Justia Securities Law Opinion Summaries

Plaintiffs, investors, filed suit contending that defendants sold securities representing shares in SaiNaith L.L.C. based on false statements that a hotel was owned by that company. The court focused on one of plaintiffs’ theories under Louisiana Revised Statutes 51:712(A)(2) and 51:714, which allows purchasers of securities to recover their investment from the seller of the securities, who made the sale based on false representations. The court agreed with the district court that the summary judgment evidence establishes that SaiNaith never owned the hotel and the investors received interests in a shell company and defendants violated Louisiana law by representing otherwise. Accordingly, the court affirmed the judgment in favor of plaintiffs against defendants personally under the Louisiana statutes. View "Meadaa v. Karsan" on Justia Law

Manning held 2,000,000 shares of Escala stock. He claims that he lost most of his investment when its price plummeted after Merrill Lynch devalued Escala through “naked short sales.” Unlike a typical short sale, where a person borrows stock from a broker, sells it to a buyer on the open market, and later purchases the same number of shares to return to the broker, the seller in a “naked” short sale does not borrow the stock he puts on the market, and never delivers the promised shares to the buyer. Securities and Exchange Commission’s Regulation SHO prohibits short-sellers from intentionally failing to deliver securities. Manning claimed violation of New Jersey law, but referred explicitly to Regulation SHO, citing past accusations against Merrill Lynch and suggesting that the transactions at issue had again violated the regulation. Merrill Lynch removed the case, invoking general federal-question jurisdiction, 28 U. S. C. 1331, and the Securities Exchange Act of 1934, 15 U.S.C. 78aa(a). The Third Circuit ordered remand, holding that Manning’s claims did not necessarily raise any federal issues and that the Exchange Act covers only cases that would satisfy the “arising under” test for general federal jurisdiction. The Supreme Court affirmed. The jurisdictional test established by Section 27 is the same as Section 1331’s test for deciding if a case “arises under” a federal law. Section 27 confers federal jurisdiction over suits brought under the Exchange Act and the rare suit in which a state-law claim rises and falls on the plaintiff’s ability to prove the violation of a federal duty. View "Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning" on Justia Law

Plaintiffs filed suit against Pfizer and others, alleging violations of federal securities laws because Pfizer made fraudulent misrepresentations and fraudulently omitted to disclose information regarding the safety of two of its drugs, Celebrex (celecoxib) and Bextra (valdecoxib). On appeal, plaintiffs argued that the district court abused its discretion in excluding the testimony of plaintiffs' expert regarding loss causation and damages. The court concluded that the district court abused its discretion by excluding the expert's testimony in its entirety; the district court erred in concluding that the expert needed to disaggregate the effects of Pfizer’s allegedly fraudulent conduct from Searle’s or Pharmacia’s, regardless of whether Pfizer is ultimately found liable for the latters’ statements; the testimony could have been helpful to the jury even without such disaggregation; as to the expert's adjustment to the price increases, the district court did not abuse its discretion in concluding that this change was not sufficiently reliable to be presented to a jury; the expert's error did not render the remainder of his testimony unreliable and the district court should have prevented him from testifying about the adjustment, but otherwise allowed him to present his findings on loss causation and damages; the district court erred in concluding, as a matter of law, that Pfizer had insufficient authority over certain Searle and Pharmacia statements as to have “made” them; but, however, the court's finding that the district court abused its discretion in excluding the expert's testimony does not turn on the question of Pfizer’s ultimate liability for these statements. Accordingly, the court vacated the district court's grant of summary judgment for Pfizer and remanded. View "In re Pfizer Inc. Securities Litigation" on Justia Law

Plaintiffs filed suit against Best Buy and three of its executives, alleging violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. 240.10b-5. Plaintiffs alleged that defendants made fraudulent or recklessly misleading public statements in a press release and conference call, which artificially inflated and maintained Best Buy's publicly traded stock price until the misstatements were disclosed. In this interlocutory appeal, defendants challenged the district court's certification of the class. In Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), the Supreme Court concluded that loss causation has no logical connection to the facts necessary to establish the efficient market predicate to Basic, Inc. v. Levinson's fraud-on-the-market theory. The court agreed with the district court that, when plaintiffs presented a prima facie case that the Basic presumption applies to their claims, defendants had the burden to come forward with evidence showing a lack of price impact. However, what the district court ignored is that defendants did present strong evidence on this issue. Defendants rebutted the Basic presumption by submitting direct evidence (the opinions of both parties’ experts) that severed any link between the alleged conference call misrepresentations and the stock price at which plaintiffs purchased. Because plaintiffs presented no contrary evidence of price impact, they failed to satisfy the predominance requirement of Rule 23(b)(3). Therefore, the district court abused its discretion in certifying the class, and the court reversed and remanded. View "IBEW Local 98 Pension Fund v. Best Buy Co., Inc." on Justia Law

The Golf Channel, Inc. entered into an agreement with Stanford International Bank Limited (Stanford) under which Golf Channel received $5.9 million in exchange for media-advertising services. It was later discovered that Stanford used a classic Ponzi-scheme artifice. At issue in this case was whether Golf Channel must return all remuneration paid for services rendered absent proof the transaction benefited Stanford’s creditors. The Fifth Circuit initially ordered Golf Channel to relinquish its compensation, concluding that media-advertising services have “no value” to a Ponzi scheme’s creditors despite the same services being potentially “quite valuable” to the creditors of a legitimate business. On rehearing, the Circuit vacated its opinion and certified a question to the Supreme Court regarding the Texas Uniform Fraudulent Transfer Act (TUFTA), under which an asset transferred with intent to defraud a creditor may be reclaimed for the benefit of the transferor’s creditors unless the transferee took the asset in good faith and for “reasonably equivalent value.” The Supreme Court held that TUFTA does not contain separate standards for assessing “value” and “reasonably equivalent value” based on whether the debtor was operating a Ponzi scheme and that value must be determined objectively at the time of the transfer and in relation to the individual exchange at hand. View "Janvey v. Golf Channel, Inc." on Justia Law

Plaintiffs filed suit against defendants, alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), Section 20(a) of the Exchange Act, 15 U.S.C. 78t(a), and Securities and Exchange Commission Rule 10b‐5, 17 C.F.R. 240.10b‐5. Plaintiffs alleged material misstatements and omissions in SAIC’s public filings regarding its exposure to liability for employee fraud in connection with SAIC’s contract work for New York City’s CityTime project. On appeal, plaintiffs challenged the district court's denial of their motion to vacate the judgment and to amend the complaint. The court disagreed with the district court’s conclusion that amending the complaint to include the Financial Accounting Standard No. 5 (FAS 5) and Item 303 of the SEC Regulation S-K claims based on the March 2011 10‐K would be futile. Because the district court improperly denied plaintiffs' postjudgment motion to amend their FAS 5 and Item 303 claims, the court vacated the district court's order as to those claims and remanded for further proceedings. The court affirmed as to the remaining claims. View "Indiana. Pub. Ret. Sys. v. SAIC, Inc." on Justia Law

Defendant and the entities he controls appeal a judgment entered on jury verdicts finding securities fraud. The SEC alleged that defendant and his companies violated Section 17(a) of the Securities Act, 15 U.S.C. 77q(a); Section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5; and Section 206(4) of the Investment Advisers Act, 15 U.S.C. 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. 275.206(4)-8. The SEC also alleged that defendant personally violated Section 20(a) of the Securities Exchange Act, 15 U.S.C. 78t(a), and aided and abetted SCAF’s violations of Section 10(b) and Rule 10b-5 and SIA’s violations of Section 206(4) and Rule 206(4)-8, 15 U.S.C. 78t(e) (aiding-and-abetting liability). The jury found liability on every count except the alleged violations of Section 17(a)(1) and the allegation that defendant personally aided and abetted SCAF's violations of Section 10(b) and Rule 10b-5. Because the verdicts in this case are not actually inconsistent, the court assumed without deciding that defendant preserved his argument and proceeded to the merits. The jury's finding that defendant did not violate Section 17(a)(1), but did violate Rule 10b-5 was not inconsistent because the bar for finding liability was higher under Section 17(a)(1) than under Rule 10b-5(b); the jury could have found liability under Section 17(a)(3), requiring only negligence, without finding the intent or severe recklessness necessary for liability under Section 17(a)(1); there is no inconsistency in the jury finding that defendant personally violated Rule 10b-5, but did not aid and abet SCAF in violating the same rule; the court agreed with the district court that the jury need not agree on a particular false statement or misleading omission for liability under Section 17(a)(2) or Rule 10b-5(b); and the disgorgement award the district court ordered here was a permissible equitable remedy. Accordingly, the court affirmed the judgment. View "SEC v. Quan" on Justia Law

Plaintiffs filed suit on behalf of a putative class of former participants in an employee stock ownership plan (ESOP) invested exclusively in Lehman’s common stock, alleging that the Plan Committee Defendants, who were fiduciaries of the ESOP, breached their duty of prudence under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. Specifically, plaintiffs alleged that the Plan Committee Defendants breached ERISA by continuing to permit investment in Lehman stock in the face of circumstances arguably foreshadowing its eventual bankruptcy. Plaintiffs also filed claims against Lehman's former directors, including Richard S. Fuld. The district court dismissed plaintiff's consolidated amended complaint (CAC) and second consolidated amended complaint (SAC) for failure to state a claim. The court affirmed. The Supreme Court subsequently held in Fifth Third Bancorp v. Dudenhoeffer that ESOP fiduciaries are not entitled to any special presumption of prudence. After remand, the district court dismissed plaintiffs' third amended complaint (TAC). The court agreed with the district court that, even without the presumption of prudence rejected in Fifth Third, plaintiffs have failed to plead plausibly that the Plan Committee Defendants breached their fiduciary duties under ERISA by failing to recognize the imminence of Lehman’s collapse. The court concluded as it had before, that plaintiffs have not adequately shown that the Plan Committee Defendants should be held liable for their actions in attempting to meet their fiduciary duties under ERISA while simultaneously offering an undiversified investment option for employees’ retirement savings. Accordingly, the court affirmed the judgment. View "Rinehart v. Lehman Brothers Holdings" on Justia Law

Petitioner challenges a joint regulation implementing a section of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78o-11. Congress added that particular section to the Exchange Act in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Pub. L. No. 111-203, 941, 124 Stat. 1376. The court concluded that the Exchange Act provides a limited grant of jurisdiction, and only rules implementing specific, enumerated sections of the Act are entitled to direct review. Because Congress knew how to add sections to that list, but chose not to do so here, the court lacked jurisdiction over the appeal. Accordingly, the court transferred the petitions “in the interest of justice” to the United States District Court for the District of Columbia. View "The Loan Syndications Assoc. v. SEC" on Justia Law

DeKalb filed suit against defendants, alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78n(a), 78t(a), and SEC Rule 14a‐9, 17 C.F.R. 240.14a‐9. The court held that Sections 9(f) and 18(a) provide “private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance,” to which a five‐year statute of repose now applies under section 1658(b), but Section 14(a) does not provide such a private right of action; the same three‐year statutes of repose that applied to Sections 9(f) and 18(a) before the passage of the Sarbanes‐Oxley Act of 2002 (SOX), Pub. L., No. 107‐204, 116 Stat. 745, which the court borrowed and applied to Section 14 in Ceres Partners v. GEL Associates, still apply to Section 14(a) today; the statutes of repose applicable to Section 14(a) begin to run on the date of the defendant’s last culpable act or omission; DeKalb’s lead‐plaintiff motion does not “relate back” under Rule 17(a)(3) to Bricklayers’ filing of the original class‐action complaint; the Private Securities Litigation Reform Act of 1995 (PSLRA), Pub. L. No. 104‐67, 109 Stat. 737, does not toll the statutes of repose applicable to Section 14(a); and the tolling rule in American Pipe & Construction Co. v. Utah does not extend to the statutes of repose applicable to Section 14(a). Accordingly, the court affirmed the district court's dismissal of DeKalb's s Section 14(a) claim as time‐barred by the applicable three‐year statutes of repose and its Section 20 claim for failure to state a claim upon which relief can be granted. View "DeKalb Cty. Pension Fund v. Transocean Ltd." on Justia Law