Justia Securities Law Opinion Summaries

Articles Posted in US Court of Appeals for the District of Columbia Circuit
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This appeal arose from petitioner's mismanagement of two related businesses, Commonwealth Capital and Commonwealth Securities. After FINRA determined that petitioner misused investor funds and tried to cover it up, FINRA barred petitioner from the securities industry, fined her, and ordered her to disgorge certain misused expenses. The SEC affirmed the industry bar and disgorgement order.The DC Circuit affirmed, concluding that petitioner's ambitious constitutional arguments are futile for a simple reason: Congress has prohibited the court from considering issues not raised before the SEC. Furthermore, petitioner has not provided any reasonable grounds that would excuse her failure to exhaust her constitutional claims before the Commission. Nor has there been an intervening change in law that might have excused her failure to press these contentions below. The court also concluded that Saad v. SEC, 980 F.3d 103 (D.C. Cir. 2020), foreclosed petitioner's argument that her lifetime bar is impermissibly punitive. In this case, the SEC's remedial justification finds adequate support in the record. The court rejected petitioner's assertion that continuing education expenses misallocated to the funds—rather than to her companies—were not "net profit," and thus not appropriate for remedial disgorgement after Liu v. SEC, 140 S. Ct. 1936 (2020). Rather, by paying for continuing education expenses out of the funds, instead of her wholly-owned business, the court concluded that petitioner enriched herself by the amount of the savings. View "Springsteen-Abbott v. Securities and Exchange Commission" on Justia Law

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Petitioner, a broker-dealer, twice misappropriated his employer's funds and then unsuccessfully tried to cover his tracks by falsifying documents. FINRA permanently barred him from membership and from associating with any FINRA member firm.The DC Circuit held that the Supreme Court's recent decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017), which held that SEC disgorgement constitutes a penalty within the meaning of 28 U.S.C. 2462, does not have any bearing in petitioner's case. The court explained that binding circuit precedent establishes that the Commission may approve expulsion not as a penalty but as a means of protecting investors. In this case, the Commission did precisely that. Because this court has already held that the Commission appropriately concluded that petitioner's bar was not excessive or oppressive in any other respect, that ends the court's inquiry. View "Saad v. Securities and Exchange Commission" on Justia Law

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Petitioners filed suit challenging the SEC's adoption of a Pilot Program, Rule 610T, which was designed to gather data so that the Commission might be able to determine in the future whether regulatory action was necessary.The DC Circuit granted the petitions for review, holding that the SEC acted without delegated authority from Congress when it adopted Rule 610T. The court explained that the Pilot Program emanates from an aimless "one-off" regulation, i.e., a rule that imposes significant, costly, and disparate regulatory requirements on affected parties merely to allow the Commission to collect data to determine whether there might be a problem worthy of regulation. In this case, the Commission acted solely to "shock the market" to collect data so that it might ponder the "fundamental disagreements" between parties affected by Commission rules and then consider whether to regulate in the future. The court held that this was an unprecedented action that clearly exceeded the SEC's authority under the Exchange Act. Accordingly, the court vacated the rule and remanded. View "New York Stock Exchange LLC v. Securities and Exchange Commission" on Justia Law

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Section 19(d) of the Securities Exchange Act of 1934 is not available as a means to challenge the reasonableness of generally-applicable fee rules. At issue in this appeal is whether fees that national securities exchanges charge for access to their "depth-of-book" data violate the Exchange Act.The DC Circuit held that section 19(d)'s text does not contemplate challenges to generally-applicable fee rules, and the remedy and notice provisions are incompatible with a challenge to fee rules that do not target specific individuals or entities. The court exercised its jurisdiction under 15 U.S.C. 78y(a) and granted the petitions for review of the Commission's decision, vacated, and remanded for further proceedings. View "The NASDAQ Stock Market, LLC v. SEC" on Justia Law

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Petitioner, found liable for multiple securities fraud violations, petitioned for review in the District of Columbia Court of Appeals, which is the wrong court. By the time petitioner realized his mistake and filed the petition in the DC Circuit, the 60 day deadline for filing had passed.The DC Circuit did not pass upon whether the statutory time limit to file a petition for review is jurisdictional and subject to equitable tolling. Instead, the court held that, even assuming it is a non-mandatory claims processing rule, petitioner has failed to demonstrate entitlement to equitable tolling. The court stated that filing a petition for review in a state court that clearly lacks jurisdiction over the petition does not toll the deadline for filing in the DC Circuit court. Furthermore, no extraordinary circumstance beyond petitioner's control prevented him from timely filing in this court and thus he is not entitled to equitable tolling. The court dismissed the petition. View "Young v. SEC" on Justia Law

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The DC Circuit denied a petition for review challenging the Commission's 2018 rule allowing investment companies to post shareholder reports online and mail paper copies to shareholders upon request. Petitioners argued that the SEC did not adequately consider the interests of shareholders who prefer reports in paper form. The court held, however, that the consumer organization lacked Article III standing. In this case, the organization could not reasonably have believed that its barebones affidavit, vaguely describing the preferences and burdens of unnamed members and others, sufficed to prove its representational standing; nor could it reasonably have believed that its standing was self-evident from the rulemaking record.The court also held that the paper-industry representatives asserted interests beyond those protected or regulated by the securities laws. Applying Hazardous Waste Treatment Council v. Thomas, 885 F.2d 918, 921–22 (D.C. Cir. 1989), the court held that the conflict between the interests of paper sellers and those of shareholders is likely to increase over time, and this suggests a systematic misalignment with shareholder preferences, which makes paper companies distinctly unqualified to advance the interests of shareholders. View "Twin Rivers Paper Co., LLC v. SEC" on Justia Law

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An investment adviser and its principals petitioned for review of the SEC's determination that they violated Section 206(2) and Section 207 of the Investment Advisers Act. The SEC alleged that petitioners failed for many years to disclose its arrangement with Fidelity and the conflicts of interest arising from that compensation.The DC Circuit denied the petition in part, holding that the Commission's findings of negligent violations under section 206(2) were supported by substantial evidence. However, the court granted the petition in part, holding that the Commission's findings of willful violations under section 207 based on the same negligent conduct were erroneous as a matter of law where the repeated failures to adequately disclose conflicts of interest were no more than negligent. View "The Robare Group, Ltd. v. SEC" on Justia Law

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After the Board charged petitioner and found that he violated the Board's rules and auditing standards, he petitioned to vacate the orders and sanctions against him. The D.C. Circuit held that the Board infringed plaintiff's right to counsel by unreasonably barring an accounting expert from assisting his counsel at the Board interview. Therefore, the court granted the petition for review, vacated the order of the SEC, and remanded with directions that the Commission vacate the Board's underlying orders and sanctions. View "Laccetti v. SEC" on Justia Law

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After the Board charged petitioner and found that he violated the Board's rules and auditing standards, he petitioned to vacate the orders and sanctions against him. The D.C. Circuit held that the Board infringed plaintiff's right to counsel by unreasonably barring an accounting expert from assisting his counsel at the Board interview. Therefore, the court granted the petition for review, vacated the order of the SEC, and remanded with directions that the Commission vacate the Board's underlying orders and sanctions. View "Laccetti v. SEC" on Justia Law

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LSTA represents firms that serve as investment managers of open-market collateralized loan obligations (CLO). LSTA challenged the defendant agencies' decision, embodied in the Credit Risk Retention Rule, to apply the credit risk retention requirements to managers of CLOs in section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The DC Circuit agreed with LSTA that, given the nature of the transactions performed by CLO managers, the language of the statute invoked by the agencies does not encompass their activities. Because CLO managers were not "securitizers" under section 941, the managers need not retain any credit risk. Accordingly, the court reversed the judgment of the district court and remanded with instructions to grant summary judgment to LSTA. View "The Loan Syndications and Trading Assoc. v. SEC" on Justia Law