Justia Securities Law Opinion Summaries

The case revolves around Macquarie Infrastructure Corporation and its subsidiary's business of storing liquid commodities, including No. 6 fuel oil. In 2016, the United Nations' International Maritime Organization adopted a regulation, IMO 2020, which capped the sulfur content of fuel oil used in shipping at 0.5% by 2020. No. 6 fuel oil typically has a sulfur content closer to 3%. Macquarie did not discuss IMO 2020 in its public offering documents. In 2018, Macquarie announced a drop in the amount of storage capacity contracted for use by its subsidiary's customers, partly due to the decline in the No. 6 fuel oil market, leading to a 41% fall in Macquarie's stock price.Moab Partners, L.P. sued Macquarie and various officer defendants, alleging a violation of §10(b) and Rule 10b–5. Moab argued that Macquarie's public statements were misleading as it concealed the impact of IMO 2020 on its subsidiary's business. The District Court dismissed Moab's complaint, but the Second Circuit reversed the decision, stating that Macquarie had a duty to disclose under Item 303 and that its violation could sustain Moab’s §10(b) and Rule 10b–5 claim.The Supreme Court of the United States held that the failure to disclose information required by Item 303 cannot support a private action under Rule 10b–5(b) if the failure does not render any "statements made" misleading. The Court clarified that Rule 10b–5(b) does not proscribe pure omissions, but only covers half-truths. The Court vacated the judgment of the Court of Appeals for the Second Circuit and remanded the case for further proceedings consistent with its opinion. View "Macquarie Infrastructure Corp. v. Moab Partners, L. P." on Justia Law

The case involves Francis M. Reynolds, who was convicted of three counts of obstruction of a United States Securities and Exchange Commission proceeding and one count of securities fraud. The District Court sentenced him to seven years of imprisonment plus three years of supervised release, ordered him to pay restitution to the victims of his fraud in the amount of $7,551,757, a special assessment of $400, and to forfeit $280,000 to the United States. Reynolds appealed his conviction, but he died while the appeal was pending.Reynolds was convicted in the United States District Court for the District of Massachusetts. He appealed his conviction to the United States Court of Appeals for the First Circuit. While the appeal was pending, Reynolds died. The government suggested that the court should either dismiss the appeal as moot or follow the practice of the Supreme Judicial Court of Massachusetts and dismiss the appeal as moot while instructing the District Court to add a notation in the record.The United States Court of Appeals for the First Circuit had to decide whether to apply the doctrine of abatement ab initio, which holds that when a criminal defendant dies during the pendency of a direct appeal from his conviction, his death abates not only the appeal but also all proceedings had in the prosecution from its inception. The court decided to apply the doctrine, aligning itself with other federal courts of appeals and its own past decisions. The court dismissed the appeal and remanded the case to the District Court to vacate the convictions and dismiss the indictment. The court also instructed the District Court to vacate the orders of restitution and criminal forfeiture that were imposed in this case, as well as the special assessment. View "United States v. Reynolds" on Justia Law

The case involves shareholders of Genius Brands International, Inc., a children's entertainment company, who alleged that the company violated the Securities Exchange Act of 1934 by making fraudulent statements and omissions. The shareholders claimed that Genius concealed its relationship with a stock promoter, PennyStocks.com, misrepresented its relationship with Arnold Schwarzenegger, exaggerated the frequency of its show Rainbow Rangers on Nickelodeon Jr., falsely suggested that Disney or Netflix would acquire Genius, and overstated its rights to the works of comic book author Stan Lee.The United States District Court for the Central District of California dismissed the shareholders' complaint, finding that they failed to adequately allege that Genius's representations were misleading or that they caused the shareholders' losses.On appeal, the United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court's decision. The appellate court held that the shareholders adequately alleged that Genius's representations regarding PennyStocks were misleading and that they caused the shareholders' losses with respect to the Rainbow Rangers, Disney/Netflix, and Stan Lee claims. However, the court affirmed the dismissal of the claim regarding Genius's relationship with Schwarzenegger, finding that the shareholders did not adequately allege loss causation. The case was remanded for further proceedings. View "In re Alavi v. Genius Brands International, Inc." on Justia Law

The case involves a shareholder lawsuit challenging the fairness of IAC/InterActiveCorp’s separation from its controlled subsidiary, Match Group, Inc. The plaintiffs alleged that the transaction was unfair because IAC, a controlling shareholder of Match, received benefits in the transaction at the expense of the Match minority shareholders. The defendants claimed that business judgment review applied because they followed the MFW framework, which included approval by an independent and disinterested “separation committee” and a majority of uncoerced, fully informed, and unaffiliated Match shareholders. The Court of Chancery agreed and dismissed the complaint.On appeal, the Supreme Court of Delaware concluded that in a suit claiming that a controlling shareholder stood on both sides of a transaction with the controlled corporation and received a non-ratable benefit, entire fairness is the presumptive standard of review. The controlling shareholder can shift the burden of proof to the plaintiff by properly employing a special committee or an unaffiliated shareholder vote. But the use of just one of these procedural devices does not change the standard of review. If the controlling shareholder wants to secure the benefits of business judgment review, it must follow all MFW’s requirements. The court reversed the lower court's finding that the separation committee functioned as an independent negotiating body. The case was remanded for further proceedings. View "In re Match Group, Inc. Derivative Litigation" on Justia Law

The case involves a challenge to the United States Securities and Exchange Commission's (SEC) denial of a whistleblower award. The petitioner, John Meisel, reported his suspicions about his former tenant's involvement in a Ponzi scheme, which he read about in a newspaper, to the SEC. After the SEC's successful enforcement action against the scheme's perpetrators, Meisel applied for a whistleblower award. The SEC denied his application, reasoning that Meisel's information did not contribute to the enforcement action. Furthermore, his assistance to a court-appointed receiver, who was tasked with recovering funds related to the scheme, did not qualify him for an award as the receiver was not a representative of the Commission. Meisel appealed the denial, claiming it was arbitrary and unsupported by substantial evidence.The United States Court of Appeals for the Eleventh Circuit denied Meisel’s petition for review. The court held that the SEC's denial of the whistleblower award was neither arbitrary nor capricious, nor was it unsupported by substantial evidence. The court found that the SEC had not used Meisel’s information in its enforcement action, and therefore, his information did not lead to its success. The court also held that Meisel's assistance to the receiver did not qualify him for an award because the receiver was an independent court officer, not a representative of the SEC. Lastly, the court determined that Meisel could not qualify for an award in any related actions because he did not qualify for an award in the covered action. View "Meisel v. Securities and Exchange Commission" on Justia Law

In the case involving Sorrento Therapeutics, Inc., its CEO, and its Vice President, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a securities fraud class-action case brought by lead plaintiff Andrew R. Zenoff. The plaintiff alleged that the defendants violated the Securities Exchange Act and the SEC's Rule 10b-5 by falsely claiming to have discovered a "cure" for COVID-19, resulting in a temporary surge in Sorrento's stock prices.The court held that the defendants' representations about the potential COVID-19 cure, when read in context, were not materially false or misleading. The court also found that the plaintiff failed to support the requisite strong inference of scienter, or intent to deceive, manipulate, or defraud. The court noted that Sorrento's financial difficulties and the need to raise capital did not provide a strong inference of scienter. Furthermore, the plaintiff did not provide evidence of specific stock sales or purchases that would indicate an intent to manipulate stock prices.The court found that the plaintiff's allegations did not meet the specific requirements for claims of securities fraud under the Private Securities Litigation Reform Act of 1995, which include demonstrating a material misrepresentation or omission, scienter, a connection between the misrepresentation or omission and the purchase or sale of a security, reliance upon the misrepresentation or omission, economic loss, and loss causation. The court concluded that the defendants' initial enthusiasm about the potential cure was not inherently false or misleading at the time, and the plaintiff failed to establish a strong inference of scienter. As a result, the court affirmed the lower court's dismissal of the case. View "ZENOFF V. SORRENTO THERAPEUTICS, INC., ET AL" on Justia Law

This appeal pertains to a merger between TerraForm Power, Inc. (“TerraForm”) and affiliates, officers, and other executives of Brookfield Asset Management Inc. (“Brookfield”). The plaintiffs, former TerraForm stockholders, filed a lawsuit alleging breach of fiduciary duty by the defendants. The case involves the application of the legal framework established in Kahn v. M & F Worldwide Corp. (MFW), which provides for business judgment review if certain conditions are met.The trial court dismissed the case, holding that the merger satisfied the MFW conditions, thus entitling the transaction to business judgment review rather than the more stringent "entire fairness" review. The trial court also found that the plaintiffs had failed to adequately allege coercion under MFW and had failed to adequately plead that the stockholder vote was not fully informed.On appeal, the Supreme Court of Delaware concluded that the trial court correctly dismissed the coercion claim. However, the Supreme Court disagreed with the trial court's conclusion on the disclosure issues. The Supreme Court held that it was reasonably conceivable that the proxy statement's failure to disclose certain of the special committee’s advisors’ conflicts of interest and certain management fees Brookfield anticipated from the merger was a material omission that rendered the minority stockholders' vote uninformed.Therefore, the Supreme Court reversed the trial court’s decision and held that the case should not have been dismissed. View "City of Dearborn Police and Fire Revised Retirement System v. Brookfield Asset Management Inc." on Justia Law

In 2015, Christopher Novinger and ICAN Investment Group, L.L.C. were sued by the Securities and Exchange Commission (SEC) for fraudulently offering and selling life settlement interests in violation of the Securities and Exchange Acts. As part of the settlement, Novinger and ICAN were prohibited from casting doubt on the validity of the SEC’s investigation or enforcement against them or proclaiming their innocence unless they also indicated their lack of innocence.Later, Novinger sought judicial review of the decree, claiming it violated his First Amendment rights. His motion for relief was denied by the district court, and this decision was affirmed by the United States Court of Appeals for the Fifth Circuit. Novinger then moved for a declaratory judgment under the Declaratory Judgment Act (DJA) and Federal Rule of Civil Procedure 57, essentially raising the same claims as in his initial motion. The district court again denied his motion, ruling that it was procedurally improper and that there was no change in the law or facts that called for a modification of the decrees.Novinger appealed this decision, but the Fifth Circuit ruled that it did not have jurisdiction to review a procedurally improper motion that was denied as such. The court stated that the district court's order did not change the status quo or resolve any substantive issues, and thus, it was not a final decision that could be appealed. The court also rejected the assertion that the motion for declaratory judgment could be construed as an appropriate pleading under the DJA, maintaining the distinction between a pleading as an initial filing in a case and a motion as a subsequent filing. The appeal was dismissed for lack of jurisdiction. View "SEC v. Novinger" on Justia Law

This case arose from a Securities & Exchange Commission (SEC) enforcement action against Mohammed Ali Rashid, a former senior partner at the private equity firm Apollo Management L.P. Rashid was accused of breaching his fiduciary duties to the Apollo-affiliated private equity funds he advised by submitting fraudulent expense reports, which were eventually paid by the funds. The district court held that Rashid was not liable under § 206(1) of the Investment Advisers Act because he was not aware that the funds, rather than Apollo, would pay for his expenses. However, the court found Rashid liable under § 206(2) of the Act, concluding he was indifferent and therefore negligent as to which entity would pay for his expenses.The United States Court of Appeals for the Second Circuit reversed the district court's decision. The appellate court held that it was not reasonably foreseeable to Rashid that the funds would pay for his expenses, concluding that Rashid did not breach his duty of care to the funds or proximately cause their harm. The court noted that while Rashid's actions were serious and likely criminal, they did not constitute fraud against the funds as required under § 206(2) of the Investment Advisers Act. The court also found that Rashid did not breach his duty of care to the funds, as he could not have reasonably known that the funds would cover his expenses. The court concluded that Rashid did not proximately cause the funds' harm, as Apollo's intervening actions in overbilling the funds were not reasonably foreseeable to Rashid. View "SEC v. Rashid" on Justia Law

The case involves a group of plaintiffs who used the online cryptocurrency exchange, Binance, to purchase crypto-assets known as "tokens". They allege Binance violated the Securities Act of 1933 and the "Blue Sky" securities laws of various states by selling these tokens without registration. They also sought to rescind contracts they entered into with Binance under the Securities and Exchange Act of 1934, alleging Binance contracted to sell securities without being registered as a securities exchange or broker-dealer.The United States District Court for the Southern District of New York dismissed the plaintiffs' claims as impermissible extraterritorial applications of these statutes and also dismissed their federal claims as untimely. However, the United States Court of Appeals for the Second Circuit reversed this decision. The appellate court found that the plaintiffs had adequately alleged that their transactions on Binance were domestic transactions, thereby making the application of federal and state securities laws permissible. The court also concluded that the plaintiffs' federal claims did not accrue until after they made the relevant purchases, and therefore their claims arising from purchases made during the year before filing suit were timely.This case is significant as it addresses the application of federal and state securities laws to transactions involving cryptocurrencies, and the extraterritorial reach of these laws in the context of online cryptocurrency exchanges. View "Williams v. Binance" on Justia Law