Justia Securities Law Opinion Summaries

This derivative action arose out of the London Whale trading debacle. Plaintiff, a JPMorgan shareholder, filed suit seeking to compel JPMorgan to take action, up to and including suing the alleged wrongdoers. The district court dismissed the complaint, finding that plaintiff had not pleaded facts showing that the JPMorgan Board of Directors had wrongfully refused the demand for action. The court noted that the abuse‐of‐discretion standard of review for the dismissal of derivative action cases should be retired, and that dismissals of derivative actions should be reviewed under the same de novo standard that the court followed in all other similarly situated cases. However, because the court is bound by the rule of the Circuit, the court concluded that the district court did not abuse its discretion by dismissing this derivative action. Accordingly, the court affirmed the judgment. Finally, the district court did not err by denying plaintiff an opportunity to amend his complaint. View "Espinoza v. Dimon" on Justia Law

Plaintiffs, a putative class of former Guaranty stockholders whose equity interests were wiped out when Guaranty failed, filed suit alleging federal securities law claims against four former Guaranty executives. Plaintiffs alleged that the executives made materially false and misleading statements regarding Guaranty’s assets. The district court dismissed the claims. The court concluded that, under a holistic review, the Second Amended Complaint confirms that plaintiffs have failed to adequately plead facts that raise a strong inference of scienter. Because plaintiffs have not raised a strong inference of scienter as to any defendant, the court need not reach the issue of loss causation. Accordingly, the court affirmed the judgment of the district court. View "Owens v. Jastrow" on Justia Law

Two certificateholders in ACE Securities Corp., Home Equity Loan Trust sued DB Structured Products (DBSP) for failure to repurchase loans that purportedly did not conform to the representations and warranties of DBSP, which sponsored the transaction. The Trust later sought to substitute itself as plaintiff in place of the certificateholders. DBSP moved to dismiss the complaint as untimely, arguing that the Trust’s claims accrued as of March 28, 2006, more than six years before the Trust filed its complaint. DBSP further contended that the certificateholders did not validly commence this action and lacked standing to sue. Supreme Court denied DBSP’s motion to dismiss and held the Trust’s action to be timely.The Appellate Division reversed. The Court of Appeals affirmed, holding (1) the Trust’s cause of action against DBSP for breach of representations and warranties accrued at the point of contract execution on March 28, 2006; and (2) even assuming that the certificateholders possessed standing to sue, the two certificateholders did not validly commence this action because they failed to comply with the contractual condition precedent to suit. View "ACE Sec. Corp. v DB Structured Prods., Inc." on Justia Law

In reliance on the advice of her investment advisor, Morgan Financial Advisors, Inc. (MFA), Plaintiff invested three-quarters of her retirement savings in a hedge fund that became insolvent, resulting in the loss of her entire investment. Plaintiff filed suit against MFA and its sole owner and officer (collectively, Defendants) alleging that Defendants violated the Massachusetts Uniform Securities Act (Act), committed fraud, and breached their fiduciary duty to her. The trial judge concluded that Defendants were liable under the Act and entered judgment in Plaintiff’s favor. The Supreme Judicial Court affirmed, holding (1) the district judge did not err in finding that Defendants were “sellers” of securities under the Act; (2) Plaintiff timely filed her action under the Act; and (3) the evidence was sufficient to support the convictions. View "Hays v. Ellrich" on Justia Law

Petitioner sought review of the SEC's order to cease and desist from violating the Securities Act of 1933, 15 U.S.C. 77e(a), (c), and the agency's subsequent order denying his motion for reconsideration. Petitioner sold shares of stock in Lexington, Inc. through offshore bank accounts for millions of dollars in profit, but failed to comply with the SEC's registration requirements for the sale of securities. The SEC found that petitioner had violated the Act in two separate enforcement actions. The court found no merit in petitioner’s objections to the SEC’s application of the fraudulent concealment doctrine. The court further held that the Commission correctly rejected petitioner's affirmative defenses of equitable estoppel, judicial estoppel, and waiver. Accordingly, the court denied the petition for review. View "Pierce v. SEC" on Justia Law

In a securities-fraud class action, plaintiffs won a verdict of $2.46 billion, apparently one of the largest to date, against Household International and three of its top executives. The suit was based on a dramatic increase (and subsequent collapse) in the price of Household’s stock that was driven by predatory lending practices and creative accounting to mask delinquencies. The Seventh Circuit ordered a new trial on two issues: whether plaintiffs failed to prove loss causation and instructional error concerning what it means to “make” a false statement in connection with the purchase or sale of a security. Plaintiffs’ expert’s testimony did not adequately address whether firm-specific, nonfraud factors contributed to the collapse in Household’s stock price during the relevant time period. View "Glickenhaus & Co. v. Household Int'l, Inc." on Justia Law

Zada sold fake investments in Saudi Arabian oil, raising about $60 million from investors in Michigan and Florida. Zada gave investors promissory notes that, on their face, say nothing about oil-investment. They say that Zada will pay a principal amount plus interest (at rates far lower than Zada had promised). Zada stated that the notes were necessary only to ensure that investors would be repaid by Zada’s family if something happened to him. Little of what Zada said was true. Zada paid actors to pose as a Saudi royalty. Zada never bought any oil; he used investors’ money to pay his personal expenses. When Zada paid investors anything, he used money raised from other victims. The SEC discovered Zada’s scheme and filed a civil enforcement action, alleging violation of the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. 77. The district court granted the SEC summary judgment, ordering Zada to pay $56 million in damages and a civil penalty of $56 million more. The Sixth Circuit affirmed, rejecting arguments that the investments were not securities and that the civil penalty improperly punishes him for invoking his Fifth Amendment privilege against self-incrimination. View "Secs. & Exch. Comm'n v. Zada" on Justia Law

The State, by and through the State Treasurer of Wyoming and the State Retirement System (collectively, the State), filed this action against Appellees - rating agencies - alleging that the rating agencies were liable for hundreds of millions of dollars in investment losses on mortgage-backed securities during the 2007-2008 financial crisis. The district court granted the rating agencies’ motion to dismiss all claims against them for lack of personal jurisdiction, concluding that the rating agencies did not have sufficient contacts with Wyoming to rise to the level required by the due process clause. The Supreme Court affirmed, holding that the State failed to establish a prima facie case of personal jurisdiction over the rating agencies. View "State v. Moody’s Investors Serv., Inc." on Justia Law

At issue in these two separate cases was whether a life settlement agreement or viatical settlement agreement is an investment contract and thus a security under the Texas Securities Act. In one case, Plaintiffs filed a class action alleging that Life Partners, Inc. violated the Texas Securities Act (Act) by selling unregistered securities and misrepresenting to purchasers that they were not, in fact, securities. In the second case, the State filed suit alleging that Life Partners had committed fraud in connection with the sale of securities. The Both district courts entered judgments for Life Partners. Both courts of appeals reversed in part, concluding that the life settlement agreements were securities under the Texas Securities Act. The Supreme Court affirmed, holding that that the agreements at issue in these cases were investment contracts, and thus securities, under the Texas Securities Act. View "Life Partners Holdings, Inc. v. State" on Justia Law

Plaintiffs are individuals and entities that purchased shares in the Kingate funds and continued to hold their shares until the 2008 exposure of the Bernie Madoff Ponzi scheme, resulting in loss most of the funds’ assets. A purported class action was filed against persons and entities affiliated with the funds. The district court dismissed, citing the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227, which bars certain state‐law‐based class actions alleging falsity in connection with transactions in six categories of “covered securities.” The Second Circuit vacated, noting the Supreme Court’s intervening ruling in Chadbourne & Parke LLP v. Troice, (2014). The alleged fraud in this case is “in connection with the purchase or sale of a covered security” and brings the case within SLUSA’s prohibition (assuming SLUSA’s 12 other elements are met). The state law claims that do not depend on false conduct are not within the scope of SLUSA, even if the complaint includes peripheral, inessential mentions of false conduct. Claims accusing the defendant of complicity in the false conduct that gives rise to liability are subject to SLUSA’s prohibition, while claims of false conduct in which the defendant is not alleged to have had any complicity are not. View "In re: Kingate Mgmt. Ltd. Litig." on Justia Law