Justia Securities Law Opinion Summaries

Securities lending is a common practice: securities are temporarily transferred by the lender to a borrower, who is obliged to return the securities, either on demand, or at the end of any agreed term. For the period of the loan the lender is secured by acceptable collateral (in the U.S., often cash) valued at 102% [to] 105% of the market value of the loaned securities. The borrower may be motivated by desire to cover a short position, to sell the borrowed securities in hopes of buying them back at a lower price before returning them, or to gain tax advantages associated with the temporary transfer of ownership. The plaintiffs are pension funds that are shareholders in exchange-traded funds issued by iShares. iShares, as part of its mutual-fund operations, lends its securities holdings to various borrowers to generate substantial revenue. BTC, a related company, serves as iShares’s middleman between iShares and those who seek to borrow iShares’s securities and receives 35% of all securities-lending net revenue. BFA, another related company, is the investment adviser for iShares and manages its portfolios for a separate fee. Plaintiffs alleged that BFA and BTC violated the Investment Company Act, 15 U.S.C. 80a-35(a), (b), by charging an excessive lending fee because the fee charged by BTC bears no relationship to actual services rendered. The district court dismissed. The Sixth Circuit affirmed, finding that the Act does not create a private cause of action. View "Laborers' Local 265 Pension Fund v. iShares Trust" on Justia Law

The SEC filed suit against Arthur Nadel and two of his investment companies for operating a Ponzi scheme. The district court appointed a receiver to take possession and control over Quest because the officers were funding the company with proceeds from a Ponzi scheme. The district court enjoined the current officers from taking any actions on behalf of Quest and vested the receiver with the authority to "[d]efend, compromise or settle legal actions, including the instant proceeding." The officers now appeal the appointment of the receiver. The court granted the receiver's motion to dismiss for lack of jurisdiction because the officers did not have standing to appeal in the name of Quest where the district court enjoined the officers from taking any action on behalf of Quest. View "SEC v. Quest Energy Mgmt. Grp." on Justia Law

Plaintiff, the receiver for the Stanford entities, filed suit seeking to recover funds that were paid to defendants, purchasers of certificate of deposits from Standard International Bank (SIB) as part of a Ponzi scheme. The court concluded that the district court properly applied the Texas Uniform Fraudulent Transfer Act (TUFTA), Tex. Bus. & Com. Code 24.010, to the receiver's claims; the receiver has standing to bring the TUFTA claims on behalf of the Stanford entities; and the receiver's claims are not barred by the statute of limitations. On the merits, the court concluded that the receiver established that the Stanford principles transferred monies to the investor-defendants with fraudulent intent; unlike interest payments, it is undisputed that the principal payments were payments of an antecedent debt, namely fraud claims that the investor-defendants have as victims of the Stanford Ponzi scheme; the district court did not err in denying an exemption under Texas Property Code 42.0021(a) where investor-defendants have offered no evidence that they have a legal right to the funds despite those funds being the product of a fraudulent transfer; and the court declined to reach the investor-defendants' argument that certain factual issues remain. Accordingly, the court affirmed the district court's grant of the receiver's motion for summary judgment. View "Janvey, et al. v. Brown, et al." on Justia Law

Doolittle was a registered securities broker/dealer, and a registered investment advisor. He or his corporations held licenses, permits, or certificates to engage in real estate and insurance brokerage and tax preparation. Around 1990 his primary business became “trust deeds investments,” in which he “would arrange groups of investors together to buy those loans or to fund those transactions for different types of individuals and institutional borrowers.” After investors lost money, Doolittle was convicted and sentenced to 13 years in prison for three counts of theft by false pretenses; six counts of theft from an elder or dependent adult; nine counts of false statements or omissions in the sale of securities; selling unregistered securities; and sale of a security by willful and fraudulent use of a device, scheme, or artifice to defraud The appeals court reversed in part, holding that Doolittle’s challenge that the trial court’s implied finding of timely prosecution was not supported by substantial evidence required remand with respect to two of the charges. A further hearing may be necessary with respect to applicability of a sentence enhancement for aggregate losses over $500,000. Doolittle’s conviction for sale of unregistered securities and sale of securities by means of a fraudulent device did not rest on the same conduct as his convictions for fraud against specific victims; his sentence on the former counts therefore does not offend the proscription against duplicative punishment. View "People v. Doolittle" on Justia Law

Plaintiffs filed a class action on behalf of all persons who purchased common stock from Xerox during a certain period, alleging that Xerox violated the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq. Plaintiffs alleged that Xerox and executive officers violated federal securities law by materially misrepresenting that Xerox's worldwide restructuring initiative was financially beneficial to the corporation, when, in fact, one specific component of the restructuring - the "Customer Business Organization Reorganization" - was causing significant and ongoing economic distress to the company. The court affirmed the district court's grant of summary judgment in favor of defendants because there was no genuine dispute of material fact with respect to the sufficiency of Xerox's disclosures about the successes and failures of this component of its worldwide restructuring. View "Dalberth v. Xerox Corp." on Justia Law

Plaintiff appealed the district court's judgment dismissing her claims under Rule 12(b)(6) under the Commodities Exchange Act (CEA), 7 U.S.C. 1 et seq., and declining to exercise supplemental jurisdiction over her state law claims. Applying the domestic transaction test in Morrison v. National Australia Bank Ltd., the court agreed with the district court that a private right of action brought under CEA section 22 is limited to claims alleging a commodities transaction within the United States. The court affirmed the district court's judgment because plaintiff failed to allege a domestic commodities transaction and, because the court affirmed on the basis of section 22, the court did not reach plaintiff's argument regarding the territorial reach of the antifraud provision in CEA section 4o. View "Loginovskaya v. Batratchenko" on Justia Law

Allergan, the pharmaceutical manufacturer of Botox, settled several qui tam suits concerning allegations that it had acted illegally in marketing and labeling Botox, and pled guilty in a criminal case. Plaintiffs, all Allergan shareholders, subsequently filed a derivative action alleging that Allergan's directors are liable for violations of various state and federal laws, as well as breaches of their fiduciary duties to Allergan. Plaintiffs failed to make a demand on Allergan's board requesting that Allergan bring the derivative claims in its own name. The court concluded that the district court misapplied governing Delaware law and improperly drew inferences against plaintiffs rather than in their favor when the district court dismissed the action on the ground that plaintiffs failed to allege particularized facts showing that demand was excused under Federal Rule of Civil Procedure 23.1. The court concluded that demand was excused where plaintiffs' particularized allegations established a reasonable doubt as to whether the Board faces a substantial likelihood of liability and as to whether the Board is protected by the business judgment rule. Accordingly, the court reversed the judgment of the district court. View "Rosenbloom v. Pyott" on Justia Law

Plaintiffs, international hedge funds, filed suit alleging violations of U.S. securities laws because defendants made various fraudulent statements and took various manipulative actions to deny and conceal Porsche's intention to take over Volkswagen AG (VW), a German corporation. The securities transactions upon which plaintiffs brought suit were so-called "securities-based swap agreements" relating to the stock of VW. The district court granted defendants' motion to dismiss the complaint because the swaps were essentially transactions in securities on foreign exchanges. The court affirmed on the basis of different reasoning, concluding that the imposition of liability under section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j(b), on these foreign defendants with no alleged involvement in plaintiffs' transactions, on the basis of defendants' largely foreign conduct, for losses incurred by plaintiffs in securities-based swap agreements based on the price movements of foreign securities would constitute an impermissibly extraterritorial extension of the statute. The court remanded for further proceedings. View "Parkcentral v. Porsche" on Justia Law

A financial advisor with more than 20 years of experience, McGee met Maguire between 1999 and 2001 while attending Alcoholics Anonymous meetings. McGee assured Maguire that their conversations were going to remain private. Maguire never repeated information that McGee entrusted to him. In 2008, Maguire was closely involved in negotiations to sell PHLY, a publicly-traded company. During this time, Maguire experienced sporadic alcohol relapses. McGee saw Maguire after a meeting and inquired about his frequent absences. In response, Maguire “blurted out” inside information about PHLY’s imminent sale. He later testified that he expected McGee to keep this information confidential. Before the information became public, McGee borrowed $226,000 to finance the purchase of 10,750 PHLY shares. Shortly after the public announcement of PHLY’s sale, McGee sold his shares, resulting in a $292,128 profit. After an SEC investigation, McGee was convicted of securities fraud under the misappropriation theory of insider trading (15 U.S.C. 78j(b) and 78ff), and SEC Rules 10b-5 and 10b5-2(b)(2), and of perjury (18 U.S.C. 1621). The Third Circuit affirmed, rejecting arguments that Rule 10b5-2(b)(2) is invalid because it allows for misappropriation liability absent a fiduciary relationship between a misappropriator of inside information and its source; that there was insufficient evidence to sustain his convictions; and that the court erred in denying his motion for a new trial based on newly discovered evidence. View "United States v. McGee" on Justia Law

Plaintiff, a citizen and resident of Taiwan, filed suit alleging that by firing him Siemens had violated the antiretaliation provision of the Dodd-Frank Act, 15 U.S.C. 78u-6(h)(1)(A). The court concluded that the district court properly dismissed the complaint because legislation is presumed to apply only domestically unless there is evidence Congress intended otherwise; (2) there is no indication Congress intended the whistleblower protection provision to have extraterritorial application; and (3) the facts in the complaint unequivocally demonstrate that applying the statute in this case would constitute an extraterritorial application. Therefore, section 78u-6(h) does not protect a foreign worker employed abroad by a foreign corporation where all events related to the disclosures occurred abroad. View "Liu v. Siemens AG" on Justia Law