Justia Securities Law Opinion Summaries

Defendant and his attorney created publicly-traded shell corporations and sold them to privately-held companies. The Securities and Exchange Commission (SEC) filed suit against Defendants for violations of the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act), and SEC Rule 10b5. On cross-motions for summary judgment, the district court held that Defendant had violated the securities laws and imposed equitable statutory remedies, including a civil penalty of $1,757,000. The district court found that, as a matter of undisputed fact, Defendant had received $1,757,000 in gross pecuniary gain from his violations and used that amount for the civil penalty. On appeal, Defendant challenged the amount of that penalty.   The Ninth Circuit reversed the district court’s imposition of the civil penalty. The panel held that Defendant’s declaration that legal fees of $287,500 were paid from the proceeds from the sale of five shell companies established a genuine issue of material fact whether such proceeds should be attributed to his—rather than his attorney’s—gross pecuniary gain. Because Defendant established a genuine issue of material fact whether he received or controlled the entire amount of the proceeds, the district court erred in finding on summary judgment that his gross pecuniary gain was $1,757,000. The panel further held that Defendant identified genuine issues of material fact on two additional factors that the district court considered in imposing the civil penalty: the degree of Defendant’s scienter and his recognition of the wrongful nature of his conduct. View "USSEC V. IMRAN HUSAIN, ET AL" on Justia Law

Plaintiff brought an action against The Gap, Inc. and its directors “derivatively on behalf of Gap.” Plaintiff’s action alleged that Gap violated Section 14(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Securities and Exchange Commission (SEC) Rule 14a-9 by making false or misleading statements to shareholders about its commitment to diversity. Gap’s bylaws contain a forum-selection clause stating that the Delaware Court of Chancery “shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation.” Lee nevertheless brought her putative derivative action in a California district court. The district court granted Gap’s motion to dismiss Lee’s complaint on forum nonconveniens ground.   The Ninth Circuit affirmed the district court’s judgment. The en banc court rejected Plaintiff’s argument that her right to bring a derivative Section 14(a) action is stymied by Gap’s forum-selection clause, which alone amounts to Gap “waiving compliance with a provision of [the Exchange Act] or of any rule or regulation thereunder.” The en banc court explained that the Supreme Court made clear in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), that Section 29(a) forbids only the waiver of substantive obligations imposed by the Exchange Act, not the waiver of a particular procedure for enforcing such duties. McMahon also disposes of Plaintiff’s argument that Gap’s forum-selection clause is void under Section 29(a) because it waives compliance with Section 27(a) of the Exchange Act, which gives federal courts exclusive jurisdiction over Section 14(a) claims. View "NOELLE LEE V. ROBERT FISHER, ET AL" on Justia Law

Lead plaintiff Maryland Electrical Industry Pension Fund alleged that HP and individual Defendants made fraudulent statements about HP’s printing supplies business. The district court concluded that the complaint, filed in 2020, was barred by the two-year statute of limitations, 28 U.S.C. Section 1658(b)(1), because the public statements, loss in profits, and reductions in channel inventory at the heart of Maryland Electrical’s claims had all taken place by 2016.   The Ninth Circuit reversed the district court’s dismissal. The panel held that under the discovery rule discussed in Merck & Co., Inc. v. Reynolds, 559 U.S. 633 (2010), a reasonably diligent plaintiff has not “discovered” one of the facts constituting a securities fraud violation until he can plead that fact with sufficient detail and particularity to survive a motion to dismiss for failure to state a claim. The panel held that a defendant establishes that a complaint is time-barred under Section 1658(b)(1) if it conclusively shows that either (1) the plaintiff could have pleaded an adequate complaint based on facts discovered prior to the critical date two years before the complaint was filed and failed to do so, or (2) the complaint does not include any facts necessary to plead an adequate complaint that was discovered following the critical date.   The panel held that Defendants’ allegedly fraudulent statements, on their own, were insufficient to start the clock on the statute of limitations. Instead, Maryland Electrical could not have discovered the facts necessary to plead its claims, including the “fact” of scienter, until after the publication of a Securities and Exchange Commission order in 2020. View "YORK COUNTY, ET AL V. HP, INC., ET AL" on Justia Law

Plaintiffs alleged that during the class period, Defendants made false or misleading statements about Forescout’s past financial performance, presently confirmed sales, and prospects for future sales. They alleged that Defendants misled investors with respect to (1) the strength of Forescout’s sales pipeline, meaning its presently booked sales and prospects for future sales; (2) the experience of Forescout’s sales force; (3) the business Forescout lost with certain business partners, or “channel partners,” when it announced a merger with Advent International, Inc.; and (4) the likelihood that the merger would close.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal of a securities fraud class action under Sections 10(b) and 20(a) of the Securities and Exchange Act and Rule 10b-5. The panel held that Plaintiffs adequately pleaded both falsity and scienter as to some of the challenged statements and that the Private Securities Litigation Reform Act’s safe harbor for forward-looking statements did not preclude liability as to some of these statements. The panel affirmed the district court’s dismissal as to certain statements, and it reversed and remanded for further proceedings as to other challenged statements regarding the sales pipeline and the Advent acquisition. View "GLAZER CAPITAL MANAGEMENT, L.P, ET AL V. FORESCOUT TECHNOLOGIES, INC., ET AL" on Justia Law

The board of directors of Finjan Holdings, Inc., struck a deal with Fortress Investment Group LLC for Fortress to purchase all Finjan shares. Finjan’s shareholders approved the deal. Shareholder Plaintiff then sued Finjan, its CEO, and members of its board of directors, alleging that revenue predictions and share-value estimations sent by Finjan management to shareholders before the sale had been false and in violation of Section 14(e) of the Securities Exchange Act of 1934. The district court dismissed Plaintiff’s claim.   The Ninth Circuit affirmed the district court’s dismissal. The panel held that to state a claim under Section 14(e), Plaintiff was required to plausibly allege that (1) Finjan management did not actually believe the revenue protections/share-value estimations they issued to the Finjan shareholders (“subjective falsity”), (2) the revenue protections/share value estimations did not reflect the company’s likely future performance (“objective falsity”), (3) shareholders foreseeably relied on the revenue-projections/share-value estimations in accepting the tender offer, and (4) shareholders suffered an economic loss as a result of the deal with Fortress. The district court ruled that the subjective falsity element of Grier’s claim required allegations of a conscious, fraudulent state-of-mind, also called “scienter.”   The panel, however, held that, for Plaintiff’s claim under Section 14(e), scienter was not required, and his allegations need to provide only enough factual material to create a “reasonable inference,” not a “strong inference,” of subjective falsity. The panel held that, nonetheless, Plaintiff’s allegations did not create even a “reasonable inference” of subjective falsity. View "IN RE: ROBERT GRIER, ET AL V. FINJAN HOLDINGS, INC., ET AL" on Justia Law

Plaintiff brought claims under Section 12(a)(2) of the Securities Act against all Defendants, and a claim pursuant to Section 15 of the Securities Act against Cardone and Cardone Capital. At issue was whether Cardone and Cardone Capital count as persons who “offer or sell” securities under Section 12(a) based on their social media communications to prospective investors. The district court concluded that Cardone and Cardone Capital did not qualify as statutory sellers.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). The panel concluded that Section 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, held that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in mass communication. Because the First Amended Complaint sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI, the district court erred in dismissing Plaintiff’s claim against Cardone and Cardone Capital under Section 12(a)(2), and also erred in dismissing his Section 15 claim for lack of a primary violation of the Securities Act. View "LUIS PINO V. CARDONE CAPITAL, LLC, ET AL" on Justia Law

Appellants alleged they were not “brokers,” and thus did not have to register with the SEC because their client called the shots. Appellants appealed the district court’s liability and remedies orders. The Ninth Circuit affirmed the district court’s judgment in favor of the SEC in its enforcement action against Appellants alleging violations of the Securities Exchange Act of 1934.   The panel held that under the Exchange Act, the term “broker” encompassed much broader conduct: it included any person trading securities “for the account of others.” 15 U.S.C. Section 78c(a)(4)(A). Because Appellants put their client’s capital at risk on their trades and acted as his agents, they behaved as “brokers” under the Exchange Act. By not registering as brokers with the SEC, Appellants appeared as if they were merely retail investors (who receive priority for municipal bonds), allowing them to circumvent municipal bond purchasing order priority. The panel affirmed the civil penalties imposed against Appellants. Though it appears that no individual investor suffered financial harm, Appellants’ conduct undermined the SEC’s system of broker-dealer oversight and circumvented retail priority regulations allowing municipalities to raise capital at the lowest possible price. View "USSEC V. JOCELYN MURPHY, ET AL" on Justia Law

NMS Capital Group, LLC, which was wholly owned by Petitioner purchased MCA Securities, LLC, and changed its name to NMS Capital Securities. MCA, now NMS Securities, was a member of FINRA, a securities industry self-regulatory organization registered with the SEC. NMS Securities submitted a Continuing Member Application (“CMA”) to request approval of the change in ownership. FINRA discovered that NMS Securities had failed to disclose that another registered investment advisor owned by Petitioner, NMS Capital Asset Management, was being investigated by the SEC for deficiencies in its compliance with securities laws. FINRA imposed Interim Restrictions on NMS Securities. While the Interim Restrictions were in effect, Petitioner signed agreements with investment banking clients on behalf of NMS Securities and engaged in other activities. FINRA began an investigation into whether Petitioner had violated the Interim Restrictions, and a FINRA panel found that Petitioner had violated FINRA.The Ninth Circuit denied in part and dismissed in part Petitioner’s challenge to the SEC’s determination. The panel held that because the court could review only a “final order” of the SEC under 15 U.S.C. Section 78y(a), there was no jurisdiction to review whether the SEC had substantial evidence to find that Petitioner violated FINRA Rules 8210 and 2010 by failing to produce and testify truthfully about his computers because the sanction for this violation was still pending before FINRA. However, the panel further held that the SEC’s determinations concerning the sanction of two industry bars did constitute a final order for the purposes of establishing jurisdiction. The panel denied Petitioner’s petition for review of the SEC’s decision to affirm those two sanctions. View "TREVOR SALIBA V. USSEC" on Justia Law

Plaintiff alleged that corporate executives at Align Technology, Inc., a medical device manufacturer best known for selling “Invisalign” braces, misrepresented their company's prospects in China.   The Ninth Circuit affirmed the district court’s dismissal of the securities fraud class action under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5. The court rejected as unsupported Defendants’ argument that their statements could not be considered false at the time they were made because Plaintiff did not allege sufficient facts to make plausible the inference that the rate of Align’s growth in China had begun to decline significantly when the challenged statements were made. The court concluded that former employees’ reports, viewed alongside circumstantial evidence of the short period of time between the twelve challenged statements and the downturn of Align’s prospects in China, sufficiently supported the inference that Align’s growth in China had slowed materially when the statements were made.   The court held that the district court correctly found that six of the challenged statements were non-actionable “puffery,” which involves vague statements of optimism expressing an opinion that is not capable of objective verification. The district court also correctly found that the remaining six statements did not create a false impression of Align’s growth in China and so were not actionable. Having determined that all of the challenged statements were nonactionable, the panel declined to reach issues of scienter and control-person or insider-trading liability. View "MACOMB COUNTY EMPL. RET. SYS. V. ALIGN TECHNOLOGY, INC." on Justia Law

Nektar Therapeutics (“Nektar”) touted the results from a Phase 1 clinical trial (dubbed “EXCEL”) of its anti-cancer drug. A different and more comprehensive Phase 1/2 clinical trial (called “PIVOT”) showed that the drug was not as effective as the initial trial had suggested. Two public pensions sued Nektar for securities fraud, alleging that Nektar misleadingly relied on outlier data from a single patient during the Phase 1 EXCEL clinical trial. The district court dismissed their operative complaint.The Ninth Circuit affirmed the district court’s dismissal for two reasons. First, the court held that Plaintiffs did not adequately allege falsity under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Securities and Exchange Commission Rule 10b-5. The complaint failed to articulate why Nektar’s statements about the Phase 1 EXCEL clinical trial would be materially misleading to investors. Plaintiffs do not sufficiently explain what the clinical trial would have shown without the alleged outlier data, nor do they specify how that would have affected the investing public’s assessment of the drug.Second, Plaintiffs did not plausibly allege loss causation. Nothing in the operative complaint suggests that Nektar’s disclosure of its later Phase 1/2 PIVOT clinical trial results uncovered the “falsity” of the earlier Phase 1 EXCEL trial. Rather, Plaintiffs’ factual allegations suggest a more mundane explanation: the different and more robust Phase 1/2 PIVOT clinical trial merely showed that the drug may not be as effective as the initial Phase 1 EXCEL clinical trial had suggested. View "OKLAHOMA FIREFIGHTERS PENSION V. NEKTAR THERAPEUTICS" on Justia Law