Justia Securities Law Opinion SummariesArticles Posted in U.S. Court of Appeals for the Second Circuit
In re: Lehman Bros.
After Lehman Brothers filed for Chapter 11 bankruptcy, thousands of its employees were holding restricted stock units (RSUs) that had been awarded over the preceding five years, but that had not yet vested and had thus been rendered worthless by the bankruptcy filing. The employees filed proofs of claim in the Chapter 11 proceeding and Lehman Brothers filed omnibus objections to the claims. The Second Circuit noted that it need not determine whether an RSU is an "equity security" under 11 U.S.C. 101(16), because, even if it is, RSU holders are not barred from asserting proofs of claim—such as the breach‐of‐contract claims asserted here—inasmuch as at least some of their claims are not duplicative of proofs of interest. However, the Second Circuit affirmed and concluded that Lehman Brothers' omnibus objections must nonetheless be sustained on the alternative ground that, pursuant to section 510(b) of the Bankruptcy Code, 11 U.S.C. 510(b), the claims must be subordinated to the claims of general creditors because, for purposes of this statute, (1) RSUs are securities, (2) the claimants acquired them in a purchase, and (3) the claims for damages arise from those purchases or the asserted rescissions thereof. View "In re: Lehman Bros." on Justia Law
Marblegate Asset Management v. Education Management Finance Corp.
EDMC challenges the district court's holding that a series of transactions meant to restructure EDMC’s debt over the objections of certain noteholders violated Section 316(b) of the Trust Indenture Act of 1939, 15 U.S.C. 77ppp(b). The district court ordered EDMC to continue to guarantee Marblegate's notes and pay them in full. The court agreed with EDMC that EDMC complied with Section 316(b) because the transactions did not formally amend the payment terms of the indenture that governed the notes. The court concluded that Section 316(b) prohibits only non‐consensual amendments to an indenture’s core payment terms. Accordingly, the court vacated the district court's judgment and remanded for further proceedings. View "Marblegate Asset Management v. Education Management Finance Corp." on Justia Law
Trustees of the Upstate New York Engineers Pension Fund v. Ivy Asset Management
Plaintiffs, trustees of an Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq., pension fund, filed suit against its investment manager and principals alleging that defendants knew by 1998 that investing with Bernard L. Madoff Investment Securities LLC (BLMIS) was imprudent; that these defendants breached their fiduciary duty by failing to warn the fund of this fact; that if warned, the fund would have withdrawn the full sum appearing on its 1998 BLMIS account statements; and that prudent alternative investment of that sum would have earned more than the fund’s actual net withdrawals from its BLMIS account between 1999 and 2008. Plaintiffs also filed suit against Bank of New York Mellon Corporation, which acquired the investment manager in 2000, alleging that it knowingly participated as a non‐fiduciary in the fiduciary breach. The district court dismissed the complaint for failure to state a claim under Rule 12(b)(6) and for failure to allege an actual injury sufficient to establish Article III standing under Rule 12(b)(1). The court concluded that plaintiffs failed to allege facts sufficient to show Article III standing where plaintiffs have not plausibly alleged losses in excess of their profits; the increase in pension funds does not constitute a cognizable loss; the court rejected plaintiffs' claim of disgorgement of Simon and Wohl; and the complaint fails to state a claim against BNY Mellon for participation in a breach of fiduciary duty by Ivy, Simon, and Wohl. Accordingly, the court affirmed the judgment. View "Trustees of the Upstate New York Engineers Pension Fund v. Ivy Asset Management" on Justia Law
SEC v. Sourlis
In these consolidated appeals, defendant Virginia K. Sourlis challenges the district court's judgment in an enforcement action brought by the SEC in connection with public offerings of unregistered shares of stock of defendant Greenstone. The district court granted a motion by the SEC for summary judgment on issues of liability, holding Sourlis--an attorney who wrote a January 11, 2006 opinion letter ("Sourlis Letter") relating to one of the offerings--liable for violating section 5 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77e; violating 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5; and aiding and abetting violations of section 10(b) and Rule 10b-5, in violation of section 20(e) of the Exchange Act, 15 U.S.C. 78t(e). The Superseding Final Judgment orders Sourlis to pay a total of $57,284.83 as a civil penalty, disgorgement, and prejudgment interest, and permanently bars her from participating in so-called "penny stock" offerings. The court found no error in the district court's determinations of liability and no abuse of discretion in its remedial order. Accordingly, the court affirmed the judgment in Nos. 14-2301 and 15-3978. The court dismissed as moot the SEC's cross-appeal in No. 14-2937. View "SEC v. Sourlis" on Justia Law
SEC v. Frohling
Defendant John B. Frohling appeals the district court's judgment in an enforcement action brought by the SEC in connection with public offerings of unregistered shares of stock of defendant Greenstone. The district court granted a motion by the SEC for summary judgment on issues of liability, holding Frohling--who as Greenstone's securities counsel in 2006-2008 wrote, approved, or concurred in 11 opinion letters relating to all of the relevant offerings--liable for violating section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77q(a); section 5 of the Securities Act, 15 U.S.C. 77e; and section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5. The Superseding Final Judgment orders Frohling to pay a total of $204,161.86 as a civil penalty, disgorgement, and prejudgment interest, and permanently bars him from participating in so-called "penny stock" offerings. The court found no basis for reversal and affirmed the judgment. View "SEC v. Frohling" on Justia Law
Lowinger v. Morgan Stanley
Plaintiff filed suit alleging claims under the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), against, inter alia, Lead Underwriters. Plaintiff sought to hold Lead Underwriters liable under Section 16(b) for disgorgement of short-swing profits received in connection with their sales and purchases of shares in the course of Facebook, Inc.'s initial public offering (IPO). The district court dismissed the complaint on the grounds that the lock-up agreements alone did not render the Lead Underwriters beneficial owners of the aggregated shares held by the Shareholders under Section 13(d). The court agreed that this standard form lock-up agreement is insufficient, on its own, to establish a group under Section 13(d). Accordingly, the court affirmed the judgment. View "Lowinger v. Morgan Stanley" on Justia Law
In re Vivendi, S.A. Secs. Litig.
Plaintiffs, investors in Vivendi's stock during the relevant time period, filed a class action suit against Vivendi, alleging that Vivendi’s persistently optimistic representations during the relevant period constituted securities fraud under section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78j(b), as well as the Securities Exchange Commission’s (SEC) Rule 10b–5 (Rule 10b–5) promulgated thereunder, 17 C.F.R. 240.10b–5. The court affirmed as to Vivendi's claims on appeal, concluding that: (1) plaintiffs relied on specifically identified false or misleading statements at trial and thus, contrary to Vivendi’s argument on appeal, did not fail to present an actionable claim of securities fraud; (2) Vivendi’s claim that certain statements constituted non‐actionable statements of opinion is not preserved for appellate review; (3) Vivendi’s claims that certain statements constituted non‐actionable puffery and that others fall under the Private Securities Law Reform Act’s safe harbor provision for “forward‐looking statements,” see 15 U.S.C. 78u‐5(c), is without merit; (4) the evidence was sufficient to support the jury’s determination that the fifty‐six statements at issue here were materially false or misleading with respect to Vivendi’s liquidity risk; (5) the district court did not abuse its discretion in admitting the testimony of plaintiffs’ expert, Dr. Blaine Nye; and (6) the evidence was sufficient to support the jury’s finding as to loss causation. As to plaintiffs' cross-appeal, the court affirmed and concluded that the district court did not abuse its discretion in excluding certain foreign shareholders from the class at the class certification stage; and did not err in dismissing claims by American purchasers of ordinary shares under Morrison v. Nat’l Austl. Bank Ltd. View "In re Vivendi, S.A. Secs. Litig." on Justia Law
GAMCO v. Vivendi
This appeal stems from the same set of underlying facts as those in In re Vivendi S.A. Securities Litigation, Nos. 15‐180‐cv(L), 15‐208‐cv(XAP), in which the court today issued a separate opinion. GAMCO, so-called "value investors," filed a securities fraud action against Vivendi under section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78j(b), as well as the Securities Exchange Commission’s (SEC) Rule 10b–5 (Rule 10b–5) promulgated thereunder, 17 C.F.R. 240.10b–5. The district court subsequently entered judgment for Vivendi. The court concluded that the record supports the district court’s conclusion that, if GAMCO had known of the liquidity problems and their concealment, GAMCO would still have believed Vivendi’s PMV to be “materially higher” than the public market price. The court also concluded that it was also not clearly erroneous for the district court to conclude that knowledge of Vivendi’s liquidity problems would not have changed GAMCO’s belief that a catalyst was likely — i.e., its belief that the market price would rise towards the PMV, if not immediately, then over the course of the next several years. In this case, the record at the trial simply does not establish that it was clearly erroneous for the district court to find that GAMCO, had it known of the liquidity problems at Vivendi, would have made the choice to buy the same securities it purchased. Accordingly, the court affirmed the judgment. View "GAMCO v. Vivendi" on Justia Law
Lanier v. Bats Exchange, Inc.
Plaintiff subscribes to data feeds through which the Exchanges provide information about securities traded on the Exchanges to an exclusive securities information processor pursuant to a plan approved by the SEC. The Processor consolidates the data and makes it available to subscribers. Plaintiff filed three materially identical suits alleging that the Exchanges had breached their contracts with him by providing preferentially fast access to the so‐called “Preferred Customers,” who purchase data and receive it from an Exchange directly via its proprietary feed. The court concluded that the district court erred in holding that it lacked subject matter jurisdiction to consider plaintiff's breach of contract claims, but affirmed the dismissal of the complaints for failure to state a claim. In this case, plaintiff has not plausibly alleged that the Exchanges violated any contractual obligation by simultaneously sending data to both the Processor and the Preferred Customers that is received earlier by the Preferred Customers; to the extent that plaintiff alleges that such a contractual obligation arises from the incorporation of SEC regulations into the contracts, his claims are preempted because his interpretation conflicts with the SEC’s interpretation and stands as an obstacle to the accomplishment of congressional purposes; to the extent that plaintiff alleges that the Exchanges undertook self‐imposed contractual obligations, distinct from their regulatory obligations, to ensure that market data is not received by any customer before it is received by the Processor, that claim fails because it has no basis in the text of the contracts; and to the extent that plaintiff argues that the SEC has interpreted the Exchanges’ obligations under the Exchange Act or SEC regulations incorrectly, any such argument must first be administratively exhausted before the SEC before it can be considered by this Court. View "Lanier v. Bats Exchange, Inc." on Justia Law
In re AIG Securities Litig.
This case concerns employee benefits plans sponsored by AIG or its affiliates under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. At issue is whether the Plans are "affiliates" of AIG for the purposes of a class action settlement agreement. The district court held that appellants are "affiliates" of AIG and thus ineligible for their own portion of a class settlement agreement with AIG. The court held that appellants have standing to appeal the district court's denial of the motion to direct and dismissed appellants' appeal as to the denial of their motion to intervene as moot. On the merits, the court held that because ERISA imposes important statutory limits on an employer’s control over the management and policies of an employee benefit plan, those plans do not fall within the ordinary meaning of "affiliate." Therefore, the court concluded that appellants are entitled to their own portion of the settlement and appellees will have a somewhat smaller portion. The court vacated the denial of the Plans' motion to direct. View "In re AIG Securities Litig." on Justia Law