEC v. Kokesh" on Justia Law

The Goldmans, proceeding before an arbitration panel operating under the auspices of the Financial Industry Regulatory Authority (FINRA), alleged that their financial advisor and Citigroup had violated federal securities law in their management of the Goldmans’ brokerage accounts. The district court dismissed their motion to vacate an adverse award for lack of subject-matter jurisdiction, stating the Goldmans’ motion failed to raise a substantial federal question. The Third Circuit affirmed. Nothing about the Goldmans’ case is likely to affect the securities markets broadly. That the allegedly-misbehaving arbitration panel happened to be affiliated with a self-regulatory organization does not meaningfully distinguish this case from any other suit alleging arbitrator partiality in a securities dispute. The court noted “the flood of cases that would enter federal courts if the involvement of a self-regulatory organization were itself sufficient to support jurisdiction.” View "Goldman v. Citigroup Global Mkts., Inc" on Justia Law

After a failed merger between Cooper Tire and Apollo Tyres, OFI Asset Management, purporting to act for similarly situated investors, filed a class action against Cooper and its officers. OFI claims that, during merger negotiations, the defendants made material misrepresentations in statements to investors, in violation of federal securities laws, 15 U.S.C. 78j(b), 78n(a), and 78t(a). The Third Circuit affirmed the district court's dismissal of the case, rejecting arguments that that court improperly managed the presentation of arguments. The court upheld a finding that OFI failed to allege sufficient facts to support its claims. The court had ordered OFI to submit a letter “identifying and verbatim quoting” the five most compelling examples it could muster of false or fraudulent statements by Cooper, with three factual allegations demonstrating the falsity of each statement and three factual allegations supporting a finding of scienter as to the making of the statements. The court had subsequently determined that the statements identified as problematic by OFI were either not false or misleading, were “forward-looking” statements protected by the safe harbor established by the Private Securities Litigation Reform Act of 1995, lacked a sufficient showing of scienter, or suffered from some combination of those infirmities. View "OFI Asset Mgmt. v. Cooper Tire & Rubber" on Justia Law

The NCUA filed suit under the Securities Act of 1933, 15 U.S.C. 77a et seq., against Wachovia and Nomura for making false and misleading statements in their offerings of residential mortgage-backed securities (RMBS) purchased by Wescorp. The district court dismissed the claims, ruling that 12 U.S.C. 1787(b)(14) (the Extender Statute) did not supplant the statute of repose contained within 15 U.S.C. 77m, and therefore that the NCUA’s claims were time-barred. The court concluded that the district court erred in holding that the Extender Statute does not supplant the 1933 Act's statute of repose. The court held that the Extender Statute replaces all preexisting time limitations - whether styled as a statute of limitations or a statute of repose - in any action by the NCUA as conservator or liquidating agent. The court further held that the Extender Statute’s scope - “any action brought by the [NCUA]” - includes actions such as this one, in which the NCUA asserts statutory claims rather than common law tort or contract claims. Because the court concluded that NCUA claims were timely filed, the court vacated and remanded the district court's dismissal of the claims as time-barred. View "NCU Admin. Bd. v. Nomura Home Equity Loan" on Justia Law

With little formal education (a high school GED) Miller passed several securities industry examinations and “maintained a public persona of a very successful entrepreneur.” Miller sold investors over $41 million in phony “promissory notes,” which were securities under the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. 77b(a)(1), 78c(a)(10), and not exempt from federal or state registration requirements. Miller did not register the notes; he squandered the money, operating a Ponzi scheme. Miller pled guilty to one count of securities fraud, 15 U.S.C. 78j(b), and one count of tax evasion, 26 U.S.C. 7201. He was sentenced to 120 months’ imprisonment. The Third Circuit affirmed, rejecting an argument that the court improperly applied the Sentencing Guidelines investment adviser enhancement, U.S.S.G. 2B1.1(b)(19)(A)(iii). The court interpreted the Investment Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11) to apply broadly, with exceptions that do not apply to Miller. The court also rejected arguments that the government breached Miller’s plea agreement and that his sentence was substantively unreasonable. View "United States v. Miller" on Justia Law

Witter contends that in August 2007 he telephoned Skelton, an employee of his broker, TransAct, with instructions to cancel several standing orders. Skelton did not do so, and Witter lost $23,000 on the resulting market position. Skelton claims that Witter never told him to cancel all seven of the working orders at issue. Witter filed a complaint with the Commodity Futures Trading Commission, 7 U.S.C. 18(a), which found no violation. The judgment officer refused to draw an adverse inference based on TransAct’s failure to produce a recording of the “one crucial conversation” because TransAct was not required to record the call; he found that Skelton’s version was more plausible and Witter had a “propensity to confuse trading terms” like “position” and “order.” The Seventh Circuit affirmed, finding the Commission’s decision was supported by the evidence. Federal regulations require that, before buying or selling a commodity, a merchant must receive either “specific authorization” or “authorization in writing,” 17 C.F.R. 166.2. No regulation requires the merchant to record phone calls to cancel previously authorized orders to buy or sell. View "Witter v. Commodity Futures Trading Comm'n" on Justia Law

In the aftermath of Bernard Madoff's arrrest, the district court appointed a trustee for the liquidation of BLMIS, Madoff's investment advisory business. Several class actions were filed against JPMorgan by customers who directly had capital invested with BLMIS. JPMorgan entered a global resolution on January 6, 2014, involving three settlements. This putative class action seeks to hold liable JPMorgan and two JPMorgan employees: John Hogan, who served as Chief Risk Officer and later Chairman of Risk for JPMorgan, and Richard Cassa, who served as Client Relationship Manager for one of Madoff’s accounts. The district court granted defendants' motion to dismiss the Second Amended Complaint. The court affirmed the judgment, finding that appellants' Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78t(a), claim was untimely and that appellants' federal Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. 1961, claim was barred by the Private Securities Litigation Reform Act (PSLRA), 18 U.S.C. 1964(c). View "Dusek v. JPMorgan Chase & Co." on Justia Law

Petitioners seek review of the Commission's decision imposing sanctions for violations of the Investment Advisers Act of 1940, 15 U.S.C. 80b-21, and the rule against misleading advertising. Here, the Commission instituted an administrative enforcement action against petitioners for alleged violations of anti-fraud provisions of the Investment Advisers Act based on how they presented their “Buckets of Money” retirement wealth-management strategy to prospective clients. The court rejected petitioners' contention that the Commission’s decision and order under review should be vacated because the ALJ rendering the initial decision was a constitutional Officer who was not appointed pursuant to the Appointments Clause. The court also concluded that there is substantial evidence to support the Commission’s finding that petitioners’ “Buckets-of-Money” presentation promised to provide an historical-data-only backtest where the analysis would account for “rebucketizing.” Paying deference to the Commission's choice of sanctions, the court upheld the district court's imposition of the lifetime industry bar on Raymond J. Lucia. The court rejected petitioners' remaining contentions and denied the petition for review. View "Raymond J. Lucia Co. v. SEC" on Justia Law

Stevens, an insurance salesman, wanted to sell investment products. Because he was not registered with the SEC, Stevens needed to associate himself with a registered investment advisor, 15 U.S.C. 80b-3(a). In 2003, he associated with IFA, a loosely confederated investment advisory firm. In exchange for sharing clientele and fees with IFA, Stevens had access to IFA’s market resources and proprietary information, including access to a cloud-based data system. Stevens uploaded sensitive nonpublic information, concerning both investment clients and insurance clients (who were not IFA clients). IFA did not know that Stevens had entered the non-IFA client information into the database. IFA learned that Stevens was involved in a Ponzi scheme, severed its association with Stevens, and blocked Stevens from accessing the database. Stevens sued, alleging conversion, violation of the Illinois Trade Secrets Act, and tortious interference with business expectancy. The Seventh Circuit affirmed summary judgment for IFA on claims relating to securities clients. Federal law prevents a financial institution from disclosing nonpublic information of its clients to a nonaffiliated third party like Stevens. The court also affirmed a verdict in favor of IFA concerning insurance clients, upholding the trial court’s response to a question sent by the jury during deliberations, “Can we consider [filing] the lawsuit a demand for property?” The court stated that filing did not constitute a demand for the purposes of an Illinois law conversion claim. View "Stevens v. Interactive Fin. Advisors, Inc." on Justia Law