Justia Securities Law Opinion Summaries

Defendant appealed from a judgment of conviction for securities fraud and conspiracy to commit securities fraud and wire fraud. At issue, among other things, was whether venue was proper in the Eastern District of New York. The court held that venue in the Eastern District was proper for the conspiracy counts where defendant committed overt acts in furtherance of the conspiracies in the Eastern District. Accordingly, the court did not find venue for the conspiracy charges to be unfair or prejudicial. The court held, however, that venue in the Eastern District was improper for the substantive securities fraud count where no conduct that constituted the offense took place in the Eastern District. Accordingly, nothing in United States v. Svoboda called into question the principle that preparatory acts alone were insufficient to establish venue. Therefore, the court affirmed in part and reversed in part.

Respondent, First Derivative Traders, representing a class of stockholders in petitioner Janus Capital Group, Inc. ("JCG"), filed a private action under the Securities and Exchange Commission ("SEC") Rule 10b-5, alleging that JCG and its wholly owned subsidiary, petitioner Janus Capital Management LLC ("JCM"), made false statements in mutual funds prospectuses filed by Janus Investment Fund, for which JCM was the investment adviser and administrator, and that those statements affected the price of JCG's stock. Although JCG created Janus Investment Fund, it was a separate legal entity owned entirely by mutual fund investors. At issue was whether JCM, a mutual fund investment adviser, could be held liable in a private action under Rule 10b-5 for false statements included in its client mutual funds' prospectuses. The Court held that, because the false statements included in the prospectuses were made by Janus Investment Fund, not by JCM, JCM and JCG could not be held liable in a private action under Rule 10b-5. The Court found that, although JCM could have been significantly involved in preparing the prospectuses, it did not itself "make" the statements at issue for Rule 10b-5 purposes where its assistance in crafting what was said was subject to Janus Investment Fund's ultimate control. Accordingly, respondent had not stated a claim against JCM under Rule 10b-5 and the judgment of the Fourth Circuit was reversed.

Defendants entered a plea of guilty to conspiracy to commit securities fraud, based on trading on material, nonpublic information and tipping others. The SEC instituted a civil enforcement action, alleging that defendants violated section 10(b) of the Exchange Act and Rule 10b-5 and section 17(a) of the Securities Act of 1933 by engaging in insider trading. The district court imposed civil penalties under section 21(d)(3) of the Exchange Act, 15 U.S.C. 78u(d)(3): a penalty of $600,000 on one defendant for five violations and a penalty of $120,000 on another for two tips The Second Circuit vacated in part, holding that civil monetary penalties for insider trading are not available under section 21(d)(3). The section refers to penalties for violations, "other than by committing a violation subject to a penalty pursuant to section 78u-1;" the referenced section states that penalties shall not exceed three times profit gained or loss avoided. The court held that 21(d)(3) is intended to deal with violations other than insider trading. Although the defendants did not make a profit or avoid a loss and were not penalized under 78u-1, they committed insider trading and are "subject to" penalty even if the penalty was not assessed.

Defendant appealed from two judgments of conviction related to his involvement in "pump and dump" stock schemes. At issue was whether the first judgment of conviction, entered upon a jury verdict, should be overturned, either because the evidence was insufficient to permit a jury to find a fiduciary duty, or because the jury was improperly instructed about how to determine the existence of a fiduciary duty. Also at issue was whether the second judgment of conviction should be overturned because defendant's guilty plea, entered after his conviction in the first trial, was premised on the outcome of that trial. The court held that, upon reviewing the jury instructions for plain error and taking the evidence in the light most favorable to the Government, the jury was entitled to find that the brokers in this case had a duty to disclose their exorbitant commissions, just as they had a duty to refrain from making affirmative misrepresentations regarding the size of their commissions, and thus, the district court properly instructed the jury on the elements of that duty. The court also held that, because it found no principled basis on which to distinguish this case from United States v. Szur, the court concluded that there was no error in the charge, and affirmed defendant's first conviction. Therefore, the court's conclusion necessarily defeated defendant's argument challenging his subsequent guilty plea and the second judgment of conviction was also affirmed.

Petitioner, the lead plaintiff in a putative securities fraud class action, filed suit against respondent alleging violations under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq., and Securities and Exchange Commission Rule 10b-5, and sought to have its proposed class certified pursuant to Federal Rule of Civil Procedure 23. The Court of Appeals affirmed the District Court's conclusion that the "loss causation" element of class certification was not satisfied and denied class certification. At issue was whether securities fraud plaintiffs must also prove loss causation in order to obtain class certification. The Court held that securities fraud plaintiffs need not prove loss causation in order to obtain class certification and that the Court of Appeals' rule contravened Basic Inc. v. Levinson's fundamental premise that an investor presumptively relied on a misrepresentation so long as it was reflected in the market price at the time of his transaction. The Court also distinguished that, where loss causation was a familiar and distinct concept in securities law, it was not price impact. Accordingly, the Court vacated the judgment and remanded for further proceedings.

Petitioner filed an arbitration claim against respondent with the Financial Industry Regulatory Authority ("FINRA") raising federal claims of securities fraud under section 10(b)(5) of the Securities and Exchange Act of 1934 ("SEC"), 15 U.S.C. 78a et seq., and SEC Rule 10b-5, as well as state-law claims. When respondent lost the FINRA arbitration, respondent appealed the arbitration order asserting various improprieties and asked the district court, and now this court, to undo the award. The court upheld confirmation of the award in full after giving careful attention to respondent's arguments and found them to be without merit. The court did hold, however, that the district court's judgment should credit respondent for approximately $75 million that petitioner received in exchange for selling some of the failed auction rate securities at issue and should have reduced respondent's liability for interest accordingly. Therefore, the court vacated the district court's judgment on that point and remanded for modification in light of the partial satisfaction of the award. The court rejected, however, respondent's attempt to alter the award's scheme for distributing interest earned on the securities portfolio.

Plaintiffs alleged that corporate officers committed securities fraud (15 U.S.C. 78j, 78t) by making false statements about about the corporation's financial health and controlled other persons regarding false statements by the corporation and other employees. The district court dismissed; the Sixth Circuit remanded. The district court again dismissed and the Sixth Circuit reversed. The complaint adequately alleged scienter by alleging that the defendants received internal reports and information showing financial distress, yet continually made false, positive statements regarding financial health. The court noted allegations concerning temporal proximity between false statements and corrective statements, defendants' financial motivations, the retirement of one defendant, and that the SEC investigated the company's accounting practices.

The court issued an order and amended the opinion replacing [The district court excluded this evidence under its Alternative Dispute Resolution (ADR) Local Rule 6-11, which it read to create a "privilege" for "evidence regarding the details of the parties' negotiations in their mediation."] in lines 20-24, page 4909, with [The district court excluded this evidence under its Alternative Dispute Resolution (ADR) local rule on "confidential information," which it read to create a "privilege" for "evidence regarding the details of the parties' negotiations in their mediation." A local rule, like any court order, can impose a duty of confidentiality as to any aspect of litigation, including mediation. See N.D. Cal. ADR L.R. 6-12(a); see also 28 U.S.C. 652(d).] The petition for rehearing en banc was denied and no further petitions for rehearing or rehearing en banc may be filed.

The Commodity Futures Trading Commission sued operators of commodity trading pools for fraud and related violations of the Commodity Exchange Act. Following earlier proceedings in the Seventh Circuit, the district court entered judgment against remaining defendants. Defendantâs assets of $104 million, 39% of the amount owed the investors in the pools, were placed in the control of a receiver. The district court approved the receiverâs proposed allocation of the assets among the investors, which excluded a claim filed by an Andorran bank as untimely and rejected a valuation claim by GAMAG. The Seventh Circuit affirmed. The district court acted within its discretion in disallowing the bankâs claim, based on the bankâs neglect in pursuing its claim and the difficulty in recalculating the shares of the investors. GAMAGâs claim to be a creditor, rather than a shareholder, was properly rejected; its funds were commingled with and managed with the funds of the other investors and there was no difference in the level of risk.

Plaintiffs appealed from judgments dismissing their class-action complaints seeking to hold defendants (collectively, "Rating Agencies") liable as underwriters or control persons for misstatements or omissions in securities offering documents in violation of sections 11 and 15 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. 77k(a)(5), 77o(a). At issue was whether the Rating Agencies were "underwriters" as defined by 15 U.S.C. 77b(a)(11) because they helped structure securities transactions to achieve desired ratings. Also at issue was whether the Rating Agencies were "control persons" because of their alleged provision of advice and direction to primary violators regarding transaction structures under section 77o(a) of the 1933 Act. The court held that plaintiffs' section 11 claims that the Rating Agencies were "underwriters" was properly dismissed because the Rating Agencies' alleged structuring or creation of securities was insufficient to demonstrate their involvement in the requisite distributional activities. The court also held that plaintiffs' "control person" claims under section 77o(a) were properly dismissed because the Rating Agencies' provision of advice and guidance regarding transaction structures was insufficient to permit an inference that they had the power to direct the management or policies of alleged primary violators of section 11. The court further held that the district court did not abuse its discretion in denying implicitly plaintiffs' cursory requests for leave to amend.