Justia Securities Law Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit
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Plaintiff, Oklahoma Firefighters Pension and Retirement System (“Oklahoma Firefighters”) is a purchaser of Six Flags Entertainment Corporation common stock and brought suit against the company and two of its executive officers. Plaintiffs alleged that Six Flags executives made material misrepresentations and omissions regarding the development of several Six Flags theme parks in China, thereby violating federal securities laws. The district court dismissed the claims with prejudice for failure to state a claim. Plaintiff sought a reversal of the district court’s two primary rulings: the dismissal of the complaint and the refusal to allow post-judgment amendments to the complaint. As to the dismissal, Plaintiff argued it sufficiently pled (1) actionable misstatements, (2) scienter, and (3) control person liability. As to the failure to allow an amendment, Plaintiff alleged it timely and sufficiently corrected the claimed deficiencies in the complaint.   The Fifth Circuit reversed and remanded the district court’s ruling. The court held that the complaint adequately alleges that Six Flags improperly recognized revenue on the China parks in its Class Period financial statements due to Defendants’ misleading statements regarding the parks’ construction progress and the admission of $15 million in overstated revenue in 2018. However, the court remanded to consider whether the complaint adequately alleges a Section 20(a) claim. View "OK Firefighters Pension v. Six Flags Entmt" on Justia Law

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This appeal arises from an enforcement action brought by the Securities and Exchange Commission (SEC) against Appellants World Tree Financial, L.L.C. (World Tree) and its principals. After a bench trial, the district court found that the principal and World Tree engaged in a fraudulent “cherry-picking” scheme, in which they allocated favorable trades to themselves and favored clients and unfavorable trades to disfavored clients. It also found that all three Appellants made false and misleading statements about the firm’s allocation and trading practices. The court entered permanent injunctions against the principal and World Tree, ordered them to disgorge ill-gotten gains, and imposed civil penalties on each Appellant.   The Fifth Circuit affirmed, holding that Liu v. SEC, 140 S. Ct. 1936, 1940 (2020) does not require the district court to conduct its own search for business deductions that Appellants have not identified. Accordingly, the court held that the district court did not abuse its discretion in ordering disgorgement.   The court explained that unlike in Liu, in this case, Appellants did not challenge the SEC’s proposed disgorgement amount in their pretrial or posttrial submissions—instead, they argued only that there was no “basis for disgorgement.” Nor did the principal and World Tree propose specific deduction amounts, either before the district court or to this court. View "SEC v. World Tree" on Justia Law

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The SEC accused Defendant of violating antifraud and registration provisions of the Securities Act and antifraud provisions of the Exchange Act and Rule 10b-5. Defendant neither admitted nor denied those allegations but consented to a judgment containing four relevant prongs of relief. The SEC asked for “disgorgement” in that amount and calculated the prejudgment interest at $424,375.38. It did not specify the appropriate civil penalty but requested that the court impose one of the options in the highest tier allowed by statute.   The court entered final judgment ordering Defendant to pay $1,901,480 in “disgorgement” and $424,375.38 in prejudgment interest. It also imposed a civil penalty after concluding that Defendant’s conduct merited the highest amount provided by the Exchange Act   Defendant appealed each of those orders and the denial of an evidentiary hearing. He says the lack of an evidentiary hearing denied him due process. He also renews three substantive challenges to the district court’s remedies. The Fifth Circuit affirmed the district court’s judgment order.   The court explained that none of Defendant’s challenges to the district court’s remedies has merit. He has foreclosed some of them by failing to raise them timely or to raise them properly. And Congress has foreclosed his position on the availability of disgorgement without tracing or a profit-generating res. The district court had authority to impose each element of its remedies, and it did not abuse its discretion in doing so. View "SEC v. Hallam" on Justia Law

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Defendants settled a civil enforcement action that the Securities and Exchange Commission (“SEC”) brought against them for alleged securities violations. The SEC barred Defendants from denying that they engaged in the charged conduct as a condition of settlement (the “no-deny policy”). The parties executed consent agreements containing provisions to that effect and submitted them to the district court, which entered final judgments. Five years later, Defendants filed a motion under Rule 60(b)(4) and 60(b)(5) seeking relief from the final judgments to the extent that they incorporated the no-deny policy. They argued that the no-deny policy violates their First Amendment and due process rights. The district court denied the motion, and Defendants appealed.   The Fifth Circuit affirmed the district court’s ruling holding that Defendants are not entitled to relief based on any alleged First Amendment Violations. Defendants argue that, in denying their motion for Rule 60(b)(4) relief, the district court adopted a cribbed view of Espinosa that the Fifth Circuit rejected in Brumfield. The court wrote that Defendants read Brumfield too broadly. That decision expressly recognized that “a judgment is void under Rule 60(b)(4) only if the court lacked jurisdiction of the subject matter, or of the parties, ‘or it acted in a manner inconsistent with due process of law.’”   Next, Defendants asserted that the judgments here should “be set aside as violating the public interest under Rule 60(b)(5).” They argue that retaining the no-deny policy in the judgments harms the public interest. The court explained that Defendants failed to meet their burden of establishing that changed circumstances warrant relief. View "SEC v. Novinger" on Justia Law

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The en banc court held that the Securities and Exchange Act of 1934 does not strip the federal district courts of subject-matter jurisdiction to hear structural constitutional claims. The en banc court stated that 15 U.S.C. 78y does not explicitly or implicitly strip the district court of jurisdiction over plaintiff's claim; the Supreme Court has already rejected the SEC's precise jurisdictional argument under section 78y; and the Thunder Basin factors do not warrant departing from the statutory text or deviating from the Supreme Court's interpretation of section 78y. In this case, plaintiff's removal power claim is wholly collateral to the Exchange Act's statutory-review scheme, is outside the SEC's expertise, and might never receive judicial review if district court jurisdiction were precluded. Therefore, the en banc court concluded that the Thunder Basin inquiry simply reaffirms that Free Enterprise Fund v. Public Co. Accounting Oversight Board, 561 U.S. 477, 489 (2010), controls this case and that plaintiff's removal power claim is within the district court's jurisdiction.The en banc court also held that plaintiff's removal power challenge is ripe where her claim is a pure issue of law that is fit for judicial decision without any additional factfinding. Furthermore, if plaintiff's claim is meritorious, then withholding judicial consideration would injure her by forcing her to litigate before an ALJ who is unconstitutionally insulated from presidential control. Accordingly, the en banc court affirmed in part, reversed in part, and remanded for further proceedings. View "Cochran v. Securities and Exchange Commission" on Justia Law

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In 2008, Blackburn founded Treaty an oil and gas company whose shares were traded over the counter as “penny stocks.” Blackburn received around 400 million shares, giving him an 86.4% interest in Treaty. Though Blackburn was never a board member or an officer of Treaty, he maintained significant control. He communicated with a foreign government on behalf of Treaty, paid the company’s bills with his stock proceeds, and appointed Treaty’s officers and directors. Treaty had previously worked at a gravel company that went bankrupt. Blackburn paid over $1 million to settle the trustee’s claim that he had misappropriated company funds. Blackburn had also been convicted of four federal tax felonies. Blackburn recruited others, with clean records, to serve in public positions; they failed to disclose in public filings Blackburn’s involvement with Treaty.In 2014, the SEC asserted claims against Treaty, Blackburn, and others under the Securities Act. 15 U.S.C. 77e(a), 77q(a). The company and one defendant settled. The district court found the others liable for selling unregistered securities and misleading investors about the company’s production of oil and Blackburn’s involvement. It ordered disgorgement of the defendants’ fraud proceeds. The Fifth Circuit affirmed. Summary judgment was warranted in the SEC’s favor and the disgorgement award was “for the benefit of investors” as required by the Supreme Court’s 2020 “Liu” decision. View "Securities and Exchange Commission v. Blackburn" on Justia Law

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This action stemmed from the collapse of Robert Stanford's Ponzi scheme. Plaintiffs, investors who purchased certificates of deposits (CDs) with Stanford International Bank, Ltd. (SIBL), filed suit against SEI Private Trust Company, businesses that had a longstanding relationship with SIBL.The Fifth Circuit affirmed the district court's denial of plaintiffs' motion for a continuance for further discovery and award of summary judgment to SEI where the district court concluded that SEI did not control the primary securities violations of Sanford Trust Company (STC). The court rejected plaintiffs' contention that the district court applied the wrong legal standard and ignored factual disputes as to SEI's asserted control. Rather, the court concluded that the district court correctly identified that plaintiffs need not prove that SEI participated in the fraudulent transaction. The court also concluded that SEI has offered competent evidence that it lacked power to control the STC's primary securities violations. View "Lillie v. Office of Financial Institutions State of Louisiana" on Justia Law

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This case arises out of R. Allen Stanford's Ponzi scheme. Plaintiffs filed suit against SEI and SEI's insurers, seeking to hold SEI liable under the control-person provision of Louisiana Securities Law. In this case, plaintiffs allege that SEI is liable for STC's violations under the control-person provision of Louisiana Securities Law based on SEI's contractual relationship with STC.The Fifth Circuit affirmed the district court's grant of summary judgment to SEI and its insurers, holding that SEI was not a control person under the statute. The court need not determine whether the investors must establish that SEI had control over STC's day-to-day operations because plaintiffs fail to demonstrate a genuine dispute of material fact that SEI directly or indirectly controlled STC's primary violations. Because the district court properly granted summary judgment to SEI, the court also affirmed the district court’s grant of summary judgment on all claims against the insurers. View "Ahders v. SEI Private Trust Co." on Justia Law

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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