Justia U.S. 8th Circuit Court of Appeals Opinion Summaries

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

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

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

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

Rand-Heart filed a putative class action on behalf of purchasers of Dolan Company's securities under Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j(b), 78t(a). The district court dismissed the complaint for failure to state a claim. The court concluded that the district court erred in dismissing the section 10(b) and Rule 10b-5 claim and thus erred in dismissing the secondary liability claim under section 20(a). In this case, taking the allegations as true, DiscoverReady's financial instability caused by the decline in Bank of America was, at the least, so obvious that defendant must have been aware of it. Further, defendant's statements about "double-digit" growth and "lumpiness" are not protected by the Act's safe-harbor provision where these statements are not meaningfully cautionary and they are not company-specific warnings. Finally, the district court did not err in finding no loss-causation for the time period at issue. The court affirmed in part, reversed in part, and remanded for further proceedings. View "Rand-Heart of New York, Inc. v. Dolan" 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

American Century, a mutual fund, offers investment portfolios, including Ultra Fund. Ultra Fund invested in PartyGaming, a Gibraltar company that facilitated internet gambling. In 2005, PartyGaming made an initial public offering of its stock, which was listed on the London Stock Exchange. In its prospectus, PartyGaming noted that the legality of online gaming was uncertain in several countries, including the U.S.; 87 percent of its revenue came from U.S. customers. PartyGaming acknowledged that “action by US authorities … prohibiting or restricting PartyGaming from offering online gaming in the US . . . could result in investors losing all or a very substantial part of their investment.” Ultra Fund purchased shares in PartyGaming totaling over $81 million. In 2006, following increased government enforcement against illegal internet gambling, the stock price dropped. Ultra Fund divested itself of PartyGaming, losing $16 million. Seidl, a shareholder, claimed negligence, waste, and breach of fiduciary duty against American Century. The company refused her demand to bring an action. Seidl brought a shareholder’s derivative action. The Eighth Circuit affirmed summary judgment for the defendants, concluding that Seidl could not bring suit where the company had declined to do so in a valid exercise of business judgment. The litigation committee adopted a reasonable methodology in conducting its investigation and reaching its conclusion. View "Seidl v. Am. Century Co., Inc" on Justia Law

Toy Box, an LLC organized to operate storage facility sales businesses, distributed an Offering Circular that stated that investors’ funds would be held in escrow and not released unless a minimum of $500,000 in capital was deposited in 2008. If Toy Box did not raise minimum capital by the deadline, the offering would terminate and Toy Box would return investors' funds . Doud executed a subscription agreement and invested $100,000. In June 2008, Toy Box amended its offering, lowering the minimum capital requirement to $350,000. Doud agreed to the amendment. By July 11, 2008, Toy Box had raised $200,000, including Doud’s investment; a manager authorized release of the escrow funds. Days later, Toy Box represented to investors that it had "achieved its threshold funding level and exited escrow with $425,000 in place." In 2011, Toy Box suffered substantial financial losses. Doud lost his investment and sued, alleging breach of the investment agreement and violation of the Securities Exchange Act (15 U.S.C. 78j(b)); SEC Rules 10b-5 and 10b-9; and the Iowa Uniform Securities Act. The Eighth Circuit affirmed that Toy Box had breached its agreement by releasing escrow funds before reaching the minimum threshold of funding; that its conduct violated both SEC Rules and the Uniform Securities Act; that Doud had established scienter; and rejecting a claim of good faith. View "Doud v. Toy Box Dev. Co." on Justia Law

After the merger of NationsBank and BankAmerica, shareholders filed class actions alleging violations of securities laws. The district court appointed Oetting as lead plaintiff and the Green law firm, as lead counsel. The litigation resulted in a $333 million settlement for the NationsBank class. The Eighth Circuit affirmed approval of the settlement over Oetting’s objection. On the recommendation of Green, the court appointed Heffler as claims administrator. A Heffler employee conspired to submit false claims, resulting in fraudulent payment of $5.87 million. The court denied Green leave to file a supplemental complaint against Heffler. Oetting filed a separate action against Heffler that is pending. After distributions, $2.4 million remained. Green moved for distribution cy pres and requested an additional award of $98,114.34 in attorney’s fees for post-settlement work. Oetting opposed both, argued that Green should disgorge fees for abandoning the class, and filed a separate class action, alleging malpractice by negligently hiring and failing to supervise Heffler and abandonment of the class. The court granted Green’s motion for a cy pres distribution and for a supplemental fee award and denied disgorgement. The Eighth Circuit reversed the cy pres award, ordering additional distribution to the class, and vacated the supplemental fee award as premature. The district court then dismissed the malpractice complaint, concluding that Oetting lacked standing. The Eighth Circuit affirmed that collateral estoppel precluded the rejected disgorgement and class-abandonment claims; pendency of an appeal did not suspend preclusive effects. View "Oetting v. Norton" on Justia Law

The U.S. Commodity Futures Trading Commission (CFTC) sued Arrington, Kratville, Welke, Elite Holdings, and MJM, alleging that they fraudulently induced more than 130 individuals to invest $4.7 million in commodity pools, in violation of the Commodity Exchange Act (CEA), 7 U.S.C. 1. The district court granted summary judgment against Kratville. The Eighth Circuit affirmed, upholding denial of his request for more time to review purportedly new evidence; consideration affidavits from investors who signed releases and from investors who allegedly lacked credibility; refusal to consider the affidavit of an expert opining on the authenticity of emails; summary judgment on the CFTC's claim that Kratville committed fraud and related violations of the CEA and CFTC regulations in soliciting persons to invest and maintain funds in commodity investment pools; and a determination that the litigation strategy of Kratville's attorney was not excusable neglect warranting relief under FRCP 60(b)(1). Kratville's misrepresentations and omissions related to potential profit and risk, the identities of brokers, and ownership of a proprietary trading system were material. He hid from investors that pool funds were being sent out of the country and that the Nebraska Department of Banking and Finance had ordered Elite Pools to be closed and participants’ funds to be returned. View "Commodity Futures Trading Comm'n v. Kratville" on Justia Law