Justia Securities Law Opinion Summaries

Defendant, a tile salesman, received material, nonpublic information from a corporate inside and then passed that information along to friends, who used it to obtain substantial trading gains. After a jury trial, Defendant was convicted of committing securities fraud and conspiring to commit securities fraud. Defendant appealed, arguing that there was insufficient evidence in the record to support his conviction, where he was neither a corporate insider nor a trader of securities. The First Circuit affirmed, holding (1) the evidence was sufficient to show that Defendant knowingly breached a duty of confidence; (2) the district court’s instructions did not improperly shift the burden of proof or misstate the state of mind element of the securities fraud offense; and (3) the evidence was sufficient to show that Defendant anticipated receiving a benefit as a result of his disclosure. View "United States v. McPhail" on Justia Law

From 1997-2001, Nacchio served as Qwest's CEO. Based on 2001 stock trades, Nacchio reported a net gain of $44,632,464.38 on his return and paid $17,974,832 in taxes. In 2007, Nacchio was convicted of 19 counts of insider trading, 15 U.S.C. 78j, 78ff. Following a remand, the court resentenced Nacchio to serve 70 months in prison, pay a 19 million dollar fine, and forfeit the net proceeds, $44,632,464.38. Nacchio settled a concurrent SEC action, agreeing to disgorge $44,632,464. Nacchio’s criminal forfeiture satisfied his disgorgement obligation. The Justice Department notified participants in private securities class action litigation or SEC civil litigation concerning Qwest stock that they were eligible to receive a remission from Nacchio’s forfeiture. Nacchio sought an income tax credit of $17,974,832 for taxes paid on his trading profits. The IRS argued that his forfeiture was a nondeductible penalty or fine and that he was estopped from seeking tax relief because of his conviction. The Claims Court held that Nacchio could deduct his forfeiture payment under Internal Revenue Code 165, but not under I.R.C. 162 and was not collaterally estopped from pursuing special relief under I.R.C. 1341. The Federal Circuit reversed as to section 165;Nacchio failed to establish that his forfeiture was not a “fine or similar penalty.” Because establishing deductibility under another section of the code is a prerequisite to pursuing relief under section 1341, Nacchio cannot pursue a deduction under that section. View "Nacchio v. United States" on Justia Law

Acting on “obviously nonpublic information” that a golfing buddy, McPhail, received from a corporate insider, Parigian made more than $200,000 trading in securities. A federal criminal securities fraud indictment alleged a “misappropriation theory” against Parigian, arguing that Parigian knew or should have known that, by providing the inside information to Parigian, McPhail breached a duty of trust and confidence and personally benefited by doing so. He pled guilty to the charges conditionally. The First Circuit rejected Parigian's preserved challenges to the indictment, following the circuit’s controlling precedent: allegations of a friendship between McPhail and Parigian plus an expectation that the tippees would treat McPhail to a golf outing and assorted luxury entertainment is enough to allege a benefit if a benefit is required. The court rejected an argument that the government was obligated to allege that the insider was also expecting a benefit when passing along confidential information to McPhail in the first instance. View "United States v. Parigian" on Justia Law

The U.S. Commodity Futures Trading Commission (CFTC) sued Arrington, Kratville, Welke, Elite Holdings, and MJM, alleging that they fraudulently induced more than 130 individuals to invest $4.7 million in commodity pools, in violation of the Commodity Exchange Act (CEA), 7 U.S.C. 1. The district court granted summary judgment against Kratville. The Eighth Circuit affirmed, upholding denial of his request for more time to review purportedly new evidence; consideration affidavits from investors who signed releases and from investors who allegedly lacked credibility; refusal to consider the affidavit of an expert opining on the authenticity of emails; summary judgment on the CFTC's claim that Kratville committed fraud and related violations of the CEA and CFTC regulations in soliciting persons to invest and maintain funds in commodity investment pools; and a determination that the litigation strategy of Kratville's attorney was not excusable neglect warranting relief under FRCP 60(b)(1). Kratville's misrepresentations and omissions related to potential profit and risk, the identities of brokers, and ownership of a proprietary trading system were material. He hid from investors that pool funds were being sent out of the country and that the Nebraska Department of Banking and Finance had ordered Elite Pools to be closed and participants’ funds to be returned. View "Commodity Futures Trading Comm'n v. Kratville" on Justia Law

Based on their involvement in promoting or selling stock for Petro America, an unregistered company that had no value, eight coconspirators were charged with conspiracy to commit securities fraud and wire fraud 18 U.S.C. 371. Hawkins was also charged with aiding and abetting securities fraud, 15 U.S.C. 77q and 18 U.S.C. 2, aggravated currency structuring, 31 U.S.C. 5324(a)(3) and (d)(2), money laundering, 18 U.S.C. 1957, and two counts of wire fraud, 18 U.S.C. 1343. Brown was also charged with securities fraud and wire fraud; Heurung was charged with two additional counts of wire fraud; and Miller was charged with money laundering and wire fraud. The others pled guilty to various charges. Hawkins, Brown, Heurung, Miller and Roper proceeded to trial. Hawkins argued that Petro America was a legitimate company and that the government was prosecuting so that it could confiscate the company's substantial assets. The others acknowledged that Petro America was a sham but claimed they had believed in good faith that the company was real and that they could promote or sell its stock. The Eighth Circuit affirmed their convictions on all counts, rejecting challenges concerning jury selection and evidentiary rulings. View "United States v. Hawkins" on Justia Law

Just before investing in Zhongpin on behalf of Prestige, Yang, a Chinese citizen employed at a U.S. investment firm, purchased Zhongpin shares and option contracts for himself. Yang was Prestige’s only officer and employee and sole investment manager. Yang did not disclose the purchases to Prestige. After its purchases, Prestige owned more than five percent of Zhongpin’s common stock, triggering an obligation to file Schedule 13D, 15 U.S.C. 78m(d). Yang and two others associated with Prestige filed Schedule 13D on behalf of Prestige, disclosing that Yang shared voting and dispositive power over Prestige’s Zhongpin shares, but failing to list the shares that Yang had purchased for himself, as required. The Schedule 13D misleadingly stated that, except for transactions listed on the form, “no transactions in the Common Stock were effected by any Reporting Person” in 60 days prior to Prestige’s attainment of its interest. Claiming deceptive “front-running,” the Securities and Exchange Commission instituted a civil suit. The jury found that Yang had violated the law by front-running and by filing a fraudulent disclosure. The court imposed a $150,000 penalty and enjoined Yang from future violations of U.S. securities law. The Seventh Circuit affirmed. Yang forfeited his arguments regarding the illegality of front-running and the materiality of his disclosure. View "Sec. & Eexch. Comm'n v. Yang" on Justia Law

Fry solicited funds from investors for promissory notes issued by Petters, stating that the notes would finance purchases of merchandise that would be resold at a profit. In fact, the notes were part of a Ponzi scheme orchestrated by Petters, who was convicted separately. The transactions were fictitious, documentation was fabricated, and early investors were paid purported profits with money raised from the sale of notes to later investors. From 1999-2008, Fry and his recruits raised more than $500 million. Fry continued to misrepresent the investments and to solicit investments after the scheme began to unravel, causing $130 million in losses for 44 victims, while he collected tens of millions of dollars in fees. Fry made false statements to the SEC during its investigation. He was convicted of securities fraud, 15 U.S.C. 77q(a), 77x ,18 U.S.C. 2; wire fraud, 18 U.S.C. 1343; and making false statements to the SEC, 18 U.S.C. 1001(a)(2). The district court sentenced Fry to 210 months’ imprisonment. Other participants in the Petters scheme pleaded guilty to various charges and were sentenced by the same judge. The Eighth Circuit affirmed Fry’s conviction and sentence, rejecting an argument that it should presume that the court sentenced him vindictively, in retaliation for his exercise of the right to a jury trial, because Fry’s sentence was longer than sentences imposed on defendants who pleaded guilty. View "United States v. Fry" on Justia Law

Hansen, a farmer, served as a bank trust officer. In 2003, he invested, through Johnson (a stock broker), in the Hudson Fund, a hedge fund Johnson ran with Onsa and Puma. Hansen continued investing with the three. In 2007 Hansen and Johnson formed RAHFCO limited partnership. Hansen served as general partner, but delegated responsibility for executing trades to the Hudson Fund. Hansen misrepresented RAHFCO to investors, directly and through a private placement memo. Hansen prepared and sent investors earnings statements that falsely inflated RAHFCO’s performance. Hansen later testified that he relied on Onsa and Johnson to provide the numbers and never confirmed them. Hansen hired an accounting firm for an audit, but the firm quit after Hansen refused to authorize it to obtain a brokerage statement confirming RAHFCO’s investments. RAHFCO’s law firm withdrew. Johnson was charged in 2007 with securities fraud concerning another company. Onsa was sued civilly for fraudulent securities trading in 2009. Hansen never informed investors of any of these events nor did he attempt to find another auditor. In 2011, RAHFCO collapsed. Convicted of mail fraud, wire fraud, and conspiracy to commit mail fraud and wire fraud, 18 U.S.C. 1341, 1343, 1349, Hansen was sentenced to 108 months imprisonment and ordered to pay $17 million restitution to 75 victims. The Eighth Circuit affirmed, upholding the use of a willful blindness instruction and an instruction on conspiracy. View "United States v. Hansen" on Justia Law

Rodd, an investment advisor who produced and was regularly featured on a Minnesota local radio show, “Safe Money Radio,” was convicted of wire fraud, 18 U.S.C. 1343 and mail fraud, 18 U.S.C. 1341, for swindling 23 investors out of $1.8 million. Rodd used the radio show to market low-risk investment products to gain customers’ trust and maintain a client base for soliciting participants in a fraudulent investment scheme. Rodd solicited money by promising liquidity, safety, and a 60% six-month return. Rodd instead used the money for personal and business expenses, hiding behind false assurances of security and payouts to his early investors. Finding an advisory guidelines range of 70 to 87 months, the district court sentenced Rodd to 87 months in prison, applying a two-level enhancement for abusing a position of trust, U.S.S.G. 3B1.3, The Eighth Circuit affirmed, upholding the finding that Rodd occupied a position of trust. As a self-employed investment advisor, Rodd was subject to no oversight except by his investors. The discretion and control he possessed over client funds adequately supported the finding. The court did not err in failing to apply a two-level acceptance-of-responsibility reduction. Rodd took his case to trial and denied his guilt to the end. View "United States v. Rodd" on Justia Law

The Commodity Futures Trading Commission and the Securities and Exchange Commission concluded that Battoo committed fraud. Battoo and his companies, all located outside the United States, defaulted in the suits. The district judge froze all assets pending a final decision about ownership. The court appointed a Receiver to marshal the remaining assets and try to determine ownership. The Receiver has been recognized as the assets’ legitimate controller in several other nations, including China (Hong Kong), Guernsey, and the Bahamas. Battoo defied the injunction and transferred control of some investment vehicles, located in the British Virgin Islands, to court-appointed Liquidators, who asked the judge to modify the injunction and allow them to distribute assets located in the U.S. or England immediately. The Liquidators maintain that, because Battoo no longer has control, the justification for freezing the assets has lapsed. The court assumed that the Liquidators are now under judicial control, but declined to modify the injunction, ruling that the funds should remain available so that an eventual master plan of distribution can treat all investors equitably. The Seventh Circuit affirmed. It is not clear whether some investment interests can be disentangled reliably from those affected by Battoo’s frauds against U.S. investors; the Liquidators have not argued that any investor is suffering loss as a result of the Receiver’s investment decisions. View "Commodity Futures Trading Comm'n v. Battoo" on Justia Law