Justia Securities Law Opinion Summaries

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Armbruster, a CPA with experience working at a Big Four accounting firm, began serving as the controller for Roadrunner's predecessor in 1990 and became Roadrunner’s CFO. Roadrunner grew rapidly, acquiring transportation companies and going public in 2010. In 2014, Roadrunner’s then‐controller recognized shortcomings in a subsidiary's (Morgan) accounting and began investigating. In 2016, many deficiencies in Morgan’s accounting remained unresolved. The departing controller found that Morgan had inflated its balance sheet by at least $2 million and perhaps as much as $4–5 million. Armbruster filed Roadrunner's 2016 third quarter SEC Form 10‐Q with no adjustments of the carrying values of Morgan balance sheet items and including other misstatements. Roadrunner’s CEO learned of the misstatements and informed Roadrunner’s Board of Directors. Roadrunner informed its independent auditor. Roadrunner’s share price dropped significantly. Roadrunner filed restated financial statements, reporting a decrease of approximately $66.5 million in net income over the misstated periods.Criminal charges were brought against Armbruster and two former departmental controllers. A mixed verdict acquitted the departmental controllers on all counts but convicted Armbruster on four of 11 charges for knowingly falsifying Roadrunner‘s accounting records by materially misstating the carrying values of Morgan's receivable and prepaid taxes account, 15 U.S.C. 78m(b)(2), (5), i78ff(a), 18 U.S.C. 2, fraudulently influencing Roadrunner’s external auditor, and filing fraudulent SEC financial statements, 18 U.S.C.1348. The Seventh Circuit affirmed. While the case against Armbruster may not have been open‐and‐shut, a rational jury could have concluded that the government presented enough evidence to support the guilty verdicts. View "United States v. Armbruster" on Justia Law

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Johnson & Johnson's Employee Stock Ownership Plan (ESOP) is an investment option within its retirement savings plans. The ESOP invests solely in J&J stock, which declined in price following news reports accusing J&J of concealing that its baby powder was contaminated with asbestos. J&J denied that its product was contaminated and that it had concealed anything about the product. J&J employees who participated in the ESOP alleged that the ESOP’s administrators, senior officers of J&J, violated their fiduciary duties of prudence under the Employee Retirement Income Security Act, 29 U.S.C. 1002-1003. The Supreme Court has held that a plaintiff bringing such a claim must plausibly allege “an alternative action that the defendant could have taken" consistent with the securities laws, and that a prudent fiduciary in the same circumstances would not have viewed the proposed alternative as more likely to harm the fund than to help it. The J&J plaintiffs proposed that the defendants could have used their corporate powers to make public disclosures to correct J&J’s artificially high stock price earlier or that the fiduciaries could have stopped investing in J&J stock and held all ESOP contributions as cash.The Third Circuit affirmed the dismissal of the suit. A reasonable fiduciary in these circumstances could readily view corrective disclosures or cash holdings as being likely to do the ESOP more harm than good, given the uncertainty about J&J’s future liabilities and the future movement of its stock price. View "Perrone v. Johnson & Johnson" on Justia Law

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NMS Capital Group, LLC, which was wholly owned by Petitioner purchased MCA Securities, LLC, and changed its name to NMS Capital Securities. MCA, now NMS Securities, was a member of FINRA, a securities industry self-regulatory organization registered with the SEC. NMS Securities submitted a Continuing Member Application (“CMA”) to request approval of the change in ownership. FINRA discovered that NMS Securities had failed to disclose that another registered investment advisor owned by Petitioner, NMS Capital Asset Management, was being investigated by the SEC for deficiencies in its compliance with securities laws. FINRA imposed Interim Restrictions on NMS Securities. While the Interim Restrictions were in effect, Petitioner signed agreements with investment banking clients on behalf of NMS Securities and engaged in other activities. FINRA began an investigation into whether Petitioner had violated the Interim Restrictions, and a FINRA panel found that Petitioner had violated FINRA.The Ninth Circuit denied in part and dismissed in part Petitioner’s challenge to the SEC’s determination. The panel held that because the court could review only a “final order” of the SEC under 15 U.S.C. Section 78y(a), there was no jurisdiction to review whether the SEC had substantial evidence to find that Petitioner violated FINRA Rules 8210 and 2010 by failing to produce and testify truthfully about his computers because the sanction for this violation was still pending before FINRA. However, the panel further held that the SEC’s determinations concerning the sanction of two industry bars did constitute a final order for the purposes of establishing jurisdiction. The panel denied Petitioner’s petition for review of the SEC’s decision to affirm those two sanctions. View "TREVOR SALIBA V. USSEC" on Justia Law

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Plaintiffs suing individually and on behalf of others similarly situated, appealed from an August 2020 judgment of the United States District Court for the Southern District of New York, on the ground of forum non conveniens, their amended complaint against defendants E‐Commerce China Dangdang Inc. (ʺDangdangʺ), its controlling shareholders, and others, alleging negligent misrepresentation, breach of fiduciary duty, and violations of Sections 10(b), 13(e), and 20(a) of the Securities Exchange Act of 1934 (ʺExchange Actʺ) and rules promulgated thereunder, in connection with Dangdangʹs 2016 ʺgoing‐privateʺ merger and the purchase by its controlling shareholders of its outstanding publicly‐traded shares, listed as American Depositary Shares (or ʺADSsʺ) on the New York Stock Exchange (or ʺNYSEʺ).On appeal, plaintiffs argue principally that the district court erred in concluding that the forum selection clause was not applicable to all of the defendants and to all of plaintiffsʹ claims, and in according unwarranted weight to public‐interest factors pointing toward dismissal.The Second Circuit vacated and remanded the district court’s judgment concluding that the forum selection clause was not applicable to all of defendants and to all of plaintiffsʹ claims. The court held the district court principally misinterpreted the scope of the forum selection clause. View "Fasano v. Guoqing Li" on Justia Law

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Defendant Pluralsight was a software company offering a cloud-based technology skills platform. Defendant Aaron Skonnard was Pluralsight’s Chief Executive Officer; defendant James Budge was the Chief Financial Officer. Plaintiffs purchased Pluralsight stock between January 16, 2019, and July 31, 2019. Beginning on January 16, 2019, Skonnard and Budge allegedly made materially false and misleading statements about the size and productivity of Pluralsight’s sales force, which Plaintiffs claim artificially inflated Pluralsight’s stock price, including during a secondary public offering (“SPO”) in March 2019. Pluralsight announced disappointing second-quarter earnings on July 31, 2019. Defendants attributed the low earnings to a shortage of sales representatives earlier in the year—but this explanation contradicted representations Pluralsight made in the first quarter of 2019 about the size of its sales force. Lead Plaintiffs Indiana Public Retirement System (“INPRS”) and Public School Teachers’ Pension and Retirement Fund of Chicago (“CTPF”) brought claims on behalf of a putative class of Pluralsight stock holders under the Securities Exchange Act of 1934 (“Exchange Act”), and the Securities Act of 1933 (“Securities Act”) in federal district court in Utah. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), contending Plaintiffs failed to adequately allege: (1) any materially false or misleading statements or omissions; and (2) that Defendants acted with the requisite scienter. The district court found one statement (of eighteen alleged) was materially false or misleading but dismissed Plaintiffs’ Exchange Act claims because the complaint failed to allege a strong inference of scienter. The district court dismissed Plaintiffs’ Securities Act claims because none of the statements in Pluralsight’s SPO documents were materially false or misleading. The Tenth Circuit concluded the district court erred in dismissing Plaintffs’ Exhcange Act claims. “Although the district court correctly determined that Plaintiffs sufficiently alleged only one materially false or misleading statement, the district court’s scienter determination was erroneous.” The Court also concluded the district court relied on erroneous reasoning to dismiss the alleged violation of Item 303 of SEC Regulation S–K, so the case was remanded for further consideration. The judgment was affirmed in all other respects. View "Indiana Public Retirement, et al. v. Pluralsight, et al." on Justia Law

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Following proceedings in district court, the trial court t entered a final judgment, finding Defendant liable, ordering him to disgorge over $4,000,000 in funds, and placing two of his entities under receivership in order to sell and reorganize assets to repay investors. Later, a federal grand jury sitting in Miami returned a superseding indictment that described consistent with the district court’s findings of fact.   After an extradition request was filed by the United States, the Supreme Court of Brazil allowed him to be extradited. He returned to the United States, and on the eve of trial, following over a year of pretrial proceedings, Defendant entered into a plea agreement, agreeing to plead guilty to one count of mail fraud. The district court later sentenced Defendant to 220 months’ imprisonment and ordered him to pay $169,177,338 in restitution.   On appeal, Defendant broadly argues: (1) that the custodial sentence imposed and the order of restitution violate the extradition treaty; and (2) that his guilty plea was not made freely and voluntarily. The Eleventh Circuit affirmed. The court explained that the district court fully satisfied the core concerns of Rule 11, and the court could discern no reason to conclude that the district court plainly erred in finding that Defendant’s guilty plea was entered knowingly and voluntarily. The court explained that in this case, the record fully reflects that Defendant agreed to be sentenced subject to a 20-year maximum term, and his 220-month sentence is near the low end of his agreed-upon 210-to-240-month range. View "USA v. John J. Utsick" on Justia Law

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The First Circuit affirmed the judgment of the district court dismissing the complaint brought by two retirement funds in this putative securities fraud class action against CVS Health Corporation and the court's subsequent denial of Plaintiffs' motion to reconsider, holding that there was no error.In this action arising out of difficulties CVS Health experienced in the wake of its acquisition of Omnicare, Inc., Plaintiffs alleged that CVS Health's executives and its newly-acquired subsidiary used false statements and misleading nondisclosures to conceal from investors the disintegration of Omnicare's customer base. The complaint included claims for violations of the Securities Exchange Act and its implementing rule. The district dismissed the complaint after finding that it failed to allege any materially false or misleading statements and denied Plaintiffs' ensuing motion to reconsider. The Supreme Court affirmed, holding that the district court did not abuse its discretion or commit legal error in dismissing Plaintiffs' complaint and denying the motion to reconsider. View "City of Miami Fire Fighters' & Police Officers' Retirement Trust v. CVS Health Corp." on Justia Law

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An objector appealed a Delaware Court of Chancery decision approving a litigation settlement for claims alleging excessive non-employee director compensation. Initially, the parties agreed to a preliminary settlement and presented it to the Court of Chancery for approval. The Court of Chancery sided with the objector and refused to approve a non-monetary settlement of the derivative claims. The court also awarded the objector fees. After the court denied a motion to dismiss, the parties came up with a new settlement that included a financial benefit to the corporation. The objector renewed his objection, this time arguing that the new settlement improperly released future claims challenging compensation awards and that the plaintiff was not an adequate representative for the corporation’s interests. The Court of Chancery approved the new settlement and refused to award the objector additional attorneys’ fees. On appeal to the Delaware Supreme Court, the objector argued the court erred by: (1) approving an overbroad release; (2) approving the settlement without finding that the plaintiff was an adequate representative of the corporation’s interests; and (3) reducing the objector’s fee because the court believed it would have rejected the original settlement agreement without the objection. Though the Supreme Court acknowledged the Court of Chancery and the parties worked diligently to bring this dispute to a close, it reversed the judgment because the settlement agreement released future claims arising out of, or contemplated by, the settlement itself instead of releasing liability for the claims brought in the litigation. View "Griffith v. Stein" on Justia Law

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Petitioner Bloomberg L.P. (“Bloomberg”) seeks review of the Securities and Exchange Commission’s (the “Commission” or “SEC”) decision to approve new reporting requirements proposed by the Financial Industry Regulatory Authority, Inc. (“FINRA”), Intervenorfor-Respondent, affecting underwriter members in the corporate bond market. The Commission ultimately concluded that FINRA’s proposal would impose a limited burden on competition and enable market participants to obtain broad, uniform access to corporate bond reference data before the first transaction in a new-issue bond. Accordingly, the Commission approved FINRA’s proposal.   The DC Circuit granted Bloomberg’s petition for review in part and denied in part. The court held that the Commission’s approval of FINRA’s proposed reference data service was arbitrary and capricious in one respect: the Commission failed to respond adequately to Bloomberg’s concerns about the cost of building and maintaining the program and the extent to which those costs—which could conceivably amount to millions, or tens of millions, of dollars—will be borne by market participants. As such, the Commission violated the Administrative Procedure Act and failed to engage in reasoned decision-making. However, the court wrote, that Bloomberg’s remaining arguments lack merit. Therefore, Bloomberg’s petition for review is otherwise denied. View "Bloomberg L.P. v. SEC" on Justia Law

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The First Circuit affirmed the judgment of the district court dismissing this complaint against Karoypharm Therapuetics, Inc. and its corporate officers (collectively, Defendants) alleging securities fraud in violation of sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j(b) and 78t(a), and Securities and Exchange Commission (SEC) Rule 10-b, 18 C.F.R. 240.10b-5, holding that the district court correctly dismissed the complaint for failure to state a claim.Plaintiff-investors brought this action following a decline in Karyopharm's stock price, alleging that Karyopharm materially misled them as to the safety and efficacy of the company's cancer-fighting drug candidate selinexor. The district court dismissed the complaint for failure to state a claim, concluding that Plaintiffs failed adequately to plead scienter with respect to Defendants' statements about a certain study of the drug as a treatment for pinta-refractory multiple myeloma. The First Circuit affirmed on other grounds, holding that Plaintiffs did not plausibly allege an actionable statement or omission with respect to the trial disclosures, and therefore, dismissal was appropriate. View "Thant v. Karyopharm Therapeutics Inc." on Justia Law