Articles Posted in U.S. 2nd Circuit Court of Appeals

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This case stemmed from a civil enforcement action brought by the SEC against Symbol Technologies. Defendant, Symbol's president and COO, subsequently appealed the district court's order directing him to disgorge to the SEC over $41 million, plus prejudgment interest, and to pay a civil penalty, for violations of various securities laws. For a number of years, defendant and others engaged in a wide array of fraudulent accounting practices and other misconduct. The court found no error or abuse of discretion in the entry of the default judgment, the denial of defendant's recusal motion, and the disgorgement award. The court, however, remanded for recalculation of prejudgment interest and for the clerical correction of a discrepancy between the amount of the civil penalty ordered in the district court's ruling and the amount of the penalty awarded in the judgment. View "SEC v. Razmilovic" on Justia Law

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Plaintiffs filed a putative class action seeking to hold ProShares liable for material omissions and misrepresentations in the prospectuses for certain exchange-traded funds (ETFs) under the Securities Act of 1933, 15 U.S.C. 77k and 77o. Plaintiffs alleged that registration of statements omitted the risk that the ETFs, when held for a period of greater than one day, could lose substantial value in a relatively brief period of time, particularly in periods of high volatility. The district court concluded that the disclosures at issue accurately conveyed the specific risk that plaintiffs asserted materialized. The court agreed with the district court's conclusion that the relevant prospectuses adequately warned the reasonable investor of the allegedly omitted risks. View "In Re: ProShares Trust Sec. Litig." on Justia Law

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Plaintiffs, former Lehman employees, filed suit alleging that defendants, members of the Benefits Committee, and the company's Directors, breached their duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq. In regards to plaintiffs' claims that the Benefits Committee Defendants breached their duty of prudence in managing the company's employee stock ownership plan (ESOP), the court concluded that plaintiffs have not rebutted the Moench v. Robertson presumption because they failed to allege facts sufficient to show that the Benefits Committee Defendants knew or should have known that Lehman was in a "dire situation" based on information that was publicly available during the class period. In regards to plaintiffs' claims that the Benefits Committee Defendants breached their duty of disclosure, the publicly-known information available to defendants did not give rise to an independent duty to investigate Lehman's SEC filings prior to incorporating their content into a summary plan description issued to plan-participants. The court affirmed the district court's dismissal of plaintiffs' remaining claims. View "In Re: Lehman Bros. ERISA Litig." on Justia Law

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Defendants appealed their securities fraud and conspiracy convictions stemming from their involvement in a double-blind, high-volume insider trading network that led the participants to acquire over $10 million in profits. The court held that wiretap evidence was lawfully obtained and therefore properly admitted; the jury had sufficient evidence to convict Defendant Kimelman of securities fraud; the conscious avoidance jury instructions were proper; evidence of Kimelman's rejection of a plea bargain was properly excluded; and defendants' sentences were reasonable. Accordingly, the court affirmed the convictions and sentences. View "United States v. Goffer" on Justia Law

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Intervenors appealed the district court's denial of their motion to intervene in a suit where the lead plaintiff and other putative class members alleged that defendants had made fraudulent misrepresentations and omissions in the offering and sale of certain financial instruments which they purchased. The court held that: (1) American Pipe & Construction Co. v. Utah's tolling rule did not apply to the three-year statute of repose in Section 13 of the Securities Act of 1933, 15 U.S.C. 77m; and (2) absent circumstances that would render the newly asserted claims independently timely, neither Federal Rule of Civil Procedure 24 nor the Rule 15(c) "relation back" doctrine permitted members of a putative class, who were not named parties, to intervene in the class action as named parties in order to revive claims that were dismissed from the class complaint for want of jurisdiction. The proposed intervenors could not circumvent Section 13's statute of repose by invoking American Pipe or Rule 15(c). Accordingly, the court affirmed the judgment insofar as the district court partially denied the motions to intervene. View "In re IndyMac Mortgage-Backed Sec. Litig." on Justia Law

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Defendant appealed his securities fraud conviction for insider trading. The court held that the district court properly analyzed the misstatements and omissions in the government's Title III wiretap application under the analytical framework prescribed in Franks v. Delaware; the alleged misstatements and omissions in the wiretap application did not require suppression; and the district court's jury instructions on the use of inside information satisfied the "knowing possession" standard. Accordingly, the court affirmed the judgment. View "United States v. Rajaratnam" on Justia Law

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Trustee sued on behalf of victims in the Ponzi scheme worked by Bernard Madoff under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa, alleging that, when defendants were confronted with evidence of Madoff's illegitimate scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the fraud. The court concluded that the doctrine of in pari delicto barred the Trustee from asserting claims directly against defendants on behalf of the estate for wrongdoing in which Madoff participated; SIPA provided no right to contribution; and the Trustee did not have standing to pursue common law claims on behalf of Madoff's customers. Accordingly, the court affirmed the district court's dismissal of the Trustee's claims. View "In Re: Bernard L. Madoff Investment Securities" on Justia Law

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Appellants sought to avoid and recover certain payments made by debtor, QWUSA, to appellees, noteholders, in exchange for private placement notes that had been issued by one of debtor's affiliates. On appeal, appellants challenged the district court's affirmance of the bankruptcy court's grant of appellees' motion for summary judgment. The bankruptcy court held that the payments were exempt from avoidance because they were both "settlement payments" and "transfers made... in connection with a securities contract," under 11 U.S.C. 546(e). The court affirmed the district court's judgment, concluding that the payments fell within the safe harbor for "transfers made... in connection with a securities contract." View "In re: Quebecor World (USA), Inc." on Justia Law

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Defendant appealed from a post-judgment order barring him from acting as an officer or director of a public company for ten years, pursuant to section 21(d)(2) of the Securities Exchange Act of 1934, 15 U.S.C. 78u(d)(2). The SEC accused defendant of insider trading and, after the entry of a consent judgment, in which defendant neither admitted nor denied the allegations in the complaint, the SEC moved for an officer and director bar pursuant to section 21(d)(2). The court held that the district court did not err in relying on the six Patel factors in this case. The 2002 Amendment, by lowering the threshold of misconduct required to impose the officer and director bar, did not undermine the usefulness of the Patel factors, which indicated where evidence of unfitness might be found in a defendant's conduct. In light of the circumstances presented, the district court reasonably determined that a ten year ban was warranted and, therefore, did not abuse its discretion. Accordingly, the court affirmed the judgment. View "SEC v. Bankosky" on Justia Law

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Several individual investors appealed from the district court's dismissal of their complaint alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. This litigation arose out of a fraudulent scheme engaged in a now-defunct broker-dealer (Baron). The court concluded that the investors have sufficiently pleaded with particularity that certain Baron investors (Dweck) provided knowing and substantial assistance in financing and facilitating the Baron fraud. While such allegations would easily be sufficient in an SEC civil action, or a federal criminal action because this knowing and substantial assistance constituted, at the least, aiding and abetting, they did not meet the standards for private damage actions under Section 10(b). Nevertheless, with the investors' state law claims - civil conspiracy to defraud and aiding and abetting fraud - the complaint alleged sufficient involvement by Dweck in the scheme to survive a motion to dismiss. Therefore, the court vacated the dismissal and remanded the state law claims for further proceedings. The court affirmed the dismissal of the federal securities claims. View "Fezzani v. Bear, Stearns & Co." on Justia Law