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Plaintiff filed suit on behalf of purchasers of Flotek common stock, alleging that the company and three of its officers exaggerated the usefulness of its products and made misrepresentations relating to a proprietary software the company developed to help market these products. The Fifth Circuit affirmed the district court's dismissal of the complaint, holding that plaintiffs failed to plead facts giving rise to a strong inference of fraudulent scienter. In this case, plaintiffs identified several alleged misrepresentations but each failed to raise a strong inference of scienter. View "Ho v. Flotek Industries, Inc." on Justia Law

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JCB, an Indiana state-chartered bank, had an agreement with INVEST, a registered broker-dealer, to offer securities to JCB customers. In 2017, JCB assigned DuSablon to assist in identifying and establishing an investment business with a new third-party broker-dealer. DuSablon failed to do so and abruptly resigned. JCB learned that DuSablon had transferred customers’ accounts from INVEST into his own name and had started a competing business. JCB sought a preliminary injunction, asserting violations of the Indiana Uniform Trade Secrets Act, breach of contract, breach of fiduciary duty, tortious interference, unfair competition, civil conversion, and computer trespass. DuSablon moved to dismiss, arguing that JCB lacked standing and that Financial Industry Regulatory Authority (FINRA) rules barred the suit; he removed the case, asserting exclusive federal jurisdiction under 15 U.S.C. 78aa and the Securities and Exchange Act. Although JCB did not plead a federal claim, DuSablon contended that JCB’s response to his motion to dismiss “raises a federal question as all of [JCB’s] claims ... rest upon the legality of direct participation in the securities industry which is ... regulated by the [Securities] Act.” The district court remanded,, concluding that it lacked jurisdiction and that removal was untimely, ordering DuSablon to pay JCB costs and fees of $9,035.61 under 28 U.S.C. 1447(c). The Seventh Circuit dismissed an appeal. DuSablon lacked an objectively reasonable basis to remove the case to federal court. View "Jackson County Bank v. DuSablon" on Justia Law

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In 7 U.S.C. 13(a)(4), a provision within the Commodity Exchange Act, "willfully" must have the traditional meaning ascribed to the term in the context of criminal prohibitions against fraud: intentionally undertaking an act that one knows to be wrongful. This appeal arose from a civil enforcement action brought by the Commission against defendant, the co-founder of the Paron investment firm. The Ninth Circuit affirmed the district court's grant of summary judgment to the Commission and, after applying the correct meaning of "willfully," held that there were no genuine issues of material fact as to whether defendant acted willfully when he made three separate false statements to the National Futures Association (NFA) during its investigation of Paron. The panel also held that the district court properly awarded restitution. However, the court vacated in part the district court's order issuing a permanent injunction against defendant and remanded for further explanation as to certain parts of the permanent injunction. View "U.S. Commodity Futures Trading Commission v. Crombie" on Justia Law

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In these appeals involving bonds issued in 2008 by the Employees Retirement System (the System) of the Government of the Commonwealth of Puerto Rico, which were purchased by bondholders (the Bondholders), the First Circuit held that the Bondholders satisfied the filing requirements for perfection of their security interest as of December 17, 2016, thus reversing the district court’s ruling that the Bondholders’ interest was not perfected and so could be avoided. The bond documentation here offered as security certain property belonging or owed to the System. When the Bondholders claimed a perfected security interest in that property, the System filed suit seeking declaratory judgments relating to the Bondholders’ asserted security interest. The Bondholders counterclaimed. The district court granted summary judgment in favor of the System, concluding that the Bondholders’ interest was not perfected. The First Circuit disagreed, holding that while financing statements filed in 2008 did not perfect the Bondholders’ security interest in the pledged property, financing statement amendments filed in 2015 and 2016 satisfied the filing requirements for perfection when read in conjunction with the 2008 financing statements. View "Altair Global Credit Opportunities Fund v. Employees Retirement System" on Justia Law

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Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law

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This case involved an alleged worldwide Ponzi scheme and the antifraud provisions of the federal Securities Act of 1933 and the Securities Exchange Act of 1934. Defendant Charles Scoville operated an internet traffic exchange business through his Utah company, Defendant Traffic Monsoon, LLC. The Securities and Exchange Commission (“SEC”) initiated this civil enforcement action, alleging Defendants were instead operating an unlawful online Ponzi scheme involving the fraudulent sale of securities. In this interlocutory appeal, Scoville challenged several preliminary orders the district court issued at the outset, including orders freezing Defendants’ assets, appointing a receiver, and preliminarily enjoining Defendants from continuing to operate their business. The Tenth Circuit upheld those preliminary rulings, finding the SEC asserted sufficient evidence to make it likely that the SEC would be able to prove that Defendants were operating a Ponzi scheme. View "SEC v. Traffic Monsoon" on Justia Law

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Nielen-Thomas, on behalf of herself and others similarly situated, filed a complaint in Wisconsin state court alleging she and other class members were defrauded by their investment advisor. Defendants removed the case to federal court and argued the action should be dismissed because it was a “covered class action” precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. 78bb(f)(1), (f)(5)(B), According to Nielen-Thomas, her lawsuit did not meet SLUSA’s “covered class action” definition because she alleged a proposed class with fewer than 50 members. The district court held that Nielen-Thomas’s suit was a “covered class action” because she brought her claims in a representative capacity, section 78bb(f)(5)(B)(i)(II), and dismissed her claims. The Seventh Circuit affirmed. The plain language of SLUSA’s “covered class action” definition includes any class action brought by a named plaintiff on a representative basis, regardless of the proposed class size, which includes Nielen-Thomas’s class action lawsuit and her complaint meets all other statutory requirements, her lawsuit is precluded by SLUSA. View "Nielen-Thomas v. Concorde Investment Services, LLC" on Justia Law

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The SEC alleged that defendants violated the Securities Exchange Act because they failed to register interests in their drilling projects as securities. Williamson v. Tucker set out three factors for determining whether investors expect to profit solely from third-party efforts. The Fifth Circuit reversed the district court's grant of the SEC's motion for summary judgment, holding that defendants raised significant issues of material fact. The court applied the first factor in Williamson and held that the investors had formal powers, they used these powers, the voting structure was not necessarily coercive, the investors received information, they communicated with each other, and the number of investors was not so high that it eliminated all of their power. In regard to the second Williamson factor, the court held that there was a genuine issue about the investors' knowledge and experience. In regard to the third Williamson factor, the court held that there was a genuine issue concerning whether the managers were effectively irreplaceable. View "SEC v. Arcturus Corp." on Justia Law

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In 2008, Fisker, a manufacturer of luxury hybrid electric cars, became part of a trend in venture capital investments toward green energy technology start-ups. The Department of Energy advanced Fisker $192 million on a $528.7 million loan, secured with assistance from the Kleiner venture capital firm, a Fisker controlling shareholder. Tech-industry rainmakers and A-list movie stars invested in Fisker, which was competing with another emerging player, Tesla. In 2009, before sales began on its first-generation vehicles, Fisker announced that its second-generation vehicles would be built in Delaware. Delaware agreed to $21.5 million in state subsidies. Vice President Biden and Delaware Governor Markell participated in Fisker’s media unveiling of the collaboration. Riding this publicity, Fisker secured funding from additional venture capital firms and high net worth investors, including the five plaintiffs, who collectively purchased over $10 million in Fisker securities. In 2011, Fisker began selling its flagship automobile. In 2012, it stopped all manufacturing. In April 2013, Fisker laid off 75% of its remaining workforce; the U.S. Government seized $21 million in cash for Fisker’s first loan payment. The Energy Department put Fisker’s remaining unpaid loan amount ($168 million) out to bid. Fisker filed for bankruptcy. In October 2016, the plaintiffs filed a class action, alleging fraud, breach of fiduciary duty, and negligent misrepresentation. The Seventh Circuit affirmed the dismissal of plaintiffs’ claims as precluded by Illinois law’s three-year limitations period. Those claims accrued no later than April 2013. View "Orgone Capital III, LLC v. Daubenspeck" on Justia Law

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The class representative of federal securities class actions appealed the dismissal of the unsecured creditor claim and amended claim he filed in the pending Chapter 7 bankruptcy proceeding of lead class counsel, Green Jacobson, P.C. The Eighth Circuit held that the claim for the cy pres distribution was no longer an issue because the distribution had been returned by the charity and deposited with the district court clerk for ultimate distribution for the benefit of the NationsBank class; the negligent supervision claim was time-barred; the disgorgement claim was not time-barred by Missouri's five year statute of limitations; and the bankruptcy court did not err in disallowing the bankruptcy claim as premature and lacking in supporting foundation. Accordingly, the court affirmed in part, reversed in part, and remanded. View "Oetting v. Sosne" on Justia Law