Justia Securities Law Opinion Summaries
Saad v. Securities and Exchange Commission
Petitioner, a broker-dealer, twice misappropriated his employer's funds and then unsuccessfully tried to cover his tracks by falsifying documents. FINRA permanently barred him from membership and from associating with any FINRA member firm.The DC Circuit held that the Supreme Court's recent decision in Kokesh v. SEC, 137 S. Ct. 1635 (2017), which held that SEC disgorgement constitutes a penalty within the meaning of 28 U.S.C. 2462, does not have any bearing in petitioner's case. The court explained that binding circuit precedent establishes that the Commission may approve expulsion not as a penalty but as a means of protecting investors. In this case, the Commission did precisely that. Because this court has already held that the Commission appropriately concluded that petitioner's bar was not excessive or oppressive in any other respect, that ends the court's inquiry. View "Saad v. Securities and Exchange Commission" on Justia Law
Grigsby v. BofI Holding, Inc.
Plaintiffs, who represent a putative shareholder class, filed suit alleging that BofI and its senior executives violated sections 10(b) and 20(a) of the Securities Exchange Act by denying that BofI was the subject of a money laundering investigation. The complaint also alleged that BofI falsely stated that a whistleblower's separate allegations that BofI made undisclosed loans to criminals were "disconnected from the reality of BofI's highly compliant and top-performing business."The panel held that plaintiffs may rely on a corrective disclosure derived from a Freedom of Information Act (FOIA) response by plausibly alleging that the FOIA information had not been previously disclosed. If a plaintiff relies on information obtained via a FOIA request, the pleading burden to allege loss causation is no different from the pleading burden for other types of corrective disclosures. Therefore, the panel reversed the district court's loss causation ruling to the extent it deemed information obtained via a FOIA request to be publicly available prior to its disclosure. The panel also held that the district court correctly ruled that the Seeking Alpha article at issue did not constitute a corrective disclosure, in part because it was written by an anonymous short-seller with no expertise beyond that of a typical market participant who based the article solely on information found in public sources. Accordingly, the panel affirmed in part, reversed in part, and remanded. View "Grigsby v. BofI Holding, Inc." on Justia Law
In Re Solera Insurance Coverage Appeals
Insurance providers asked the Delaware Supreme Court whether certain costs incurred in connection with an appraisal action under 8 Del. C. 262 were precluded from coverage under the primary and excess directors’ and officers’ insurance policies (the “D&O Policies”) issued to Solera Holdings, Inc. (“Solera”). An affiliate of Vista Equity acquired Solera in 2016. That transaction gave rise to litigation, including an appraisal action. Solera requested coverage under the D&O Policies for the Appraisal Action. The insurers denied the request. Solera then filed suit against the insurers for breach of contract and declaratory judgment, seeking coverage for pre-judgment interest and defense expenses incurred in connection with the Appraisal Action. However, Solera did not seek coverage for the underlying fair value amount paid to the dissenting stockholders, upon which the pre-judgment interest was based. The issuer of the primary policy settled, and the excess policy insurers moved for summary judgment. The superior court denied the motion, interpreting the policy to hold that: (1) a “Securities Claim” under the policy was not limited to a claim alleging wrongdoing, and the Appraisal Action was for a “violation” under the Securities Claim definition; (2) because the “Loss” definition was not limited by any other language, the policy covered pre-judgment interest on a non-covered loss; and (3) as to defense expenses, Delaware law implied a prejudice requirement in insurance contract consent clauses, and Solera’s breach of the consent clause did not bar coverage for defense expenses absent a showing of prejudice. The Insurers appealed, contending that the superior court erred in holding that the Appraisal Action could be covered under the D&O Policies for a violation of a “Securities Claim.” The Supreme Court disagreed with the superior court's determination the Appraisal Action was for a “violation,” concluding the Appraisal Action did not fall within the definition of a “Securities Claim.” Because the Appraisal Action was not a Securities Claim, the remaining issues were moot. View "In Re Solera Insurance Coverage Appeals" on Justia Law
CNH Diversified Opportunities Master Account, L.P. v Cleveland Unlimited, Inc.
In this lawsuit brought by Plaintiffs, the holders of a minority in principal amount of senior secured debt, against the debtor and its guarantors to recover payment of principal and interest after the issuer defaulted, the Court of Appeals held that Plaintiffs' right to sue for payment on the notes survived a strict foreclosure undertaken by the trustee at the direction of a group of majority bondholders over Plaintiffs' objection that purported to cancel the notes.Supreme Court granted summary judgment to Defendants and denied Plaintiffs' motion for partial summary judgment. The Appellate Division affirmed. The Appellate Division affirmed. The Court of Appeals modified the order of the Appellate Division by reversing the grant of summary judgment to Defendants and granting partial summary to Plaintiffs, holding that Plaintiffs' payment rights were not extinguished by the strict foreclosure, which purportedly cancelled their notes, because the purported cancellation of the notes without the dissenting minority note holders' consent violated the provisions of the indenture agreement. View "CNH Diversified Opportunities Master Account, L.P. v Cleveland Unlimited, Inc." on Justia Law
In re Altaba, Inc.
In this litigation in which Altaba, Inc. (the Company) sought dissolution under the framework established by Sections 280 and 281(a) of the Delaware General Corporation Law the Court of Chancery held that the Company may make an interim distribution using its proposed amounts of security on the condition that it reserve funds for lawsuits pending in Canada resulting from data breaches that the Company disclosed in 2016 (the Canadian Actions Claim).As to all but two claims, in which the Company agreed to hold back the full amount of security requested by respective claimants, the Court of Chancery held that there was no obstacle to an interim distribution based on the amounts of security. For two claims, however, the Company sought to hold back less than the full amount of security requested by the claimants. The Court of Chancery held (1) as to the Canadian Actions Claim, if the Company wished to make an interim distribution to its stockholders it must reserve $1.05 billion Canadian; and (2) as to the second claim, the Company made a convincing showing that the amount it proposed to reserve was likely to be sufficient to provide compensation for claims that had not been made known to the Company or that had not yet arisen. View "In re Altaba, Inc." on Justia Law
Mohlman v. Financial Industry Regulatory Authority
Mohlman became a licensed securities professional in 2001. The Financial Industry Regulatory Authority, a not-for-profit member organization, regulates practice in the securities industry and enforces disciplinary actions against its members. In 2012, Mohlman had conversations with several individuals concerning WMA. Mohlman did not attempt to sell WMA investments and did not receive compensation from WMA. Mohlman learned in 2014 that WMA was a Ponzi scheme and immediately informed all persons who had invested in WMA. Mohlman appeared for testimony as part of FINRA’s investigation. Another day of testimony was scheduled but instead of appearing, Mohlman and his counsel signed a Letter of Acceptance, Waiver, and Consent, agreeing to a permanent ban from the securities industry. FINRA agreed to refrain from filing a formal complaint against him. Mohlman waived his procedural rights under FINRA’s Code of Procedure and the Securities Exchange Act, 15 U.S.C. 78a and agreed to “not take any position in any proceeding brought by or on behalf of FINRA, or to which FINRA is a party, that is inconsistent with any part of [the Letter].” FINRA accepted the Letter in 2015.In 2019, Mohlman filed suit, alleging that FINRA fraudulently avoided considering mitigating factors in administering the sanction. The Sixth Circuit affirmed the dismissal of the suit without addressing the merits. Mohlman failed to exhaust administrative remedies under the Exchange Act by appealing to the National Adjudicatory Council and petitioning the SEC for review. View "Mohlman v. Financial Industry Regulatory Authority" on Justia Law
Brigade Leveraged Capital Structures Fund Ltd v. Stillwater Mining Co.
In 2017, Sibanye Gold Ltd. (“Sibanye”) acquired Stillwater Mining Co. (“Stillwater”) through a reverse triangular merger. Under the terms of the merger agreement, each Stillwater share at closing was converted into the right to receive $18 of merger consideration. Between the signing and the closing of the merger, the commodity price for palladium (which Stillwater mined) increased by nine percent, improving Stillwater’s value. Certain former Stillwater stockholders dissented to the merger, perfected their statutory appraisal rights, and pursued this litigation. During the appraisal trial, petitioners argued the flawed deal process made the deal price an unreliable indicator of fair value and that increased commodity prices raised Stillwater’s fair value substantially between the signing and closing of the merger. In 2019, the Delaware Court of Chancery issued an opinion, holding that the $18 per share deal price was the most persuasive indicator of Stillwater’s fair value at the time of the merger. The court did not award an upward adjustment for the increased commodity prices. Petitioners appealed the Court of Chancery’s decision, arguing that the court abused its discretion when it ignored the flawed sale process and petitioners’ argument for an upward adjustment to the merger consideration. After review of the parties’ briefs and the record on appeal, and after oral argument, the Delaware Supreme Court found no reversible error and affirmed the Court of Chancery. View "Brigade Leveraged Capital Structures Fund Ltd v. Stillwater Mining Co." on Justia Law
Houston Municipal Employees Pension System v. BofI Holding, Inc.
The Ninth Circuit reversed the district court's judgment dismissing a securities fraud class action, holding that the shareholders have adequately pleaded a viable claim under Section 10(b) of the Securities Exchange Act and Rule 10b-5 for the two categories of misstatements the district court found actionable, with the whistleblower lawsuit serving as a potential corrective disclosure.The panel held that one way to prove loss causation is to show that the defendant's fraud was revealed to the market through one or more "corrective disclosures" and that the company's stock price declined as a result. In this case, plaintiff alleged loss causation by relying on two corrective disclosures: a whistleblower lawsuit filed by a former company insider and a series of blog posts offering negative reports about the company's operations. The panel agreed with the district court that the Seeking Alpha blog posts could not qualify as corrective disclosures and, even if the posts disclosed information that the market was not previously aware of, it is not plausible that the market reasonably perceived these posts as revealing the falsity of BofI's prior misstatements, thereby causing the drops in BofI's stock price on the days the posts appeared. However, the panel held that the whistleblower lawsuit filed by a former company insider was a potential corrective disclosure. The panel joined the Sixth Circuit in rejecting any categorical rule that allegations in a lawsuit, standing alone, can never qualify as a corrective disclosure. Finally, the panel rejected the shareholders' allegations regarding a new category of misstatements concerning government and regulatory investigations. View "Houston Municipal Employees Pension System v. BofI Holding, Inc." on Justia Law
Yukos Capital S.A.R.L. v. Feldman
A jury found that defendant had, through his actions in two distinct schemes, breached his fiduciary duty to Yukos, YHIL, Foundation 1, and Foundation 2 (collectively, the "Yukos Group"), as well as Mark Fleischman, as Trustee of the 2015 Security Trust, as successor in interest to the 2014 Security Trust. In this case, neither the Yukos Group nor Fleischman had sought compensatory damages for defendant's alleged breaches, and the jury declined to award them any disgorgement of defendant's compensation pursuant to New York's faithless servant doctrine. Therefore, the district court awarded the Yukos Group entities and Fleischman each $1 in nominal damages (for a total of $5).The Second Circuit affirmed the district court's grant of summary judgment to David Godfrey, its non-imposition sanctions, and its decision to instruct the jury as it did regarding the standard for disgorgement of a faithless servant's compensation. However, the court concluded that Foundation 1 and Foundation 2 failed to prove breach of fiduciary duty claims against defendant. Accordingly, the court reversed the district court's denial of defendant's Federal Rule of Civil Procedure 50 motion for judgment as a matter of law as to them. View "Yukos Capital S.A.R.L. v. Feldman" on Justia Law
Idaho v. Zarinegar
The Idaho Department of Finance ("Department") filed a civil enforcement action against appellant appellant, Sean Zarinegar, Performance Realty Management LLC ("PRM") and other nominal defendants, alleging Zarinegar and PRM committed securities fraud. The Department moved for summary judgment; Zarinegar and PRM responded with their own motion for partial summary judgment and a motion to strike several documents submitted by the Department in support of its motion for summary judgment. A few days before the district court was set to hear arguments on the motions, counsel for Zarinegar and PRM moved the district court for leave to withdraw as counsel of record. At the hearing, the district court preliminary denied the motion to withdraw, entertained the parties’ arguments, and took all matters under advisement. The district court later issued a memorandum decision and order denying, in part, Zarinegar’s, and PRM’s motions to strike. The district court also denied Zarinegar’s and PRM’s motion for partial summary judgment. The district court granted summary judgment for the Department after finding Zarinegar and PRM had misrepresented and omitted material facts in violation of Idaho Code section 30-14-501(2) and fraudulently diverted investor funds for personal use in violation of section 30-14-501(4). The district court then granted the motion to withdraw. The district court entered its final judgment against Zarinegar and PRM September 30, 2019. Zarinegar, representing himself pro se, appealed the judgment, arguing: (1) the district court lacked jurisdiction to enter judgment against him; (2) the district court violated his constitutional right to a jury trial and right to proceed pro se; (3) the district court’s denial of Zarinegar’s motions to strike as to certain documents was an abuse of discretion; and (4) the district court erroneously granted summary judgment for the Department. Finding no reversible error, the Idaho Supreme Court affirmed the district court's judgment. View "Idaho v. Zarinegar" on Justia Law