Justia Securities Law Opinion Summaries

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Commonwealth Equity Services, LLC, alleging that from 2014 to 2018, Commonwealth failed to adequately disclose potential conflicts of interest related to its revenue-sharing agreement with National Financial Services, LLC (NFS). The SEC claimed this omission violated Sections 206(2) and (4) of the Investment Advisers Act of 1940 and SEC Rule 206(4)-7. Commonwealth's representatives, who provided investment advice to clients, were unaware of the revenue-sharing arrangement, which the SEC argued created a conflict of interest by incentivizing Commonwealth to direct clients to higher-cost mutual fund share classes that generated revenue-sharing income.The United States District Court for the District of Massachusetts granted the SEC's motion for summary judgment on liability, finding that Commonwealth's disclosures were inadequate as a matter of law and that the firm acted negligently. The court also denied Commonwealth's cross-motion for summary judgment and its motion to reconsider. Subsequently, the district court entered final judgment against Commonwealth, ordering disgorgement of $65,588,906 in revenue-sharing income, $21,185,162 in prejudgment interest, and a civil penalty of $6,500,000. The court struck Commonwealth's expert declaration proposing an alternative disgorgement calculation and adopted the SEC's proposed amount.The United States Court of Appeals for the First Circuit vacated the district court's grant of summary judgment and the disgorgement order, remanding for further proceedings. The appellate court held that the issue of materiality should have been decided by a jury, as reasonable minds could differ on whether the additional disclosures would have significantly altered the total mix of information available to investors. The court also found that the SEC had not adequately shown a reasonable approximation or causal connection between Commonwealth's profits and the alleged violations, and that the district court must consider whether Commonwealth is entitled to deduct its expenses from any disgorgement awarded. View "Securities and Exchange Commission v. Commonwealth Equity Services, LLC" on Justia Law

The case involves a civil enforcement action by the Securities and Exchange Commission (SEC) against Henry B. Sargent for allegedly violating registration and antifraud provisions of federal securities laws. The district court granted partial summary judgment to the SEC, finding that Sargent violated section 5 of the Securities Act of 1933 by directing unregistered public offerings of penny stocks. The court ordered equitable remedies, including disgorgement and a ten-year ban on trading penny stocks, but dismissed the SEC's fraud claims and denied an additional civil penalty.Sargent appealed the partial summary judgment, arguing that his transactions were exempt from registration and that the district court abused its discretion in imposing the ten-year ban and calculating the disgorgement amount. The SEC cross-appealed, contending that the district court erred in not imposing a civil penalty and in dismissing its fraud claims.The United States Court of Appeals for the First Circuit affirmed the district court's grant of partial summary judgment, the disgorgement amount, and the dismissal of the SEC's fraud claims. However, it found that the district court erred in imposing equitable remedies and in concluding that it lacked the power to issue a civil penalty. The appellate court vacated the injunction against Sargent and remanded the case for further proceedings to assess the appropriateness of injunctive relief and civil penalties for Sargent's section 5 violation. View "Securities and Exchange Commission v. Sargent" on Justia Law

The First Circuit affirmed the district court’s dismissal of this putative class action alleging violations under sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The district court concluded that the initial amended complaint failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). Thereafter, the court denied Plaintiffs’ subsequent motion to vacate the judgment and for leave to file a second amended complaint to include purportedly new evidence. The First Circuit held, on de novo review, that (1) the initial amended complaint failed to plead particularized facts giving rise to a strong inference of scienter, as required by the PSLRA; and (2) the district court did not abuse its discretion in denying the motion to vacate the judgment and for leave to file a second amended complaint. View "In re Biogen Inc. Securities Litigation" on Justia Law

Zafgen Inc.’s investors (Investors) brought a securities fraud class action suit against Zafgen and its Chief Executive Officer (collectively, Defendants) following a significant drop in the share price of the company. Specifically, Investors alleged that the Defendants made several misleading statements regarding Zafgen’s anti-obesity drug Beloranib. The district court granted Defendants’ motion to dismiss, concluding that the complaint did not contain facts giving rise to a “cogent and compelling” inference of scienter as required under the Private Securities Litigation Reform Act. The First Circuit affirmed, holding that the district court properly dismissed Investors’ claims because the complaint, considered as a whole, did not present allegations giving rise to a cogent and compelling inference of scienter. View "Brennan v. Zafgen, Inc." on Justia Law

Appellants sought arbitration with BBVA Securities of Puerto Rico, Inc. and one of its securities brokers, asserting several claims under both federal and Puerto Rico law. An arbitration panel issued an award denying Appellants’ claims. Appellants then filed a complaint in the Puerto Rico Court of First Instance requesting that the court vacate or modify the arbitration award, seeking relief under the Puerto Rico Arbitration Act. Defendants removed the case to the U.S. District Court of the District of Puerto Rico, arguing that the district court had federal question jurisdiction and also had supplemental jurisdiction over the state law claims. Appellants moved to remand the case to Puerto Rico state court for lack of jurisdiction. The district court denied the motion after applying the look-through approach and determining that the underlying statement of claim alleged federal claims. The district court subsequently confirmed the award. The First Circuit affirmed, holding (1) the look-through approach was the correct test in this case; (2) federal jurisdiction existed; and (3) the district court did not err in refusing to vacate the award and in confirming it. View "Ortiz-Espinosa v. BBVA Securities of Puerto Rico, Inc." on Justia Law

After the share price of a corporation’s common stock dropped, investors filed suit against the corporation and its former CEO, alleging securities fraud. The lead plaintiff, on behalf of himself and a putative class of shareholders, alleged that Defendants inflated the value of the corporation’s common stock by issuing false or materially misleading press releases concerning the approval of human clinical trials for a new medical device the company was developing. The district court granted Defendants’ motion to dismiss the complaint. The First Circuit affirmed, holding that Plaintiff failed to allege false or misleading statements sufficient to state a claim and that Plaintiff’s control person claim against the CEO was also properly dismissed. View "Ganem v. InVivo Therapeutics Holdings Corp." 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

Following an announcement that overstated the positive interim results from clinical trials for an experimental drug combination intended to treat a fatal lung disease, Vertex Pharmaceuticals, Inc.’s stock price rose from $37.41 per share to $64.85 three weeks later. After Vertex corrected the initial release’s overstatement, the stock price dropped to $57.80. Local No. 8 IBEW Retirement Plan & Trust filed a class action complaint against Vertex and six past and current Vertex employees on behalf of those who acquired Vertex stock during the period in which the overstatement stood uncorrected, charging Defendants with securities fraud under the Securities Exchange Act of 1934. Defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint, concluding that it failed to create a strong inference that Defendants acted with the mental state required to render them liable under the Act. The First Circuit affirmed, holding that the allegations in the complaint that Defendants acted with scienter fell short of what Congress demands in the securities fraud context. View "Local No. 8 IBEW Retirement Plan & Trust v. Vertex Pharm., Inc." on Justia Law

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