Justia U.S. 2nd Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
Gamm v. Sanderson Farms, Inc.
The Second Circuit affirmed the district court's grant of defendants' motion to dismiss the complaint for failure to plead, with the requisite particularity, securities fraud under Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. In light of the Private Securities Litigation Reform Act (PSLRA) and binding circuit precedent, the court held that the district court correctly dismissed the complaint. The court held that the law is well established that a party, when making securities fraud allegations on information and belief, must plead material misstatements and omissions with particularity. The court further clarified that if statements were rendered false or misleading through the nondisclosure of illegal activity, the facts of those underlying illegal acts must also be pleaded with particularity. In this case, the complaint alleged that defendants, producers of chicken, engaged in an illegal antitrust conspiracy, the nondisclosure of which rendered various statements and SEC filings false and misleading. The court held that plaintiffs have failed to allege the details of the underlying antitrust conspiracy with particularity. View "Gamm v. Sanderson Farms, Inc." on Justia Law
Kilgour v. SEC
Petitioners challenged the SEC's denial of whistleblower awards following a $50 million settlement the SEC reached with Deutsche Bank AG. The Second Circuit denied the petitions for review, holding that it was not arbitrary or capricious for the SEC to conclude that Petitioner Doe's submissions did not provide "original information to the Commission that led to" a successful enforcement action, because Doe's submissions were not used by the Deutsche Bank team. Therefore, the SEC was not equitably estopped from denying Doe's award. The court also held that the SEC did not violate Doe's due process rights by failing to provide Doe with certain materials, and the SEC did not act arbitrarily or capriciously by favoring Claimant 2's submissions over Doe's. Furthermore, petitioners were not entitled to an award for the information they submitted in their Form TCR. Finally, the court held that petitioners' remaining claims were without merit. View "Kilgour v. SEC" on Justia Law
Daly v. Citigroup Inc.
Plaintiff filed suit against Citigroup, alleging gender discrimination and whistleblower retaliation claims under several local, state, and federal statutes, including the Dodd‐Frank and Sarbanes‐Oxley Acts. The Second Circuit affirmed the district court's judgment and held that the district court appropriately compelled arbitration of all but plaintiffʹs Sarbanes‐Oxley claim, including her Dodd‐Frank whistleblower retaliation claim, because her claims fall within the scope of her employment arbitration agreement and because she failed to establish that they are precluded by law from arbitration. The court also held that plaintiff's Sarbanes‐Oxley claim was properly dismissed because the district court lacked subject matter jurisdiction over it inasmuch as plaintiff failed to exhaust her administrative remedies under the statute. View "Daly v. Citigroup Inc." on Justia Law
Edwards v. Sequoia Fund, Inc.
Plaintiffs appealed the district court's dismissal of their claims against Sequoia Fund, alleging that Sequoia Fund breached a contractual obligation not to concentrate its investments in a single industry. The Second Circuit agreed with the district court's alternative holding and affirmed the judgment. The court assumed, without deciding, that plaintiffs plausibly alleged the existence of a contract that included the Concentration Policy as an enforceable term that could not be changed without a shareholder vote. Even assuming the existence of a binding contract, however, the court held that plaintiffs failed to plausibly allege a breach. In this case, because the SEC's 1998 Guidance ‐‐ and by extension the Concentration Policy ‐‐ allows for the passive increases at issue, plaintiffs have failed to allege a violation of the Concentration Policy. View "Edwards v. Sequoia Fund, Inc." on Justia Law
FIH, LLC v. Foundation Capital Partners, LLC
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
Metropolitan Life Insurance Co. v. Bucsek
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
SEC v. Rajaratnam
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
Singh v. Cigna Corp.
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
Levy v. BASF Metals, Ltd.
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
Olagues v. Perceptive Advisors LLC
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