Justia Securities Law Opinion Summaries

Bloom Energy, a company specializing in fuel-cell servers, entered into Managed Services Agreements (MSAs), which are sale-leaseback arrangements involving banks and customers. The company initially classified these MSAs as operating leases, based on its assessment that the lease terms were less than 75% of the servers’ estimated useful lives and that the servers were not “integral equipment.” This classification affected how Bloom Energy reported revenue and liabilities in its financial statements. PricewaterhouseCoopers LLP (PwC) was engaged to audit Bloom Energy’s 2016 and 2017 financial statements, which were prepared by Bloom Energy’s management, and PwC issued an audit opinion stating that the financial statements were fairly presented in accordance with generally accepted accounting principles.After Bloom Energy went public in 2018, it later restated its financial statements, reclassifying certain MSAs as capital leases following a review prompted by PwC’s identification of an accounting issue. This restatement led to a significant drop in Bloom Energy’s stock price. Plaintiffs, consisting of shareholders, filed a class action in the United States District Court for the Northern District of California against Bloom Energy, its officers, directors, underwriters, and later added PwC as a defendant. They alleged violations of § 11 of the Securities Act of 1933, claiming that PwC was liable for material misstatements in the registration statement due to its audit opinion.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s dismissal of the claims against PwC. The Ninth Circuit held that under § 11, an independent accountant is not strictly liable for information in a registration statement or financial statements merely because it certified them. PwC’s audit opinion was a statement of subjective judgment, protected as an opinion under Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, and did not contain actionable misstatements or omissions. The court affirmed the district court’s dismissal of the claims against PwC. View "HUNT V. PRICEWATERHOUSECOOPERS LLP" on Justia Law

A group of former executives from an investment management company were prosecuted after the company collapsed and was placed in receivership. The company, which raised hundreds of millions of dollars from private investors, primarily through promissory notes and other investment vehicles, experienced severe financial distress following the default of a major asset. Despite this, the executives continued to solicit investments, representing to investors that their funds would be used to purchase secure receivables and that the company was financially healthy. In reality, most new investor funds were used to pay prior investors and cover operating expenses. The executives were accused of making material misrepresentations and misleading half-truths about the use of investor funds, the security of investments, and the company’s financial health.The United States District Court for the District of Oregon presided over the trial. The jury found all three defendants guilty of conspiracy to commit mail and wire fraud and multiple counts of wire fraud; one defendant was also convicted of making a false statement on a loan application. The defendants argued that they were improperly convicted on an omissions theory of fraud and that they were prevented from presenting a complete defense based on disclosures in offering documents and financial statements. They also challenged the sufficiency of the evidence and the materiality of their statements.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the government’s theory at trial was based on affirmative misrepresentations and misleading half-truths, not mere omissions, and that the jury instructions fairly stated the law. The court found that evidence of what was not disclosed was relevant to materiality, and that disclaimers in offering documents did not render other representations immaterial in a criminal fraud prosecution. The convictions were affirmed. View "USA V. JESENIK" on Justia Law

The Securities and Exchange Commission (SEC) initiated a civil enforcement action against Ongkaruck Sripetch and several other defendants, alleging that they engaged in fraudulent schemes involving at least 20 penny stock companies. The SEC claimed that the defendants obtained over $6 million in illicit proceeds through violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, including securities fraud and the sale of unregistered securities. The SEC sought various remedies, including an order requiring the defendants to disgorge all ill-gotten gains.The United States District Court for the Southern District of California presided over the case. Sripetch consented to the entry of judgment, agreeing that the court could order disgorgement and prejudgment interest, and that the complaint’s allegations would be accepted as true for the purposes of the SEC’s motion. The district court ordered Sripetch to disgorge $2,251,923.16 in net profits, plus prejudgment interest. Sripetch appealed, arguing that disgorgement under 15 U.S.C. § 78u(d)(5) and (d)(7) requires a showing of pecuniary harm to investors, which he claimed the SEC had not demonstrated.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s disgorgement order for abuse of discretion. The Ninth Circuit held that the SEC is not required to show that investors suffered pecuniary harm as a precondition to a disgorgement award under § 78u(d)(5) or (d)(7). The court reasoned that disgorgement is a profits-based remedy focused on depriving wrongdoers of ill-gotten gains, not compensating victims for losses. Accordingly, the Ninth Circuit affirmed the district court’s judgment. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. SRIPETCH" on Justia Law

Robinhood Markets, Inc., an online brokerage firm, experienced a surge in business during early 2021 due to increased trading in “meme stocks” and Dogecoin. This activity declined sharply in the second quarter of 2021, leading to significant drops in key financial metrics and performance indicators. In July 2021, Robinhood conducted an initial public offering (IPO) and issued a registration statement that included limited information about its second-quarter performance. After the IPO, Robinhood released its full second-quarter results, which revealed substantial declines and led to a drop in its stock price. Plaintiffs, representing a class of investors, alleged that Robinhood’s registration statement omitted material information about these declines, violating Sections 11, 12, and 15 of the Securities Act of 1933.The United States District Court for the Northern District of California dismissed the plaintiffs’ claims with prejudice. The district court found that Robinhood and its co-defendants were not liable under the Securities Act for failing to disclose the pre-IPO declines in key performance indicators and certain revenue sources. The court also held that there was no actionable omission regarding the increased percentage of Robinhood’s revenue attributable to speculative trading.On appeal, the United States Court of Appeals for the Ninth Circuit reviewed the district court’s decision de novo. The Ninth Circuit held that the district court applied incorrect legal standards to the plaintiffs’ theories under Section 11’s “misleading” prong and Item 303 of Regulation S-K. The appellate court clarified that, in this context, Sections 11 and 12 require disclosure of all material information, and rejected the “extreme departure” test used by the district court. The court vacated the dismissal as to these theories and remanded for further proceedings. However, the Ninth Circuit affirmed the district court’s dismissal of the claim based on Item 105 of Regulation S-K, finding no duty to provide a breakdown of revenue sources for the relevant period. View "Sodha v. Golubowski" on Justia Law

A pharmaceutical company developed a sublingual opioid painkiller, DSUVIA, which could only be administered in medically supervised settings due to safety concerns and was subject to a strict FDA Risk Evaluation and Mitigation Strategy (REMS). The company marketed DSUVIA with the slogan “Tongue and Done” at investor conferences, accompanied by additional disclosures about the drug’s limitations and REMS requirements. After the FDA issued a warning letter objecting to the slogan as potentially misleading under the Federal Food, Drug, and Cosmetic Act, several shareholders filed suit, alleging that the slogan misled investors about the complexity of administering DSUVIA and the drug’s limited market potential.The United States District Court for the Northern District of California dismissed the shareholders’ complaint, finding that the plaintiffs failed to adequately plead facts supporting a strong inference of scienter, but did not rule on whether the statements were false or misleading. The plaintiffs were given two opportunities to amend their complaint, but the court ultimately dismissed the case with prejudice.On appeal, the United States Court of Appeals for the Ninth Circuit reviewed the dismissal de novo. The Ninth Circuit held that the plaintiffs failed to adequately plead falsity because a reasonable investor would not interpret the “Tongue and Done” slogan in isolation, but would consider the context provided by accompanying disclosures and other available information. The court also held that the FDA’s warning letter did not establish falsity under securities law, as the standards and intended audiences differ. Additionally, the court found that the plaintiffs did not plead a strong inference of scienter, as the facts suggested the company’s officers acted in good faith. The Ninth Circuit affirmed the district court’s dismissal. View "Sneed v. Talphera, Inc." on Justia Law

Three individuals served as sales agents for a California company that marketed and sold fractional interests in life settlements, which are transactions where investors purchase life insurance policies from insured individuals, pay the ongoing premiums, and receive the death benefit when the insured passes away. The company selected which policies to purchase, determined the purchase price, and managed a complex premium reserve system to fund ongoing premium payments. Investors relied on the company’s expertise in selecting policies and managing the reserve system, and their interests in each policy were fractionalized among multiple investors. When the reserve system failed due to insureds living longer than projected, the company made additional premium calls to investors, and some investors lost their investments if they did not pay.The United States District Court for the Central District of California granted summary judgment in favor of the Securities and Exchange Commission (SEC) against the three sales agents. The court found that the fractional interests in life settlements were securities under the Securities Act of 1933, that no exemption from registration applied, and that the sales agents had not registered as broker-dealers. The court ordered disgorgement of a portion of the agents’ commissions, imposed civil penalties, and enjoined one agent from future violations.The United States Court of Appeals for the Ninth Circuit affirmed the district court’s judgment. The Ninth Circuit held that the fractional interests in life settlements were investment contracts and thus securities, because investors’ profits depended on the company’s selection of policies, management of the premium reserve system, and the structure of the fractionalized interests. The court also held that the offerings were not exempt from registration as intrastate offerings, as they were integrated and included at least one out-of-state investor. The court affirmed the remedies, finding that investors suffered pecuniary harm through the loss of the time value of their money. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. BARRY" on Justia Law

A group of individuals and organizations challenged a longstanding policy of the Securities and Exchange Commission (SEC), codified as Rule 202.5(e), which requires defendants in civil enforcement actions to agree not to publicly deny the allegations against them as a condition of settlement. This “no-deny” provision has been in place since 1972 and is incorporated into settlement agreements, with the SEC’s remedy for a breach being the ability to ask the court to reopen the case. The petitioners argued that this rule violates the First Amendment and was improperly adopted under the Administrative Procedure Act (APA).Previously, the New Civil Liberties Alliance (NCLA) petitioned the SEC to amend Rule 202.5(e) to remove the no-deny requirement, citing constitutional concerns. The SEC denied the petition, explaining that defendants can voluntarily waive constitutional rights in settlements and that the rule preserves the agency’s ability to litigate if a defendant later denies the allegations. After the denial, the petitioners sought review in the United States Court of Appeals for the Ninth Circuit, asserting both First Amendment and APA violations.The United States Court of Appeals for the Ninth Circuit reviewed the SEC’s denial. Applying the Supreme Court’s framework from Town of Newton v. Rumery, the court held that voluntary waivers of constitutional rights, including First Amendment rights, are generally permissible if knowing and voluntary. The court concluded that Rule 202.5(e) is not facially invalid under the First Amendment, as it is a limited restriction tied to the settlement context and does not preclude all speech. The court also found that the SEC had statutory authority for the rule, was not required to use notice-and-comment rulemaking, and provided a rational explanation for its decision. The petition for review was denied, but the court left open the possibility of future as-applied challenges. View "POWELL V. UNITED STATES SECURITIES AND EXCHANGE COMMISSION" on Justia Law

Mark Schena operated Arrayit, a medical testing laboratory in Northern California, which focused on blood tests for allergies. Schena marketed these tests as superior to skin tests, despite their limitations, and billed insurance providers up to $10,000 per test. To maintain a steady flow of patient samples, Schena paid marketers a percentage of the revenue they generated by pitching Arrayit’s services to medical professionals, often misleading them about the tests' efficacy. During the COVID-19 pandemic, Schena transitioned to COVID testing, using similar deceptive marketing practices to bundle allergy tests with COVID tests.The United States District Court for the Northern District of California denied Schena’s motion to dismiss the EKRA counts, arguing that his conduct did not violate the statute as a matter of law. The jury convicted Schena on all counts, including conspiracy to commit healthcare fraud, healthcare fraud, conspiracy to violate EKRA, EKRA violations, and securities fraud. The district court sentenced Schena to 96 months in prison and ordered him to pay over $24 million in restitution.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed Schena’s convictions. The court held that 18 U.S.C. § 220(a)(2)(A) of EKRA covers payments to marketing intermediaries who interface with those who do the referrals, and there is no requirement that the payments be made to a person who interfaces directly with patients. The court also concluded that a percentage-based compensation structure for marketing agents does not violate EKRA per se, but the evidence showed wrongful inducement when Schena paid marketers to unduly influence doctors’ referrals through false or fraudulent representations. The court affirmed Schena’s EKRA and other convictions, vacated in part the restitution order, and remanded in part. View "United States v. Schena" on Justia Law

The case involves a putative class action filed by Christine Pino on behalf of herself and others against Grant Cardone and his associated entities, alleging violations of the Securities Act of 1933. Pino claims that Cardone made misleading statements and omissions on social media about the internal rate of return (IRR) and distribution projections for real estate investment funds, and misstated material facts regarding the funds' debt obligations.The United States District Court for the Central District of California initially dismissed the case under Federal Rule of Civil Procedure 12(b)(6), concluding that Cardone and his entities were not "sellers" under § 12(a)(2) of the Securities Act and that the statements in question were not actionable. Pino appealed, and the Ninth Circuit Court of Appeals reversed in part, holding that Cardone and his entities could be considered statutory sellers and that some of the statements were actionable. The case was remanded for further proceedings.Upon remand, Pino filed a second amended complaint, and the district court again dismissed the claims without leave to amend, holding that Pino had waived subjective falsity by disclaiming fraud and failed to plausibly allege subjective and objective falsity. The court also found that the omission of the SEC letter did not support a claim and that the debt obligation statement was not material.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the district court's dismissal. The Ninth Circuit held that Pino did not waive subjective falsity by disclaiming fraud and sufficiently alleged that Cardone subjectively disbelieved his IRR and distribution projections, which were also objectively untrue. The court also held that Pino stated a material omission claim under § 12(a)(2) by alleging that Cardone failed to disclose the SEC letter. Additionally, the court found that Pino sufficiently alleged that Cardone misstated material facts regarding the funds' debt obligations, which could be considered material to a reasonable investor. The Ninth Circuit reversed the district court's dismissal and allowed the claims to proceed. View "PINO V. CARDONE CAPITAL, LLC" on Justia Law

The case involves codefendant brothers Joshua and Jamie Yafa, who were convicted of securities fraud and conspiracy to commit securities fraud for their involvement in a "pump-and-dump" stock manipulation scheme. They promoted the stock of Global Wholehealth Products Corporation (GWHP) through various means, including a "phone room" and social media, to inflate its price. Once the stock price rose significantly, they sold their shares, earning over $1 million. Following the sale, the stock price plummeted, causing significant losses to individual investors. A grand jury indicted the Yafas, along with their associates Charles Strongo and Brian Volmer, who pled guilty and testified against the Yafas at trial.The United States District Court for the Southern District of California sentenced the Yafas, applying the United States Sentencing Guidelines (U.S.S.G.) § 2B1.1. The court used Application Note 3(B) from the commentary to § 2B1.1, which allows courts to use the gain from the offense as an alternative measure for calculating loss when the actual loss cannot be reasonably determined. The district court found it difficult to calculate the full amount of investor losses and thus relied on the gain as a proxy. This resulted in a fourteen-level increase in the offense level for both brothers, leading to sentences of thirty-two months for Joshua and seventeen months for Jamie.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the term "loss" in § 2B1.1 is genuinely ambiguous and that Application Note 3(B)'s instruction to use gain as an alternative measure is a reasonable interpretation. The court concluded that the district court did not err in using the gain from the Yafas's offenses to calculate the loss and affirmed the district court's decision. View "USA V. YAFA" on Justia Law