Justia Securities Law Opinion Summaries

After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

After the district court granted defendants' Federal Rule of Civil Procedure 12(b)(6) motion to dismiss with prejudice plaintiffs' second amended complaint alleging violations of the federal securities laws and entered judgment for defendants, plaintiffs brought a motion under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from the judgment and for leave to file a third amended complaint.The Second Circuit affirmed the district court's denial of the motion and held that plaintiffs are not entitled to relief under Rules 59(e) and 60(b). The court held that the district court applied the correct legal standard to plaintiffs' post-judgment motion by considering whether plaintiffs were entitled to relief under Rules 59(e) or 60(b), and committed no abuse of discretion in denying the motion on the grounds that plaintiffs had failed to identify an adequate basis for relief pursuant to those rules. In this case, plaintiffs failed to proffer any newly discovered evidence that would entitle them to relief under Rules 59(e) or 60(b) and, even if the purported newly discovered evidence was indeed new, the result would be the same because amendment would be futile. View "Metzler Investment GmbH v. Chipotle Mexican Grill, Inc." on Justia Law

The Second Circuit reversed and remanded the district court's dismissal of plaintiff's putative class action claims against Omega under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs alleged that Omega misled investors by failing to disclose a $15 million working capital loan it made to one of its major tenants, Orianna, and that the omission hid from investors the true magnitude of Orianna's solvency problems.The court held that the complaint adequately alleges that Omega acted with scienter in failing to disclose the loan. In this case, Omega's decision not to disclose the loan -- in the context of its disclosures regarding Orianna's financial health -- was a sufficiently extreme departure from the standards of ordinary care to satisfy the Private Securities Litigation Reform Act of 1995's requirement for showing recklessness. The court stated that the allegations in the complaint raise a strong inference that defendants acted, at the very least, recklessly in choosing to disclose incomplete and misleading information regarding Orianna. Furthermore, the facts as alleged create a compelling inference that defendants made a conscious decision to not disclose the loan in order to understate the extent of Orianna's financial difficulties. View "Holtzman v. Omega Healthcare Investors, Inc." on Justia Law

Plaintiffs filed a class action under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of NewLink's Phase 3 clinical trial for a novel pancreatic cancer drug and the resulting decline in the market value of NewLink shares.The Second Circuit held that defendants' statements about the efficacy of their pancreatic cancer drug were puffery, not material misrepresentations. However, the court held that plaintiffs plausibly pled material misrepresentation and loss causation for defendants' statements about the scientific literature and the design of their clinical trial. Therefore, the court affirmed the district court's dismissal in part regarding the 2013-2016 Assessments; vacated the dismissal in part regarding the September, March, and Enrollment statements; and remanded for further proceedings. View "Nguyen v. NewLink" on Justia Law

The Second Circuit denied a petition for review, under the Administrative Procedure Act, of Regulation Best Interest, which creates new standards of conduct for broker-dealers providing investment services to retail customers. Petitioners claimed that Regulation Best Interest is unlawful under the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act.The court held that Ford Financial Solutions has Article III standing to bring its petition for review. The court also held that the SEC lawfully promulgated Regulation Best Interest pursuant to Congress's permissive grant of rulemaking authority under Section 913(f) of the Dodd-Frank Act. Finally, the court held that Regulation Best Interest is not arbitrary and capricious, holding that the SEC's interpretation of the scope of the broker-dealer exemption was not so fundamental to Regulation Best Interest as to make the rule arbitrary and capricious, or otherwise not in accordance with law. Furthermore, the SEC gave adequate reasons for its decision to prioritize consumer choice and affordability over the possibility of reducing consumer confusion, and it supported its findings with substantial evidence. View "XY Planning Network, LLC v. Securities Exchange Commission" on Justia Law

The Second Circuit certified two questions to the New York Court of Appeals: 1) Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates N.Y. Penal Law 190.40, the criminal usury law. 2) If the interest charged on a loan is determined to be criminally usurious under N.Y. Penal Law 190.40, whether the contract is void ab initio pursuant to N.Y. Gen. Oblig. Law 5-511. View "Adar Bays, LLC v. GeneSYS ID, Inc." on Justia Law

The Second Circuit affirmed the district court's denial of plaintiff's motion to file an amended securities fraud complaint against the manufacturers of an allegedly defective surgical gown. The court held that plaintiff's proposed amendment would be futile, because he failed to raise a strong inference of collective corporate scienter by (1) relying on the knowledge of employees unconnected to the challenged statements or (2) pleading that the challenged statements concerned a key product with which the company's senior management would be expected to be familiar. View "Jackson v. Abernathy" on Justia Law

The Second Circuit affirmed the district court's dismissal of plaintiff's complaint under Section 16(b) of the Securities Exchange Act for failure to state a claim. In this case, plaintiff alleged that John Doe was a member of a group with the IVA defendants and IVA's other clients, and that John Doe's investment management agreement with IVA qualified as an agreement to trade in the securities of an issuer under Section 13(d). Plaintiff further theorized that the IVA defendants’ filing of a Schedule 13D automatically caused John Doe to become a member of a group by "silent acquiescence."The court held that an investment management agreement delegating discretionary investment authority to an investment advisor is not an agreement to trade in the securities of an issuer and, therefore, is not a standalone basis for membership in an insider group. The court also held that such an investment advisor's client does not become an insider group member simply because the advisor has filed a Schedule 13D or deputized a director on an issuer's board. Therefore, the court concluded that clients who have not entered an issuer-specific trading agreement are not liable for disgorgement of short-swing profits solely by virtue of their investment advisor's insider status. View "Rubenstein v. International Value Advisers, LLC" on Justia Law

Shareholders of Goldman filed a class action alleging that Goldman and several of its executives committed securities fraud by misrepresenting Goldman's freedom from, or ability to combat, conflicts of interest in its business practices. The district court certified a shareholder class, but the Second Circuit vacated the order in 2018. On remand, the district court certified the class once more.The court affirmed the district court's order on remand, holding that the district court correctly applied the inflation-maintenance theory. The court explained that the inflation-maintenance theory did not require proof of fraud-induced inflation, and that the district court applied the correct standard in concluding that Goldman's share price was inflated. The court also held that the district court did not abuse its discretion by holding that Goldman failed to rebut the Basic presumption by a preponderance of the evidence. View "Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc." on Justia Law

The Second Circuit affirmed the SEC's finding that petitioner violated section 17(a)(1) of the Securities Act of 1933, section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5(a) and (c) promulgated thereunder, and that he aided and abetted his employer's violations of its books and records requirements under the Exchange Act and associated regulations. This case stemmed from a series of trades that petitioner executed to avoid Barclays's aged-inventory policy.The court held that the Commission's actions were proper and the evidence was sufficient to support the Commission's findings. In this case, petitioner forfeited his constitutional challenge by not raising it during the administrative proceedings; the SEC's cooperation agreement did not violate petitioner's right to due process; the ALJ did not engage in impermissible fact-finding; there was sufficient evidence supporting the Commission's findings; and the Commission did not improperly sanction petitioner. Accordingly, the court denied the petition for review. View "Gonnella v. Securities and Exchange Commission" on Justia Law