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

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

Based on their involvement in promoting or selling stock for Petro America, an unregistered company that had no value, eight coconspirators were charged with conspiracy to commit securities fraud and wire fraud 18 U.S.C. 371. Hawkins was also charged with aiding and abetting securities fraud, 15 U.S.C. 77q and 18 U.S.C. 2, aggravated currency structuring, 31 U.S.C. 5324(a)(3) and (d)(2), money laundering, 18 U.S.C. 1957, and two counts of wire fraud, 18 U.S.C. 1343. Brown was also charged with securities fraud and wire fraud; Heurung was charged with two additional counts of wire fraud; and Miller was charged with money laundering and wire fraud. The others pled guilty to various charges. Hawkins, Brown, Heurung, Miller and Roper proceeded to trial. Hawkins argued that Petro America was a legitimate company and that the government was prosecuting so that it could confiscate the company's substantial assets. The others acknowledged that Petro America was a sham but claimed they had believed in good faith that the company was real and that they could promote or sell its stock. The Eighth Circuit affirmed their convictions on all counts, rejecting challenges concerning jury selection and evidentiary rulings. View "United States v. Hawkins" on Justia Law

Plaintiffs acquired shares of K-V Pharmaceutical stock during the period in which the company launched and marketed Makena, its new prescription drug, designed to reduce the risk of pre-term labor for at-risk pregnant women. It had acquired rights to the drug from the FDA, under the Orphan Drug Act, 21 U.S.C. 360. In a putative class action, the plaintiffs alleged that K-V and three of its officers made materially false or misleading statements or omissions related to the product launch. The district court dismissed, holding the challenged statements were protected by the safe-harbor provision of the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. 78u-4(b), and that the plaintiffs failed to adequately plead scienter under the PSLRA. The district court also denied the plaintiffs the opportunity to amend the complaint as it related to allegations from confidential witnesses. The Eighth Circuit affirmed. K-V’s statements fell within the PSLRA’s safe-harbor provision as forward-looking statements accompanied by meaningful cautionary language and are not actionable as a basis for a securities fraud action. View "Anderson v. K-V Pharma. Co." on Justia Law

Fry solicited funds from investors for promissory notes issued by Petters, stating that the notes would finance purchases of merchandise that would be resold at a profit. In fact, the notes were part of a Ponzi scheme orchestrated by Petters, who was convicted separately. The transactions were fictitious, documentation was fabricated, and early investors were paid purported profits with money raised from the sale of notes to later investors. From 1999-2008, Fry and his recruits raised more than $500 million. Fry continued to misrepresent the investments and to solicit investments after the scheme began to unravel, causing $130 million in losses for 44 victims, while he collected tens of millions of dollars in fees. Fry made false statements to the SEC during its investigation. He was convicted of securities fraud, 15 U.S.C. 77q(a), 77x ,18 U.S.C. 2; wire fraud, 18 U.S.C. 1343; and making false statements to the SEC, 18 U.S.C. 1001(a)(2). The district court sentenced Fry to 210 months’ imprisonment. Other participants in the Petters scheme pleaded guilty to various charges and were sentenced by the same judge. The Eighth Circuit affirmed Fry’s conviction and sentence, rejecting an argument that it should presume that the court sentenced him vindictively, in retaliation for his exercise of the right to a jury trial, because Fry’s sentence was longer than sentences imposed on defendants who pleaded guilty. View "United States v. Fry" on Justia Law

Hansen, a farmer, served as a bank trust officer. In 2003, he invested, through Johnson (a stock broker), in the Hudson Fund, a hedge fund Johnson ran with Onsa and Puma. Hansen continued investing with the three. In 2007 Hansen and Johnson formed RAHFCO limited partnership. Hansen served as general partner, but delegated responsibility for executing trades to the Hudson Fund. Hansen misrepresented RAHFCO to investors, directly and through a private placement memo. Hansen prepared and sent investors earnings statements that falsely inflated RAHFCO’s performance. Hansen later testified that he relied on Onsa and Johnson to provide the numbers and never confirmed them. Hansen hired an accounting firm for an audit, but the firm quit after Hansen refused to authorize it to obtain a brokerage statement confirming RAHFCO’s investments. RAHFCO’s law firm withdrew. Johnson was charged in 2007 with securities fraud concerning another company. Onsa was sued civilly for fraudulent securities trading in 2009. Hansen never informed investors of any of these events nor did he attempt to find another auditor. In 2011, RAHFCO collapsed. Convicted of mail fraud, wire fraud, and conspiracy to commit mail fraud and wire fraud, 18 U.S.C. 1341, 1343, 1349, Hansen was sentenced to 108 months imprisonment and ordered to pay $17 million restitution to 75 victims. The Eighth Circuit affirmed, upholding the use of a willful blindness instruction and an instruction on conspiracy. View "United States v. Hansen" on Justia Law

Rodd, an investment advisor who produced and was regularly featured on a Minnesota local radio show, “Safe Money Radio,” was convicted of wire fraud, 18 U.S.C. 1343 and mail fraud, 18 U.S.C. 1341, for swindling 23 investors out of $1.8 million. Rodd used the radio show to market low-risk investment products to gain customers’ trust and maintain a client base for soliciting participants in a fraudulent investment scheme. Rodd solicited money by promising liquidity, safety, and a 60% six-month return. Rodd instead used the money for personal and business expenses, hiding behind false assurances of security and payouts to his early investors. Finding an advisory guidelines range of 70 to 87 months, the district court sentenced Rodd to 87 months in prison, applying a two-level enhancement for abusing a position of trust, U.S.S.G. 3B1.3, The Eighth Circuit affirmed, upholding the finding that Rodd occupied a position of trust. As a self-employed investment advisor, Rodd was subject to no oversight except by his investors. The discretion and control he possessed over client funds adequately supported the finding. The court did not err in failing to apply a two-level acceptance-of-responsibility reduction. Rodd took his case to trial and denied his guilt to the end. View "United States v. Rodd" on Justia Law

In 2010, a West Virginia federal judge ordered Patriot to install environmental remediation facilities at two of its mines. From October 2010 until May 2012, for accounting purposes, Patriot recorded the installation costs as capital expenditures. After corresponding with the Securities and Exchange Commission about this accounting treatment, Patriot restated its financial documents in 2012 to recognize the installation costs as expenses. The restatement caused Patriot’s asset retirement obligation expense and net loss to increase by $49.7 million for 2010 and $23.6 million for 2011. Patriot’s share priced dropped. The company filed for bankruptcy. A securities fraud class action was filed on behalf of all persons who acquired Patriot securities between October 2010, and July 2012, alleging violations of sections 10(b), 20(a), and 20(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78a and SEC Rule 10b–5, against Patriot’s former Chief Executive Officer and former Chief Financial Officer. Plaintiffs argued Defendants fraudulently capitalized the environmental facilities’ installation costs to avoid the impact expensing the costs would have on Patriot’s bottom line. The district court dismissed for failing to meet the heightened requirement for pleading scienter under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u-4. The Eighth Circuit affirmed, finding that the more compelling inference is that Defendants did not act with fraudulent intent. View "Podraza v. Whiting" on Justia Law

This case stemmed from the SEC's civil enforcement action against former infoUSA financial officers, including defendant. A jury found that defendant violated various securities laws and the district court imposed several civil penalties. Defendant subsequently appealed. The court concluded that defendant could not challenge the sufficiency of the evidence against him because he failed to file a postverdict motion under Federal Rule of Civil Procedure 50(b) after the district court denied his Rule 50(a) motion. The court also concluded that the district court did not err in admitting the testimony of the SEC's expert witness where the expert's use of the primary-purpose test as a means for applying the integrally-and-directly-related standard did not misconstrue a legal issue or alter the legal standard that defendant was required to apply as CFO. The court held, however, that it was not clear whether the jury made the finding necessary for the SEC's section 13(b)(5) of the Securities Exchange Act, 15 U.S.C. 78m(b)(5), claim and, based on the claims the SEC asserted against defendant, the bad-faith finding was unnecessary to a final resolution of the matter. Accordingly, the court vacated the conclusion that defendant violated section 13(b)(5) and the finding that defendant acted in bad faith, remanding for further proceedings. The court affirmed the case in all other respects. View "SEC v. Dean, et al." on Justia Law

Defendant pled guilty to one count of securities fraud in violation of 15 U.S.C. 78j(b), 78ff and 17 C.F.R. 240.10b-5 (Rule 10b-5). On appeal, defendant challenged his sentence of five years' imprisonment, arguing that because he had no knowledge that his conduct violated Rule 10b-5, imprisonment was not a permissible sentencing option. However, defendant had admitted to knowing the substance of Rule 10b-5, and this removed him from the protection of the no-knowledge provision. Because defendant failed to carry his burden of showing that he had no knowledge of Rule 10b-5, the court affirmed the judgment. View "United States v. Behren" on Justia Law

Plaintiff, an investor in the Fund, brought Maryland common-law claims and federal racketeering claims for violations of 18 U.S.C. 1962(c) and (d) against defendants, who were the Fund's fiduciaries. On appeal, plaintiff appealed the dismissal of his derivative claims. Applying Maryland law, the court held that demand was required on all of plaintiff's derivative claims and that the participation by directors in alleged wrongdoing was not sufficient to excuse demand. Therefore, the district court correctly dismissed plaintiff's complaint. View "Gomes v. American Century Co., et al" on Justia Law