Justia Securities Law Opinion Summaries

A former employee, after suspecting his previous employer of facilitating a foreign bribery scheme, provided his suspicions and supporting documents to a journalist. The journalist informed the Department of Justice (DOJ) and published articles exposing the alleged misconduct. Following a tip from a DOJ attorney, the employee was advised to submit his information to the Securities and Exchange Commission (SEC) to potentially qualify for a whistleblower award. However, the employee waited over a year before submitting his information directly to the SEC, by which time the SEC had already begun its investigation and independently developed its case using information from the DOJ and public sources.The SEC’s Claims Review Staff (CRS) issued a preliminary determination denying the whistleblower award, reasoning that the employee’s submission neither led the SEC to open its investigation nor significantly contributed to the enforcement action, as the information was already known. The CRS also found that the employee did not meet the regulatory timing requirements for information submitted to other agencies. The employee contested this, relying on a prior SEC order that had granted an award in a similar situation, but the Commission had since disavowed that reasoning and clarified that both original source status and causation are required for an award.The United States Court of Appeals for the District of Columbia Circuit reviewed the SEC’s final order. The court held that, under the plain language of the Dodd-Frank Act and implementing regulations, a whistleblower must submit original information directly to the SEC, and that information must lead to a successful enforcement action. Because the employee’s belated submission did not assist the SEC’s investigation or enforcement efforts, he was not entitled to an award. The court denied the petition for review. View "Doe v. SEC" on Justia Law

An individual who formerly worked at major international banks provided information to the United Kingdom’s Financial Conduct Authority (UK FCA) regarding alleged manipulation of widely used foreign exchange benchmark rates. This person asserted that traders at certain banks engaged in practices to benefit the institutions at the expense of clients during the setting of the benchmark rates. The UK FCA later became publicly linked to the issue through a media article describing the manipulation scheme. The United States Commodity Futures Trading Commission (CFTC) subsequently initiated an investigation based on the media article, ultimately resulting in enforcement actions and significant penalties against five banks for attempted manipulation of the benchmark rates.After the CFTC’s enforcement actions concluded, the individual submitted an application for a whistleblower award, asserting that his information provided to the UK FCA had set the investigation in motion and led to the enforcement actions. The Whistleblower Claims Review Staff at the CFTC determined that the applicant was ineligible for an award, concluding that the information he provided was not sufficiently specific, credible, or timely to have triggered the investigation, and that the investigation was prompted by the media article rather than his contributions. The applicant challenged the denial, arguing both that his information was central to the investigation and that there was improper internal influence affecting the decision.The United States Court of Appeals for the District of Columbia Circuit reviewed the CFTC’s denial under the “arbitrary and capricious” standard of the Administrative Procedure Act. The court held that the CFTC’s determination was supported by substantial evidence, finding that the investigation was initiated by the media article’s detailed reporting, not by the applicant’s information, and that no evidence demonstrated improper influence or prejudice in the agency’s process. The court denied the petition for review, upholding the CFTC’s denial of the whistleblower award. View "The Estate of Jennions v. CFTC" on Justia Law

Thrivent Financial for Lutherans and its subsidiary, which sell securities including variable annuities and life insurance contracts, are required as broker-dealers to be members of the Financial Industry Regulatory Authority (FINRA). FINRA’s rules mandate that disputes with customers be arbitrated in FINRA’s forum and prohibit class action waivers in customer agreements, which conflicted with Thrivent’s preferred arbitration process. Thrivent sought to have its own dispute resolution program, culminating in binding arbitration in a non-FINRA forum, applied to all customer disputes involving these products. After FINRA interpreted its rules as prohibiting Thrivent’s program, Thrivent petitioned the Securities and Exchange Commission (SEC) to amend or abrogate the relevant FINRA arbitration rules, arguing they violated the Federal Arbitration Act.After receiving no response for nearly a year, Thrivent sought mandamus relief from the United States Court of Appeals for the District of Columbia Circuit, which was denied. Eventually, the SEC denied the petition for rulemaking in a brief letter that cited resource constraints and agency discretion but did not specifically address Thrivent’s arguments or provide a substantive rationale. Thrivent then petitioned the D.C. Circuit for review of the SEC’s denial.The United States Court of Appeals for the District of Columbia Circuit held that while agency discretion in rulemaking is broad, the SEC’s denial was arbitrary and capricious because it failed to provide a reasoned explanation particular to Thrivent’s petition. The court did not address the underlying merits of Thrivent’s claim or the validity of the FINRA rules. Instead, it granted the petition in part, remanding the matter to the SEC for further consideration and a more reasoned explanation. The court otherwise denied Thrivent’s petition for review. View "Thrivent Financial for Lutherans v. SEC" on Justia Law

The appellant, an experienced foreign currency exchange (FX) trader, claimed he uncovered manipulation in the FX market after noticing a sharp drop in the values of several currencies relative to the Swiss franc in 2011. He believed this was due to collusion among market makers and shared his suspicions with various regulators, including the Commodity Futures Trading Commission (CFTC). His allegations focused on conduct by a retail trading platform, Oanda, and mentioned possible involvement by banks but did not name any specific institutions. Two years later, media reports surfaced about large banks rigging FX benchmark rates, prompting the CFTC to investigate and eventually reach settlements with several banks for manipulating benchmark rates.The CFTC initially investigated the appellant’s allegations against Oanda but found no evidence of wrongdoing and closed the case without action. The CFTC’s later enforcement actions against major banks were initiated after media coverage revealed benchmark-rate manipulation schemes, not because of the appellant’s information. After the settlements were announced, the appellant applied for a whistleblower award, arguing his tips had led to these enforcement actions. The CFTC’s Whistleblower Office and Claims Review Staff recommended denial, finding his tips were not the original source of the information leading to the enforcement actions. The appellant sought reconsideration and, after a delay, petitioned for mandamus relief in the United States Court of Appeals for the District of Columbia Circuit, which was rendered moot when the Commission issued final orders denying his application.The United States Court of Appeals for the District of Columbia Circuit reviewed the CFTC’s denial for arbitrariness or capriciousness. The court found that the appellant’s tips did not lead to or significantly contribute to the enforcement actions against the banks, nor was he the original or derivative source of the information used. The court affirmed the CFTC’s orders denying the whistleblower award. View "Kitchen v. Commodity Futures Trading Commission" on Justia Law

An individual disclosed information about significant misconduct at a large company to the news media. Following these disclosures, both Congress and staff from the Securities and Exchange Commission (SEC) contacted the individual for interviews and further information, which he provided. The SEC subsequently initiated an enforcement action against the company, relying on the information provided, resulting in substantial monetary sanctions. The individual then applied to the SEC for a whistleblower award under the Securities Exchange Act, which provides monetary awards to those who “voluntarily” provide “original information” leading to successful enforcement actions.The SEC denied the whistleblower award application, finding that the individual’s submission was not “voluntary” because it occurred only after the SEC and other authorities had contacted him. Additionally, the SEC found his submission was untimely and summarily denied his request for exemptions from these requirements. The individual challenged these determinations, arguing that the SEC’s interpretation of “voluntarily” conflicted with the statute's purpose and plain meaning, that his submission was timely, and that the denial of his request for exemptions was insufficiently explained and inconsistent with SEC precedent. He also raised First Amendment concerns, suggesting the SEC’s approach penalized whistleblowers for speaking to the press.The United States Court of Appeals for the District of Columbia Circuit reviewed the SEC’s order. The court held that the SEC’s interpretation of “voluntarily” was reasonable and consistent with statutory text and purpose, and rejected the First Amendment argument, finding it was based on a mistaken premise. However, the court found that the SEC abused its discretion by inadequately explaining its denial of the request for an exemption from the voluntariness requirement. The court thus denied the petition in part, granted it in part, vacated the denial of the exemption request, and remanded to the SEC for further consideration. View "Doe v. SEC" on Justia Law

Several national securities exchanges challenged a 2024 rule adopted by the Securities and Exchange Commission (SEC) that lowered the cap on fees exchanges may charge investors for executing orders. The SEC had previously set a cap of 30 mils ($0.003) per share for stocks priced at or above $1, and 0.3% of the quotation price for stocks below $1. In 2024, after gathering new data and considering market developments, the SEC reduced these caps to 10 mils for stocks priced at or above $1, and 0.1% for stocks below $1. The SEC explained that the changes were necessary to address market distortions and to align fee caps with reduced minimum tick sizes, thereby promoting price transparency and market efficiency.After the SEC adopted the new rule, several exchanges petitioned the United States Court of Appeals for the District of Columbia Circuit for review, arguing that the SEC exceeded its statutory authority and acted arbitrarily or capriciously. The SEC agreed to stay the amendment pending judicial review. The exchanges contended that the SEC lacked authority to impose an industry-wide fee cap and that, if it had such authority, it was required to proceed on an exchange-by-exchange basis. They also argued that the SEC’s decision-making was arbitrary, particularly in its assessment of market effects and its choice of the 10-mil cap.The United States Court of Appeals for the District of Columbia Circuit held that the SEC acted within its statutory authority under the Securities Exchange Act of 1934, as amended, which grants the SEC broad discretion to regulate the national market system, including the power to set universal access-fee caps. The court further found that the SEC’s rulemaking was not arbitrary or capricious, as the agency reasonably considered relevant issues, explained its decision, and relied on both economic theory and empirical data. The petition for review was denied. View "Cboe Global Markets, Inc. v. SEC" on Justia Law

Keith Berman, the appellant, pleaded guilty to securities fraud, wire fraud, and obstruction of proceedings related to a scheme to fraudulently increase the share price of his company, Decision Diagnostics Corp. (DECN). Berman issued false press releases claiming DECN had developed a blood test for coronavirus, which led to a significant increase in the company's stock price. The Securities and Exchange Commission (SEC) investigated and suspended trading of DECN's stock, revealing that Berman's claims were false. Despite this, Berman continued to issue misleading statements and used aliases to discredit the SEC's investigation.The United States District Court for the District of Columbia sentenced Berman to 84 months' imprisonment. The court calculated the loss caused by Berman's fraud using the modified rescissory method, determining a loss amount of $27.8 million. This calculation was based on the difference in DECN's stock price before and after the fraud was disclosed, multiplied by the number of outstanding shares. The court also applied enhancements for sophisticated means and substantial financial hardship to five or more individuals, resulting in a Guidelines range of 168 to 210 months, but ultimately imposed a downward variance.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. Berman challenged the district court's calculation of the loss amount, arguing that the fraud was disclosed earlier and that the loss was not solely attributable to his fraudulent statements. The appellate court found that the district court did not commit clear error in determining the disclosure date or in its loss causation analysis. The court also upheld the enhancements for sophisticated means and substantial financial hardship, finding sufficient evidence to support these determinations. Consequently, the appellate court affirmed the district court's judgment. View "United States v. Berman" on Justia Law

Institutional Shareholder Services, Inc. (ISS), a proxy advisory firm, challenged the Securities and Exchange Commission’s (SEC) interpretation of the term “solicit” under section 14(a) of the Exchange Act of 1934. The SEC had begun regulating proxy advisory firms by treating their voting recommendations as “solicitations” of proxy votes. ISS argued that its recommendations did not constitute “solicitation” under the Act.The United States District Court for the District of Columbia agreed with ISS and granted summary judgment in its favor. The court found that the SEC’s interpretation of “solicit” was overly broad and not supported by the statutory text. The National Association of Manufacturers (NAM), an intervenor supporting the SEC’s position, appealed the decision.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court affirmed the district court’s decision, holding that the ordinary meaning of “solicit” does not include providing proxy voting recommendations upon request. The court concluded that “solicit” refers to actively seeking to obtain proxy authority or votes, not merely influencing them through advice. The SEC’s definition, which included proxy advisory firms’ recommendations as solicitations, was found to be contrary to the statutory text of section 14(a) of the Exchange Act. View "Institutional Shareholder Services, Inc. v. SEC" on Justia Law

In early 2020, Robert Goodrich liquidated his stock portfolio due to concerns about the financial market's reaction to the COVID-19 pandemic, resulting in significant financial losses. Goodrich had an investment account with U.S. Trust Bank of America Private Wealth Management, managed by Matthew Lettinga. Despite advice from Lettinga to avoid liquidation, Goodrich insisted on selling his portfolio. Goodrich later sued Lettinga and Bank of America, claiming gross negligence, breach of fiduciary duty, and violations of the D.C. Securities Act, arguing that he was not adequately informed of the risks involved in liquidating his portfolio.The U.S. District Court for the District of Columbia dismissed Goodrich's claims of gross negligence and violations of the D.C. Securities Act, finding them implausibly pleaded. The court allowed the breach of fiduciary duty claim to proceed but later granted summary judgment in favor of the defendants, concluding that Goodrich had explicitly instructed the sale of his portfolio, which precluded liability under the terms of the investment agreement.The United States Court of Appeals for the District of Columbia Circuit reviewed the case and affirmed the District Court's decisions. The appellate court held that the investment agreement's exculpatory clauses were enforceable and that Goodrich's explicit instruction to liquidate his portfolio shielded the defendants from liability. The court also agreed that Goodrich failed to plausibly allege scienter, a necessary element for his claims under the D.C. Securities Act, and found no abuse of discretion in the District Court's limitation of discovery to the dispositive issue of whether Goodrich instructed the sale. View "Goodrich v. Bank of America N.A." on Justia Law

After petitioner was convicted of conspiracy, selling unregistered securities, and mail fraud, the SEC barred petitioner from associating with six classes of securities market participants. The court agreed with petitioner's argument that the Commissioner's imposition of Dodd-Frank’s collateral ban constitutes an impermissibly retroactive penalty because it is premised on pre-Dodd-Frank misconduct. See Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Pub. L. No. 111–203, 124 Stat. 1376 (2010). Therefore, the Commission abused its discretion in barring petitioner from associating with the investment adviser, municipal securities dealer and transfer agent classes because those bars are impermissibly retroactive, and the court granted that portion of the petition. The court rejected petitioner's "unclean hands" argument and denied the remainder of the petition. View "Bartko v. SEC" on Justia Law