Justia Securities Law Opinion Summaries

Plaintiff appealed the district court's dismissal of its complaint for failure to state a claim. At issue was whether plaintiff had stated plausible claims under sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. 77a et seq. The court held that allegations in the complaint stated a plausible claim that the offering documents for the security misstated the applicable underwriting standards in violation of sections 11, 12(a)(2), and 15. The court also held that the alleged misstatements were not immaterial as a matter of law. Finally, the court vacated the district court's holding that plaintiff, even as the representative of a proposed class, lacked standing to pursue claims based on securities in which it had not invested. Rather than addressing this issue, the court instructed the district court to reconsider it in light of the court's intervening opinion in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. Accordingly, the court reversed in part, vacated in part, and remanded for further proceedings. View "New Jersey Carpenters Health Fund v. The Royal Bank of Scotland" on Justia Law

In 2000 the SEC charged violation of securities law. The court appointed a receiver to distribute assets among victims of the $31 million fraud. The receiver found that assets had been used to acquire oil and gas leases. SonCo claimed an interest in the leases. In 2010, the district court issued an “agreed order,” requiring SonCo to pay $600,000 for quitclaim assignment of the leases and release of claims in Canadian litigation. Alco operated the wells and had posted a $250,000 cash bond with the Texas Railroad Commission. Alco could get its $250,000 back if replaced by new operator that posted an equivalent bond. The $250,000 had come, in part, from defrauded investors. Alco was incurring environmental liabilities, with little prospect of offsetting revenues. SonCo was to replace Alco, but failed to so, after multiple extensions. The district judge held SonCo in civil contempt, ordered it to return the leases, and allowed the receiver to keep the $600,000. The Seventh Circuit upheld the finding of civil contempt. Following remand, the Seventh Circuit affirmed the sanction; considering additional environmental compliance costs and receivership fees, a plausible estimate of the harm would be $2 million. ”SonCo will be courting additional sanctions, of increasing severity, if it does not desist forthwith from its obstructionist tactics.” View "Sec. & Exch. Comm'n v. First Choice Mgmt Servs., Inc." on Justia Law

Southfield appealed the dismissal of its consolidated class-action securities fraud complaint against St. Joe and St. Joe's current and former officers for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), 78t(a), and Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. 240.10b-5. Southfield argued that the district court erred in holding that they failed to adequately plead loss causation, actionable misrepresentation, or scienter, and also by denying their post-judgment motion to alter or amend. The court held that the complaint as framed by Southfield failed to adequately allege loss causation and the district court was therefore correct to dismiss Southfield's complaint for failure to state a claim. Accordingly, the court affirmed the judgment. View "City of Southfield Fire & Police Retirement System v. Greene, et al" on Justia Law

The Investment Advisers Act makes it illegal to defraud clients, 15 U.S.C. 10b–6(1),(2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers and against individuals who aid and abet violations. If the SEC seeks civil penalties, it must file suit “within five years from the date when the claim first accrued,” 28 U. S. C. 2462. In 2008 the SEC sought civil penalties, alleging that individuals aided and abetted investment adviser fraud from 1999 until 2002. The district court dismissed the claim as time barred. The Second Circuit reversed, reasoning that the underlying violations sounded in fraud, so the “discovery rule” applied, and the limitations period did not begin to run until the SEC discovered or reasonably could have discovered the fraud. The Supreme Court reversed. The limitation period begins to run when the fraud occurs, not when it is discovered. In common parlance a right accrues when it comes into existence. The discovery rule is an exception to the standard rule and has never been applied where the plaintiff is not a defrauded victim seeking recompense, but is the government bringing an enforcement action for civil penalties. The government is a different kind of plaintiff. The SEC’s very purpose is to root out fraud. The discovery rule helps to ensure that the injured receive recompense, but civil penalties go beyond compensation and are intended to punish. Deciding when the government knew or reasonably should have known of a fraud would also present particular challenges for the courts. View "Gabelli v. Sec. & Exch. Comm'n" on Justia Law

To recover damages in a private securities-fraud action under section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5, a plaintiff must prove reliance on a material misrepresentation or omission made by the defendant. The Supreme Court has endorsed a “fraud-on-the-market” theory, which permits plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. The theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a class-wide basis. Connecticut Retirement sought FRCP 23(b)(3) certification of a securities-fraud class action against a biotechnology company (Amgen). The district court certified the class. The Ninth Circuit affirmed, rejecting an argument that Connecticut Retirement was required to prove materiality before class certification under Rule23(b)(3)’s requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The Supreme Court affirmed. Proof of materiality is not a prerequisite to certification of a securities-fraud class action. Materiality is judged by an objective standard and can be proved through evidence common to the class. Failure of proof of materiality would not result in individual questions predominating, but would end the case. A requirement that putative class representatives establish that they executed trades “between the time the misrepresentations were made and the time the truth was r¬vealed” relates primarily to typicality and adequacy of representation, not to the predominance inquiry. The Court rejected Amgen’s argument that, because of pressure to settle, materiality may never be addressed by a court if it is not evaluated at the class-certification stage. The potential immateriality of Amgen’s alleged misrepresentations and omissions was no barrier to finding that common questions predominate. View "Amgen Inc. v. CT Ret. Plans & Trust Funds" on Justia Law

Pagliara, a licensed securities broker for more than 25 years, maintained a spotless record with the Financial Industry Regulatory Authority (FINRA) except for this case. Under a 2002 licensing agreement, Pagliara served both Capital Trust and NBC until 2008. During that time, Butler followed Pagliara’s recommendation to invest $100,000 in bank stocks that later lost value. Butler’s attorney threatened to sue NBC and Pagliara. NBC retained JBPR for defense. Unbeknownst to NBC and JBPR, Pagliara offered to settle the claim for $14,900, $100 below FINRA’s mandatory reporting threshold. Butler refused. Pagliara then informed NBC of his intent to defend the claim in FINRA Arbitration and objected to any settlement of the “frivolous claim.” NBC insisted that Pagliara not have any contact with Butler, based on the License Agreement signed by the parties, which stated that: “NBCS, at its sole option and without the prior approval of either [Capital Trust] or the applicable Representative, may settle or compromise any claim at any time.” JBPR finalized a $30,000 settlement without obtaining a release for Pagliara. Pagliara sued, alleging breach of fiduciary duty, violation of the Tennessee Consumer Protection Act, and intentional infliction of harm. The district court rejected the claims. The Sixth Circuit affirmed. View "Pagliara v. Johnston Barton Proctor & Rose, LLP" on Justia Law

Appellants, investors who lost money in the multi-billion dollar Ponzi scheme perpetrated by BLMIS, appealed from the district court's judgment affirming the bankruptcy court order affirming the trustee's denial of appellants' claims against BLMIS under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa et seq., based on the trustee's determination that appellants did not qualify as BLMIS "customers" under SIPA. The court agreed and affirmed the judgment, concluding that appellants could not reasonably have thought that the Feeder Funds deposited their money with or established accounts for them at BLMIS. The bankruptcy court did not err in concluding that the Feeder Funds were not BLMIS agents. View "In Re: Bernard L. Madoff Investment Securities LLC" on Justia Law

Defendants are MB, a registered investment adviser, and people affiliated with MB. A fraudulent scheme was perpetrated by Bloom while he was an employee and officer of MB, through a hedge fund called North Hills that Bloom controlled and managed outside the scope of his responsibilities at MB. Bloom was arrested and indicted in New York in 2009 on charges relating to the Ponzi scheme, by which time most of the money invested in North Hills was gone. Investors filed suit, alleging: controlling person liability under Section 20(a) of the Securities and Exchange Act; negligent supervision; violations of Securities and Exchange Commission Rule 10b-5; violations of the Pennsylvania Unfair Trade Practice and Consumer Protection Law; and breach of fiduciary duty. The district court rejected all claims. The Third Circuit vacated and remanded with respect to MB on the claims for violations of Rule 10b-5 and the state UTPCPL, and otherwise affirmed. View "Belmont v. MB Inv. Partners, Inc." on Justia Law

Plaintiffs brought this putative class action under sections 11, 12, and 15 of the Securities Act, alleging that a prospectus and registration statement (the offering documents) issued by AMAG Pharmaceutical, Inc. in connection with a secondary stock offering held in 2010 contained two serious omissions: (1) a failure to disclose almost two dozen reports of serious adverse effects linked to a make-or-break drug for AMAG's future; and (2) failure to disclose information the FDA revealed in a warning letter issued after the offering. The district court dismissed the entire complaint on the ground that Plaintiffs failed sufficiently to plead section 11 claims pursuant to an SEC regulation. The First Circuit Court of Appeals (1) reversed the dismissal of the claims of actionable omissions because of the undisclosed reports because the reports gave rise to uncertainties AMAG knew would adversely affect future revenues and risk factors that made the offering risky and speculative; (2) affirmed as to the claims of omissions regarding the FDA information; and (3) reversed the dismissal of Plaintiffs' sections 12 and 15 causes of action. Remanded. View "Silverstrand Invs. v. Amag Pharms., Inc." on Justia Law

Morgan Keegan filed an action seeking to enjoin arbitration proceedings on the ground that under the controlling FINRA Rule, defendants were not "customers" of Morgan Keegan entitled to compel arbitration of their dispute. In their FINRA arbitration claim, defendants asserted that Morgan Keegan engaged in misconduct relating to the valuation and marketing of certain bond funds purchased by defendants through their brokerage firm. At issue on appeal was whether the district court erred in holding that Morgan Keegan was not subject to FINRA arbitration. The court affirmed the district court's judgment because defendants were not "customers" of Morgan Keegan, within the meaning of the disputed FINRA Rule 12200, and, therefore, were not entitled to invoke the mandatory arbitration provision contained in that rule. View "Morgan Keegan & Co., Inc. v. Silverman" on Justia Law