Justia Securities Law Opinion Summaries

A real estate investment trust that specializes in purchasing and leasing properties to cannabis companies was defrauded by one of its tenants, Kings Garden, which submitted fraudulent reimbursement requests for capital improvements. The trust paid out over $48 million based on these requests before discovering irregularities, such as forged documentation and payments for work that was not performed. After uncovering the fraud, the trust sued Kings Garden and disclosed the situation to the market, which led to a decline in its stock price.Following these events, several shareholders filed a putative class action in the United States District Court for the District of New Jersey, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The shareholders claimed that the trust and its executives made false or misleading statements about their due diligence, tenant monitoring, and the nature of reimbursements, and that these misstatements caused their losses when the fraud was revealed. The District Court dismissed the complaint with prejudice, finding that while some statements could be misleading, the plaintiffs failed to plead facts giving rise to a strong inference of scienter, as required by the Private Securities Litigation Reform Act.On appeal, the United States Court of Appeals for the Third Circuit affirmed the District Court’s dismissal. The Third Circuit held that most of the challenged statements were either non-actionable opinions, not false or misleading, or not sufficiently specific. For the one statement plausibly alleged to be false or misleading, the court found that the facts did not support a strong inference that the statement’s maker acted with scienter. The court also rejected the application of corporate scienter and found no basis for control-person liability under Section 20(a) in the absence of a primary violation. View "Handal v. Innovative Industrial Properties Inc" on Justia Law

Walmart, a national pharmacy operator, was investigated by the U.S. Attorney’s Office for the Eastern District of Texas from 2016 to 2018 regarding its opioid dispensing practices. The investigation included raids, subpoenas, and meetings where prosecutors indicated a possible indictment, but ultimately, the Department of Justice declined to prosecute criminally, though a civil investigation continued. In 2020, a news article revealed the investigation, causing Walmart’s stock price to drop. Later that year, the DOJ filed a civil lawsuit against Walmart for alleged violations of the Controlled Substances Act.Investors who owned Walmart stock during the relevant period filed a putative securities fraud class action in the United States District Court for the District of Delaware. They alleged that Walmart’s public filings failed to adequately disclose the government investigation, violating Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5, and that Walmart’s statements about its “reasonably possible” liabilities and compliance with accounting rules (ASC 450) were misleading. The District Court granted Walmart’s motion to dismiss, finding no actionable misrepresentation or omission, and denied plaintiffs’ request to further amend their complaint.The United States Court of Appeals for the Third Circuit reviewed the case de novo. The court held that Walmart’s omission of the investigation from its disclosures before June 4, 2018, was not misleading because the investigation did not constitute a “reasonably possible” material liability at that stage. After June 4, 2018, Walmart’s disclosures sufficiently informed investors about the existence and potential impact of government investigations. The court also found no violation of ASC 450 and affirmed the District Court’s denial of leave to amend, concluding that further amendment would be futile. The Third Circuit affirmed the dismissal of all claims. View "In re Walmart Inc. Securities Litigation" on Justia Law

A publicly traded reinsurance company experienced significant financial losses over a two-year period due to adverse developments with its largest client, which led to higher-than-expected claim payouts and a dramatic drop in its stock price. Investors, represented by a pension trust and a bank, alleged that the company committed securities fraud by making misleading statements about the adequacy of its reserve funds. Specifically, they claimed the company failed to disclose historical data indicating that its reserves were insufficient, even though it knew of this adverse information.The United States District Court for the District of New Jersey initially denied the company’s motion to dismiss, allowing limited discovery focused on whether the company intentionally omitted the historical loss ratio information. The Magistrate Judge restricted discovery to a narrow scope, declining to require production of all underlying data, and the District Court affirmed this limitation. After this limited discovery, the District Court granted summary judgment for the company, holding that the reserve statements were not misleading as a matter of law because the company had considered the historical data and the omitted information did not “totally eclipse” other factors in the reserve calculations.On appeal, the United States Court of Appeals for the Third Circuit held that the District Court erred in its application of the materiality standard and in denying further discovery. The Third Circuit found that there were genuine disputes of material fact as to whether the omission of adverse historical data was material to investors, given the company’s dependence on its largest client and the significance of historical trends in its reserve-setting process. The court vacated the summary judgment and remanded for full discovery and further proceedings, clarifying that materiality is a context-specific inquiry and that the plaintiffs had presented sufficient evidence to proceed. View "Boilermaker Blacksmith National Pension Trust v. Maiden Holdings Ltd" on Justia Law

A group of institutional investors brought a class action lawsuit against a pharmaceutical company and several of its officers, alleging violations of federal securities laws after the company’s share price dropped significantly following the rejection of a takeover bid and subsequent negative financial disclosures. One large investor, Sculptor, intended to pursue its own individual lawsuit rather than participate in the class action. The District Court certified the class and issued a notice specifying the procedure and deadline for class members to opt out. Although Sculptor intended to opt out, its counsel failed to submit the required exclusion request by the deadline. Both Sculptor and the company proceeded for years as if Sculptor had opted out, litigating the individual action and treating Sculptor as an opt-out plaintiff.The United States District Court for the District of New Jersey later approved a class settlement, which prompted the discovery that Sculptor had never formally opted out. Sculptor then sought to be excluded from the class after the deadline, arguing that its conduct showed a reasonable intent to opt out, that its failure was due to excusable neglect, and that the class notice was inadequate. The District Court rejected these arguments, finding that only compliance with the court’s specified opt-out procedure sufficed, that Sculptor’s neglect was not excusable under the relevant legal standard, and that the notice met due process requirements.The United States Court of Appeals for the Third Circuit affirmed the District Court’s judgment. The Third Circuit held that a class member must follow the opt-out procedures established by the district court under Rule 23; a mere “reasonable indication” of intent to opt out is insufficient. The court also found no abuse of discretion in denying Sculptor’s late opt-out request and concluded that the class notice satisfied due process. View "Perrigo Institutional Investor Group v. Papa" on Justia Law

Joseph Cammarata and his associates, Eric Cohen and David Punturieri, created Alpha Plus Recovery, LLC, a claims aggregator that submitted fraudulent claims to securities class action settlement funds. They falsely represented that three entities, Nimello, Quartis, and Invergasa, had traded in securities involved in class action settlements, obtaining over $40 million. The fraudulent claims included falsified trade data and fabricated reports. The scheme unraveled when a claims administrator, KCC, discovered the fraud, leading to the rejection of the claims and subsequent legal action.The United States District Court for the Eastern District of Pennsylvania charged the defendants with conspiracy to commit mail and wire fraud, wire fraud, conspiracy to commit money laundering, and money laundering. Cohen and Punturieri pled guilty, while Cammarata proceeded to trial and was found guilty on all counts. The District Court sentenced Cammarata to 120 months in prison, ordered restitution, and forfeiture of certain property.The United States Court of Appeals for the Third Circuit reviewed the case. The court upheld most of the District Court's rulings but found issues with the restitution order and the forfeiture of Cammarata's vacation home. The court held that the restitution order did not fully compensate the victims, as required by the Mandatory Victims Restitution Act (MVRA), and remanded for reconsideration. The court also found procedural error in the forfeiture process, as Cammarata was deprived of his right to a jury determination on the forfeitability of his property. The court vacated the forfeiture order in part and remanded for the Government to amend the order to reflect that the property is forfeitable as a substitute asset under 21 U.S.C. § 853(p). View "USA v. Cammarata" on Justia Law

The Goldmans, proceeding before an arbitration panel operating under the auspices of the Financial Industry Regulatory Authority (FINRA), alleged that their financial advisor and Citigroup had violated federal securities law in their management of the Goldmans’ brokerage accounts. The district court dismissed their motion to vacate an adverse award for lack of subject-matter jurisdiction, stating the Goldmans’ motion failed to raise a substantial federal question. The Third Circuit affirmed. Nothing about the Goldmans’ case is likely to affect the securities markets broadly. That the allegedly-misbehaving arbitration panel happened to be affiliated with a self-regulatory organization does not meaningfully distinguish this case from any other suit alleging arbitrator partiality in a securities dispute. The court noted “the flood of cases that would enter federal courts if the involvement of a self-regulatory organization were itself sufficient to support jurisdiction.” View "Goldman v. Citigroup Global Mkts., Inc" on Justia Law

After a failed merger between Cooper Tire and Apollo Tyres, OFI Asset Management, purporting to act for similarly situated investors, filed a class action against Cooper and its officers. OFI claims that, during merger negotiations, the defendants made material misrepresentations in statements to investors, in violation of federal securities laws, 15 U.S.C. 78j(b), 78n(a), and 78t(a). The Third Circuit affirmed the district court's dismissal of the case, rejecting arguments that that court improperly managed the presentation of arguments. The court upheld a finding that OFI failed to allege sufficient facts to support its claims. The court had ordered OFI to submit a letter “identifying and verbatim quoting” the five most compelling examples it could muster of false or fraudulent statements by Cooper, with three factual allegations demonstrating the falsity of each statement and three factual allegations supporting a finding of scienter as to the making of the statements. The court had subsequently determined that the statements identified as problematic by OFI were either not false or misleading, were “forward-looking” statements protected by the safe harbor established by the Private Securities Litigation Reform Act of 1995, lacked a sufficient showing of scienter, or suffered from some combination of those infirmities. View "OFI Asset Mgmt. v. Cooper Tire & Rubber" on Justia Law

With little formal education (a high school GED) Miller passed several securities industry examinations and “maintained a public persona of a very successful entrepreneur.” Miller sold investors over $41 million in phony “promissory notes,” which were securities under the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. 77b(a)(1), 78c(a)(10), and not exempt from federal or state registration requirements. Miller did not register the notes; he squandered the money, operating a Ponzi scheme. Miller pled guilty to one count of securities fraud, 15 U.S.C. 78j(b), and one count of tax evasion, 26 U.S.C. 7201. He was sentenced to 120 months’ imprisonment. The Third Circuit affirmed, rejecting an argument that the court improperly applied the Sentencing Guidelines investment adviser enhancement, U.S.S.G. 2B1.1(b)(19)(A)(iii). The court interpreted the Investment Advisers Act of 1940, 15 U.S.C. 80b-2(a)(11) to apply broadly, with exceptions that do not apply to Miller. The court also rejected arguments that the government breached Miller’s plea agreement and that his sentence was substantively unreasonable. View "United States v. Miller" on Justia Law