Articles Posted in Securities Law

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In this second appeal in an SEC enforcement action against Marlon Quan and entities he controlled, including the hedge fund SCAF, three investors in SCAF challenged orders entered by the district court pertaining to the receivership, the entry of judgment against SCAF, and the pro rata distribution of SCAF's assets to investors. The Eighth Circuit affirmed the district court's judgment and held that the investors have identified no error in the district court's approval of the First Stipulation, which was within the district court's broad discretionary power; the district court did not abuse its discretion in the approval of the Second Stipulation; there was no basis to conclude that the district court abused its discretion in applying a pro rata distribution to all investors; and the investors have waived their arguments regarding legal fees and expenses. View "SEC v. Topwater Exclusive Fund III" on Justia Law

Posted in: Securities Law

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Stratasys shareholders filed a securities fraud action claiming several company promotional statements were knowingly false. The Eighth Circuit affirmed the district court's determination that these statements were mere puffery and that the shareholders failed to sufficiently plead that Stratasys knew its statements were false when made. In this case, the statements the shareholders claim were materially misleading were so vague and such obvious hyperbole that no reasonable investor would rely upon them. Therefore, without tying the timing of the knowledge to the allegedly misleading statements, the shareholders did not plead facts sufficient to support a strong inference of scienter. View "Macomb County Employees Retirement System v. Stratasys Ltd." on Justia Law

Posted in: Securities Law

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ACE filed suit against LifeTime Funds' investment adviser, PMC, for breach of its section 36(b) fiduciary duty to the LifeTime Funds under the Investment Company Act (ICA) of 1940, 15 U.S.C. 80a-35(b). ACE based its excessiveness-of-adviser-fees challenge on all or part of the adviser fees paid to PMC by the funds in which the LifeTime Funds invest, fees which indirectly reduced the net asset values of the LifeTime Funds. The Eighth Circuit affirmed the district court's entry of judgment for PMC based on lack of statutory standing, holding that ACE cannot sue on behalf of a fund in which it lacks an interest. In this case, each mutual fund was a separate unregistered investment company and ACE had no security interest in the underlying funds. Therefore, the cross appeal and the motion to dismiss the cross appeal were moot or denied as moot. View "American Chemicals & Equipment Inc. 401(K) Retirement Plan v. Principal Management Corp." on Justia Law

Posted in: Securities Law

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The SEC filed suit against Crawford for acting as unregistered brokers in violation of section 15(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(a). The district court granted the SEC summary judgment, permanently enjoined Crawford, and ordered disgorgement. The Supreme Court announced in Kokesh v. SEC, No. 16-529, slip op. at 11 (U.S. June 5, 2017), that disgorgement, as it is applied in SEC enforcement proceedings, operates as a penalty under 28 U.S.C. 2462. Because any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued, the SEC concedes that section 2462 barred it from seeking disgorgement. Therefore, the Eighth Circuit vacated the disgorgement order. The court also held that the district court did not err in finding section 2462 did not bar the SEC's suit for the injunction, and the district court did not err in rejecting Crawford's finder exception or finder defense. Accordingly, the court affirmed in all other respects. View "SEC v. Crawford" on Justia Law

Posted in: Securities Law

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Class representatives challenged the district court's denial of their motion to enforce the settlement agreement in a securities settlement, and the district court's denial of a subsequent motion to alter or amend. The Eighth Circuit affirmed the district court's judgment and denied defendants' motion to dismiss. The court explained that this case continues to present a live controversy and the Stipulation explicitly granted that the district court would have continuing jurisdiction for the purposes of enforcing the agreement and addressing settlement administration matters. The court also held that the case was not prudentially moot where the district court has the ability to provide an effective remedy; the district court did not err in interpreting the Stipulation according to its unambiguous meaning and in holding that defendants complied with the Stipulation's payment obligations; and the district court did not err by holding that the meaning of the Stipulation was unambiguous as matter of law and, in doing so, the district court did not place a burden of proof on any party. View "Cromeans v. Morgan Keegan & Co." on Justia Law

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Appellants, retirement and investments funds, challenge the district court's grant of summary judgment to Medtronic on their securities fraud class action. Appellants alleged a number of securities laws violations related to Medtronic’s INFUSE product, including making false statements and employing a scheme to defraud the market. Section 10b of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), makes illegal the use of a manipulative or deceptive device in connection with the sale or purchase of a security by any instrumentality of interstate commerce. 17 C.F.R. 240.10b-5. Scheme liability concerns the use of “any device, scheme, or artifice to defraud” and “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. 240.10b-5(a), (c). In this case, because Appellants could not have discovered with reasonable diligence sufficient information to plead scienter with the particularity necessary to survive a motion to dismiss prior to June 27, 2011, Appellants brought their complaint within the two-year statute of limitations. The court rejected Medtronic's argument that Appellants’ scheme liability claim is barred as a matter of law by Janus Capital Group, Inc., and Stoneridge Investment Partners, LLC. Accordingly, the court affirmed the judgment. View "West Virginia Pipe Trades v. Medtronic, Inc." on Justia Law

Posted in: Securities Law

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AMSE appealed the Commission's final order denying AMSE's application for a limited volume exemption from registration as a national securities exchange under section 5 of the Securities Exchange Act of 1934, 15 U.S.C. 78a et. seq., and the district court’s dismissal of AMSE’s complaint for lack of jurisdiction. The court found that the Commission’s determination that it did not have discretion to grant a low-volume exemption to AMSE because it proposed to act as a self-regulatory organization (SRO) was reasonable; the Commission reasonably concluded that an exempt exchange could not be an SRO and that permitting an exchange to wield the broad powers of an SRO when the Commission is not statutorily required to exercise oversight would contradict the careful balance prescribed by Congress to protect the public interest and investors; and, therefore, the Commission's conclusion is well-reasoned and does not constitute an abuse of discretion. The court also concluded that AMSE has failed to establish circumstances permitting for district court review. Accordingly, the court denied the petition for review and affirmed the district court's judgment. View "Automated Matching Sys. v. SEC" on Justia Law

Posted in: Securities Law

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Plaintiffs filed suit against Best Buy and three of its executives, alleging violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. 240.10b-5. Plaintiffs alleged that defendants made fraudulent or recklessly misleading public statements in a press release and conference call, which artificially inflated and maintained Best Buy's publicly traded stock price until the misstatements were disclosed. In this interlocutory appeal, defendants challenged the district court's certification of the class. In Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), the Supreme Court concluded that loss causation has no logical connection to the facts necessary to establish the efficient market predicate to Basic, Inc. v. Levinson's fraud-on-the-market theory. The court agreed with the district court that, when plaintiffs presented a prima facie case that the Basic presumption applies to their claims, defendants had the burden to come forward with evidence showing a lack of price impact. However, what the district court ignored is that defendants did present strong evidence on this issue. Defendants rebutted the Basic presumption by submitting direct evidence (the opinions of both parties’ experts) that severed any link between the alleged conference call misrepresentations and the stock price at which plaintiffs purchased. Because plaintiffs presented no contrary evidence of price impact, they failed to satisfy the predominance requirement of Rule 23(b)(3). Therefore, the district court abused its discretion in certifying the class, and the court reversed and remanded. View "IBEW Local 98 Pension Fund v. Best Buy Co., Inc." on Justia Law

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Defendant and the entities he controls appeal a judgment entered on jury verdicts finding securities fraud. The SEC alleged that defendant and his companies violated Section 17(a) of the Securities Act, 15 U.S.C. 77q(a); Section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5; and Section 206(4) of the Investment Advisers Act, 15 U.S.C. 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. 275.206(4)-8. The SEC also alleged that defendant personally violated Section 20(a) of the Securities Exchange Act, 15 U.S.C. 78t(a), and aided and abetted SCAF’s violations of Section 10(b) and Rule 10b-5 and SIA’s violations of Section 206(4) and Rule 206(4)-8, 15 U.S.C. 78t(e) (aiding-and-abetting liability). The jury found liability on every count except the alleged violations of Section 17(a)(1) and the allegation that defendant personally aided and abetted SCAF's violations of Section 10(b) and Rule 10b-5. Because the verdicts in this case are not actually inconsistent, the court assumed without deciding that defendant preserved his argument and proceeded to the merits. The jury's finding that defendant did not violate Section 17(a)(1), but did violate Rule 10b-5 was not inconsistent because the bar for finding liability was higher under Section 17(a)(1) than under Rule 10b-5(b); the jury could have found liability under Section 17(a)(3), requiring only negligence, without finding the intent or severe recklessness necessary for liability under Section 17(a)(1); there is no inconsistency in the jury finding that defendant personally violated Rule 10b-5, but did not aid and abet SCAF in violating the same rule; the court agreed with the district court that the jury need not agree on a particular false statement or misleading omission for liability under Section 17(a)(2) or Rule 10b-5(b); and the disgorgement award the district court ordered here was a permissible equitable remedy. Accordingly, the court affirmed the judgment. View "SEC v. Quan" on Justia Law

Posted in: Securities Law

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The SEC filed a civil law enforcement action against Todd Duckson, the Fund, and related individuals and entities. A jury found Duckson liable for violating the antifraud provisions of the federal securities laws and for aiding and abetting the Fund's violations.The court held that the district court did not abuse its discretion by declining to admit the complete versions of the appraisals at issue under Federal Rule of Evidence 104 and 403. Further, Duckson cannot show that he was prejudiced by the district court's rulings. The court also concluded that the district court did not abuse its discretion by rejecting Duckson's proposal to set forth separately in the verdict form each alleged misstatement or omission where Duckson has not shown how the district court's factual findings conflict with the jury's findings; the jury was instructed on the relevant time period at issue; and the district court's verdict form did not deprive Duckson of a meaningful right to appellate review of the remedies determination or the liability finding. Accordingly, the court affirmed the judgment. View "Securities and Exchange Comm. v. Duckson" on Justia Law

Posted in: Securities Law