Justia Securities Law Opinion Summaries

Defendants held ASI notes that could be converted into shares of stock at either a pre-set price-per-share or a floating price that depended on share price over a defined period prior to conversion. A note was converted into shares, all of which were sold in the week following conversion. ASI, seeking to recoup the profits earned on the sale, sued under the Securities Exchange Act, 15 U.S.C. 78p(b), which prohibits statutory insiders such as defendant from profiting on the trade of securities on a short-swing basis. The district court found defendants liable for profits of $4,965,898.95 earned in short-swing insider trading. The Second Circuit affirmed. Rejecting an argument that the relevant transactions were not “purchases” of securities for purposes of the act, but were within the scope of the “debt” and “borderline transaction” exceptions to liability, and that the scope of any liability found should be limited to defendant Cannell’s pecuniary interest in the profits at issue. View "Analytical Surveys, Inc. v. Tonga Partners, L.P.," on Justia Law

Defendant sold investors secured debt obligations (SDOs) based on the loans his company made to used-car purchasers. Defendant misrepresented his credentials and insurance coverage on the investments and marketed his investment offerings as though they were as safe as FDIC-backed certificates of deposit. After a jury trial in which Defendant represented himself, Defendant was convicted of securities fraud. The district court sentenced him to twenty-five years in prison, three years' supervised release, and almost $7.3 million in restitution. The Fifth Circuit Court of Appeals affirmed the conviction and sentence, holding (1) the district court did not plainly err in admitting a civil order at trial; (2) the jury did not convict Defendant on an invalid alternative theory; (3) the district court properly managed Defendant's pro se representation; (4) the evidence was sufficient to support the convictions; and (5) the district court did not err in imposing the sentence. View "United States v. Bruteyn" on Justia Law

In 2007, Nelson, a minority shareholder and major creditor of RTI sued CHSWC alleging conspiracy with RTI’s majority shareholders to use RTI’s Chapter 11 bankruptcy to enrich themselves, tortious interference with RTI’s loan contract with Nelson, and abusing the bankruptcy process. The Bankruptcy Court found that RTI’s Chapter 11 petition was not filed in bad faith. The district court dismissed Nelson’s federal suit and remanded state law claims to state court. The Seventh Circuit concluded that because RTI had no assets and had terminated business, the adversary proceeding was moot; reversed the remand of state-law claims; and held that dismissal of the abuse-of-process claim did not require dismissal of state-law claims. On remand the district court dismissed, reasoning that the state law claims were predicated on allegation that RTI’s bankruptcy filing was improper, and finding “undisputed facts” and that partial recharacterization of Nelson’s debt as equity was proper. The Seventh Circuit affirmed, reasoning that nothing of legal significance happened after the last appeal. View "Nelson v. Welch" on Justia Law

Plaintiffs invested in oil-and-gas exploration companies and lost money when the companies’ wells produced little oil or gas. They sued the companies and their officers, claiming violations of state and federal law in selling unregistered securities and in making other material misrepresentations and omissions. They also sued Durham, the lawyer who represented the companies. Durham drafted the documents, including joint-venture agreements and private placement memoranda that provided details about the investment opportunity, and told prospective investors he was available to answer questions. Plaintiffs allege that Durham knew the documents contained material misrepresentations and omissions and that the securities were neither registered nor exempt from registration. District courts ruled in favor of Durham. The Sixth Circuit affirmed. The Kentucky Securities Act imposes liability on anyone who “offers or sells a security” in violation of its terms and any “agent” of the seller who “materially aids” the sale of securities, defined as someone who “effect[s] or attempt[s] to effect” the sale. Ky. Rev. Stat. 292.480(1),(4); 292.310(1). An attorney who performs ordinary legal work, such as drafting documents, giving advice and answering client questions, is not an “agent” under the Act. View "Bennett v. Durham" on Justia Law

Platte Valley Bank (PVB), a banking corporation, claimed a perfected security interest in certain equipment owned by Heggem Construction, Inc. In 2008, Heggem sold the equipment in a sale and leaseback transaction to Tetra Financial Group, LLC. Tetra later transferred the equipment to Republic Bank, Inc. (with Tetra, Appellees). PVB sued Appellees, claiming Appellees converted the equipment and the collateral proceeds of the sale. The district court granted summary judgment in favor of Appellees, finding the undisputed facts in the record did not support PVB's conversion claims. The Eighth Circuit affirmed, holding (1) the district court did not err in concluding any interference by Appellees with PVB's right in the equipment was not so serious or important as to constitute conversion; and (2) because PVB failed to articulate any significant harm it suffered as a result of Appellees' action with respect to its deposit account, the district court did not err in concluding no conversion occurred. View "Platte Valley Bank v. Tetra Fin. Group, LLC" on Justia Law

Griffin, a futures commission merchant, went bankrupt in 1998 after one of its customers, Park, sustained trading losses of several million dollars and neither Park nor Griffin had enough capital to cover the obligations. The Bankruptcy Court first relied on admissions by the controlling Griffin partners that they failed to block a wire transfer, allowing segregated customer funds to be used to help cover Park’s (and thus Griffin’s) losses. On remand, the court reversed itself and held that the trustee failed to establish that the partners actually caused the loss of customer funds and failed to establish damages. The district court affirmed, applying the Illinois version of the Uniform Commercial Code to a series of transactions that was initiated by the margin call that caused Griffin’s downfall. The Seventh Circuit affirmed, stating that there is no reason why the transactions at issue (which involved banks in England, Canada, France, and Germany, but not Illinois) would be governed by Illinois law. The Bankruptcy Court’s first decision appropriately relied on the partners’ admission that they failed in their obligation to protect customer funds, which was enough to hold them liable for the entire value of the wire transfer. View "Inskeep v. Griffin" on Justia Law

Republic bought more than $50 million worth of residential-mortgage-backed securities from Bear Stearns. It did not read the relevant offering documents before investing. As the national economy crumbled in 2007 and 2008, so did the value of the investments. Republic brought suit in 2009, alleging that Bear Stearns and one of its employees fraudulently induced it to buy, and then to retain, the securities. It claimed that a series of misrepresentations and omissions, both oral and in the written offering documents, were actionable under common-law theories of fraud and negligent misrepresentation, and under the Blue Sky Law, Kentucky’s securities statute. The district court dismissed. The Sixth Circuit affirmed. Republic cannot maintain any of its common-law fraud, negligent-misrepresentation, or Kentucky Blue Sky Law claims. It failed to adequately plead actionable misrepresentations or omissions of fact, complained of risks disclosed in offering documents that it failed to read before investing tens of millions of dollars in risky securities, and attempted to maintain claims that are time-barred. View "Republic Bank & Tr. Co. v. Bear Stearns & Co., Inc." on Justia Law

Petitioner, a Russian citizen, petitioned the court to review the default order the SEC entered against him for failing to respond to administrative proceedings initiated by the SEC on allegations that he violated securities laws. The court agreed with petitioner that the SEC's application of Rule 155(b), 17 C.F.R. 201.155(b), was inconsistent with its precedent and therefore arbitrary. Accordingly, the court granted the petition for review, vacated the SEC's order denying petitioner's motion to set aside the default entered against him, and remanded for further proceedings. View "Rapoport v. SEC" on Justia Law

Plaintiff, an attorney admitted to practice in New York, appealed from an order of the district court dismissing his complaint for lack of subject matter jurisdiction because Section 25(a) of the Securities and Exchange Act of 1934, 15 U.S.C. 78y(a)(1), provided a comprehensive remedial scheme that required plaintiff to appeal an SEC debarment order to a court of appeals. The court affirmed the district court's conclusion that Section 25(a) did, under this Circuit's precedent, supply the jurisdictional route that plaintiff must follow to challenge the SEC action in this case. View "Altman v. SEC, et al." on Justia Law

In 2007-2008, Textron made public statements assuring investors of the strength and depth of the backlog of orders to carry it through difficult economic times. In January 2008 an officer referred to "unusually low cancellations." Several similar statements followed. In a 2009 analyst report, J.P. Morgan wondered "how we go from 3.5 years of backlog six months ago to a 20% y/y production decline for 2009 that is only 80% sold out." Plaintiffs, purchasers of Textron securities, claim that for more than 18 months, Textron misstated the strength of the backlog. The complaint does not challenge the technical accuracy of most of Textron's statements, but claimed that Textron deliberately omitted material information, that Textron's officers could not have believed the truth of their unrelentingly positive statements, and that certain factual statements about cancellation figures were false when made. The main thrust of plaintiffs' complaint concerned failure to disclose information about the weakness of the backlog due to relaxed financing arrangements and other practices. The district court dismissed. The First Circuit affirmed. The complaint was deficient; the materiality issue was a close call, but the complaint failed to plead facts justifying a reasonable inference of scienter. View "Auto. Indus. Pension Trust Fund v. Textron Inc." on Justia Law