Justia Securities Law Opinion Summaries

by
The Securities and Exchange Commission (“SEC”) brought scheme liability claims in a 2017 enforcement action against Rio Tinto plc, Rio Tinto Limited, and its CEO and CFO, pursuant to Rule 10b-5(a) and (c), promulgated under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and pursuant to Section 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”). Citing Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (“Lentell”), the district court dismissed the scheme liability claims in a March 2019 order (the “Dismissal Order”) on the ground that the conduct alleged constituted misstatements and omissions only, and is, therefore, an insufficient basis for scheme liability.   On appeal, the SEC contended that Lorenzo abrogates Lentell.  The Second Circuit affirmed the district court’s ruling finding that Lentell remains sound. The question on appeal was whether misstatements and omissions--without more--can support scheme liability pursuant to Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder, and Securities Act Section 17(a)(1) and (3).   The court explained that while Lorenzo acknowledges that there is leakage between and among the three subsections of each provision, the divisions between the subsections remain distinct. Until further guidance from the Supreme Court, Lentell binds: misstatements and omissions can form part of a scheme liability claim, but an actionable scheme liability claim also requires something beyond misstatements and omissions, such as dissemination. View "SEC v. Rio Tinto" on Justia Law

by
Defendants settled a civil enforcement action that the Securities and Exchange Commission (“SEC”) brought against them for alleged securities violations. The SEC barred Defendants from denying that they engaged in the charged conduct as a condition of settlement (the “no-deny policy”). The parties executed consent agreements containing provisions to that effect and submitted them to the district court, which entered final judgments. Five years later, Defendants filed a motion under Rule 60(b)(4) and 60(b)(5) seeking relief from the final judgments to the extent that they incorporated the no-deny policy. They argued that the no-deny policy violates their First Amendment and due process rights. The district court denied the motion, and Defendants appealed.   The Fifth Circuit affirmed the district court’s ruling holding that Defendants are not entitled to relief based on any alleged First Amendment Violations. Defendants argue that, in denying their motion for Rule 60(b)(4) relief, the district court adopted a cribbed view of Espinosa that the Fifth Circuit rejected in Brumfield. The court wrote that Defendants read Brumfield too broadly. That decision expressly recognized that “a judgment is void under Rule 60(b)(4) only if the court lacked jurisdiction of the subject matter, or of the parties, ‘or it acted in a manner inconsistent with due process of law.’”   Next, Defendants asserted that the judgments here should “be set aside as violating the public interest under Rule 60(b)(5).” They argue that retaining the no-deny policy in the judgments harms the public interest. The court explained that Defendants failed to meet their burden of establishing that changed circumstances warrant relief. View "SEC v. Novinger" on Justia Law

by
Appellant was convicted of conspiracy to commit securities fraud, securities fraud, and first-degree fraud. On appeal, she mounted a single challenge: the prosecution made improper comments during its rebuttal closing argument that substantially prejudiced her and denied her a fair trial. Appellant objected to most of the prosecution’s statements in the district court, and the court sustained the objections.   The DC Circuit affirmed Appellant’s convictions, finding no reversible error in the district court’s response to the prosecution’s challenged statements. Appellant argued that the court should apply harmless-error review. However, the court explained that harmless-error review is inapplicable in the circumstances of this case. Harmless-error analysis generally applies when a district court erroneously rejects a defendant’s timely claim of an error. Here, though, the district court did not erroneously reject Appellant’s claim of an error. Indeed, the court did not reject any relevant claim of error at all. Appellant’s claim involves the four allegedly improper statements made by the prosecution in the rebuttal closing argument. But Appellant raised no objection in the district court to the fourth of those statements, so there was no claim of any error at trial as to that one. And while Appellant did object to the other three statements, the district court did not erroneously overrule her objections.   Further, Appellant cannot demonstrate plain error. The district court did not err, much less plainly err, in responding to the prosecution’s challenged statements. Lastly, even assuming the district court should have taken any additional actions, the court’s failure to do so did not affect Appellant’s substantial rights. View "USA v. Brynee Baylor" on Justia Law

by
Goulding, an accountant and lawyer, has a history of mail fraud and tax fraud. Goulding formed 15 funds that hired Nutmeg’s advisory services, which he managed. The funds invested in illiquid securities, many of which were close to insolvent. Gould wrote all of the disclosure documents, which overvalued the funds. Goulding made baseless statements about increases in value. Goulding did not use outside advisors and engaged in commingling, holding some securities in his own name.The Securities and Exchange Commission charged Goulding under the Investment Advisers Act of 1940, 15 U.S.C. 80b, with running Nutmeg through a pattern of fraud, including touting his supposed financial expertise while failing to disclose his crimes, in addition to violating the Act’s technical rules. The district court issued an injunction removing Goulding from the business and appointing a receiver. A magistrate judge enjoined Goulding from violating the securities laws, required him to disgorge $642,422 (plus interest), and imposed a $642,422 civil penalty. The Seventh Circuit affirmed the finding of liability and the financial awards. The extent of Goulding’s wrongdoing makes it hard to determine his net unjustified withdrawals; as the wrongdoer, he bears the consequence of uncertainty. The restitution reflects a conservative estimate of Goulding’s ill-got gains. Nor did the judge err by declining to trace funds from their source to Goulding’s pocket. View "Securities and Exchange Commission v. Goulding" on Justia Law

by
Weller was convicted of insider trading, Securities Exchange Act, 15 U.S.C. 78j(b). Fleming, a vice president of Life Time Fitness, had learned that his company was likely to be acquired by a private equity firm at an above-market price. Fleming told a friend, Beshey, who told Clark and Kourtis (who knew that the information had been misappropriated), who told others, including Weller. Most of them profited by trading on the information and showed their appreciation by “kickbacks.”Weller unsuccessfully argued that he did not know that Fleming violated a duty to his employer by passing the information to Beshey and that the government did not prove a financial benefit to Fleming. The Seventh Circuit affirmed his convictions. Although Weller did not interact with all of the others, he did conspire with at least Kourtis to misuse material non-public information for their own benefit. The court upheld Weller’s 366-day below-Guidelines sentence, noting that Weller profited more than the others. View "United States v. Weller" on Justia Law

by
Plaintiff alleged that corporate executives at Align Technology, Inc., a medical device manufacturer best known for selling “Invisalign” braces, misrepresented their company's prospects in China.   The Ninth Circuit affirmed the district court’s dismissal of the securities fraud class action under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5. The court rejected as unsupported Defendants’ argument that their statements could not be considered false at the time they were made because Plaintiff did not allege sufficient facts to make plausible the inference that the rate of Align’s growth in China had begun to decline significantly when the challenged statements were made. The court concluded that former employees’ reports, viewed alongside circumstantial evidence of the short period of time between the twelve challenged statements and the downturn of Align’s prospects in China, sufficiently supported the inference that Align’s growth in China had slowed materially when the statements were made.   The court held that the district court correctly found that six of the challenged statements were non-actionable “puffery,” which involves vague statements of optimism expressing an opinion that is not capable of objective verification. The district court also correctly found that the remaining six statements did not create a false impression of Align’s growth in China and so were not actionable. Having determined that all of the challenged statements were nonactionable, the panel declined to reach issues of scienter and control-person or insider-trading liability. View "MACOMB COUNTY EMPL. RET. SYS. V. ALIGN TECHNOLOGY, INC." on Justia Law

by
Tribune and Sinclair announced an agreement to merge. Tribune abandoned the merger and sued Sinclair, accusing it of failing to comply with its contractual commitment to “use reasonable best efforts” to satisfy the demands of the Antitrust Division of the Justice Department and the FCC, both of which could block the merger. Sinclair settled that suit for $60 million; the settlement disclaims liability. While the merger agreement was in place, investors bought and sold Tribune’s stock. In this class action investors alleged violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 by failing to disclose that Sinclair was “playing hardball with the regulators,” increasing the risk that the merger would be stymied.The Seventh Circuit affirmed the dismissal of the suit. The principal claims, which rest on the 1934 Act, failed under the Private Securities Litigation Reform Act of 1995. Questionable statements, such as predictions that the merger was likely to proceed, were forward-looking and shielded from liability because Tribune expressly cautioned investors about the need for regulatory approval and the fact that the merging firms could prove unwilling to do what regulators sought, 15 U.S.C. 78u–5(c)(1)..With respect to the 1933 Act, the registration statement and prospectus through which the shares were offered stated all of the material facts. The relevant “hardball” actions occurred after the plaintiffs purchased shares. “Plaintiffs suppose that, during a major corporate transaction, managers’ thoughts must be an open book." No statute or regulation requires that. View "Arbitrage Event-Driven Fund v. Tribune Media Co." on Justia Law

by
The United States Court of Appeals for the District of Columbia Circuit granted petitions for review as to two order issued by the Securities and Exchange Commission (Commission) aimed at consolidating existing national market system (NMS) plans governing the dissemination of equity market data into a single, consolidated plan (CT Plan) and modifying the governance structure to increase efficiencies and facilitate greater involvement by non-exchange stakeholders (Governance Plan), holding that Petitioners' petitions were granted as to one challenged provision.Petitioners, a group of national securities exchanges, brought this action challenging the Commission's orders, arguing that several of the provisions were arbitrary and capricious or were contrary to the the text and goals of the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. Specifically, Petitioners challenged a provision of the final Commission-approved CT Plan that included representatives that did not belong to "self-regulatory organizations" (SROs) as voting members of the CT Plan's operating committee. The District of Columbia Circuit granted Petitioners' petitions as to the non-SRO representation provision and denied them in all other respects, holding that the provision including non-SROs on the CT Plan's operating committee as voting members was invalid. View "Nasdaq Stock Market LLC v. Securities & Exchange Comm'n" on Justia Law

by
Kevin Diep, a stockholder of El Pollo Loco Holdings, Inc. (“EPL”), filed derivative claims against some members of EPL’s board of directors and management, as well as a private investment firm. The suit focused on two acts of alleged wrongdoing: concealing the negative impact of price increases during an earnings call and selling EPL stock while in possession of material non-public financial information. After the Delaware Court of Chancery denied the defendants’ motion to dismiss, the EPL board of directors designated a special litigation committee of the board (“SLC”) with exclusive authority to investigate the derivative claims and to take whatever action was in EPL’s best interests. After a lengthy investigation and extensive report, the SLC moved to terminate the derivative claims. All defendants but the private investment firm settled with Diep while the dismissal motion was pending. The Court of Chancery granted the SLC’s motion after applying the two-step review under Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). Diep appealed, but after its review of the record, including the SLC’s report, and the Court of Chancery’s decision, the Delaware Supreme Court found that the court properly evaluated the SLC’s independence, investigation, and conclusions, and affirm the judgment of dismissal. View "Diep v. Trimaran Pollo Partners, L.L.C." on Justia Law

by
Between 2004 and 2008, respondents HEI Resources, Inc. (“HEI”), and the Heartland Development Corporation (“HEDC”), both corporations whose principal place of business is Colorado, formed, capitalized, and operated eight separate joint ventures related to the exploration and drilling of oil and gas wells. They solicited investors for what they called Los Ojuelos Joint Ventures by cold calling thousands of individuals from all over the country. Those who joined the ventures became parties to an agreement organized as a general partnership under the Texas Revised Partnership Act. In 2009, the Securities Commissioner for the State of Colorado (“the Commissioner”) initiated this enforcement action, alleging that respondents had violated the Colorado Securities Act (CSA) by, among other things, offering and selling unregistered securities to investors nationwide through the use of unlicensed sales representatives and in the guise of general partnerships. The Commissioner alleged that HEDC and HEI used the general partnership form deliberately in order to avoid regulation. Each of the Commissioner’s claims required that the Commissioner prove that the general partnerships were securities, so the trial was bifurcated to permit resolution of that threshold question. THe Colorado Supreme Court granted review in this matter to determine how courts should evaluate whether an interest in a “general partnership” is an “investment contract” under the CSA. The Court concluded that when faced with an assertion that an interest in a general partnership is an investment contract and thus within the CSA’s definition of a “security,” the plaintiff bears the burden of proving this claim by a preponderance of the evidence. No presumption beyond that burden applies. Accordingly, the Court reversed the court of appeals’ judgment on the question of whether courts should apply a “strong presumption,” and the Court remanded the case to the trial court for further findings. View "Chan v. HEI Resources, Inc." on Justia Law