Justia Securities Law Opinion Summaries

Traders employed by brokerage firms were indicted for conspiring with employees of Watley, a day trading firm, to commit securities fraud by providing their employers’ confidential information to Watley. After a mistrial on conspiracy to commit securities fraud, 18 U.S.C. 1348, 1349, the government retried the conspiracy count with honest services fraud and property fraud as the charged objects of conspiracy. The jury convicted under each theory. The Supreme Court subsequently decided Skilling, limiting honest services fraud to schemes effectuated through bribes or kickbacks. After sentencing, the SEC initiated administrative proceedings and disclosed transcripts of investigative depositions taken as early as 2004. With access to those transcripts, defendants moved for a new trial, contending that the transcripts included material required to be disclosed under Brady because it contradicted or undermined testimony of key government witnesses on a central question: whether allegedly misappropriated information was confidential under Carpenter v. U. S. The district court concluded that the jury would not have reached a different result had the transcripts been disclosed. The Second Circuit vacated. Failure to disclose portions of the transcripts violated Brady and undermined confidence in the verdict. The court also did not adequately instruct the jury on the scope of honest services fraud. View "United States v. Mahaffy" on Justia Law

Acticon is the lead plaintiff in a consolidated putative class action suit against China North East Petroleum Holdings Limited (NEP) brought under the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) & 78t(a), and under SEC Rule 10b-5. Acticon alleges that NEP misled investors about its reported earnings, oil reserves, and internal controls. It further alleges that NEP revealed this information through a series of corrective disclosures and that in the trading days after each disclosure was made, NEP’s stock price dropped. NEP argues that these allegations are not sufficient to allege economic loss because its share price rebounded on certain days after the final disclosure to the point that Acticon could have sold its holdings and avoided a loss. The district court held that because Acticon had foregone multiple opportunities to sell its shares at a profit, it had not suffered an economic loss and dismissed. The Second Circuit vacated. Price recovery does not defeat an inference of economic loss. View "Rosado AG v. China North East Petroleum Holdings, Ltd." on Justia Law

Appellant initiated an arbitration against his former investment advisor, Fisher Investments, Inc. During the arbitration, the arbitrator (1) dismissed Appellant's Missouri statutory claims based on the arbitration agreement's Delaware choice-of-law provision, and (2) sua sponte prohibited Appellant from adding a federal securities law claim. Appellant then filed a civil action against Fisher Investments in federal district court, re-alleging the Missouri statutory and federal securities law claims and seeking a declaration that the arbitration agreement was void. The district court dismissed Appellant's claims without prejudice, concluding that Defendant had to complete arbitration before he could pursue remedies in federal court. The Eighth Circuit Court of Appeals affirmed, holding (1) Appellant was challenging an interim ruling and thus the complete arbitration rule applied, and (2) because the complete arbitration rule applied, the district court did not err in deciding that it did not have jurisdiction to adjudicate Defendant's claims. View "Wootten v. Fisher Invs., Inc." on Justia Law

The issue before the Eleventh Circuit concerned a private securities fraud class action suit brought against a bank holding company and its management. State-Boston Retirement System, a shareholder and lead plaintiff, sought to prove that the holding company had misrepresented the level of risk associated with commercial real estate loans held by its subsidiary. After the trial, the District Court submitted the case to the jury on a verdict form seeking general verdicts and answers to special interrogatories. When the jury returned a verdict partially in favor of State-Boston, the holding company moved for judgment as a matter of law. Perceiving an inconsistency between two of the jury's interrogatory answers, the District Court discarded one of them and granted the motion on the basis of the remaining findings. The Eleventh Circuit concluded that was error: "[w]hen a court considers a motion for judgment as a matter of law -even after the jury has rendered a verdict- only the sufficiency of the evidence matters. . . .The jury’s findings are irrelevant." Despite the District Court’s error, the Eleventh Circuit concluded that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim. The Court therefore affirmed. View "State-Boston Retirement System v. BankAtlantic Bancorp, Inc." on Justia Law

Based on GT’s audit of the financial statements of its client, Winstar, plaintiffs (Winstar stockholders) claimed that GT committed securities fraud under the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and made false and misleading statements in an audit opinion letter, 15 U.S.C. 78r. The district court dismissed. The Second Circuit remanded, finding that triable questions of fact exist as to whether GT acted with scienter in making alleged misrepresentations in its audit opinion letter, whether plaintiffs purchased Winstar’s stock in actual reliance on those representations, and whether plaintiffs suffered losses as a result. View "Gould v. Winstar Commc'n, Inc." on Justia Law

A substantial portion of Boston Scientific's sales in 2008-2009 were of cardiac rhythm management devices handled by a group within the company devoted to such products. In August 2009, Boston Scientific began an audit of CRM sales expense reports from recent trips of sales representatives who accompanied physician customers on tours of Boston Scientific manufacturing facilities; in September Boston Scientific received a subpoena from the U.S. Department of Health and Human Services, requesting information about contributions made by CRM to charities with ties to physicians or their families. Neither the audit nor the subpoena were initially disclosed to the public. After stock prices dropped, a purported class of shareholders sued for securities fraud, Securities Exchange Act, 15 U.S.C. 78j(b), 78t(a)), and associated regulations, 17 C.F.R. 240.10b-5, alleging that statements made by the company were materially false or misleading. The district court dismissed. The First Circuit affirmed, noting other possible causes of loss and finding that plaintiffs did not establish scienter.View "In re: Boston Scientific Corp. Sec. Litigation" on Justia Law

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