Justia Securities Law Opinion Summaries

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

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

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

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

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

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

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

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

The Court of Appeals affirmed the judgment of the Appellate Division affirming Supreme Court's judgment dismissing HSBC Bank USA, National Association's claim against the sponsor of an underlying transaction seeking to "revive" an earlier action filed by two certificateholders pursuant to N.Y. C.P.L.R. 205(a), holding that there was no error.Defendant, as sponsor of a residential mortgage-backed securities trust transaction, purchased thousands of mortgage loans and sold them to ACE Securities Corp. pursuant to an agreement in which the sponsor made various representations and warranties. ACE Securities deposited the loans in the trust, and the loans served as collateral for $500 million in certificates issued by the trust. Those certificates paid principal and interest to certificateholders based on funds generated by the mortgages. After two certificateholders brought an action against the sponsor HSBC filed a complaint on behalf of the trust purporting to substitute as plaintiff for the certificateholders. Supreme Court denied sponsor's motion to dismiss the complaint as untimely. The Appellate Division reversed, concluding that the action was time-barred. The Court of Appeals affirmed, holding that HSBC could not invoke C.P.L.R. 205(a) to avoid dismissal of this time-barred claim. View "ACE Securities Corp. v. DB Structured Products, Inc." on Justia Law

The Delaware Supreme Court addressed whether approval of a corporation’s Class B stockholders was required to transfer pledged assets to secured creditors in connection with what was, in essence, a privately structured foreclosure transaction. Stream TV Network, Inc. (“Stream” or the “Company”), along with Mathu and Raja Rajan, argued that the agreement authorizing the secured creditors to transfer Stream’s pledged assets (the “Omnibus Agreement”) was invalid because Stream’s unambiguous certificate of incorporation (“Charter”) required the approval of Stream’s Class B stockholders. Stream’s Charter required a majority vote of Class B stockholders for any “sale, lease or other disposition of all or substantially all of the assets or intellectual property of the company.” Stream argued the trial court erred by applying a common law insolvency exception to Section 271 in interpreting the Charter, and that the enactment of 8 Del. C. 271 and its predecessor superseded any common law exceptions. It contended that, in any event, such a “board only” common law exception never existed in Delaware. SeeCubic, Inc. argued the court correctly found that neither the Charter, nor Section 271, required approval of the Class B shares to effectuate the Omnibus Agreement. Because the Supreme Court agreed that a majority vote of Class B stockholders was required under Stream’s charter, it vacated the injunction, reversed the declaratory judgment, and remanded for further proceedings. View "Steam TV Networks, Inc. v. SeeCubic, Inc." on Justia Law