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The First Circuit affirmed the district court’s dismissal of this putative class action alleging violations under sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The district court concluded that the initial amended complaint failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). Thereafter, the court denied Plaintiffs’ subsequent motion to vacate the judgment and for leave to file a second amended complaint to include purportedly new evidence. The First Circuit held, on de novo review, that (1) the initial amended complaint failed to plead particularized facts giving rise to a strong inference of scienter, as required by the PSLRA; and (2) the district court did not abuse its discretion in denying the motion to vacate the judgment and for leave to file a second amended complaint. View "In re Biogen Inc. Securities Litigation" on Justia Law

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The Ninth Circuit affirmed the dismissal of plaintiff's suit alleging securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, 15 U.S.C. 78j(b) and 78t(a), 17 C.F.R. 240.10b-5. Plaintiff alleged that defendants violated these statutes in connection with statements regarding Align's goodwill valuation of its subsidiary, Cadent. The Ninth Circuit held that the three standards for pleading falsity of opinion statements articulated in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, apply to Section 10(b) and Rule 10b-5 claims; plaintiff has failed to sufficiently plead falsity under any of the three Omnicare standards; plaintiff has also failed to sufficiently plead scienter; and, because plaintiff has inadequately alleged a primary violation of federal securities law, plaintiff cannot establish control person liability. View "City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align Technology" on Justia Law

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After Lehman Brothers filed for Chapter 11 bankruptcy, thousands of its employees were holding restricted stock units (RSUs) that had been awarded over the preceding five years, but that had not yet vested and had thus been rendered worthless by the bankruptcy filing. The employees filed proofs of claim in the Chapter 11 proceeding and Lehman Brothers filed omnibus objections to the claims. The Second Circuit noted that it need not determine whether an RSU is an "equity security" under 11 U.S.C. 101(16), because, even if it is, RSU holders are not barred from asserting proofs of claim—such as the breach‐of‐contract claims asserted here—inasmuch as at least some of their claims are not duplicative of proofs of interest. However, the Second Circuit affirmed and concluded that Lehman Brothers' omnibus objections must nonetheless be sustained on the alternative ground that, pursuant to section 510(b) of the Bankruptcy Code, 11 U.S.C. 510(b), the claims must be subordinated to the claims of general creditors because, for purposes of this statute, (1) RSUs are securities, (2) the claimants acquired them in a purchase, and (3) the claims for damages arise from those purchases or the asserted rescissions thereof. View "In re: Lehman Bros." on Justia Law

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The SEC brought an enforcement action against LPHI and two of its senior officers, Pardo and Peden, alleging violations of reporting and anti-fraud provisions of the federal securities laws. The SEC alleged that LPHI, a company in the business of facilitating the sales of existing life insurance policies to investors, knowingly underestimated life expectancies for the insureds in public filings with the SEC. A jury found defendants liable for violations of section 17(a) of the Securities Act of 1933 and section 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. 77q(a), 78m(a). The district court sustained the jury's verdict as to section 13(a), but the district court set aside the verdict as to section 17(a). The district court then imposed civil penalties and issued injunctions restraining them from committing additional violations of the securities laws. The district court declined to order Pardo to reimburse LPHI for compensation under section 304 of the Sarbanes-Oxley Act (SOX), 15 U.S.C. 7243(a). Both parties appealed. The court found no abuse of discretion in the admission of the SEC expert witness's opinion; the evidence was sufficient to support the jury verdict that defendants aided and abetted LPHI's violation of section 13(a) and the rules thereunder; the court affirmed the district court's imposition of second-tier penalties; remanded the case specifically for recalculation of the number of violations without the flaws conceded by the SEC and for reassessment of the amounts of civil penalties imposed on defendants; and affirmed the district court's injunctions. As for the SEC's cross-appeal, the court concluded that the jury's section 17(a) verdict must stand and reversed the district court's grant of judgment as a matter of law, remanding for determination of appropriate remedies; the district court erred in concluding that the restatements were not required by LPHI's misconduct in connection with its underestimated life expectancy estimates; and the court reversed the district court's judgment, remanding for that court to determine the appropriate amount of SOX reimbursements. View "SEC v. Life Partners Holdings, Inc." on Justia Law

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Plaintiffs, shareholders of ATP, filed a securities class action concerning ATP's collapse into bankruptcy. Plaintiffs alleged that defendants, each of whom was an officer or director of ATP, misrepresented the production of Well 941 #4, ATP's liquidity and whether the company had the available funds to complete the Clipper pipeline, and the true reason that Matt McCarroll resigned as CEO of ATP. The district court dismissed plaintiffs' Second Amended Complaint with prejudice. The court concluded that, viewing plaintiffs' allegations as a whole, plaintiffs failed adequately to allege scienter with regard to Defendant Reese's statements; plaintiffs' allegations of scienter as to ATP's liquidity and the Clipper project failed as a matter of law; and there was no basis for the court to conclude that Defendants Bulmahn and Reese knew or were reckless in not knowing McCarroll's true reasons for resigning. Accordingly, the court affirmed the judgment. View "Neiman v. Bulmahn" on Justia Law

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A New Mexico county board filed a lawsuit in state court against its securities broker and registered agent. The board refrained, however, from serving process while it determined whether arbitration was available. The securities broker and agent nonetheless removed the case to federal court and moved to dismiss the suit. Four days after briefing was complete and about three months after the board had filed suit, the board voluntarily dismissed the case and filed for arbitration. The securities broker and agent then filed this action to enjoin arbitration, arguing the board waived its right to demand arbitration when it filed the state court action. The district court disagreed and instead granted the board’s counterclaim to compel arbitration. The broker and registered agent appealed the waiver issue. Finding no reversible error, the Tenth Circuit affirmed. View "BOSC v. Board of County Commissioners" on Justia Law

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Zafgen Inc.’s investors (Investors) brought a securities fraud class action suit against Zafgen and its Chief Executive Officer (collectively, Defendants) following a significant drop in the share price of the company. Specifically, Investors alleged that the Defendants made several misleading statements regarding Zafgen’s anti-obesity drug Beloranib. The district court granted Defendants’ motion to dismiss, concluding that the complaint did not contain facts giving rise to a “cogent and compelling” inference of scienter as required under the Private Securities Litigation Reform Act. The First Circuit affirmed, holding that the district court properly dismissed Investors’ claims because the complaint, considered as a whole, did not present allegations giving rise to a cogent and compelling inference of scienter. View "Brennan v. Zafgen, Inc." on Justia Law

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Victor Messina and International Market Ventures (IMV), challenged their liability as relief defendants in the SEC's enforcement action against Phil Ming Xu and various Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC alleged that Messina and IMV received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide, but Messina and IMV asserted that they received those funds as a loan. At issue was whether putative relief defendants may divest a district court of jurisdiction to proceed against them using summary procedures simply by asserting a claim of entitlement to the disputed funds in their possession. The court concluded that the district court properly exercised its jurisdiction to determine the legal and factual legitimacy of Messina and IMV's claim to the $5 million; the district court acted correctly under its precedent approving the invocation of relief defendant procedures in SEC enforcement actions and did not clearly err in finding that Messina and IMV had no legitimate claim to the funds; the evidence demonstrated that far more than $5 million was raised by Xu and his various entities in the United States, and the district court correctly concluded that the funds sought were proceeds of illegal activity and subject to disgorgement; and thus the district court did not abuse its discretion in later ordering disgorgement from Messina and IMV as relief defendants. Accordingly, the court affirmed the judgment. View "SEC v. Messina" on Justia Law

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Plaintiffs Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership (“MLP”). A benefit under Delaware law of this business structure was the ability to eliminate common law duties in favor of contractual ones, thereby restricting disputes to the four corners of the limited partnership agreement (“LPA”). This was not the first lawsuit between Brinckerhoff and the Enbridge MLP entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most of the same defendants in the current dispute, and challenged a transaction between the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and Enbridge. Brinckerhoff contested the fairness of the transaction on a number of grounds. After several rounds in the Court of Chancery leading to the dismissal of his claims, and a trip to the Delaware Supreme Court, Brinckerhoff eventually came up short when the Court of Chancery’s ruling that he had waived his claims for reformation and rescission of the transaction by failing to assert them first in the Court of Chancery was affirmed. A dispute over the Clipper project would again go before the Court of Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in the Alberta Clipper project excluding the expansion rights that were part of the earlier transaction. As part of the billion dollar transaction, EEP would issue to Enbridge a new class of EEP partnership securities, repay outstanding loans made by EEP GP to EEP, and, amend the LPA to effect a “Special Tax Allocation” whereby the public investors would be allocated items of gross income that would otherwise be allocated to EEP GP. According to Brinckerhoff, the Special Tax Allocation unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions of dollars while increasing the taxes of the public investors, thereby undermining the investor’s long-term tax advantages in their MLP investment. The Court of Chancery did its best to reconcile earlier decisions interpreting the same or a similar LPA, and ended up dismissing the complaint. On appeal, Brinckerhoff challenged the reasonableness of the Court of Chancery’s interpretation of the LPA. The Supreme Court agreed with the defendants that the Special Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit issuance and tax allocations. But, the Court found that the Court of Chancery erred when it held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s specific requirement that the Alberta Clipper transaction be “fair and reasonable to the Partnership.” View "Brinckerhoff v. Enbridge Energy Company, Inc., et al." on Justia Law

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The Securities and Exchange Commission (SEC) filed suit against American Pension Services ("APS"), a third-party administrator of self-directed individual retirement and 401(k) accounts (collectively "IRA Accounts"), and its President and CEO, Curtis DeYoung. The SEC alleged that DeYoung misappropriated $24 million in APS customer funds that APS had commingled in a Master Trust Account at First Utah Bank, custodian of the funds. The district court appointed a Receiver, who ultimately entered into a Settlement Agreement with First Utah. The settlement included a Claims Bar Order, which barred all other claims against First Utah relating to any IRA Accounts established with APS. Three of the approximately 5,500 APS clients who had a financial stake in the receivership entity intervened and contended that the court could not bar them from filing their own claims against First Utah. The district court disagreed and approved the settlement. The intervenors appealed, but finding no reversible error, the Tenth Circuit affirmed. View "SEC v. American Pension Services" on Justia Law