Justia Securities Law Opinion Summaries

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b–5 prohibit undisclosed trading on inside corporate information by persons bound by a duty not to exploit that information for their personal advantage. These persons are also forbidden from tipping inside information to others for trading. The Supreme Court has held (Dirks) that tippee liability hinges on whether the tipper disclosed the information for a personal benefit; personal benefit may be inferred where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.” Salman was convicted for trading on inside information he received from Kara, who had received the information from his brother, Maher, a former investment banker at Citigroup. Maher testified that he expected his brother to trade on the information. Kara testified that Salman knew the information was from Maher. While Salman’s appeal was pending, the Second Circuit decided that personal benefit to the tipper may not be inferred from a gift of confidential information to a trading relative or friend, unless there is “proof of a meaningfully close personal relationship … that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” The Ninth Circuit declined to follow the Second Circuit. A unanimous Supreme Court affirmed. When an insider gives a trading relative or friend confidential information, the situation resembles trading by the insider himself followed by a gift of the profits to the recipient. Maher breached his duty to Citigroup and its clients—a duty acquired and breached by Salman when he traded on the information, knowing that it had been improperly disclosed. View "Salman v. United States" on Justia Law

Following a drop in the share price of ARIAD Pharmaceuticals, Inc., investors filed suit against the corporation and four corporate officers (collectively, ARIAD). Plaintiffs alleged securities fraud in violation of the Securities Exchange Act and raised claims under sections 11 and 15 of the Securities Act against ARIAD, its directors, and various underwriters involved in the corporation's January 2013 common stock offering. On Defendants’ motion, the district court dismissed the complaint in its entirety. The First Circuit (1) affirmed the district court’s dismissal of the securities fraud counts except with respect to one particular material misstatement for which the Court found the allegations set forth in the complaint sufficient to state a claim; and (2) affirmed the disposition of Plaintiffs’ claims under Sections 11 and 15. Remanded. View "Bradley v. ARIAD Pharmaceuticals, Inc." on Justia Law

Tutor Perini Corporation, a giant construction company, sued Banc of America Securities LLC (BAS) and Bank of America, N.A. (BANA), alleging that BAS, acting as its broker-dealer and with BANA’s knowledge and acquiescence, sold Tutor Perini auction-rate securities (ARS) without disclosing that the ARS market was heading for a crash. Tutor Perini filed suit in Massachusetts’s federal district court, alleging securities fraud under state and federal law and several other state-law claims. BAS and BANA moved for summary judgment on all claims, claiming that BAS actually disclosed the risks that later materialized. The district court granted BAS and BANA’s motion. The First Circuit (1) vacated the summary judgment for BAS on the state securities-fraud claim, the federal securities-fraud claim, the state negligent-misrepresentation claim, and the state unfair-business-practices claim, holding that genuine issues of material fact existed as to these claims; and (2) affirmed in all other respects. Remanded. View "Tutor Perini Corp. v. Banc of America Securities LLC" on Justia Law

Plaintiff filed suit alleging claims under the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), against, inter alia, Lead Underwriters. Plaintiff sought to hold Lead Underwriters liable under Section 16(b) for disgorgement of short-swing profits received in connection with their sales and purchases of shares in the course of Facebook, Inc.'s initial public offering (IPO). The district court dismissed the complaint on the grounds that the lock-up agreements alone did not render the Lead Underwriters beneficial owners of the aggregated shares held by the Shareholders under Section 13(d). The court agreed that this standard form lock-up agreement is insufficient, on its own, to establish a group under Section 13(d). Accordingly, the court affirmed the judgment. View "Lowinger v. Morgan Stanley" on Justia Law

New York’s champerty law prohibits the purchase of notes, securities, or other instruments or claims with the intent and for the primary purpose of bringing a lawsuit. Appellant brought this action against Respondents alleging that Respondents’ fraud and malfeasance in managing two investment vehicles caused a significant decline in the value of notes purchased by a nonparty, from whom Plaintiff acquired the notes days before it commenced this action. Respondents raised the affirmative defense of champerty, arguing that Plaintiff’s acquisition of the Notes was champertous under Judiciary Law 489. Supreme Court dismissed the complaint, concluding that Plaintiff’s acquisition of the notes from the nonparty was champertous and that Plaintiff was not entitled to the protection of the champerty safe harbor of Judiciary Law 489(2). The Court of Appeals affirmed, holding (1) Plaintiff’s acquisition of the notes was champertous; and (2) Plaintiff was not entitled to the proaction of the safe harbor provision. View "Justinian Capital SPC v. WestLB AG" on Justia Law

Plaintiff filed a putative securities class action against defendants in connection with public statements made about Arena’s weight-loss drug, lorcaserin. When Arena filed its application with the FDA, the FDA’s advisory panel published a briefing document that disclosed, for the first time, that Arena had been in a “highly unusual” back-and-forth with the FDA regarding the results of cancer studies on rats (the “Rat Study”). Plaintiff filed suit after news of the Rat Study broke. The district court dismissed the First, Second, and Proposed Third Amended Complaints. The court agreed that once defendants touted the safety and likely approval of the drug based on animal studies, defendants were obligated to disclose the Rat Study's existence to the market. The court concluded that plaintiff has alleged scienter with sufficient particularity to survive a motion to dismiss. In this case, there is no question that plaintiff has alleged that defendants knew that the Rat Study existed, that defendants knew that the FDA’s request for bi-monthly reports and follow-up studies was highly unusual and out-of-process, and defendants went ahead and told investors about their confidence in lorcaserin’s approval based on preclinical animal studies. Therefore, the court concluded that plaintiff has properly pleaded scienter under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-4. The court reversed and remanded. View "Schwartz v. Arena Pharmaceuticals, Inc." on Justia Law

Following an announcement that overstated the positive interim results from clinical trials for an experimental drug combination intended to treat a fatal lung disease, Vertex Pharmaceuticals, Inc.’s stock price rose from $37.41 per share to $64.85 three weeks later. After Vertex corrected the initial release’s overstatement, the stock price dropped to $57.80. Local No. 8 IBEW Retirement Plan & Trust filed a class action complaint against Vertex and six past and current Vertex employees on behalf of those who acquired Vertex stock during the period in which the overstatement stood uncorrected, charging Defendants with securities fraud under the Securities Exchange Act of 1934. Defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint, concluding that it failed to create a strong inference that Defendants acted with the mental state required to render them liable under the Act. The First Circuit affirmed, holding that the allegations in the complaint that Defendants acted with scienter fell short of what Congress demands in the securities fraud context. View "Local No. 8 IBEW Retirement Plan & Trust v. Vertex Pharm., Inc." on Justia Law

Plaintiffs, investors in Vivendi's stock during the relevant time period, filed a class action suit against Vivendi, alleging that Vivendi’s persistently optimistic representations during the relevant period constituted securities fraud under section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78j(b), as well as the Securities Exchange Commission’s (SEC) Rule 10b–5 (Rule 10b–5) promulgated thereunder, 17 C.F.R. 240.10b–5. The court affirmed as to Vivendi's claims on appeal, concluding that: (1) plaintiffs relied on specifically identified false or misleading statements at trial and thus, contrary to Vivendi’s argument on appeal, did not fail to present an actionable claim of securities fraud; (2) Vivendi’s claim that certain statements constituted non‐actionable statements of opinion is not preserved for appellate review; (3) Vivendi’s claims that certain statements constituted non‐actionable puffery and that others fall under the Private Securities Law Reform Act’s safe harbor provision for “forward‐looking statements,” see 15 U.S.C. 78u‐5(c), is without merit; (4) the evidence was sufficient to support the jury’s determination that the fifty‐six statements at issue here were materially false or misleading with respect to Vivendi’s liquidity risk; (5) the district court did not abuse its discretion in admitting the testimony of plaintiffs’ expert, Dr. Blaine Nye; and (6) the evidence was sufficient to support the jury’s finding as to loss causation. As to plaintiffs' cross-appeal, the court affirmed and concluded that the district court did not abuse its discretion in excluding certain foreign shareholders from the class at the class certification stage; and did not err in dismissing claims by American purchasers of ordinary shares under Morrison v. Nat’l Austl. Bank Ltd. View "In re Vivendi, S.A. Secs. Litig." on Justia Law

This appeal stems from the same set of underlying facts as those in In re Vivendi S.A. Securities Litigation, Nos. 15‐180‐cv(L), 15‐208‐cv(XAP), in which the court today issued a separate opinion. GAMCO, so-called "value investors," filed a securities fraud action against Vivendi under section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78j(b), as well as the Securities Exchange Commission’s (SEC) Rule 10b–5 (Rule 10b–5) promulgated thereunder, 17 C.F.R. 240.10b–5. The district court subsequently entered judgment for Vivendi. The court concluded that the record supports the district court’s conclusion that, if GAMCO had known of the liquidity problems and their concealment, GAMCO would still have believed Vivendi’s PMV to be “materially higher” than the public market price. The court also concluded that it was also not clearly erroneous for the district court to conclude that knowledge of Vivendi’s liquidity problems would not have changed GAMCO’s belief that a catalyst was likely — i.e., its belief that the market price would rise towards the PMV, if not immediately, then over the course of the next several years. In this case, the record at the trial simply does not establish that it was clearly erroneous for the district court to find that GAMCO, had it known of the liquidity problems at Vivendi, would have made the choice to buy the same securities it purchased. Accordingly, the court affirmed the judgment. View "GAMCO v. Vivendi" on Justia Law

Plaintiff subscribes to data feeds through which the Exchanges provide information about securities traded on the Exchanges to an exclusive securities information processor pursuant to a plan approved by the SEC. The Processor consolidates the data and makes it available to subscribers. Plaintiff filed three materially identical suits alleging that the Exchanges had breached their contracts with him by providing preferentially fast access to the so‐called “Preferred Customers,” who purchase data and receive it from an Exchange directly via its proprietary feed. The court concluded that the district court erred in holding that it lacked subject matter jurisdiction to consider plaintiff's breach of contract claims, but affirmed the dismissal of the complaints for failure to state a claim. In this case, plaintiff has not plausibly alleged that the Exchanges violated any contractual obligation by simultaneously sending data to both the Processor and the Preferred Customers that is received earlier by the Preferred Customers; to the extent that plaintiff alleges that such a contractual obligation arises from the incorporation of SEC regulations into the contracts, his claims are preempted because his interpretation conflicts with the SEC’s interpretation and stands as an obstacle to the accomplishment of congressional purposes; to the extent that plaintiff alleges that the Exchanges undertook self‐imposed contractual obligations, distinct from their regulatory obligations, to ensure that market data is not received by any customer before it is received by the Processor, that claim fails because it has no basis in the text of the contracts; and to the extent that plaintiff argues that the SEC has interpreted the Exchanges’ obligations under the Exchange Act or SEC regulations incorrectly, any such argument must first be administratively exhausted before the SEC before it can be considered by this Court. View "Lanier v. Bats Exchange, Inc." on Justia Law