Justia Securities Law Opinion Summaries

Petitioners, husband and wife, sought review of a judgment of the Tax Court sustaining the Commissioner's determination of a deficiency, an accuracy-related penalty, and a penalty for filing a delinquent tax return. Husband worked for IBM and acquired IBM stock by exercising his employee stock options. Husband subsequently participated in a program operated by Derivium, whereby it would "lend" a client ninety percent of the value of securities that the client pledged to it as collateral. The court concluded that a combination of factors pointed decidedly to the conclusion that husband disposed of his stock by signing a Master Agreement and addenda and retained no real interest in his collateral or the "loan" after Derivium had transferred the proceeds to him. The court also concluded that plaintiffs have not shown that they acted with reasonable cause and in good faith when they declared their income from the sale of IBM shares to Derivium. Consequently, the court affirmed the Tax Court's imposition of an accuracy-related penalty. Further, plaintiffs have not carried their burden of establishing reasonable cause for failing to timely file their return and therefore, the Commissioner's assessment of a late-filing penalty was appropriate. View "Calloway v. Commissioner of IRS" on Justia Law

Sklena and Sarvey were floor traders in the Five-Year Treasury Note futures pit at the Chicago Board of Trade. Sklena was a “local,” authorized to trade only on his own behalf; Sarvey was a “broker” and could trade for himself and for his customers. On April 2, 2004, the price of the Five-Year Note futures fluctuated wildly. Sarvey and Sklena executed the series of transactions that resulted in criminal prosecution. According to the government, Sklena and Sarvey conspired to sell Sarvey’s customers’ contracts noncompetitively. The U.S. Commodity Futures Trading Commission filed a civil complaint alleging that the two “engaged in a series of non-competitive trades” that defrauded customers out of over $2 million. Sarvey died before trial on charges of wire and commodity fraud and noncompetitive futures contract trading. In Sklena’s trial, the district court excluded Sarvey’s deposition as inadmissible hearsay. Sklena was convicted. The Seventh Circuit reversed. There was sufficient evidence to support the conviction, but the court erred in excluding the deposition testimony.View "United States v. Sklena" on Justia Law

At the behest of the Oklahoma Department of Securities, Oklahoma courts found early investors in a Ponzi scheme carried out by a third party to have been unjustly enriched and required disgorgement. Judgments were entered against those investors. The issue before the Tenth Circuit was whether the judgments entered against Robert Mathews, Marvin Wilcox, and Pamela Wilcox qualified as a nondischargeable debt under 11 U.S.C. 523(a)(19). The bankruptcy court decided the debts were nondischargeable because they were in violation of securities laws. The district court affirmed. Upon review, the Tenth Circuit reversed and remanded: "the Department's position conveniently serves its ends (and in the abstract) a public good. But the language of the statute cannot reasonably be stretched that far." View "Oklahoma Dept. of Securites v. Wilcox, et al" on Justia Law

Contorinis was a co-portfolio manager of the Fund, which invested in companies in the retail and personal products sectors. In 2000, Contorinis befriended Stephanou, who became an investment banker in the Mergers and Acquisitions group at UBS in 2002. Stephanou regularly provided confidential information to several friends and, in 2005, shared information about a planned acquisition with Contorinis and others. Based on a series of transactions following Stehanou’s disclosures the about and on-again, off-again acquisition, Contorinis was convicted of conspiracy to commit securities fraud and insider trading. The district court imposed a forfeiture order of $12.65 million. The Second Circuit affirmed the conviction. A challenged jury instruction adequately conveyed the definition of material, nonpublic information; the court was within its discretion in admitting evidence of contemporaneous trades by individuals who received inside information from the same source as Contorinis. The court vacated the order to forfeit gains acquired by Contorinis’s employer, but not by him.View "United States v. Contorinis" on Justia Law

During an eight-month period, Plaintiff and Counterclaim-Defendant Hemispherx Biopharma, Inc. (“Hemispherx”) hired three different investment brokers to raise capital for it. Hemispherx hired the first two brokers at a time when it was difficult to sell Hemispherx’s stock. Months later, when market forces made Hemispherx’s stock much more attractive, Hemispherx hired a third broker was able very quickly to raise $31 million in capital for Hemispherx through stock sales. All three brokers focused their capital-raising efforts on several of the same prospective investors and, when several of those investors eventually purchased Hemispherx stock, a dispute arose as to which of the three brokers was entitled to a commission on the stock sales. The first investment broker Hemispherx hired, Defendant and Counterclaimant Mid-South Capital, Inc. (“Mid-South”), sought to recover a commission for its efforts in identifying investors and introducing them to Hemispherx. Hemispherx contendsed that Mid-South and its employees, Defendants Robert Rosenstein and Adam Cabibi, tortiously interfered with Hemispherx’s business relationship with its investors and with the third investment broker who ultimately closed the stock deals at issue here. The district court denied each party relief, granting judgment on the pleadings to Hemispherx on Mid-South’s breach-of-contract claim, and summary judgment to Hemispherx on Mid-South’s remaining claims and to Mid-South on Hemispherx’s intentional interference with business relationships claim. After review of the matter, the Eleventh Circuit affirmed the district court in granting summary judgment to Mid-South on the tortious interference claim; reversed the judgment on the pleadings on Mid-South's breach-of-contract claim; and reversed the grant of summary judgment for Hemispherx on Mid-South's promissory estoppel, quantum meruit and unjust enrichment claims. The case was remanded for further proceedings. View "Hemispherx Biopharma, Inc. v. Mid-South Capital, Inc." on Justia Law

Auction Rate Securities are variable-rate equity or debt instruments that pay interest or dividends at rates set by periodic auctions. ARS were used as an alternative financing vehicle and were promoted as a safe, liquid alternative to money market funds. Merrill Lynch placed support bids at the auctions. In 2006, the SEC ordered investment banks, including Merrill Lynch, to cease intervention in the ARS market in the absence of adequate disclosures and found violations of 15 U.S.C. 77q(a)(2). In 2007 Merrill Lynch discontinued placing support bids and auctions for ARS failed. Anschutz holds $18.95 million of “illiquid and severely impaired securities.” Anschutz claimed that because of the support bids, it earned less interest on its ARS that it otherwise would have earned; that it relied on the appearance of ARS liquidity manufactured by Merrill Lynch, and on previous success with similar ARS, in deciding to make purchases; and that credit agencies committed fraud in rating ARS at issue. The district court dismissed, holding that disclosures on the Merrill Lynch website, in conjunction with the SEC Order, were sufficient to apprise Anschutz of ARS support bidding practices and that Anschutz failed to allege any actionable misstatements by the rating agencies. The Second Circuit affirmed. View "Anschutz Corp. v. Merrill Lynch & Co., Inc." on Justia Law

In 2004, securities fraud class actions were filed against AIG and other corporate and individual defendants, including Gen Re. The district court consolidated the actions and appointed as lead plaintiffs three Ohio public pension funds, for a putative class of investors who purchased AIG’s publicly traded securities between October 28, 1999, and April 1, 2005. The complaint alleged that AIG and Gen Re violated Rule 10b-5(a) and (c), (Securities Exchange Act, 15 U.S.C. 78j(b)), by entering into a sham $500 million reinsurance transaction designed to mislead the market and artificially increase AIG’s share price. After the parties reached a settlement agreement, the district court denied plaintiffs’ motion to certify a settlement class, finding that the class could not satisfy the predominance requirement of FRCP 23(b)(3) because the fraud-on-the-market presumption does not apply to the class’s securities fraud claims. The Second Circuit vacated, holding that, under Amchem Products, Inc. v. Windsor, 521 U.S. 591(1997), a securities fraud class’s failure to satisfy the fraud-on-the-market presumption primarily threatens class certification by creating “intractable management problems” at trial. Because settlement eliminates the need for trial, a settlement class ordinarily need not demonstrate that the fraud-on-the-market presumption applies to its claims to satisfy the predominance requirement. View "In Re: Am. Int'l Grp. Sec. Litigation" on Justia Law

Defendant was indicted for bank fraud, mail fraud, and wire fraud. The government alleged that Defendant's sale of collateral pledged as security for a loan from a bank and his failure to carry out his disclosure duties under the security agreement amounted to a scheme to defraud for purposes of the bank, mail, and wire fraud statutes. The district court dismissed the indictment, finding (1) a false representation is a required element of a federal fraud offense and the indictment failed to allege any express misrepresentation by Defendant; and (2) absent a statutory, fiduciary, or independent disclosure duty, nondisclosure was insufficient to state a fraud claim under any of the charged offenses. The Eighth Circuit Court of Appeals affirmed, holding that the district court correctly dismissed the indictment for failure to state an offense, as the indictment failed to sufficiently allege a scheme to defraud under the mail, wire, and bank fraud statutes. View "United States v. Steffen" on Justia Law

The collapse of investment manager Sentinel in 2007 left its customers in a lurch. Instead of maintaining customer assets in segregated accounts as required by the Commodity Exchange Act, 7 U.S.C. 1, Sentinel pledged customer assets to secure an overnight loan at the Bank of New York, giving the bank in a secured position on Sentinel’s $312 million loan. After filing for bankruptcy, Sentinel’s liquidation trustee brought attempted to dislodge the bank’s secured position. After extensive proceedings, the district court rejected the claims. Acknowledging concerns about the bank’s knowledge of Sentinel’s business practices, the Seventh Circuit affirmed. The essential issues were whether Sentinel had actual intent to hinder, delay, or defraud and whether the bank’s conduct was sufficiently egregious to justify equitable subordination, and the district court made the necessary credibility determinations. Even if the contract with the bank enabled illegal activity, the provisions did not themselves cause the segregation violations. View "Grede v. Bank of NY Mellon Corp." on Justia Law

Terex manufactures equipment. Apuzzo was its Chief Financial Officer. URI is an equipment rental company. Nolan was URI’s Chief Financial Officer. URI and Nolan, carried out fraudulent “sale-leaseback” transactions, to allow URI to recognize revenue prematurely and inflate profits. URI sold used equipment to GECC, a financing corporation, and leased it back. To obtain GECC’s participation, URI convinced Terex to agree to resell the equipment after the lease periods. Terex guaranteed that GECC would receive at least 96 percent of the purchase price for the equipment. URI secretly agreed to indemnify Terex for losses from the guarantee and to purchase new equipment from Terex. Apuzzo knew that if the extent of the transactions was transparent, URI would not be able to claim increased revenue under Generally Accepted Accounting Principles. Apuzzo disguised URI’s risks and obligations, and approved inflated invoices to conceal indemnifications. Following transactions under the scheme, the SEC charged that Apuzzo aided and abetted securities laws violations through his role in a fraudulent accounting scheme. The district court dismissed; the complaint plausibly alleged that Apuzzo had actual knowledge of the primary violation, but did not allege “substantial assistance.” The Second Circuit reversed, holding that Apuzzo associated himself with the venture, participated in it as in something that he wished to bring about, sought by his action to make it succeed. . View "Sec. & Exch. Comm'n v. Apuzzo" on Justia Law