Justia Securities Law Opinion Summaries

The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him. A central dispute between the parties is what test the district court should have applied before imposing a receivership. Defendant argued the district court abused its discretion because it did not apply the standard or make the proper findings under the factors set forth in Netsphere (“Netsphere factors”). The SEC responded that Netsphere is inapplicable and the district court’s findings were sufficient under First Financial.   The Fifth Circuit vacated the district court’s order appointing a receiver. The court granted in part Defendant’s motion for a partial stay pending appeal. The court explained that, as Defendant points out, the district court’s order denying the stay discussed events and actions that took place after the receivership was already in place. Accordingly, the court vacated the appointment of the receiver and remanded so that the district court may consider whether to appoint a new receivership under the Netsphere factors. The court immediately suspended the receiver’s power to sell or dispose of property belonging to receivership entities, including the power to complete sales or disposals of property already approved by the district court. The court explained that the suspension does not apply to activities in furtherance of sales or dispositions of property that have already occurred or been approved by the district court. The court clarified that “activities in furtherance” do not include the completion of the sale of any property. View "SEC v. Barton" on Justia Law

The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him.   The Fifth Circuit vacated the order appointing the receiver effective 90 days after the issuance of the court’s mandate and remanded for further proceedings. The court also granted in part Defendant’s motion for a partial stay pending appeal. The court explained that Faulkner does not support the district court’s actions here. Under Faulkner, the SEC could have sought an injunction freezing asset transfers while it traced the funds and determined which entities should be placed in the receivership. But it did not. Since a receivership’s jurisdiction extends only over property subject to the underlying claims, the district court abused its discretion by including all Defendant-controlled entities in the receivership without first finding that they had received or benefited from the ill-gotten funds. Should the district court decide that a new receivership is justified on remand, it can only extend over entities that received or benefitted from assets traceable to Defendant’s alleged fraudulent activities that are the subject of this litigation. View "SEC v. Barton" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "GMAG v. Janvey" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "Janvey v. GMAG" on Justia Law

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

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

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

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

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

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