Justia Securities Law Opinion Summaries

Plaintiff appealed the district court's grant of defendant's, Ernst & Young, LLP, motion to dismiss for claims stemming from a securities class action complaint against Broadcom Corporation for a fraudulent $2.2 billion stock options backdating scheme. At issue was whether the complaint adequately plead scienter where any of the allegations alone were sufficient to create a strong inference of scienter or, in the alternate, where a holistic view of the same allegations combine to create a strong inference of intentional conduct or deliberate recklessness. The court held that the complaint adequately plead scienter where the complaint was loaded with specific allegations of how and why defendant should have investigated deficient or missing documentation and where there was no doubt that the allegations, considering the totality of the circumstances, presented at least as strong an inference of scienter as any competing innocent inference.

Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra ("Winklevosses") sought to intervene after a district court entered judgment enforcing the Term Sheet and Settlement Agreement ("Settlement Agreement") signed by Facebook, the Winklevosses, and the Winklevosses' competing social network site, ConnectU, where the Settlement Agreement envisioned that Facebook would acquire all of ConnectU's shares in exchange for cash and a percentage of Facebook's common stock. At issue was whether the Settlement Agreement was enforceable where the Winklevosses claimed that they did not discover the facts that gave rise to their Rule 10b-5 claims under the Securities and Exchange Act of 1934 ("Act") until after they signed the Settlement Agreement's release of claims and whether the releases foreclosed their challenge to the Settlement Agreement where section 29(a) of the Act precluded a mutual release of unknown securities fraud claims arising out of negotiations to settle a pending lawsuit. The court held that the district court correctly concluded that the Settlement Agreement was enforceable and intended to release claims arising out of the settlement negotiations where the release was valid under section 29(a) when the Settlement Agreement was meant to end a dispute between sophisticated parties acting in an adversarial setting that was characteristic of litigation and could not be interpreted as leaving open the door to litigation about the settlement process.

Purchasers of Parmalat Capital Finance Limited ("Parmalat") debt and equity securities filed class action lawsuits against Parmalat and others for securities fraud ("Appellants"). At issue was whether the district court erred in exercising jurisdiction over plaintiffs' claims pursuant 28 U.S.C. 1334(b) and whether the district court properly declined to abstain from exercising that jurisdiction pursuant to 28 U.S.C. 1334(c)(2). The court held that the district court properly exercised removal jurisdiction where the estate at issue in a 11 U.S.C. 304 proceeding, wherever located, could conceivably be affected by the state law actions. The court also held that the district court erred in determining that appellants failed to file motions for abstention where the district court should have focused on the timely administration of the estate, not the section 304 proceeding.

Defendant, former Enron Corporation CEO, appealed a conviction of conspiracy, securities fraud, making false representations to auditors, and insider trading. At issue was whether the error committed by the district court in submitting the honest-services theory to the jury was harmless as to any of defendant's convictions. The court held that the error was harmless and thus concluded beyond a reasonable doubt that the verdict would have been the same absent the alternative-theory errors where the jury was presented with overwhelming evidence that defendant conspired to commit securities fraud.

Shareholders of Abercrombie & Fitch claimed that false statements by officers and directors in 2005 caused the price of the stock to rise and fall. The company formed a special litigation committee to investigate, as permitted under Delaware law. The district court dismissed the derivative action, based on the committee's findings. The Sixth Circuit conducted de novo review and reversed. The corporation had the burden of proving that the committee was independent, carried out its investigation in good faith, and reached a reasonable conclusion. One member of the committee, a board member subsequently named as a defendant, recused himself from consideration of certain allegations, but had relationships with the accused such that partial recusal was ineffective and he could not be considered independent. The recusal also left only one member able to consider certain accusations, where the company intended a two-member committee. The remaining member was a named defendant, a member of the audit committee, and played a role in the challenged actions.

The defendant was convicted of counts relating to securities fraud in connection with an improper revenue recognition scheme. The Tenth Circuit affirmed denial of a post-trial motion based on the statute of limitations because the defendant had signed a waiver. The waiver was valid, despite not being executed in open court and not mentioning specific constitutional rights being waived; the limitations period is statutory, not constitutional. The court remanded a claim of ineffective assistance of counsel; the district court should not have ruled on the merits because the record was not sufficiently developed for determination of whether the claim could be raised on direct appeal.

The company was established in 1998 to develop systems for high-speed Internet connections for home computers. After a decision to not respond to an acquisition offer, the company was in financial trouble by 2000 and took an $11 million loan for 90 days and a second loan for $9 million, on which it defaulted. The company exchanged its assets for stock in an amount that would have satisfied creditors and preferred stockholders. The stock, the company's only asset in bankruptcy, fell to a value less than the claims of creditors. Common shareholders brought suit. The district court entered summary judgment for the defendants. The Seventh Circuit reversed and remanded, stating that the company's failure was not likely solely the result of the "burst of the dot-com bubble." Even if the directors were excused from liability for failure to exercise due care, as permitted by Delaware law, there was evidence of disloyalty, which was not excused. Evidence of disloyalty switched the burden of proving "entire fairness" with respect to the loans on the directors. There was enough evidence of causation and that certain preferred stockholders (venture capital groups) aided and abetted the directors to submit the question to a jury.

Following disclosure of misrepresentations and omissions concerning collateral, the company, which provides loans for purchase of medical equipment, sought bankruptcy protection. The district court certified a class of investors for litigation under the Securities Exchange Act, 15 U.S.C. 78j with respect to all but one defendant. The Third Circuit affirmed. Class certification requires that issues common to the class predominate over other issues; defendants argued that some "in-and-out" traders did not rely on the disclosures and did not have losses caused by the alleged omissions. The district court correctly examined the relationship between disclosures and security prices and applied a presumption of reliance so that plaintiffs were not required to prove causation at the certification stage. Denial of class certification with respect to a law firm defendant was proper because the presumption of reliance and causation does not apply; the allegedly deceptive conduct was not publicly attributable to the firm, which did not file the deceptive documents.