Justia Securities Law Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit
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The Fifth Circuit affirmed the district court's dismissal of plaintiff's claims in a putative class action alleging that defendants' omissions from a proxy statement led Tesco shareholders to approve an all-stock acquisition by Nabors.Under the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA), the court held that plaintiff failed to state a claim upon which relief can be granted. In regard to plaintiff's claims under Section 14(a) of the Securities Exchange Act of 1934 that the proxy statement was misleading because it omitted certain material facts, the court held that plaintiff failed to identify how the four allegedly omitted pieces of information were necessary in order to make the statements therein not false or misleading. The court rejected plaintiff's remaining contentions as to this issue. In regard to plaintiff's claims under Section 20(a) of the 1934 Act that the individual defendants are liable for any violations committed by people they controlled, plaintiff failed to state a predicate claim under Section 14(a) and SEC Rule 14a-9. Finally, the court held that amendment would be futile and that the district court did not abuse its discretion in denying leave to amend. View "Heinze v. Tesco Corp." on Justia Law

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Judicial review of SEC proceedings lies in the courts of appeals after the agency rules. At issue was whether a party may nonetheless raise a constitutional challenge to an SEC enforcement action in federal district court before the agency proceeding ends.Bound by Bank of La. v. FDIC, 919 F.3d 916 (5th Cir. 2019), and in accord with the unanimous view of other circuits, the Fifth Circuit held that the statutory review scheme is the exclusive path for asserting a constitutional challenge to SEC proceedings. In this case, the court held that the Thunder Basin analysis does not show that Congress exempted plaintiff's claims from the common path for judicial review of agency action—direct appeal to a court of appeals after the agency rules—that it adopted for the SEC. The court explained that plaintiff may raise her removal-power claim before the ALJ and, if she loses before the agency, in a court of appeals. Furthermore, she may even be able to get her claim all the way to the Supreme Court, but she cannot circumvent the statutory review scheme by litigating it now in a federal trial court. Accordingly, the court affirmed the district court's judgment and dissolved the stay of the SEC proceeding. View "Cochran v. Securities and Exchange Commission" on Justia Law

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The Fifth Circuit treated the Petition for Rehearing En Banc as a petition for panel rehearing, granted the petition, withdrew its prior opinions, and substituted the following opinions.These consolidated cases stemmed from an SEC complaint against Robert Allen Stanford, the Stanford International Bank, and other Stanford entities, alleging a massive, ongoing fraud. The receiver subsequently filed suit against two of Stanford's insurance brokers as participants in the fraudulent scheme. The district court entered bar orders and approved settlements after the insurance brokers ultimately agreed to settle conditioned on bar orders enjoining related Ponzi-scheme suits filed against the brokers. Objectors appealed.The court held that the district court had subject matter jurisdiction over the Willis and BMB bar orders enjoining third-party investors' claims; the bar orders enjoining the investors' third-party claims fell well within the broad jurisdiction of the district court to protect the receivership res; and thus the district court did not abuse its discretion by entering the bar orders to effectuate and preserve the coordinating function of the receivership. The court also held that the bar orders negotiated here were legitimate exercises of the receiver's authority; they prevented Florida and Texas state-court proceedings from interfering with the res in custody of the federal district court; and aided the district court's jurisdiction over the receivership entities. Finally, the court held that there was no illicit class settlement and the orders did not offend Federal Rule of Civil Procedure 23; objectors were not entitled to a jury trial; and the district court did not abuse its discretion in approving the BMB and Willis settlement agreements. View "SEC v. Stanford International Bank" on Justia Law

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Plaintiff appealed the district court's dismissal of her claims against her former employer, Anadarko, alleging that the company retaliated against her in violation of the Dodd-Frank Act's whistleblower protections. Plaintiff also sought a declaratory judgment stating that her non-disclosure agreement with Anadarko does not cover a letter she wrote to the SEC detailing Anadarko's alleged misconduct.The Fifth Circuit held that plaintiff failed to present her whistleblower retaliation claim as a continuing violation to the district court, and thus she waived her argument. In this case, the retaliation that plaintiff alleged in the short time between plaintiff's SEC report and her decision to resign was insufficient to state a claim for constructive discharge. Therefore, the court affirmed the district court's judgment in part. However, the court reversed the district court's determination that plaintiff's claim under the Declaratory Judgment Act was nonjusticiable. The court explained that plaintiff's only options were to stay silent or to disclose the SEC letter and risk liability under the Proprietary Information and Inventions Agreement. Consequently, plaintiff presented a justiciable declaratory-judgment claim. Accordingly, the court remanded for further proceedings on that claim. View "Frye v. Anadarko Petroleum Corp." on Justia Law

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While SEC's enforcement action against defendants was pending, the Supreme Court decided Kokesh v. SEC, 137 S. Ct. 1635, 1643 (2017), which held that disgorgement in SEC proceedings is a "penalty" under 28 U.S.C. 2462 and thus subject to a five-year statute of limitations.The Fifth Circuit held that Kokesh did not overrule the court's established precedent recognizing district courts' authority to order disgorgement in SEC enforcement proceedings. Accordingly, the court affirmed the district court's disgorgement order. The court also held that the district court did not deprive defendants of discovery; the district court did not abuse its discretion by ruling on the SEC's remedies motion without holding an evidentiary hearing; and the district court did not abuse its discretion in determining the amount of disgorgement in this case. View "SEC v. Team Resources Inc." on Justia Law

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Investor plaintiffs filed suit alleging securities fraud under Louisiana law against their former investment adviser and its CEO for fraudulently inducing them to purchase falsely inflated hedge fund securities. The district court sua sponte granted summary judgment for defendants, holding that Delaware law required investor plaintiffs to bring a derivative claim on behalf of the hedge funds.The Fifth Circuit vacated the district court's judgment and held that investor plaintiffs had Article III standing where their injury-in-fact arose immediately upon their purchase of the falsely overvalued securities; were induced and caused by defendant advisers' fraudulent advice and solicitations; and were likely will be redressed by a favorable decision on the merits. The court held that, under the circumstances of this case, it was at least arguable that Delaware law does not relegate the investor plaintiffs to a derivative action on behalf of the hedge funds for losses indirectly caused them by the funds' decline or lack of value, but instead recognizes their cause of action directly against the defendant sellers of the hedge fund securities for securities fraud under Louisiana law. Accordingly, the court remanded for further proceedings. View "Broyles v. Commonwealth Advisors, Inc." on Justia Law

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Investors filed suit alleging that Pier 1 and its executives violated section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 by failing to disclose Pier 1's significant markdown risk. The district court ultimately granted Pier 1's motion to dismiss the amended complaint with prejudice.The Fifth Circuit affirmed, holding that the investors failed to plead a strong inference of scienter. The court held that the district court did not improperly analyze the investors' scienter allegations, and that each of the three categories of allegations, regarding Pier 1's motive and knowledge of high inventory and significant markdown risk did not create a strong inference of scienter required under the Private Securities Litigation Reform Act. View "Municipal Employees' Retirement System of Michigan v. Pier 1 Imports, Inc." on Justia Law

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These consolidated cases stemmed from an SEC complaint against Robert Allen Stanford, the Stanford International Bank, and other Stanford entities, alleging a massive, ongoing fraud. The receiver subsequently filed suit against two of Stanford's insurance brokers as participants in the fraudulent scheme. The district court entered bar orders and approved settlements after the insurance brokers ultimately agreed to settle conditioned on bar orders enjoining related Ponzi-scheme suits filed against the brokers. Objectors appealed.The Fifth Circuit affirmed the district court's judgment, holding that the district court had subject matter jurisdiction to enjoin third party investors' claims in order to effectuate and preserve the coordinating function of the receivership. The court also held that the bar orders did not violate the Anti-Injunction Act where they prevented Florida and Texas state-court proceedings from interfering with the res in custody of the federal district court and aided the district court's jurisdiction over the receivership entities. Finally, the court held that objectors were not deprived of due process; rejected objectors' contention that the settlement agreements and bar orders were de facto class settlements; held that a right to a jury does not create a right to proceed outside the receivership proceeding; and held that the district court did not abuse its discretion in approving the settlement agreements. View "SEC v. Stanford International Bank, Ltd." on Justia Law

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The Fifth Circuit withdrew its prior panel opinion and substituted the following opinion.The court reversed the district court's grant of summary judgment for the SEC in a civil enforcement action against defendants. At issue was whether investors expected to profit solely from the efforts of managers. The court held that defendants put forth enough evidence to raise genuine issues of fact regarding the three Williamson factors, which addressed situations were investors depend on a third-party manager for their investment's success. Accordingly, the court reversed the district court's ruling on the Williamson factors: whether the drilling projects left the investors so little power that the arrangement in fact distributes power as would a limited partnership; whether the drilling project investors were so inexperienced and unknowledgeable in business affairs that they were incapable of intelligently exercising their powers; and whether the investors are so dependent on some unique entrepreneurial or managerial ability of the managers that they cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers. View "SEC v. Arcturus Corp." on Justia Law

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Individual retail-brokerage customers of Paine-Webber who purchased Enron securities, and Enron employees who acquired employee stock options, filed suit against subsidiaries of UBS, alleging violations of the securities laws for their role as a broker of Enron's employee stock option plan and for failure to disclose material information about Enron's financial manipulations to its retail investors.The Fifth Circuit affirmed the district court's dismissal of the complaint for failure to state a claim under the Securities Act of 1933 and the Securities Exchange Act of 1934. The court held that plaintiffs failed to demonstrate that the grant of Enron options amounted to the sale of a security, and failed to establish that either defendant had material, nonpublic knowledge to disclose and a duty to disclose. Furthermore, the district court did not abuse its discretion in denying plaintiffs an additional chance to amend their complaint. View "Lampkin v. UBS Financial Services, Inc." on Justia Law