Justia Securities Law Opinion SummariesArticles Posted in US Court of Appeals for the Third Circuit
Taksir v. Vanguard Group
Vanguard offers retail securities brokerage accounts. Its website stated that Vanguard offered a price of “$2 commissions for stock . . . trades” for customers who maintained a balance in Vanguard accounts of $500,000-$1,000,000. The Taksirs, whose holdings met that threshold, used Vanguard to purchase Nokia stock. Vanguard charged them a $7 commission for each of their respective purchases, stating that the Taksirs’ accounts “are not eligible for discounts for trading stocks and other brokerage securities because of IRS nondiscrimination rules” and that “[u]nfortunately, this information is not listed on the Vanguard Brokerage Commission and Fee Schedule.” Weeks later, Orit Taksir acquired additional Nokia stock in the same Vanguard account and was charged a $2 commission. The Taksirs filed a putative class action for fraud or deception under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law and breach of contract. The district court dismissed the UTPCPL claim but denied Vanguard’s motion to dismiss the contract claim. On interlocutory appeal, the Third Circuit affirmed. The Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. 78bb, does not bars investors’ claims that their broker overcharged them for the execution of securities transactions. The issue is whether the overcharges constitute “misrepresentation . . . in connection with the purchase or sale of a covered security.” The overcharges do not have a “connection that matters” to the securities transactions. View "Taksir v. Vanguard Group" on Justia Law
Reading Health System v. Bear Stearns & Co., Inc.
Reading, a Pennsylvania not-for-profit health system, issued auction rate securities (ARSs) to finance capital projects. J.P. Morgan was the underwriter and broker-dealer. Reading claims that J.P. Morgan and others artificially propped up the ARS market through undisclosed support bidding; when they stopped in 2008, the market collapsed. Reading filed state law claims and demanded arbitration with the Financial Industry Regulatory Authority (FINRA). The 2005 and 2007 broker-dealer agreements state “all actions and proceedings arising out of” the agreements or ARS transactions must be filed in the Southern District of New York. Reading filed a claim under FINRA Rule 12200, which requires a FINRA member (J.P. Morgan) to arbitrate any dispute at the customer’s request. J.P. Morgan refused, arguing that the forum-selection clauses in the 2005 and 2007 broker-dealer agreements constituted a waiver of Reading’s right to arbitrate under Rule 12200. The Third Circuit affirmed the Eastern District of Pennsylvania, which resolved the transfer dispute before the arbitrability dispute, declined to transfer the action, and required J.P. Morgan to submit to arbitration. Reading’s right to arbitrate is not contractual but arises out of a binding, regulatory rule, adopted by FINRA and approved by the SEC. Condoning an implicit waiver of Reading’s regulatory right to arbitrate would erode investors’ ability to use a cost-effective means of resolving allegations of misconduct and undermine FINRA’s ability to oversee and remedy such misconduct. View "Reading Health System v. Bear Stearns & Co., Inc." on Justia Law
United States v. Metro
Metro, a managing clerk at a New York City law firm, engaged in a five-year scheme in which he disclosed material nonpublic information concerning corporate transactions to his friend Tamayo. Tamayo told his stockbroker, Eydelman, who made trades for Tamayo, himself, his family, his friends, and other clients. Metro did not hold the involved stocks himself and did not collect proceeds but relied on Tamayo to reinvest the proceeds from their unlawful trades in future insider trading. During the government’s investigation, Tamayo promptly admitted his role in the scheme and cooperated with the government. The insider trading based on Metro’s tips resulted in illicit gains of $5,673,682. The court attributed that entire sum to Metro in determining his 46-month sentence after Metro pled guilty to conspiracy to violate securities laws, 18 U.S.C. 371, and insider trading, 15 U.S.C. 78j(b) and 78ff. Metro denies being aware of Eydelman’s existence until one year after he relayed his last tip to Tamayo, and contends that he never intended any of the tips to be passed to a broker or any other third party. The Third Circuit vacated the sentence. The district court failed to make sufficient factual findings to support the attribution of the full $5.6 million to Metro and gave too broad a meaning to the phrase “acting in concert.” View "United States v. Metro" on Justia Law
Williams v. Globus Medical, Inc.
Globus, a publicly-traded medical device company, terminated its relationship with one of its distributors, Vortex, in keeping with a policy of moving toward in-house sales. Several months later, in August 2014, Globus executives alerted shareholders that sales growth had slowed, attributed the decline in part to the decision to terminate its contract with Vortex, and revised Globus’s revenue guidance downward for fiscal year 2014. The price of Globus shares fell by approximately 18% the following day. Globus shareholders contend the company and its executives violated the Securities Exchange Act, 15 U.S.C. 78j(b) and Rule 10b-5 and defrauded investors by failing to disclose the company’s decision to terminate the distributor contract and by issuing revenue projections that failed to account for this decision. The Third Circuit affirmed dismissal of the case. Globus had no duty to disclose either its decision to terminate its relationship with Vortex or the completed termination of that relationship. Plaintiffs did not sufficiently plead that a drop in sales was inevitable; that the revenue projections were false when made; nor that that Globus incorporated anticipated revenue from Vortex in its projections. View "Williams v. Globus Medical, Inc." on Justia Law