Justia Securities Law Opinion Summaries
Sutton et al. v. Vermont Regional Center et al.
Plaintiff-investors appealed the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC). It was not the only state-affiliated regional center, but it was the only one that represented itself as a “state-run agency.” The VRC billed itself as an attractive option for development and foreign investment due to its superlative “oversight powers,” the overwhelming investor confidence that came from its “stamp of approval,” and the State of Vermont’s backing that would result in a “faster path to approval.” ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the "Jay Peak Projects" a particularly sound investment. They told prospective investors that the VRC conducted quarterly reviews to ensure that projects complied with all applicable laws and regulations and “engag[ed] in the financial monitoring and auditing of projects to ensure legitimacy,” and they represented that MOUs imposed “strict covenants and obligations on the project to ensure compliance with all applicable laws and regulations.” Unbeknownst to the investors, but known to the VRC officials, no such state oversight by the VRC existed. The VRC never issued any of the quarterly reports contemplated in the MOUs. In April 2016, the U.S. Securities and Exchange Commission filed a lawsuit alleging securities fraud, wire fraud, and mail fraud against the Jay Peak Projects developers. On the basis of these and other allegations, plaintiffs, all foreign nationals who invested in the Jay Peak Projects, filed a multi-count claim against ACCD and several individual defendants. The trial court granted plaintiffs’ motion to amend their complaint for a third time to a Fourth Amended Complaint, and then dismissed all thirteen counts on various grounds. Plaintiffs appealed. After review, the Vermont Supreme Court reversed the dismissal of plaintiffs’ claims of negligence against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. The Court affirmed the dismissal of plaintiffs' remaining claims. View "Sutton et al. v. Vermont Regional Center et al." on Justia Law
Yount v. Criswell Radovan, LLC
In this case arising from a failed attempt to restore and reopen the historic Cal Neva Lodge, the Supreme Court affirmed the district court's decision to deny relief on the claims brought by Plaintiff, an investor, against the developers and others involved in setting up Plaintiff's investment on the project, but reversed the damages award for Defendants, holding that the record did not support upholding the damages award.Plaintiff sued Defendants for breach of contract, breach of fiduciary duty, fraud, negligence, conversion, and securities fraud. After a bench trial, the trial judge ordered judgment in favor of Defendants and sua sponte awarded Defendants damages, along with attorney fees and costs. The Supreme Court reversed in part and affirmed in part, holding (1) the district court erred in awarding damages to Defendants in the absence of an express or implied counterclaim; and (2) the record supported the district court's denial of relief on Plaintiff's claims. View "Yount v. Criswell Radovan, LLC" on Justia Law
Carpenters Pension Trust Fund for Northern California v. Allstate Corp.
In 2013, Allstate announced a new strategy in its auto insurance business: attracting more new customers by “softening” its underwriting standards. Allstate disclosed that new and potentially riskier customers might file more claims and that Allstate would monitor and adjust business practices accordingly. Two years later, Allstate’s stock price dropped by more than 10 percent, immediately after Allstate announced that the higher claims rates it had experienced for three quarters had been fueled at least in part by the company’s recent growth strategy and that the company was “tightening" its underwriting parameters. The plaintiffs claim that Allstate initially intentionally misled the market by falsely attributing the increases to other factors.The Seventh Circuit vacated the certification of a plaintiff class after reviewing recent Supreme Court decisions concerning the fraud-on-the-market presumption of reliance, which allows plaintiffs to avoid proving individual reliance upon fraudulent misrepresentations and omissions. The issues of materiality, loss causation, and transaction causation are left for the merits but the court must consider evidence on those issues in deciding class certification using the presumption, if the defense offers it to show the absence of transaction causation (price impact). The district court granted class certification after admitting, but without engaging with, defense evidence offered to defeat the presumption--an expert opinion that the alleged misrepresentations had no impact on the stock price. Class certification may be appropriate here, but the district court must decide at the class stage the price impact issue. The court directed modification of any class certification to limit the class to buyers of Allstate common stock rather than any other securities. View "Carpenters Pension Trust Fund for Northern California v. Allstate Corp." on Justia Law
United States v. Bank
In 2015, the SEC initiated enforcement proceedings in the District of Arizona against appellant for illegitimate investment activities. In 2017, appellant entered into a consent agreement with the SEC, and the United States District Court for the District of Arizona ultimately held appellant liable for disgorgement in the amount of $4,494,900. Then the grand jury in the Eastern District of Virginia returned an indictment charging appellant with, inter alia, securities fraud and unlawful sale of securities, based in part on the same conduct underlying the SEC proceeding. Appellant filed a motion to dismiss the indictment, which the district court denied.The Fourth Circuit joined with every other circuit to have decided the issue in holding that disgorgement in an SEC proceeding is not a criminal penalty pursuant to the Double Jeopardy Clause, such that an individual cannot be later prosecuted for the conduct underlying the disgorgement. Accordingly, the court affirmed the district court's denial of appellant's motion to dismiss the indictment. View "United States v. Bank" on Justia Law
Nguyen v. NewLink
Plaintiffs filed a class action under S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5, following the failure of NewLink's Phase 3 clinical trial for a novel pancreatic cancer drug and the resulting decline in the market value of NewLink shares.The Second Circuit held that defendants' statements about the efficacy of their pancreatic cancer drug were puffery, not material misrepresentations. However, the court held that plaintiffs plausibly pled material misrepresentation and loss causation for defendants' statements about the scientific literature and the design of their clinical trial. Therefore, the court affirmed the district court's dismissal in part regarding the 2013-2016 Assessments; vacated the dismissal in part regarding the September, March, and Enrollment statements; and remanded for further proceedings. View "Nguyen v. NewLink" on Justia Law
Fir Tree Value Master Fund v. Jarden Corp
Martin Franklin, the Chief Executive Officer and co-founder of Jarden Corporation, negotiated the corporation’s sale to Newell Brands for $59.21 per share in cash and stock. Several large Jarden stockholders refused to accept the sale price and petitioned for appraisal in the Court of Chancery. The Court of Chancery found that, of all the valuation methods presented by the parties’ experts, only the $48.31 unaffected market price of Jarden stock could be used reliably to determine the fair value. The court placed little or no weight on other valuation metrics because the CEO dominated the sales process, there were no comparable companies to assess, and the parties’ experts presented such wildly divergent discounted cash flow models that, in the end, the models were unhelpful to the court. On appeal, the petitioners argued the Court of Chancery erred as a matter of law when it adopted Jarden’s unaffected market price as fair value because it ignored what petitioners claim is a “long-recognized principle of Delaware law” that a corporation’s stock price does not equal its fair value. They also claimed the court abused its discretion by refusing to give greater weight to a discounted cash flow analysis populated with data selected by petitioners, ignoring market-based evidence of a higher value, and refusing to use the deal price as a “floor” for fair value. Finding no abuse of discretion or other reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Fir Tree Value Master Fund v. Jarden Corp" on Justia Law
XY Planning Network, LLC v. Securities Exchange Commission
The Second Circuit denied a petition for review, under the Administrative Procedure Act, of Regulation Best Interest, which creates new standards of conduct for broker-dealers providing investment services to retail customers. Petitioners claimed that Regulation Best Interest is unlawful under the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act.The court held that Ford Financial Solutions has Article III standing to bring its petition for review. The court also held that the SEC lawfully promulgated Regulation Best Interest pursuant to Congress's permissive grant of rulemaking authority under Section 913(f) of the Dodd-Frank Act. Finally, the court held that Regulation Best Interest is not arbitrary and capricious, holding that the SEC's interpretation of the scope of the broker-dealer exemption was not so fundamental to Regulation Best Interest as to make the rule arbitrary and capricious, or otherwise not in accordance with law. Furthermore, the SEC gave adequate reasons for its decision to prioritize consumer choice and affordability over the possibility of reducing consumer confusion, and it supported its findings with substantial evidence. View "XY Planning Network, LLC v. Securities Exchange Commission" on Justia Law
Walleye Trading LLC v. AbbVie Inc.
Wanting to repurchase outstanding shares. AbbVie began its auction at $114. Shareholders offered to sell at or below $114. AbbVie selected the lowest price that would allow it to purchase $7.5 billion of shares. AbbVie hired Computershare to receive all offers. At the end of bidding, AbbVie announced the preliminary result: it would purchase 71.4 million shares for $105 per share. AbbVie’s stock, which had been trading at roughly $100, closed at $103. An hour later, AbbVie announced that it had received corrected numbers from Computershare. Instead of purchasing 71.4 million shares at $105 a share, it would purchase 72.8 million shares at $103 a share. AbbVie’s share price fell to $99 the next day.Walleye contends that AbbVie’s actions violated sections 10(b) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) and 78n(e). The Seventh Circuit affirmed the dismissal of Walleye’s complaint. A plaintiff bringing section 10(b) claims must plead the fraud with particularity and allegations of scienter must be as compelling as any opposing inference. Walleye has not pleaded that AbbVie made any statement that is false or misleading, much less a statement with the required mental state. AbbVie accurately reported Computershare’s preliminary numbers and was not required to verify third-party data before reporting. The end of the tender offer placed Walleye outside the zone of interests protected by section 14. View "Walleye Trading LLC v. AbbVie Inc." on Justia Law
Liu v. Securities and Exchange Commission
Petitioners solicited foreign nationals to invest in a cancer-treatment center. A Securities and Exchange Commission investigation revealed they misappropriated the funds. The SEC may seek “equitable relief” in civil proceedings, 15 U.S.C. 78u(d)(5). The SEC brought a civil action for disgorgement equal to the amount raised from investors. Petitioners argued that the remedy failed to account for their legitimate business expenses. The Ninth Circuit affirmed an order holding Petitioners jointly and severally liable for the full amount.The Supreme Court vacated A disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief authorized under section 78u(d)(5). Equity practice has long authorized courts to strip wrongdoers of their ill-gotten gains; to avoid transforming that remedy into a punitive sanction, courts restrict it to an individual wrongdoer’s net profits to be awarded for victims. These long-standing equitable principles were incorporated into section 78u(d)(5).If on remand the court orders the deposit of the profits with the Treasury, the court should evaluate whether that order would be for the benefit of investors, consistent with equitable principles. Imposing disgorgement liability on a wrongdoer for benefits that accrue to his affiliates through joint-and-several liability runs against the rule in favor of holding defendants individually liable but the common law permitted liability for partners engaged in concerted wrongdoing. On remand, the court may determine whether Petitioners can, consistent with equitable principles, be found liable for profits as partners in wrongdoing or whether individual liability is required. The court must deduct legitimate expenses before awarding disgorgement. View "Liu v. Securities and Exchange Commission" on Justia Law
New York Stock Exchange LLC v. Securities and Exchange Commission
Petitioners filed suit challenging the SEC's adoption of a Pilot Program, Rule 610T, which was designed to gather data so that the Commission might be able to determine in the future whether regulatory action was necessary.The DC Circuit granted the petitions for review, holding that the SEC acted without delegated authority from Congress when it adopted Rule 610T. The court explained that the Pilot Program emanates from an aimless "one-off" regulation, i.e., a rule that imposes significant, costly, and disparate regulatory requirements on affected parties merely to allow the Commission to collect data to determine whether there might be a problem worthy of regulation. In this case, the Commission acted solely to "shock the market" to collect data so that it might ponder the "fundamental disagreements" between parties affected by Commission rules and then consider whether to regulate in the future. The court held that this was an unprecedented action that clearly exceeded the SEC's authority under the Exchange Act. Accordingly, the court vacated the rule and remanded. View "New York Stock Exchange LLC v. Securities and Exchange Commission" on Justia Law