Justia Securities Law Opinion Summaries

An interlocutory appeal before the Eleventh Circuit centered on an order granting motions to dismiss by two defendants in a securities class action against Jiangbo Pharmaceuticals, Inc., its principal officers, and its audit firm. Jiangbo came into existence as a U.S. corporation in 2007 when its Chinese operational arm, Laiyang Jiangbo, executed a reverse merger with a Florida shell company. Jiangbo's tenure as a public company "was short and fraught with suspicion of misconduct." Shares began trading on NASDAQ on June 8, 2010 and traded on that exchange for just under a year. Only six months after trading began, the Securities and Exchange Commission (SEC) initiated an informal, non-public investigation into Jiangbo. The company's fortunes unraveled quickly soon thereafter, and the SEC formalized its investigation, which remained non-public. Jiangbo made two significant disclosures in late May 2011 that marked the culmination of its decline: it publicly acknowledged the formal SEC investigation for the first time and reported that the company had defaulted on a relatively small principal payment toward debt from its initial financing. Trading ended days later on May 31, 2011, by which time the share price had fallen from a class-period high of $10.49 per share to $3.08. By November 2011, after Jiangbo had moved to another exchange, its shares were trading for just $0.14. The investors' consolidated amended complaint alleged, inter alia, that Elsa Sung (the former Chief Financial Officer) and Frazer LLP (the external auditor) misrepresented the company's cash balances and failed to disclose a material related-party transaction in statements within or appurtenant to those filings, in violation of Section 10(b) of the Securities Exchange Act. The district court found that the investors failed to sufficiently plead their allegations of fraud against defendants Sung and Frazer LLP ("Frazer"). Applying the heightened pleading standard imposed by the Private Securities Litigation Reform Act ("PSLRA"), the Eleventh Circuit Court of Appeals affirmed the district court. View "Brophy v. Jiangbo Pharmaceuticals, Inc." on Justia Law

The district court dismissed a suit brought by Sanderson, individually and on behalf of all others similarly situated, alleging that auditors (defendants) committed securities fraud by falsely representing that they performed their audits of Advanced Battery Technologies in accordance with professional standards and that the company’s filings accurately reflected its financial condition from the 2007 through the 2010 fiscal years. The court found that the complaint failed adequately to plead scienter as required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u‐4. Sanderson sought to correct these deficiencies by moving to file an amended complaint. The court denied the motion, concluding that even the new allegations failed to “rise to the level of recklessness.” The Second Circuit affirmed, finding that the factual allegations did not give rise to a strong inference of either fraudulent intent or conscious recklessness, rather than mere negligence. View "In re: Advanced Battery Techs., Inc." on Justia Law

The Securities Act of 1933 requires that a company issuing securities file a registration statement containing specified information, 15 U.S.C. 77aa. The statement may include other representations of fact or opinion. A purchaser of securities may sue an issuer if it either “contain[s] an untrue statement of a material fact” or “omit[s] to state a material fact . . . necessary to make the statements therein not misleading.” The buyer need not prove intent to deceive. Omnicare filed a registration statement for a public offering of common stock. In addition to required disclosures, the statement expressed the company’s opinion that it was in compliance with federal and state laws. After the government sued Omnicare for receiving kickbacks from pharmaceutical manufacturers, purchasers of Omnicare Funds sued, claiming that the legal-compliance statements constituted “untrue statement[s] of . . . material fact” and that Omnicare “omitted to state [material] facts necessary” to make those statements not misleading. The district court dismissed. The Sixth Circuit reversed, holding that subjective disbelief was not required. The Supreme Court vacated. A statement of opinion is not an “untrue statement of . . . fact” simply because that opinion ultimately proves incorrect. Opinions qualify as untrue statements of fact if the opinion was not sincerely held or if they contain embedded statements of untrue facts. Under section 11’s omissions clause, whether a statement is “misleading” is an objective inquiry based on a reasonable investor’s perspective. A reasonable investor may understand an opinion to convey facts about the speaker’s basis for holding that view; if the real facts are otherwise, but not provided, the opinion will mislead by omission. An opinion, however, is not misleading simply because the issuer knows, but fails to disclose, some fact cutting the other way. Section 11 creates liability only for the omission of material facts that cannot be squared with a fair reading of the registration as a whole. The case was remanded for determination of whether the complaint adequately alleged that Omnicare omitted some fact that would have been material to a reasonable investor. View "Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund" on Justia Law

Plaintiffs, a class of investors, filed this suit claiming that Chelsea Therapeutics International, LTD. and several of its corporate officers violated the Securities Exchange Act by making misleading statements and material omissions about the development and likelihood of regulatory approval for a new drug. The district court dismissed the claim under Fed. R. Civ. P. 12(b)(6), concluding that Plaintiffs’ securities fraud claims failed because their allegations were insufficient to establish that Defendants acted with the required scienter. The Fourth Circuit vacated the district court’s judgment dismissing Plaintiffs’ complaint, holding that the district court erred in (1) taking judicial notice of three documents filed with the Securities and Exchange Commission because those documents were not explicitly referenced in, or an integral part of, Plaintiffs’ complaint, and the error was not harmless; and (2) concluding that Plaintiffs’ allegations of scienter were insufficient as a matter of law, as, based on Defendants’ failure to disclose critical information about the weaknesses of the new drug application, Plaintiffs’ allegations were sufficient to support the required inference of scienter. Remanded. View "Zak v. Chelsea Therapeutics Int’l" on Justia Law

Between 2004 and 2009, Stryker submitted information to the Securities and Exchange Commission’s Enforcement Division regarding alleged wrongdoing by ATG and an involved individual. In 2009, the SEC opened an investigation and interviewed Stryker. The SEC subsequently filed an enforcement action against ATG and the individual, charging them with violating Section 5 of the Securities Act of 1933. In 2010, the SEC reached a settlement with the respondents to the enforcement action. The district court approved the settlement, whereby ATG and the individual were held liable for more than $19 million. In 2011, Stryker sought a whistleblower award under Section 21F of the Dodd-Frank Act, 15 U.S.C. 78u-6, based on the successful enforcement action. The SEC denied the award because the information was submitted before enactment of Dodd-Frank. The Second Circuit affirmed, concluding that the SEC’s interpretation was within its authority and consistent with the legislation. View "Stryker v. Secs. & Exch. Comm'n" on Justia Law

DMK Biodiesel, LLC and Lanoha RVBF, LLC (collectively, Plaintiffs) brought an action against Renewable Fuels Technology, LLC and several individual defendants (collectively, Defendants), alleging that Defendants violated violated Neb. Rev. Stat. 8-1118(1) by selling a security by means of an untrue statement of material fact. Specifically, Plaintiffs alleged that Defendants, acting in concert as members and the manager of Republican Valley Biofuels, LLC (RVBF), made false oral representations and omissions in connection with RVBF and a proposed biodiesel facility that induced their investment. The district court granted Defendants’ motion to dismiss. The Supreme Court reversed because, in granting the motion to dismiss, the district court considered matters outside the pleadings without conducting an evidentiary hearing. On remand, the district court granted summary judgment for Defendants. The Supreme Court reversed, holding that the district court erred in entering summary judgment with respect to Plaintiff’s section 8-1118(1) claim because there remained genuine issues of material fact precluding summary judgment. View "DMK Biodiesel, LLC v. McCoy" on Justia Law

Plaintiff-appellant National Credit Union Administration Board ("NCUA") appealed the district court's order dismissing as untimely its complaint against defendants-appellees Barclays Capital Inc., BCAP LLC, and Securitized Asset Backed Receivables LLC. This case arose from the failure of two of the nation's largest federally insured credit unions: U.S. Central Federal Credit Union and Western Corporate Federal Credit Union. The NCUA was appointed conservator and later as their liquidating agent. The NCUA determined that the Credit Unions had failed because they had invested in residential mortgage-backed securities ("RMBS") sold with offering documents that misrepresented the quality of their underlying mortgage loans. The NCUA set out to pursue recoveries on behalf of the Credit Unions from the issuers and underwriters of the suspect RMBS, including Barclays, and began settlement negotiations with Barclays and other potential defendants. As these negotiations dragged on through 2011 and 2012, the NCUA and Barclays entered into a series of tolling agreements that purported to exclude all time that passed during the settlement negotiations when "calculating any statute of limitations, period of repose or any defense related to those periods or dates that might be applicable to any Potential Claim that the NCUA may have against Barclays." Significantly, Barclays also expressly made a separate promise in the tolling agreements that it would not "argue or assert" in any future litigation a statute of limitations defense that included the time passed in the settlement negotiations. After negotiations with Barclays broke down, the NCUA filed suit, more than five years after the RMBS were sold, and more than three years after the NCUA was appointed conservator of the Credit Unions. Barclays moved to dismiss for failure to state a claim on several grounds, including untimeliness. Barclays initially honored the tolling agreements but argued that the NCUA's federal claims were nevertheless untimely under the Securities Act's three-year statute of repose, which was not waivable. While Barclays's motion to dismiss was pending, the district court in a separate case involving different defendant Credit Suisse, granted Credit Suisse's motion to dismiss a similar NCUA complaint on the grounds that contractual tolling was not authorized under the Extender Statute. Barclays amended its motion to dismiss asserting a similar Extender Statute argument. The district court dismissed the NCUA's complaint, incorporating by reference its opinion in Credit Suisse. The NCUA appealed, arguing that its suit was timely under the Extender Statute. The Tenth Circuit reversed and remanded: "while it is true that the NCUA's claims are outside the statutory period and therefore untimely, that argument is unavailable to Barclays because the NCUA reasonably relied on Barclays's express promise not to assert that defense." View "National Credit Union v. Barclays Capital" on Justia Law

In connection with a 1998 nationwide, securities-fraud class action initiated against MedPartners, Inc., a physician-practice-management/pharmacy-benefits-management corporation and the predecessor in interest to CVS Caremark Corporation, the Jefferson Circuit Court certified a class that included the plaintiffs in this case. Based on the alleged financial distress and limited insurance resources of MedPartners, the 1998 litigation was concluded in 1999 by means of a negotiated "global settlement," pursuant to which the claims of all class members were settled for an amount that purportedly exhausted its available insurance coverage. Based on representations of counsel that MedPartners lacked the financial means to pay any judgment in excess of the negotiated settlement and that the settlement amount was thus the best potential recovery for the class, the trial court, after a hearing, approved the settlement and entered a judgment in accordance therewith. Thereafter, MedPartners (now Caremark) allegedly disclosed, in unrelated litigation, that it had actually obtained (and thus had available during the 1998 litigation) an excess-insurance policy providing alleged "unlimited coverage" with regard to its potential-damages exposure in the 1998 litigation. In 2003, John Lauriello, seeking to be named as class representative, again sued Caremark and insurers American International Group, Inc.; National Union Fire Insurance Company of Pittsburgh, PA; AIG Technical Services, Inc.; and American International Specialty Lines Insurance Company in the Jefferson Circuit Court, pursuant to a class-action complaint alleging misrepresentation and suppression, specifically, that Caremark and the insurers had misrepresented the amount of insurance coverage available to settle the 1998 litigation and that they also had suppressed the existence of the purportedly unlimited excess policy. In case no. 1120010, Caremark and the insurers appealed the circuit court's order certifying as a class action the fraud claims asserted by Lauriello, James Finney, Jr.; Sam Johnson; and the City of Birmingham Retirement and Relief System. In case no. 1120114, the plaintiffs cross-appealed the same class-certification order, alleging that, though class treatment was appropriate, the trial court erred in certifying the class as an "opt-out" class pursuant to Rule 23(b)(3), Ala. R. Civ. P., rather than a "mandatory" class pursuant to Rule 23(b)(1), Ala. R. Civ. P. Finding no reversible error, the Supreme Court affirmed the circuit court in both cases. View "CVS Caremark Corporation et al. v. Lauriello et al." on Justia Law

Pilgrim's Pride was the successor-in-interest to Pilgrim's Pride Corporation of Georgia f/k/a Gold Kist, Inc., which was the successor-in-interest to Gold Kist, Inc. In 1998, Gold Kist sold its agriservices business to Southern States Cooperative, Inc. To facilitate the purchase, Southern States obtained a bridge loan that was secured by a commitment letter between Southern States and Gold Kist. The letter permitted Southern States to require Gold Kist to purchase certain securities from Southern States. In early 2004, Gold Kist and Southern States negotiated a price at which Southern States would redeem the securities. Gold Kist’s Board of Directors, instead of accepting the offer, decided to abandon the securities for no consideration. The issue this case presented for the Fifth Circuit's review centered on whether whether Pilgrim’s Pride Corporation's loss from its abandonment of securities was an ordinary loss or a capital loss. The Tax Court (in what appeared to be the first ruling of its kind by any court) ruled that 26 U.S.C. 1234A(1) applied to the abandonment loss and required that it be classified as capital. However, the Fifth Circuit disagreed. Because section 1234A(1) only applied to the termination of contractual or derivative rights, and not to the abandonment of capital assets, the Court reversed the Tax Court and rendered judgment in favor of Pilgrim's Pride. View "Pilgrim's Pride Corporation v. CIR" on Justia Law

Claimants, former investors of BLMIS, asked that the appointed trustee for the liquidation of BLMIS adjust their proportional share of customer property to reflect inflation and one claimant also asks for an interest adjustment, to reflect the time-value of money. The bankruptcy court upheld that trustee's determination that no adjustment for inflation or interest could be made. The court agreed, holding that the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa, et seq., does not permit an inflation or interest adjustment to "net equity" claims for customer property. Accordingly, the court affirmed the bankruptcy court's order approving the trustee's adjusted net equity calculation and overruling claimants' objections. View "Securities Investor Protection Corp. v. 2427 Parent Corp." on Justia Law