Justia Securities Law Opinion Summaries

This case arose out of the attempts of two federal agencies to disgorge funds from Janet Schaberg, the ex-wife of alleged Ponzi-scheme artist Stephen Walsh. Schaberg subsequently appealed from a memorandum decision and orders of the district court granting preliminary injunctions freezing Schaberg's assets. In response to certified questions, the New York Court of Appeals held that (a) proceeds of a fraud could constitute marital property, and (b) when part or all of the marital estate consisted of the proceeds of fraud, that fact did not, as a matter of law, preclude a determination that a spouse paid fair consideration according to the terms of New York's Debtor and Creditor Law section 272. The court held that because those rulings undermined the key legal assumptions supporting the preliminary injunctions, the court vacated those orders, without prejudice to further proceedings applying the legal principles pronounced by the New York Court of Appeals. View "Commodity Futures Trading Comm'n v. Walsh, et al.; SEC v. WG Trading Investors, L.P., et al." on Justia Law

Defendant, James Gansman, appealed from a judgment convicting him of insider trading under the so-called "misappropriation theory." At issue was whether the district court erred in declining to adopt an instruction proposed by Gansman setting forth a theory of the defense based in part on SEC Rule 10b5-2, 17 C.F.R. 240.10b5-2. The court held that Gansman was entitled to assert a defense theory that he did not have the requisite intent to commit securities fraud, and that in defining the nature of his relationship with Donna Murdoch, a woman with whom he was having an affair, to the jury, he had the right to use language found in Rule 10b5-2. The court held that, nevertheless, Gansman was not entitled to a new trial in the circumstances presented because the slightly modified instruction given by the district court was legally sufficient. Gansman raised a number of other challenges to his conviction, all of which were without merit. Accordingly, the court affirmed the judgment of the district court. View "United States v. Gansman, et al." on Justia Law

Plaintiffs held shares in three mutual funds issued by an open-end investment company (15 U.S.C. 80a-5(a)(1)). The shares were "redeemable securities," entitling the holders to redemption at any time for their proportionate share of the issuer's current net assets. Like most investments, the shares lost value between 2007 and 2008. Plaintiffs attributed their losses to defendants' taking unjustified risks in allocating assets and concealing those risks. They filed a class action, bringing state-law claims for breach of contract, violations of the Maryland Securities Act, breach of fiduciary duty, negligence, and negligent misrepresentation. The district court dismissed, holding that the action was barred by the Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. 77p(b), (f)(2)(A), (f)(3). The Sixth Circuit affirmed, rejecting an argument that the case fell within an exemption, known as the first Delaware carve-out, which preserves a class action otherwise facing SLUSA preclusion if it involves "purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of equity securities of the issuer." View "Atkinson v. Morgan Asset Mgmt., Inc." on Justia Law

Plaintiffs have filed several lawsuits in the past ten years, asserting ownership of mines in Indonesia. Each suit was rejected and sanctions were imposed on plaintiffs in two prior suits. The present suit alleges false filings with the Securities and Exchange Commission and failure, by federal agencies, to take enforcement actions. Following dismissal and denial of reconsideration, the district court ordered that plaintiffs and their counsel pay more than $100,000 in attorney fees and costs and enjoined plaintiffs and from ever filing another lawsuit arising out of the same subject matter in any state or federal court. The Sixth Circuit affirmed dismissal, but reversed imposition of sanctions. The district court lacked jurisdiction over the mining company defendant. The district court did not comply with Rule 11 because it found a Rule 11 violation in conduct that went beyond the specific conduct identified in defendant's motion for sanctions. View "PT Pukuafu Indah v. U.S. Sec. & Exch. Comm'n" on Justia Law

This case involved a fallout of a $3.65 billion Ponzi scheme perpetrated by Minnesota businessman Thomas J. Petters. Appellants, investment funds (collectively, Ritchie), incurred substantial losses as a result of participating in Petters' investment scheme. Ritchie subsequently sued two officers of Petters' companies, alleging that they assisted Petters in getting Ritchie to loan over $100 million to Petters' company. Ritchie's five-count complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(a), (c)-(d), common law fraud, and tortious inference with the contract. The court held that the district court erred in concluding that Ritchie's action was barred by a Receivership Order. The court also rejected arguments challenging the sufficiency of Ritchie's pleadings in the common law fraud count and did not to address other arguments related to abstention, lack of causation, and absolute privilege. Accordingly, the court reversed the judgment of the district court and remanded for further proceedings. View "Ritchie Capital Mgmt., et al. v. Jeffries, et al." on Justia Law

This case concerned the bankruptcy estate of Qualia Clinical Service, Inc. The estate's Chapter 7 Trustee sought to avoid as a preferential transfer a security interest recorded by one of Qualia's creditors shortly before the bankruptcy petition. The bankruptcy court and the Bankruptcy Appellate Panel (BAP) held the security interest voidable. The court held that the bankruptcy court and the BAP properly applied 11 U.S.C. 547(c)(5)(A) to conclude that the preferential transfer in this case, though it concerned an interest in accounts receivable, improved Inova Capital Funding, LLC's position as against Qualia's other creditors and so was not exempt from avoidance under that subsection. The court found Inova's remaining arguments unpersuasive. View "Lange v. Inova Capital Funding, LLC, et al." on Justia Law

Debtor appealed from the bankruptcy court's order confirming his modified Chapter 13 plan over his objection. At issue was whether the bankruptcy court could confirm the debtor's plan which provided for the avoidance of two junior liens on the debtor's principal residence. The court held that 11 U.S.C. 1322(b)(2) did not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence. The court also held that the strip off of a wholly unsecured lien on a debtor's principal residence was effective upon completion of the debtor's obligations under this plan and it was not contingent on his receipt of a Chapter 13 discharge. Accordingly, the court reversed the decision of the bankruptcy court and remanded for further proceedings where the debtor must amend his plan to provide for proper treatment of the junior lienholders' claims as unsecured nonpriority claims. View "Fisette v. Keller" on Justia Law

This was an appeal by objector, a Nevada attorney, seeking review of the Nevada district court's order denying his motion to quash a subpoena for bank records of his client trust account. The district court concluded that it did not have the authority to consider objector's motion since the subpoena was issued by another district court. The court held that it had jurisdiction over the appeal in the circumstances of this case because the bank had no incentive to disobey the subpoena and force an otherwise appealable contempt order. The court affirmed the district court because it correctly interpreted the provisions of Rule 45 of the Federal Rules of Civil Procedure governing issuance and quashing subpoenas. View "Securities and Exchange Comm., et al. v. CMKM Diamonds, Inc., et al." on Justia Law

Jack Katz and Infinity Clark Street Operating were minority shareholders in a real estate investment trust (REIT) owned by Archstone Smith Trust, a public company. Archstone entered into a merger agreement in which two investors acquired all of Archstone’s outstanding public shares. As part of the merger, Katz and Infinity were squeezed out of the REIT and had the option of receiving either cash or stock in the newly formed entity in exchange for their shares. Katz opted for cash; Infinity chose stock. Claiming the offering documents associated with the merger contained false and misleading statements or omissions, Katz and Infinity separately sued. In Colorado, Infinity filed a federal class action lawsuit alleging breaches of contract and fiduciary duty relating to the merger and would later be sent to arbitration. Meanwhile, Katz filed a class action lawsuit in Illinois state court asserting securities law claims arising from the merger. The Illinois case was removed to federal court and eventually transferred to Colorado. Katz then filed an amended complaint joining Infinity as a party plaintiff, even though Infinity’s case was still waiting the outcome of arbitration. The district court dismissed Katz’s complaint, ruling that by joining the case, Infinity was improperly splitting claims that should have been alleged in its earlier action. The court also found Katz lacked standing to bring his securities law claims since he was not a purchaser when he opted to sell his shares. Katz and Infinity challenged the district court’s decision on appeal. The issue before the Tenth Circuit was whether a plaintiff can split potential legal claims against a defendant by bringing them in two different lawsuits. The Court concluded that related claims must be brought in a single cause of action, and the district court properly dismissed the claim-splitting plaintiffs. View "Katz v. Gerardi" on Justia Law

Plaintiff appealed the district court's grant of summary judgment to defendant on his claim of malicious prosecution under Arkansas law. The district court held that plaintiff failed to present evidence sufficient to withstand summary judgment on two of the five elements necessary to sustain his claim. The court held that the district court erred in holding that the evidence was insufficient as a matter of law to sustain plaintiff's claim that defendant brought suit against him on the guaranty without probable cause. The court also held that a jury must decide what was defendant's motive or purpose in suing plaintiff if it in fact understood it had no reasonable chance of prevailing on the merits of its claim against plaintiff. View "Stokes v. Southern States Cooperative, Inc." on Justia Law