Justia Securities Law Opinion Summaries

Kluger and Bauer were charged as conspirators in an insider-trading scheme in which Robinson was the third participant. The conspiracy spanned 17 years and was likely the longest such scheme in U.S. history. Kluger entered a guilty plea to conspiracy to commit securities fraud; securities fraud; conspiracy to commit money laundering; and obstruction of justice, 18 U.S.C. 371, 15 U.S.C. 78j(b) and 78ff(a); 18 U.S.C. 1956(h), 18 U.S.C. 1512(c)(2), and 18 U.S.C. 2. The plea agreement did not include a stipulation as to the guidelines sentencing range. The district court imposed a 60-month term on Count I and 144-month custodial terms on each other count, all to be served concurrently, thought to be the longest insider-trading sentence ever imposed. After a separate hearing on the same day, the court sentenced Bauer to a 60-month term on Count I and 108-month terms on each other count to be served concurrently. Robinson, who was the “middleman,” in the scheme, pled guilty to three counts and was sentenced to concurrent 27-month terms. Robinson’s sentence was far below his guidelines range of 70 to 87 months but the prosecution sought a downwards departure because Robinson was cooperating in its investigation and prosecution. The Third Circuit upheld Kluger’s sentence. View "United States v. Kluger" on Justia Law

After accumulating a fortune in the technology business, Patel became a hedge fund manager. He formed a fund, and Sitara to serve as the fund’s investment adviser, and named himself managing director of Sitara. His acquaintances purchased interests in the fund. After initial success, Patel invested $6.8 million, nearly all of the fund’s assets, in Freddie Mac common stock in 2008, after the beginning of the subprime mortgage crisis. The fund incurred devastating losses. Owners of limited partnership interests sued Patel and Sitara, claiming federal and state securities fraud, fraudulent misrepresentation, and fraudulent inducement. Their second amended complaint asserted only failure to register securities in violation of federal law, failure to register as an investment advisor under Illinois law, and breach of fiduciary duty under ERISA, 29 U.S.C. 1109(a). Plaintiffs sought to file a third amended complaint, based upon purported misrepresentations discovered while deposing Patel: an offering memorandum statement that Patel “intends to contribute no less than one hundred thousand dollars” and Patel’s oral statement that he was investing some of the $18 million from the sale of a former business at the inception of the fund. Patel did not invest any proceeds from the sale of his company at the inception. The district court denied the motion. The Seventh Circuit affirmed. The new claims suffered from deficiencies that rendered the proposed amendment futile. View "Shailja Gandhi Revocable Trust v. Sitara Capital Mgmt., LLC" on Justia Law

Defendants appealed their securities fraud and conspiracy convictions stemming from their involvement in a double-blind, high-volume insider trading network that led the participants to acquire over $10 million in profits. The court held that wiretap evidence was lawfully obtained and therefore properly admitted; the jury had sufficient evidence to convict Defendant Kimelman of securities fraud; the conscious avoidance jury instructions were proper; evidence of Kimelman's rejection of a plea bargain was properly excluded; and defendants' sentences were reasonable. Accordingly, the court affirmed the convictions and sentences. View "United States v. Goffer" on Justia Law

The Securities and Exchange Commission (SEC) Office of Investigations (OIG) found that the SEC had received numerous substantive complaints since 1992 that raised significant concerns about Madoff’s hedge fund operations that should have led to a thorough investigation of the possibility that Madoff was operating a Ponzi scheme. The SEC conducted five examinations and investigations, but never took the steps necessary to determine whether Madoff was misrepresenting his trading. The OIG found that had these efforts been made, the SEC could have uncovered the Ponzi scheme. Madoff’s clients filed suit under the Federal Tort Claims Act, 28 U.S.C. 1346(b), 2671, to recover damages resulting from the SEC’s failure to uncover and terminate the scheme in a timely manner. The district court dismissed for lack of subject matter jurisdiction, finding that the claims were barred by the discretionary function exception to the FTCA. The Third Circuit affirmed, reasoning that SEC regulations afford examiners discretion regarding the timing, manner, and scope of investigations and that there is a strong presumption that the SEC’s conduct is susceptible to policy analysis. View "Baer v. United States" on Justia Law

Intervenors appealed the district court's denial of their motion to intervene in a suit where the lead plaintiff and other putative class members alleged that defendants had made fraudulent misrepresentations and omissions in the offering and sale of certain financial instruments which they purchased. The court held that: (1) American Pipe & Construction Co. v. Utah's tolling rule did not apply to the three-year statute of repose in Section 13 of the Securities Act of 1933, 15 U.S.C. 77m; and (2) absent circumstances that would render the newly asserted claims independently timely, neither Federal Rule of Civil Procedure 24 nor the Rule 15(c) "relation back" doctrine permitted members of a putative class, who were not named parties, to intervene in the class action as named parties in order to revive claims that were dismissed from the class complaint for want of jurisdiction. The proposed intervenors could not circumvent Section 13's statute of repose by invoking American Pipe or Rule 15(c). Accordingly, the court affirmed the judgment insofar as the district court partially denied the motions to intervene. View "In re IndyMac Mortgage-Backed Sec. Litig." on Justia Law

Plaintiffs brought this action against the Commission seeking a declaratory judgment that recently adopted regulations of the Commission regarding derivatives trading were unlawfully adopted and invalid, and seeking to vacate and set aside those regulations and to enjoin their enforcement. Plaintiffs contended that the Commission violated the Administrative Procedure Act, 5 U.S.C. 500 et seq., in its rulemaking by: (1) failing to address rationales for broadening Commodity Pool Operators (CPOs) exemptions; (2) failing to comply with the Commodity Exchange Act, 7 U.S.C. 2(a), and offering an inadequate evaluation of the rule's costs and benefits; (3) including swaps in the trading threshold, restricting its definition of bona fide hedging, and failing to justify the five percent threshold; and (4) failing to provide an adequate opportunity for notice and comment. The court concluded, however, that the Commission did not act unlawfully in promulgating the regulations at issue. Accordingly, the court affirmed the district court's grant of summary judgment in favor of the Commission. View "Investment Company Inst., et al. v. CFTC" on Justia Law

Defendant appealed his securities fraud conviction for insider trading. The court held that the district court properly analyzed the misstatements and omissions in the government's Title III wiretap application under the analytical framework prescribed in Franks v. Delaware; the alleged misstatements and omissions in the wiretap application did not require suppression; and the district court's jury instructions on the use of inside information satisfied the "knowing possession" standard. Accordingly, the court affirmed the judgment. View "United States v. Rajaratnam" on Justia Law

Trustee sued on behalf of victims in the Ponzi scheme worked by Bernard Madoff under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa, alleging that, when defendants were confronted with evidence of Madoff's illegitimate scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the fraud. The court concluded that the doctrine of in pari delicto barred the Trustee from asserting claims directly against defendants on behalf of the estate for wrongdoing in which Madoff participated; SIPA provided no right to contribution; and the Trustee did not have standing to pursue common law claims on behalf of Madoff's customers. Accordingly, the court affirmed the district court's dismissal of the Trustee's claims. View "In Re: Bernard L. Madoff Investment Securities" on Justia Law

The government alleged Defendant-Appellant Richard Clark, along with other co-conspirators, manipulated shares of several penny-stocks by using false and backdated documents to make those shares publically tradable, then coordinated the trading among themselves to create the false appearance of an active market for those shares. The shares were sold after the prices surged. The conspirators laundered the proceeds through multiple bank accounts and nominees (a "pump-and-dump" scheme). Defendant was charged and convicted on multiple counts for his participation in the scheme. He appealed his conviction to the Tenth Circuit, arguing: (1) the pretrial placement of a caveat on his property violated his constitutional rights; (2) the evidence presented at trial was insufficient to support his conviction; (3) the district court erred in refusing to appoint additional or substitute counsel better versed in complex securities issues; (4) the district court erred by failing to sever his case from his co-conspirator's; and (5) his rights under the Speedy Trial Act were violated by a fourteen-month delay between filing of the indictment and the start of trial. The Tenth Circuit addressed each of Defendant's contentions in its opinion, but found no discernible error. View "United States v. Clark" on Justia Law

Loffredi’s securities brokerage firm offered investments in certificates of deposit, mutual funds, and Treasury bills. Instead of actually purchasing investments requested by customers, Loffredi diverted their money to his personal expenses and business debts. He fraudulently misappropriated about $2.8 million over four years. A customer alerted the Securities and Exchange Commission to irregularities in his financial statements. After an investigation, Loffredi was charged with five counts of mail fraud, 18 U.S.C. 1341. He pleaded guilty to one count. The judge applied a two-level upward adjustment under U.S.S.G. 2B1.1(b)(2)(A)(i) for an offense involving at least 10 victims and imposed a sentence of 78 months. The presentence report counted as victims each of the 14 defrauded customers whose funds Loffredi had misappropriated. Loffredi argued that the only victim of the offense was his broker-dealer parent firm, which had reimbursed the losses of 12 of the 14 customers (Loffredi reimbursed the other two). The Seventh Circuit affirmed, noting that Loffredi never asserted that his fraud was painless for his customers and rejecting his “all-or-nothing” defense that the customers cannot be victims if they were reimbursed. View "Unted States v. Loffredi" on Justia Law