Justia Securities Law Opinion Summaries

James Hopkins and John Flannery, two former employees of State Street Bank and Trust Company, were charged with violations of 15 U.S.C. 77q(a), 15 U.S.C. 78j(b), and 17 C.F.R. 240.10b-5 for engaging making material misrepresentations and omissions that misled investors about two State Street-managed funds. The United States Securities and Exchange Commission’s (SEC) Chief Administrative Law Judge (ALJ) dismissed the proceeding, finding that neither defendant was responsible for or had ultimate authority over the documents at issue and that these documents did not contain materially false or misleading statements or omissions. The SEC reversed the ALJ with regard to a slide that Hopkins used at a presentation to a group of investors and two letters that Flannery wrote or had seen before they were sent to a investors. The Commission imposed cease-and-desist orders on both defendants, suspended them from association with any investment adviser or company for one year, and imposed civil monetary penalties. The First Circuit vacated the Commission’s order, holding that the Commission’s findings were not supported by substantial evidence. View "Flannery v. Securities & Exchange Comm’n" on Justia Law

This appeal was the most recent appeal in a series of lawsuits that have arisen over the sale of bonds by a corporation wholly owned by the Lac du Flambeau Band of Lake Superior Chippewa Indians (collectively, “the Tribal Entities”). In a prior action, the Seventh Circuit held that a bond indenture constituted an unapproved management contract under the Indian Gaming Regulatory Act (“IGRA”) and was therefore void. Following more than three years of litigating the validity of other bond-related documents in federal and state court, the Tribal Entities instituted a tribal court action seeking a declaration that the bonds are invalid under the IGRA as well as tribal law. Certain “Financial Entities” and Godfrey & Kahn S.C. sought an injunction in the Western District of Wisconsin to preclude the Tribal Entities from pursuing their tribal court action. The district court preliminarily enjoined the Tribal Entities from proceeding against the Financial Entities but allowed the tribal action to proceed against Godfrey. The Seventh Circuit affirmed in part and reversed in part, holding that the district court (1) did not abuse its discretion in enjoining the tribal court action against the Financial Entities; but (2) made several errors of law in assessing whether Godfrey had established a likelihood of success on the merits. Remanded. View "Stifel, Nicolaus & Co., Inc. v. Lac Du Flambeau Band of Lake Superior Chippewa Indians" on Justia Law

The FHFA filed a summons with notice in state court asserting breach of contractual obligations to repurchase mortgage loans that violated representations and warranties and then Quicken removed the action to federal court. Plaintiff, as trustee of the subject residential mortgage‐backed securities trust, took control of the litigation and filed the complaint. Quicken moved to dismiss the suit. The court affirmed the district court's conclusion that (1) the statute of limitations ran from the date the representations and warranties were made; (2) the extender provision of the Housing and Economic Recovery Act,12 U.S.C. 4617(b)(12), did not apply to the Trustee’s claim; and (3) the Trustee’s claim for breach of the implied covenant of good faith and fair dealing was duplicative. View "Deutsche Bank Nat'l v. Quicken Loans" on Justia Law

ChinaCast founder and CEO Ron Chan embezzled millions from his corporation and misled investors through omissions and false statements. At issue was whether Chan’s fraud can be imputed to ChinaCast, his corporate employer, even though Chan’s actions was adverse to ChinaCast’s interests. The court agreed with the Third Circuit and concluded that Chan's fraudulent misrepresentations - and, more specifically, his scienter or intent to defraud - can be imputed to ChinaCast. The court concluded that imputation is proper because Chan acted with apparent authority on behalf of the corporation, which placed him in a position of trust and confidence and controlled the level of oversight of his handling of the business. Accordingly, the court dismissed the complaint alleging securities fraud under Rule 12(b)(6). View "Costa Brava P'ship v. ChinaCast Educ. Corp." on Justia Law

Plaintiff, a stockholder in DeVry, which operates for-profit colleges and universities, filed a shareholders’ derivative suit against DeVry’s board of directors. A 2005 incentive plan authorized awards of stock options to key employees, including the CEO. The plan limited awards to 150,000 shares per employee per year. Nonetheless, the company granted Hamburger, who became its CEO in 2006, options on 184,100 shares in 2010, 170,200 in 2011, and 255,425 in 2012. DeVry, discovering its mistake, reduced each grant under the 2005 plan to 150,000 shares, but allocated Hamburger 87,910 shares available under the company’s 2003 incentive plan, which held shares that had not been allocated. Only the company’s Plan Committee, not the Compensation Committee, was authorized to grant stock options under the 2003 plan; there was no Plan Committee in 2012. The grant of 87,910 stock options was approved by the Compensation Committee, and then by the independent directors as a whole. The Seventh Circuit affirmed dismissal. The directors who approved the Compensation Committee’s recommendation were disinterested: the recommendation was a valid exercise of business judgment. Administration of the 2003 plan by the Compensation Committee, given the nonexistence of the Plan Committee, was not “a clear or intentional violation of a compensation plan,” View "Donnawell v. Hamburger" on Justia Law

In 2005, the Harrises bought tens of thousands of shares in Bancorp through a TD Ameritrade account. Six years later, the Harrises sought to hold some of their Bancorp stock in another form, registered in their name and reflected in a physical copy of a certificate signifying their ownership. TD Ameritrade refused to convert the Harrises’ form of ownership, stating that all Bancorp stock was in a “global lock,” prohibiting activity in the stock, including changing the Harrises’ form of ownership. The lock was created because someone had fraudulently created hundreds of millions of invalid shares of Bancorp stock. The Harrises sued, alleging that TD Ameritrade had violated SEC Rule 15c3-3 and Nebraska’s version of the Uniform Commercial Code. The Sixth Circuit affirmed dismissal.. Neither the SEC Rule nor Nebraska’s Commercial Code creates a private right of action to vindicate the alleged problem. View "Harris v. TD Ameritrade, Inc." on Justia Law

Forquest Ventures was formed to operate a placer mining enterprise in Helena, Montana. Ken Hagman relied on purported assay reports of the site allegedly performed by Advanced Analytical before incorporating Forquest. Following incorporation, Forquest sold or issued stock to investors, including Investors. Because there was little precious metal content at the site, Forquest realized no profits and Investors received no return on their investments. Emilio and Candice Garza, individually and on behalf of all similarly situated Forquest investors, sued. The Garzas then filed an amended complaint adding the other Investors as named plaintiffs. Forquest filed a third-party complaint against Advanced Analytical. The district court granted summary judgment to Investors on their Montana Securities Act (Act) claims and granted Advanced Analytical’s motion to dismiss. The Supreme Court affirmed in part and reversed in part, holding that the district court (1) correctly determined that Investors timely asserted their claims under the Act; (2) did not err in determining that the non-Garza Investors’ claims relate back to the original complaint’s filing date; (3) correctly determined that there were no genuine issues of material fact regarding Forquest’s failure to use reasonable care in the sale of securities to Investors; but (4) erred in dismissing Advanced Analytical for lack of personal jurisdiction. View "Garza v. Forquest Ventures, Inc." on Justia Law

The SEC brought an administrative proceeding against George Jarkesy, Jr., for securities fraud. Meanwhile, Jarkesy filed this suit seeking the administrative proceeding's termination, arguing that the proceeding’s initiation and conduct infringe his constitutional rights. The district court dismissed for lack of subject matter jurisdiction, concluding that Congress, by establishing a detailed statutory scheme providing for an administrative proceeding before the Commission plus the prospect of judicial review in a court of appeals, implicitly precluded concurrent district-court jurisdiction over challenges like Jarkesy’s. In Thunder Basin Coal Co. v. Reich, the Supreme Court set forth a framework for determining when a statutory scheme of administrative and judicial review forecloses parallel district-court jurisdiction. Applying the considerations outlined in Thunder Basin and its progeny, the court found that Congress intended exclusivity when it established the statutory scheme. Consequently, instead of obtaining judicial review of his challenges to the Commission’s administrative proceeding now, Jarkesy can secure judicial review in a court of appeals when (and if) the proceeding culminates in a resolution against him. Accordingly, the court affirmed the judgment of the district court. View "Jarkesy, Jr. v. SEC" on Justia Law

Athena incurred $1.4 million in losses on investments with Goldman Sachs and believed that Goldman misrepresented the risks, Goldman and Athena participated in arbitration to settle the dispute. Athena asserted misrepresentation, securities fraud, common law fraud and breach of fiduciary duty. After the first panel session, the Financial Industry Regulatory Authority (FINRA) disclosed that a panel member, Timban, had been charged with the unauthorized practice of law based on an appearance in a New Jersey municipal court. Neither party, nor FINRA, objected to Timban’s continued participation; neither party conducted further due diligence. Following a nine-day hearing, the panel ruled in favor of Goldman. Two panel members signed the award, but Timban did not. Under the Subscription Agreement, only two members needed to sign the award for it to have binding effect. After the award, Athena conducted a background investigation on Timban and learned that Timban failed to disclose numerous regulatory complaints against him. The district court ordered a new arbitration hearing, reasoning that Athena’s rights were compromised by an arbitrator who misrepresented his ability to serve and abandoned the panel before its final ruling. The Third Circuit reversed, finding that Athena waived its right to challenge the award. View "Goldman Sachs & Co v. Athena Venture Partners, L.P." on Justia Law

Plaintiff appealed the district court's summary judgment dismissal of his suit against defendants. At issue is the whistleblower protection provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, Title IX, 922(a), 124 Stat. 1376, 1841, which added section 21F to the Exchange Act of 1934, 15 U.S.C. 78u-6. The SEC issued a regulation to clarify that, for the purposes of the employment retaliation protections provided by Section 21F, an individuals's status as a whistleblower does not depend on adherence to the reporting procedures specified in Exchange Act Rule 21F-9(a). The court concluded that, under SEC Rule 21F-2(b)(1), plaintiff is entitled to pursue Dodd-Frank remedies for alleged retaliation after his report of wrongdoing to his employer, despite not having reported to the Commission before his termination. Accordingly, the court reversed the judgment of the district court and remanded for further proceedings. On remand, the district court will have an opportunity to consider the R&R’s recommendation to dismiss, without prejudice to amendment, for lack of a sufficient allegation of a termination entitled to Dodd-Frank protection, and any other arguments made by defendants in support of their motion to dismiss. View "Berman v. Neo@Ogilvy LLC" on Justia Law