Justia Securities Law Opinion Summaries

In this civil enforcement action brought by the Securities and Exchange Commission (SEC) against Defendants-Appellants Brian Smart and Smart Assets, LLC, the district court entered a $4,715,580 judgment against Defendants for operating a Ponzi scheme, and it permanently enjoined them from further violations of federal securities laws. Defendant Smart appealed pro se. Upon review, the Tenth Circuit affirmed, concluding Defendant did not cite any evidence that would contradict declarations, bank records and other evidence submitted by the SEC. View "SEC v. Smart" on Justia Law

This case concerned the applicability of a standard "no-action clause" in a trust indenture governing a company's notes. The clause at issue stated that a noteholder could not "pursue any remedy with respect to this Indenture or the Securities" unless the noteholder fell within one of two exceptions. At issue was whether noteholders who did not fall within a stated exception to the clause could nonetheless bring fraudulent transfer claims against the issuer of the securities and its directors and officers. Although the district court found the no-action clause inapplicable to the claims, the court disagreed and held that the language of the no-action clause controlled, barring noteholders from bringing suit. View "Akanthos Capital Mgmt., LLC, et al. v. CompuCredit Holdings Corp., et al." on Justia Law

Participants in an employer-sponsored 401(k) plan brought suit under the Employment Retirement Income Security Act of 1974, 29 U.S.C. 1001, and the Investment Company Act of 1940, 15 U.S.C. 80a-1, claiming excessive fees on annuity insurance contracts offered to plan participants. The district court dismissed the ICA claims because only those maintaining an ownership interest in the funds could sue under the derivative suit provision and the participants are no longer investors in the funds in question. As to the ERISA claims, the court dismissed because participants failed to make a pre-suit demand upon the plan trustees to take appropriate action and failed to join the trustees as parties. The Third Circuit affirmed with regards to the ICA claims, but vacated on the ERISA counts, holding that the statute does not require pre-suit demand or joinder of trustees. View "Santomenno v. John Hancock Life Ins. Co." on Justia Law

MGIC provides private insurance on mortgage loans and incurred large losses in the financial crunch that began with the decline of prices of securities based on packages of mortgage loans. Class-action suits filed under the Securities Exchange Act of 1934 were consolidated and were dismissed when the judge concluded that the complaint did not meet the standard set by the Private Securities Litigation Reform Act, 15 U.S.C. 78u–4(b). A single plaintiff appealed, based on fraud that allegedly occurred during MGIC's quarterly earnings call on July 19, 2007. The Seventh Circuit affirmed, holding that the complained-of statement was true and that the complaint failed PSLRA's requirement for pleading scienter. At most plaintiff could allege that MGIC’s managers should have seen the looming problem, and establish negligence rather than the state of mind required for fraud. MGIC's managers did not have any private information that they could have revealed. View "Fulton Cty Emp. Ret. Sys. v. MGIC Inv. Corp." on Justia Law

In addition to about $4 million invested through his family corporation, Nonneman personally invested about $15 million in OKO for domestic oil and gas exploration, although he had no experience in such businesses, was showing signs of dementia, and suffered disabilities. In 2003, Nolfi assumed management of Nonneman’s affairs and it was apparent that the OKO investments would yield no returns. Of 128 wells, only 11 produced oil, and did not produce enough to recoup the investment. Nolfi filed suit in Ohio state court and learned facts that gave rise to federal and state securities claims. He filed in federal court, alleging violations of the Securities Act of 1933, 15 U.S.C. 78j(b) and 77l(a)(1); violations of the Ohio Blue Sky laws by the sale of unregistered securities; federal securities fraud; misrepresentation; common law fraud; breach of fiduciary duties; and breach of contract. The cases were consolidated and, after complicated rulings concerning limitations periods, the district court entered judgment for Nonneman. Despite having stated rescissory damages as more than $7 million, the jury only listed an award of $1,777,909 on its verdict form. The court held that plaintiffs had waived their right to challenge the verdict. Sixth Circuit affirmed.View "Nolfi v. OH KY Oil Corp." on Justia Law

Nonneman, acting through Fencorp, a family investment corporation, invested $3,980,345.50 in OKO for domestic oil and gas exploration, although he had no experience in such businesses, was showing signs of dementia, and suffered disabilities. In 2003, Nolfi assumed management of Nonneman’s affairs and it was apparent that the OKO investments would yield no returns. Of 128 wells, only 11 produced oil, and did not produce enough to recoup the investment. Nolfi filed suit in Ohio state court. During discovery plaintiffs learned facts indicating federal and state securities violations and filed in federal court, alleging violations of the Securities Act of 1933, 15 U.S.C. 77l(a)(1); violations of the Ohio Blue Sky laws by the sale of unregistered securities; federal securities fraud; common law fraud; misrepresentation; breach of fiduciary duties; and breach of contract. After a complicated set of rulings, the district court awarded Fencorp $1,012,835.50, the maximum not barred by the statute of repose. The Sixth Circuit affirmed in part, upholding rulings concerning the statute of repose, but setting aside the verdict on the state common law fraud claim and directing reinstatement of the verdict on the federal securities claim ($847,858). View "Fencorp Co. v. OH KY Oil Corp." on Justia Law

Plaintiffs are shareholders of nine mutual funds that were registered investment companies under the Investment Company Act of 1940 (ICA), 15 U.S.C. 80(a)-35(b). The Funds were managed and distributed by affiliates of the defendants (collectively, Ameriprise). At issue was whether plaintiffs have set forth sufficient evidence to survive summary judgment on their claim that Ameriprise breached its fiduciary duty under section 36(b) of the ICA. In light of the United States Supreme Court's decision in Jones v. Harris Associates L.P., the court concluded that plaintiffs have not met their burden, and thus the court affirmed the district court's grant of summary judgment in favor of defendants. View "Gallus, et al. v. Ameriprise Financial, Inc., et al." on Justia Law

In 2010 the Seventh Circuit held that California law applied to plaintiff’s securities fraud claims and remanded because California, unlike federal securities law, permits a person who did not purchase or sell stock in reliance on a fraudulent representation to sue for damages. On remand the district court dismissed, ruling that the complaint did not adequately allege defendants' state of mind and plaintiff's reliance on particular false statements. The Seventh Circuit affirmed. Plaintiff never explained how he could have avoided loss on his shares, had there been earlier disclosure. Mismanagement, not fraud, caused the loss. Any fraud just delayed the inevitable and affected which investors bore the loss. Plaintiff cannot show that earlier disclosure would have enabled him to sell and shift the loss to others before the price dropped.View "Anderson v. AON Corp." on Justia Law

In 2007, respondent filed numerous actions under section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), claiming that, in underwriting various initial public offerings in the late 1990's and 2000, petitioners and others inflated the stocks' aftermarket prices, allowing them to profit from the aftermarket sales. She also claimed that petitioners had failed to comply with section 16(a)'s requirement that insiders disclose any changes to their ownership in interests. That failure, according to respondent, tolled section 16(b)'s 2-year time period. The district court dismissed and the Ninth Circuit reversed, citing its decision in Whittaker v. Whittaker Corp. The Court held that, even assuming that the 2-year period could be extended, the Ninth Circuit erred in determining that it was tolled until a section 16(a) statement was filed. The text of section 16(b) simply did not support the Whittaker rule. The rule was also not supported by the background rule of equitable tolling for fraudulent concealment. Accordingly, the Court vacated the judgment of the Ninth Circuit and remanded for further proceedings. View "Credit Suisse Securities (USA) LLC v. Simmonds" on Justia Law

Karen Cook was appointed receiver over the assets of a number of related corporations and individuals, who the SEC alleged violated multiple federal securities laws. Cook discovered that before the SEC filed its civil complaint, the corporate entities involved had made charitable contributions to the American Cancer Society (ACS). Cook moved to recover the donations on behalf of the receivership, arguing that they qualified as fraudulent transfers under Texas' Uniform Fraudulent Transfer Act (TUFTA), Tex. Bus. & Co. Code 24.005(a). The court held that the receiver's attempt to liken the scheme in question to a "Ponzi-like fraud," and therefore reduce her burden to proving "presumed intent to defraud," failed for lack of evidence. Accordingly, the court reversed the judgment of the district court. View "The American Cancer Society v. Cook" on Justia Law