Articles Posted in Securities Law

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Standing alone, a general disclaimer (still less a general merger clause) is not sufficient as a matter of law to preclude reasonable reliance on material factual misrepresentations, even by a sophisticated investor. FIH appealed the district court's grant of summary judgment dismissing federal securities law claims against defendants. The district court concluded as a matter of law that FIH could not have reasonably relied on the alleged misrepresentations, because such reliance was precluded by a general merger clause in Foundation's agreement, incorporated by reference into the subscription agreements by which FIH had invested in Foundation. However, the Second Circuit held that the merger clause did not as a matter of law preclude FIH's reasonable reliance on the alleged misrepresentations. The court also held that the district court did not err nor abuse its discretion in excluding as untimely an expert report. Accordingly, the court vacated the judgment and remanded for further proceedings. View "FIH, LLC v. Foundation Capital Partners, LLC" on Justia Law

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The Second Circuit affirmed the district court's order granting MetLife a preliminary injunction barring defendant from arbitrating his claims before the Financial Industry Regulatory Authority (FINRA). The court held that the district court did not err in holding that the question of whether MetLife was obligated to arbitrate the dispute was to be decided by the court, rather than the arbitrator. Furthermore, the district court did not err by holding that MetLife was not required by the FINRA arbitration code to arbitrate claims arising out of events that occurred long after MetLife's withdrawal from FINRA's predecessor, the National Association of Securities Dealers (NASD). The court held that the arbitration code did not apply to a dispute based on events that occurred years after the parties had severed their connections with the NASD. In this case, the court found nothing in the Code that clearly and unmistakably evidenced a contractual intent to confer resolution of arbitrability on the arbitrators for a claim such as defendant's, which was based on facts long subsequent to the parties' involvement in the NASD. View "Metropolitan Life Insurance Co. v. Bucsek" on Justia Law

Posted in: Securities Law

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The Second Circuit affirmed the district court's order requiring defendant to pay a civil penalty of almost $93 million in a civil suit brought by the SEC. Defendant was the managing general partner and portfolio manager of Galleon Management and its affiliated hedgefunds. Defendant was found to have executed trades in Galleon's accounts and in the account of Rajiv Goel, an Intel executive who had provided tips to defendant, in the stock of five companies on the basis of inside information. The court held that a plain reading of Section 21A(a)(2) of the Securities and Exchange Act indicates that it permits a civil penalty to be based on the total profit resulting from the violation. In this case, defendant executed Galleon's and Goel's illegal trades and thus his civil penalty could be calculated under subsection (a)(2) based on the profit gained or loss avoided as a result of defendant's unlawful purchases and sales. The court also held that the district court did not abuse its discretion by determining that every factor in SEC v. Haligiannis, 470 F. Supp. 2d 373, 386 (S.D.N.Y. 2007), favored the use of a treble penalty. View "SEC v. Rajaratnam" on Justia Law

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The Second Circuit affirmed the district court's dismissal of a class action alleging violations of federal securities laws by Cigna and its officers. Plaintiffs alleged that certain of defendants' statements were materially misleading, constituting fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The court held that the statements were not materially misleading, because they were tentative and generic, emphasizing the complex and evolving regulatory environment Cigna faced. Therefore, plaintiffs failed to plausibly allege that a reasonable investor would view these statements as having significantly altered the total mix of information made available. In this case, the statements at issue in Cigna's Code of Ethics were a textbook example of puffery, and a reasonable investor would not rely on the 2013 and 2014 Form 10-K statements as representations of satisfactory compliance. View "Singh v. Cigna Corp." on Justia Law

Posted in: Securities Law

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The Second Circuit affirmed the district court's dismissal of plaintiff's second amended complaint, alleging claims under the Commodities Exchange Act, the Racketeer Influenced and Corrupt Organizations Act, the Sherman Act, and New York law related to alleged manipulation of the platinum futures market. At issue in this appeal were the Commodities Exchange Act claims. The court held that the Commodities Exchange Act claims accrued when plaintiff discovered her injury in 2008, not when she discovered the manipulation scheme she alleged or the identity of defendants. Therefore, the claims were time-barred because the limitations period on those claims expired in 2010, well before she filed her lawsuit. View "Levy v. BASF Metals, Ltd." on Justia Law

Posted in: Securities Law

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Plaintiffs filed a derivative action under Section 16(b) of the Securities Exchange Act of 1934 against Perceptive, seeking to require the company to disgorge profits from writing call options on shares of Repros that later expired. The Second Circuit affirmed the district court's grant of Perceptive's motion to dismiss the complaint, holding that, under the plain text of 17 C.F.R. 240.16b6(d) and the congressional purpose of Section 16(b), the statement that liability attaches "upon the cancellation or expiration of [the] option" to mean that there could be liability only if Perceptive owned more than 10 percent of Repros shares at the moment when the calls actually expired. In this case, because the puts were exercised—resulting in Perceptive's sale of most of its Repros shares—prior to the expiration of the calls, the expiration of the calls did not trigger liability. View "Olagues v. Perceptive Advisors LLC" on Justia Law

Posted in: Securities Law

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Best execution claims alleging misrepresentations or omissions relating to: (1) a broker's receipt of "kickbacks" from trading venues; and (2) the execution of trades so as to take advantage of such arrangements, satisfy the third element of the Securities Litigation Uniform Standards Act of 1998 (SLUSA), by alleging securities claims based on fraudulent conduct.    The Second Circuit affirmed the district court's dismissal of plaintiff's action alleging that defendant violated its duty of best execution. The court held that the claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). In this case, plaintiff filed a covered class action based on state law claims involving covered securities; the gravamen of plaintiff's complaint was that defendant made material misrepresentations and omissions that were designed to induce clients to execute non‐directed, standing limit orders with defendant even though it allegedly had no intention of fulfilling its purported fiduciary obligations; and defendant's alleged fraudulent conduct arose in connection with the purchase or sale of covered securities. View "Rayner v. E*TRADE Financial Corp." on Justia Law

Posted in: Securities Law

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The Second Circuit vacated the district court's dismissal of a securities action based on lack of subject matter jurisdiction. In this case, the district court concluded that plaintiffs failed to sufficiently allege a "domestic transaction" under section 10(b) of the Securities Exchange Act of 1934. The court held, however, that plaintiffs plausibly alleged a domestic transaction cognizable under section 10(b) because the agreement at issue was entered into in New York and irrevocable liability was incurred in the United States. The court rejected the argument that the areement was so predominately foreign as to be impermissibly extraterritorial. Therefore, the court remanded for further proceedings. View "Giunta v. Dingman" on Justia Law

Posted in: Securities Law

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Plaintiffs filed suit for damages resulting from defendants' manipulation of natural gas trading at four regional hubs in the western part of the United States. The Second Circuit held that plaintiffs had Article III standing, but they failed to plausibly allege injury under any of their claims. In this case, plaintiffs failed to state a claim under the Commodities Exchange Act (CEA) because it was not plausible on the record that they were injured by the manipulations West Desk perpetrated. For similar reasons, plaintiffs failed to establish antitrust standing. Accordingly, the court modified the order and judgment to remove the dismissal for lack of standing and affirmed the judgment as modified. View "Harry v. Total Gas & Power North America, Inc." on Justia Law

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Plaintiff, a variable annuity policy holder, filed a putative class action in state court alleging breach of contract by an insurance company when it introduced a volatility management strategy to the policies without full compliance with state law. The case was removed to district court and then dismissed. The Second Circuit reversed and remanded, holding that a holder's passive retention of a security following a misrepresentation of which the holder is unaware lacks the "in connection with" requirement for preclusion under the Securities Litigation Uniform Standards Act (SLUSA). In this case, the alleged misrepresentation was not made in connection with the purchase or sale of a SLUSA-covered security. There was no plausible allegation in the complaint that any decision to hold a security occurred that was related in any way to AXA's disclosures to the DFS. The court remanded with instructions to remand the case to state court. View "O'Donnell v. AXA Equitable Life Ins. Co." on Justia Law

Posted in: Securities Law