Justia Securities Law Opinion Summaries

Defendant, a tile salesman, received material, nonpublic information from a corporate inside and then passed that information along to friends, who used it to obtain substantial trading gains. After a jury trial, Defendant was convicted of committing securities fraud and conspiring to commit securities fraud. Defendant appealed, arguing that there was insufficient evidence in the record to support his conviction, where he was neither a corporate insider nor a trader of securities. The First Circuit affirmed, holding (1) the evidence was sufficient to show that Defendant knowingly breached a duty of confidence; (2) the district court’s instructions did not improperly shift the burden of proof or misstate the state of mind element of the securities fraud offense; and (3) the evidence was sufficient to show that Defendant anticipated receiving a benefit as a result of his disclosure. View "United States v. McPhail" on Justia Law

Trachte, a Wisconsin manufacturer, established an employee stock ownership plan (ESOP) in the mid-1980s. In the late 1990s, Fenkell and his company, Alliance, began buying ESOP-owned, closely-held companies with limited marketability. Typically, Fenkell would merge the acquired company's ESOP into Alliance’s ESOP, hold the company for a few years with its management in place, and then spin it off at a profit. Alliance acquired Trachte in 2002 for $24 million and folded its ESOP into Alliance’s ESOP. Trachte’s profits, however, were flat and its growth stalled, so Fenkell arranged a complicated leveraged buyout involving creation of a new Trachte ESOP managed by trustees beholden to Fenkell. The accounts in the Alliance ESOP were spun off to the new Trachte ESOP, which used the employees’ accounts as collateral to purchase Trachte’s equity back from Alliance, Trachte and its new ESOP paid $45 million for Trachte’s stock and incurred $36 million in debt. The purchase price was inflated; the debt load was unsustainable. By the end of 2008, Trachte’s stock was worthless. The employee participants in the new ESOP sued Alliance, Fenkell, and trustees, alleging breach of fiduciary duty in violation of the Employee Retirement Income Security Act. The district court found the defendants liable, crafted a remedial order to make the class whole, awarded attorney’s fees, and approved settlements among some of the parties. Fenkell conceded liability. The Seventh Circuit​ affirmed the order requiring him to indemnify his cofiduciaries. View "Chesemore v. Fenkell" on Justia Law

Ohio Public Employees Retirement System (OPERS) filed a class action suit alleging securities fraud against Federal Home Loan Mortgage Corporation (Freddie Mac), a government sponsored entity chartered by Congress that operates in the secondary mortgage market. OPERS alleged that Freddie Mac concealed its overextension in the nontraditional mortgage market (subprime mortgages or low credit and high-risk instruments) and its materially deficient underwriting, risk management, and fraud detection practices through misstatements and omissions to investors. OPERS claimed that the fund suffered foreseeable losses triggered when the risk that had been concealed materialized. The district court dismissed, concluding that OPERS failed to show loss causation. The Sixth Circuit reversed. Considering “the relationship between the risks allegedly concealed and the risks that subsequently materialized,” as well as the close correlation between the alleged revelation or materialization of the risk and the immediate fall in stock price, the court concluded that OPERS had alleged sufficient facts to support a plausible claim. View "Oh. Pub. Employees Ret. Sys. v. Fed. Home Loan Mortgage Corp." on Justia Law

SRM, a registered private investment fund, filed suit against Bear Stearns, its officers, and its auditor, Deloitte, after the collapse of the Bear Stearns companies. The district court dismissed SRM's claims. The court held that the class action tolling rule set forth in American Pipe & Construction Co. v. Utah does not apply to 28 U.S.C. 1658(b)(2), the five‐year statute of repose that limits the time in which plaintiffs may bring claims under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and SEC 15 Rule 10b‐5, 17 C.F.R. 240.10b‐5. The court also concluded that SRM failed adequately to allege that it relied on any misrepresentations in making investment decisions, an element of its common law fraud claims. Accordingly, the court affirmed the district court's dismissal of the claims. View "SRM Global Master Fund v. Bear Stearns" on Justia Law

ESG was a group of investors formed to purchase pre-Initial Public Offering (pre-IPO) Facebook shares. ESG’s managing agent negotiated the purchase with a man he believed to be "Ken Davis." "Ken Davis" was an alias for Troy Stratos, an alleged con artist. Venable represented "Dennis" in the Facebook deal, which is the subject of this securities fraud suit. After learning that ESG had been defrauded, managing agent Burns panicked and hid the news from ESG. ESG claims it did not learn of the alleged fraud and that their money had been stolen until November 2012. ESG filed suit against Stratos and Venable and attorney Meyer on March 6, 2013, alleging eight causes of action. The district court dismissed ESG's complaint, and subsequently the first amended complaint (FAC), with prejudice. The court held that ESG's federal securities fraud claim is sufficiently pled under FRCP 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. 78j(b), 17 C.F.R. 240.10b–5; ESG's state law fraud claim, which parallels the federal securities fraud claim, is sufficiently pled under FRCP 9(b); ESG’s nonfraud state law claims for conversion, unjust enrichment, unfair competition, aiding and abetting fraud, and conspiracy to commit fraud are sufficiently pled under FRCP 8(a)(2); and ESG's breach of fiduciary duty claim is barred by Cal. Civ. Proc. Code 340.6's one-year statute of limitations. Finally, the court concluded that neither the aiding and abetting fraud claim nor the conspiracy to commit fraud claim is barred by Cal. Civ. Code 1714.10’s Agent’s Immunity Rule. Accordingly, the court affirmed in part, reversed in part, and remanded. View "ESG Capital Partners v. Venable LLP" on Justia Law

Spirit AeroSystems, Inc. agreed to supply parts for three types of aircraft manufactured by Gulfstream Aerospace Corporation and The Boeing Company. For these aircraft, Spirit managed production of the parts through three projects. Each project encountered production delays and cost overruns, and Spirit periodically reported to the public about the projects’ progress. In these reports, Spirit acknowledged risks but expressed confidence about its ability to meet production deadlines and ultimately break even on the projects. Eventually, however, Spirit announced that it expected to lose hundreds of millions of dollars on the three projects. Spirit’s stock price fell roughly 30 percent following the announcement. The plaintiffs brought this action on behalf of a class of individuals and organizations that had owned or obtained Spirit stock between November 3, 2011, and October 24, 2012. The named defendants were Spirit and four of its executives, whom plaintiffs alleged misrepresented and failed to disclose the projects' cost overruns and production delays, violated section 10(b) of the Securities Exchange Act of 1934, and the Securities and Exchange Commission's Rule 10b-5. The trial court granted defendants' motion to dismiss, concluding in part that plaintiffs failed to allege facts showing scienter. Finding no reversible error in the trial court's order, the Tenth Circuit affirmed. View "Anderson v. Spirit AeroSystems Holdings" on Justia Law

Plaintiffs, shareholders of ZAGG Inc., a publicly held Nevada corporation, filed a shareholder-derivative action seeking damages, restitution, and other relief for ZAGG. They alleged that past and present officers and directors of ZAGG violated section 14(a) of the Securities Exchange Act of 1934, breached their fiduciary duties to ZAGG, wasted corporate assets, and were unjustly enriched. The district court dismissed the suit on two alternative grounds: (1) Plaintiffs filed suit before presenting the ZAGG Board of Directors (the Board) with a demand to bring suit and they failed to adequately allege that such demand would have been futile; and (2) the complaint failed to state a claim. Plaintiffs appealed the dismissal on both of the district court's alternative grounds. Because the Tenth Circuit denied the challenge to the first ground, it did not address the second. View "Pikk v. Pedersen" on Justia Law

Respondent Steve Taylor invested $3 million in several investment companies operated by Sean Mueller. Unbeknownst to Taylor, the companies were part of a multi-million dollar Ponzi scheme. The "Mueller Funds" received approximately $150 million in investments, and paid out a little less than $90 million to investors before collapsing. Taylor happened to receive approximately $3.4 million (a return of his invested principal plus net profit) prior to the collapse. Other investors were not as fortunate, losing a sum total of approximately $72 million. In 2010, Mueller ultimately pled guilty to securities fraud, and was sentenced to a total of 40 years in prison. In addition, he was ordered to pay over $64 million in restitution. Petitioner C. Randel Lewis was appointed as Receiver for the Mueller Funds, tasked with collecting Mueller's assets to his creditors and defrauded investors. The Receiver and Taylor signed a tolling agreement that extended the time period within which the Receiver could bring suit against Taylor in an attempt to recover assets. The eventual complaint sought to recover the net profit Taylor received. Taylor received his last payout in April 2007, and moved for summary judgment claiming the Receiver's claim was time barred due to the applicable statute of limitations. The trial court considered the tolling agreement and ruled in the Receiver's favor. Taylor appealed, and the court of appeals reversed, interpreting the term "extinguished," as used in 38-8-110(1), C.R.S. (2015), imposed a jurisdictional time limit on filing a claim, and that the parties could not toll that limit by agreement. The Supreme Court concluded that 38-8-110(1)'s time limitation could indeed be tolled by express agreement. The Court reversed the appellate court and remanded the case for further proceedings. View "Lewis v. Taylor" on Justia Law

AMSE appealed the Commission's final order denying AMSE's application for a limited volume exemption from registration as a national securities exchange under section 5 of the Securities Exchange Act of 1934, 15 U.S.C. 78a et. seq., and the district court’s dismissal of AMSE’s complaint for lack of jurisdiction. The court found that the Commission’s determination that it did not have discretion to grant a low-volume exemption to AMSE because it proposed to act as a self-regulatory organization (SRO) was reasonable; the Commission reasonably concluded that an exempt exchange could not be an SRO and that permitting an exchange to wield the broad powers of an SRO when the Commission is not statutorily required to exercise oversight would contradict the careful balance prescribed by Congress to protect the public interest and investors; and, therefore, the Commission's conclusion is well-reasoned and does not constitute an abuse of discretion. The court also concluded that AMSE has failed to establish circumstances permitting for district court review. Accordingly, the court denied the petition for review and affirmed the district court's judgment. View "Automated Matching Sys. v. SEC" on Justia Law

Congress set forth a detailed process for exclusive judicial review of final Commission orders in the federal courts of appeals. An SEC administrative enforcement action culminates in a final order of the Commission, which in turn is reviewable exclusively by the appropriate federal court of appeals under 15 U.S.C. 78y. At issue in this consolidated appeal is whether respondents in an SEC administrative enforcement action can bypass the Securities Exchange Act’s, 15 U.S.C. 78u(d), 78u-1, 78u-2, 78u-3, review scheme by filing a collateral lawsuit in federal district court challenging the administrative proceeding on constitutional grounds. From the text of the statute, the court could fairly discern Congress’s general intent to channel all objections to a final Commission order - including challenges to the constitutionality of the SEC ALJs or the administrative process itself - into the administrative forum and to preclude parallel federal district court litigation. The court found no indication that respondents’ constitutional challenges are outside the type of claims that Congress intended to be reviewed within this statutory scheme. Accordingly, the district court erred in exercising jurisdiction and the court vacated the district court’s preliminary injunction orders and remanded with instructions to dismiss each case for lack of jurisdiction. View "Hill, Jr. v. SEC" on Justia Law