Justia Securities Law Opinion Summaries

The complaint and referenced documents show that Quiznos fast-food franchise had borrowed heavily before its business sharply declined. From 2007 to 2011, Quiznos lost roughly 3,000 franchise restaurants and profitability plunged. With this plunge, Quiznos could no longer satisfy its loan covenants. As a result, Avenue Capital Management II, L.P., “Fortress” (a collective of investment entities) and others could foreclose on collateral, call in debt, or accelerate payments. To avoid a calamity, Quiznos restructured its debt. This securities-fraud matter arose out of the attempt to restructure that debt. Multiple investment funds purchased equity in Quiznos, and despite efforts, Avenue and Fortress sued former Quiznos managers and officers, claiming they had fraudulently misrepresented Quiznos’ financial condition. The district court dismissed the causes of action based on securities fraud based on a failure to state a valid claim. Finding no reversible error in that dismissal, the Tenth Circuit affirmed the district court’s decision. View "Avenue Capital Management II, v. Schaden" on Justia Law

Plaintiffs, trustees of an Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq., pension fund, filed suit against its investment manager and principals alleging that defendants knew by 1998 that investing with Bernard L. Madoff Investment Securities LLC (BLMIS) was imprudent; that these defendants breached their fiduciary duty by failing to warn the fund of this fact; that if warned, the fund would have withdrawn the full sum appearing on its 1998 BLMIS account statements; and that prudent alternative investment of that sum would have earned more than the fund’s actual net withdrawals from its BLMIS account between 1999 and 2008. Plaintiffs also filed suit against Bank of New York Mellon Corporation, which acquired the investment manager in 2000, alleging that it knowingly participated as a non‐fiduciary in the fiduciary breach. The district court dismissed the complaint for failure to state a claim under Rule 12(b)(6) and for failure to allege an actual injury sufficient to establish Article III standing under Rule 12(b)(1). The court concluded that plaintiffs failed to allege facts sufficient to show Article III standing where plaintiffs have not plausibly alleged losses in excess of their profits; the increase in pension funds does not constitute a cognizable loss; the court rejected plaintiffs' claim of disgorgement of Simon and Wohl; and the complaint fails to state a claim against BNY Mellon for participation in a breach of fiduciary duty by Ivy, Simon, and Wohl. Accordingly, the court affirmed the judgment. View "Trustees of the Upstate New York Engineers Pension Fund v. Ivy Asset Management" on Justia Law

In these consolidated appeals, defendant Virginia K. Sourlis challenges the district court's judgment in an enforcement action brought by the SEC in connection with public offerings of unregistered shares of stock of defendant Greenstone. The district court granted a motion by the SEC for summary judgment on issues of liability, holding Sourlis--an attorney who wrote a January 11, 2006 opinion letter ("Sourlis Letter") relating to one of the offerings--liable for violating section 5 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77e; violating 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5; and aiding and abetting violations of section 10(b) and Rule 10b-5, in violation of section 20(e) of the Exchange Act, 15 U.S.C. 78t(e). The Superseding Final Judgment orders Sourlis to pay a total of $57,284.83 as a civil penalty, disgorgement, and prejudgment interest, and permanently bars her from participating in so-called "penny stock" offerings. The court found no error in the district court's determinations of liability and no abuse of discretion in its remedial order. Accordingly, the court affirmed the judgment in Nos. 14-2301 and 15-3978. The court dismissed as moot the SEC's cross-appeal in No. 14-2937. View "SEC v. Sourlis" on Justia Law

Defendant John B. Frohling appeals the district court's judgment in an enforcement action brought by the SEC in connection with public offerings of unregistered shares of stock of defendant Greenstone. The district court granted a motion by the SEC for summary judgment on issues of liability, holding Frohling--who as Greenstone's securities counsel in 2006-2008 wrote, approved, or concurred in 11 opinion letters relating to all of the relevant offerings--liable for violating section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77q(a); section 5 of the Securities Act, 15 U.S.C. 77e; and section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5. The Superseding Final Judgment orders Frohling to pay a total of $204,161.86 as a civil penalty, disgorgement, and prejudgment interest, and permanently bars him from participating in so-called "penny stock" offerings. The court found no basis for reversal and affirmed the judgment. View "SEC v. Frohling" on Justia Law

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b–5 prohibit undisclosed trading on inside corporate information by persons bound by a duty not to exploit that information for their personal advantage. These persons are also forbidden from tipping inside information to others for trading. The Supreme Court has held (Dirks) that tippee liability hinges on whether the tipper disclosed the information for a personal benefit; personal benefit may be inferred where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.” Salman was convicted for trading on inside information he received from Kara, who had received the information from his brother, Maher, a former investment banker at Citigroup. Maher testified that he expected his brother to trade on the information. Kara testified that Salman knew the information was from Maher. While Salman’s appeal was pending, the Second Circuit decided that personal benefit to the tipper may not be inferred from a gift of confidential information to a trading relative or friend, unless there is “proof of a meaningfully close personal relationship … that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” The Ninth Circuit declined to follow the Second Circuit. A unanimous Supreme Court affirmed. When an insider gives a trading relative or friend confidential information, the situation resembles trading by the insider himself followed by a gift of the profits to the recipient. Maher breached his duty to Citigroup and its clients—a duty acquired and breached by Salman when he traded on the information, knowing that it had been improperly disclosed. View "Salman v. United States" on Justia Law

Following a drop in the share price of ARIAD Pharmaceuticals, Inc., investors filed suit against the corporation and four corporate officers (collectively, ARIAD). Plaintiffs alleged securities fraud in violation of the Securities Exchange Act and raised claims under sections 11 and 15 of the Securities Act against ARIAD, its directors, and various underwriters involved in the corporation's January 2013 common stock offering. On Defendants’ motion, the district court dismissed the complaint in its entirety. The First Circuit (1) affirmed the district court’s dismissal of the securities fraud counts except with respect to one particular material misstatement for which the Court found the allegations set forth in the complaint sufficient to state a claim; and (2) affirmed the disposition of Plaintiffs’ claims under Sections 11 and 15. Remanded. View "Bradley v. ARIAD Pharmaceuticals, Inc." on Justia Law

Tutor Perini Corporation, a giant construction company, sued Banc of America Securities LLC (BAS) and Bank of America, N.A. (BANA), alleging that BAS, acting as its broker-dealer and with BANA’s knowledge and acquiescence, sold Tutor Perini auction-rate securities (ARS) without disclosing that the ARS market was heading for a crash. Tutor Perini filed suit in Massachusetts’s federal district court, alleging securities fraud under state and federal law and several other state-law claims. BAS and BANA moved for summary judgment on all claims, claiming that BAS actually disclosed the risks that later materialized. The district court granted BAS and BANA’s motion. The First Circuit (1) vacated the summary judgment for BAS on the state securities-fraud claim, the federal securities-fraud claim, the state negligent-misrepresentation claim, and the state unfair-business-practices claim, holding that genuine issues of material fact existed as to these claims; and (2) affirmed in all other respects. Remanded. View "Tutor Perini Corp. v. Banc of America Securities LLC" on Justia Law

Plaintiff filed suit alleging claims under the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), against, inter alia, Lead Underwriters. Plaintiff sought to hold Lead Underwriters liable under Section 16(b) for disgorgement of short-swing profits received in connection with their sales and purchases of shares in the course of Facebook, Inc.'s initial public offering (IPO). The district court dismissed the complaint on the grounds that the lock-up agreements alone did not render the Lead Underwriters beneficial owners of the aggregated shares held by the Shareholders under Section 13(d). The court agreed that this standard form lock-up agreement is insufficient, on its own, to establish a group under Section 13(d). Accordingly, the court affirmed the judgment. View "Lowinger v. Morgan Stanley" on Justia Law

New York’s champerty law prohibits the purchase of notes, securities, or other instruments or claims with the intent and for the primary purpose of bringing a lawsuit. Appellant brought this action against Respondents alleging that Respondents’ fraud and malfeasance in managing two investment vehicles caused a significant decline in the value of notes purchased by a nonparty, from whom Plaintiff acquired the notes days before it commenced this action. Respondents raised the affirmative defense of champerty, arguing that Plaintiff’s acquisition of the Notes was champertous under Judiciary Law 489. Supreme Court dismissed the complaint, concluding that Plaintiff’s acquisition of the notes from the nonparty was champertous and that Plaintiff was not entitled to the protection of the champerty safe harbor of Judiciary Law 489(2). The Court of Appeals affirmed, holding (1) Plaintiff’s acquisition of the notes was champertous; and (2) Plaintiff was not entitled to the proaction of the safe harbor provision. View "Justinian Capital SPC v. WestLB AG" on Justia Law

Plaintiff filed a putative securities class action against defendants in connection with public statements made about Arena’s weight-loss drug, lorcaserin. When Arena filed its application with the FDA, the FDA’s advisory panel published a briefing document that disclosed, for the first time, that Arena had been in a “highly unusual” back-and-forth with the FDA regarding the results of cancer studies on rats (the “Rat Study”). Plaintiff filed suit after news of the Rat Study broke. The district court dismissed the First, Second, and Proposed Third Amended Complaints. The court agreed that once defendants touted the safety and likely approval of the drug based on animal studies, defendants were obligated to disclose the Rat Study's existence to the market. The court concluded that plaintiff has alleged scienter with sufficient particularity to survive a motion to dismiss. In this case, there is no question that plaintiff has alleged that defendants knew that the Rat Study existed, that defendants knew that the FDA’s request for bi-monthly reports and follow-up studies was highly unusual and out-of-process, and defendants went ahead and told investors about their confidence in lorcaserin’s approval based on preclinical animal studies. Therefore, the court concluded that plaintiff has properly pleaded scienter under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-4. The court reversed and remanded. View "Schwartz v. Arena Pharmaceuticals, Inc." on Justia Law