Justia Securities Law Opinion Summaries

ChinaCast founder and CEO Ron Chan embezzled millions from his corporation and misled investors through omissions and false statements. At issue was whether Chan’s fraud can be imputed to ChinaCast, his corporate employer, even though Chan’s actions was adverse to ChinaCast’s interests. The court agreed with the Third Circuit and concluded that Chan's fraudulent misrepresentations - and, more specifically, his scienter or intent to defraud - can be imputed to ChinaCast. The court concluded that imputation is proper because Chan acted with apparent authority on behalf of the corporation, which placed him in a position of trust and confidence and controlled the level of oversight of his handling of the business. Accordingly, the court dismissed the complaint alleging securities fraud under Rule 12(b)(6). View "Costa Brava P'ship v. ChinaCast Educ. Corp." on Justia Law

Plaintiff, a stockholder in DeVry, which operates for-profit colleges and universities, filed a shareholders’ derivative suit against DeVry’s board of directors. A 2005 incentive plan authorized awards of stock options to key employees, including the CEO. The plan limited awards to 150,000 shares per employee per year. Nonetheless, the company granted Hamburger, who became its CEO in 2006, options on 184,100 shares in 2010, 170,200 in 2011, and 255,425 in 2012. DeVry, discovering its mistake, reduced each grant under the 2005 plan to 150,000 shares, but allocated Hamburger 87,910 shares available under the company’s 2003 incentive plan, which held shares that had not been allocated. Only the company’s Plan Committee, not the Compensation Committee, was authorized to grant stock options under the 2003 plan; there was no Plan Committee in 2012. The grant of 87,910 stock options was approved by the Compensation Committee, and then by the independent directors as a whole. The Seventh Circuit affirmed dismissal. The directors who approved the Compensation Committee’s recommendation were disinterested: the recommendation was a valid exercise of business judgment. Administration of the 2003 plan by the Compensation Committee, given the nonexistence of the Plan Committee, was not “a clear or intentional violation of a compensation plan,” View "Donnawell v. Hamburger" on Justia Law

In 2005, the Harrises bought tens of thousands of shares in Bancorp through a TD Ameritrade account. Six years later, the Harrises sought to hold some of their Bancorp stock in another form, registered in their name and reflected in a physical copy of a certificate signifying their ownership. TD Ameritrade refused to convert the Harrises’ form of ownership, stating that all Bancorp stock was in a “global lock,” prohibiting activity in the stock, including changing the Harrises’ form of ownership. The lock was created because someone had fraudulently created hundreds of millions of invalid shares of Bancorp stock. The Harrises sued, alleging that TD Ameritrade had violated SEC Rule 15c3-3 and Nebraska’s version of the Uniform Commercial Code. The Sixth Circuit affirmed dismissal.. Neither the SEC Rule nor Nebraska’s Commercial Code creates a private right of action to vindicate the alleged problem. View "Harris v. TD Ameritrade, Inc." on Justia Law

Forquest Ventures was formed to operate a placer mining enterprise in Helena, Montana. Ken Hagman relied on purported assay reports of the site allegedly performed by Advanced Analytical before incorporating Forquest. Following incorporation, Forquest sold or issued stock to investors, including Investors. Because there was little precious metal content at the site, Forquest realized no profits and Investors received no return on their investments. Emilio and Candice Garza, individually and on behalf of all similarly situated Forquest investors, sued. The Garzas then filed an amended complaint adding the other Investors as named plaintiffs. Forquest filed a third-party complaint against Advanced Analytical. The district court granted summary judgment to Investors on their Montana Securities Act (Act) claims and granted Advanced Analytical’s motion to dismiss. The Supreme Court affirmed in part and reversed in part, holding that the district court (1) correctly determined that Investors timely asserted their claims under the Act; (2) did not err in determining that the non-Garza Investors’ claims relate back to the original complaint’s filing date; (3) correctly determined that there were no genuine issues of material fact regarding Forquest’s failure to use reasonable care in the sale of securities to Investors; but (4) erred in dismissing Advanced Analytical for lack of personal jurisdiction. View "Garza v. Forquest Ventures, Inc." on Justia Law

The SEC brought an administrative proceeding against George Jarkesy, Jr., for securities fraud. Meanwhile, Jarkesy filed this suit seeking the administrative proceeding's termination, arguing that the proceeding’s initiation and conduct infringe his constitutional rights. The district court dismissed for lack of subject matter jurisdiction, concluding that Congress, by establishing a detailed statutory scheme providing for an administrative proceeding before the Commission plus the prospect of judicial review in a court of appeals, implicitly precluded concurrent district-court jurisdiction over challenges like Jarkesy’s. In Thunder Basin Coal Co. v. Reich, the Supreme Court set forth a framework for determining when a statutory scheme of administrative and judicial review forecloses parallel district-court jurisdiction. Applying the considerations outlined in Thunder Basin and its progeny, the court found that Congress intended exclusivity when it established the statutory scheme. Consequently, instead of obtaining judicial review of his challenges to the Commission’s administrative proceeding now, Jarkesy can secure judicial review in a court of appeals when (and if) the proceeding culminates in a resolution against him. Accordingly, the court affirmed the judgment of the district court. View "Jarkesy, Jr. v. SEC" on Justia Law

Athena incurred $1.4 million in losses on investments with Goldman Sachs and believed that Goldman misrepresented the risks, Goldman and Athena participated in arbitration to settle the dispute. Athena asserted misrepresentation, securities fraud, common law fraud and breach of fiduciary duty. After the first panel session, the Financial Industry Regulatory Authority (FINRA) disclosed that a panel member, Timban, had been charged with the unauthorized practice of law based on an appearance in a New Jersey municipal court. Neither party, nor FINRA, objected to Timban’s continued participation; neither party conducted further due diligence. Following a nine-day hearing, the panel ruled in favor of Goldman. Two panel members signed the award, but Timban did not. Under the Subscription Agreement, only two members needed to sign the award for it to have binding effect. After the award, Athena conducted a background investigation on Timban and learned that Timban failed to disclose numerous regulatory complaints against him. The district court ordered a new arbitration hearing, reasoning that Athena’s rights were compromised by an arbitrator who misrepresented his ability to serve and abandoned the panel before its final ruling. The Third Circuit reversed, finding that Athena waived its right to challenge the award. View "Goldman Sachs & Co v. Athena Venture Partners, L.P." on Justia Law

Plaintiff appealed the district court's summary judgment dismissal of his suit against defendants. At issue is the whistleblower protection provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, Title IX, 922(a), 124 Stat. 1376, 1841, which added section 21F to the Exchange Act of 1934, 15 U.S.C. 78u-6. The SEC issued a regulation to clarify that, for the purposes of the employment retaliation protections provided by Section 21F, an individuals's status as a whistleblower does not depend on adherence to the reporting procedures specified in Exchange Act Rule 21F-9(a). The court concluded that, under SEC Rule 21F-2(b)(1), plaintiff is entitled to pursue Dodd-Frank remedies for alleged retaliation after his report of wrongdoing to his employer, despite not having reported to the Commission before his termination. Accordingly, the court reversed the judgment of the district court and remanded for further proceedings. On remand, the district court will have an opportunity to consider the R&R’s recommendation to dismiss, without prejudice to amendment, for lack of a sufficient allegation of a termination entitled to Dodd-Frank protection, and any other arguments made by defendants in support of their motion to dismiss. View "Berman v. Neo@Ogilvy LLC" on Justia Law

The Zarecors invested $800,000 in the RMK Funds. Morgan Keegan was the lead underwriter for the Funds and was heavily involved in their operations. The Zarecors allege that Morgan Keegan omitted facts regarding policies and structure of the Funds; misrepresented the quality of the Funds to Zarecor; and “was intimately involved with” misrepresentations and omissions made in SEC filings, prospectuses, and other marketing materials. When the Funds collapsed in 2007, the Zarecors lost $718,577. Unrelated plaintiffs filed suit on behalf of a class that purchased mutual funds, including the RMK Funds, claiming that Morgan Keegan was liable as a “controlling person” under the Securities Exchange Act of 1934, 15 U.S.C. 78t(a), and violations of the Securities Act of 1933. 15 U.S.C. 77k. The Zarecors were part of the putative class, but opted out. The class action was resolved by settlement. In 2009, the Zarecors filed a statement of claim in arbitration with the Financial Industry Regulatory Authority (FINRA), alleging that Morgan Keegan had violated federal, New Jersey and Arkansas securities laws. The FINRA arbitration panel awarded them $541,000 in 2010, but a court vacated the award, holding that the dispute was not subject to arbitration under FINRA. The court dismissed their subsequent suit as untimely. The Eighth Circuit affirmed dismissal of claims under Arkansas law and federal law, but concluded that the claim under New Jersey law was timely. View "Zarecor v. Morgan Keegan & Co." on Justia Law

Plaintiffs filed suit against the SEC to invalidate a four-year-old rule, promulgated under the Investment Advisers Act of 1940, 15 U.S.C. 80b, regulating campaign contributions by investment advisers. The district court dismissed the suit for lack of subject matter jurisdiction. Plaintiffs appealed and concurrently filed a petition asking this court for direct review. The court consolidated and expedited the cases. The court held that courts of appeals have exclusive jurisdiction to hear challenges to rules promulgated under the Investment Advisers Act. Accordingly, the court affirmed the district court's judgment. The court further held that such challenges must be brought in this court within sixty days of promulgation of the rule, and there are no grounds for an exception in this case: The law governing where to file was clear during the limitations period, and the length of time the statute affords for pre-enforcement review is adequate. Therefore, the court dismissed the petition as time-barred. View "New York Republican State Comm. v. SEC" on Justia Law

Bebo is the respondent in an administrative enforcement proceeding before the Securities and Exchange Commission, alleging that she violated federal law by manipulating internal books and records, making false representations to auditors, and making false disclosures to the SEC. Rather than wait for a final decision in the administrative enforcement proceeding, Bebo filed suit in federal court challenging on constitutional grounds the authority of the SEC to conduct the proceeding. She invoked federal question jurisdiction under 28 U.S.C. 1331. The district court dismissed for lack of subject matter jurisdiction, based on the administrative review scheme. The Seventh Circuit affirmed. The administrative law judge assigned to the case is expected to issue an initial decision within the coming months. If the decision is adverse to Bebo, she will have the right to file a petition for review with the SEC. The SEC will then have the power either to adopt the ALJ’s initial decision as the final decision of the agency or to grant the petition and conduct de novo review. If the SEC’s final decision is adverse, Bebo will then have the right under 15 U.S.C. 78y(a)(1) to seek judicial review and will be able to raise her constitutional claims. View "Bebo v. Sec. Exchange Comm'n" on Justia Law