Justia U.S. 2nd Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
IWA Forest Industry Pension Plan v. Textron Inc.
IWA filed a putative securities fraud class action against Textron, a manufacturer of aircraft and recreational vehicles, and two of its executives, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The district court dismissed the action for failure to allege any actionable misstatements.The Second Circuit vacated the portion of the district court's judgment dismissing IWA's securities fraud claims arising from the inventory statements. The court concluded that IWA sufficiently alleged the materially misleading nature of the 2018 statements at issue regarding Textron's inventory, and that Federal Rule of Civil Procedure 9(b)'s demand for particularity is satisfied in this case. The court affirmed the district court's ruling as to the other categories of statements. View "IWA Forest Industry Pension Plan v. Textron Inc." on Justia Law
Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo
Plaintiffs filed suit for fraud, rescission, conspiracy, aiding and abetting, fraudulent conveyance, and unjust enrichment alleging that defendants had misrepresented that collateral managers would exercise independence in selecting assets for collateralized debt obligations (CDOs). The district court granted summary judgment in favor of defendants.The Second Circuit affirmed and held that plaintiffs have failed to establish, by clear and convincing evidence, reliance on defendants' representations. In this case, plaintiffs based their investment decisions solely on the investment proposals their investment advisor developed; the advisor developed these detailed investment proposals based on offering materials defendants provided and on the advisor's own due diligence; plaintiffs premised their fraud claims on the advisor's reliance on defendants' representations; but New York law does not support this theory of third-party representations. The court also held that plaintiffs have failed to establish that defendants misrepresented or omitted material information for two of the three CDO deals at issue—the Octans II CDO and the Sagittarius CDO I. The court explained that defendants' representations that the collateral managers would exercise independence in selecting assets were not misrepresentations at all, and defendants did not have a duty to disclose their knowledge of the hedge fund's investment strategy because this information could have been discovered through the exercise of due care. View "Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo" on Justia Law
Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc.
Shareholders of Goldman filed a class action alleging that Goldman and several of its executives committed securities fraud by misrepresenting Goldman's freedom from, or ability to combat, conflicts of interest in its business practices. The district court certified a shareholder class, but the Second Circuit vacated the order in 2018. On remand, the district court certified the class once more. The Second Circuit affirmed and then the Supreme Court vacated and remanded because it was uncertain that the court properly considered the generic nature of Goldman's alleged misrepresentations in reviewing the district court's decision.The Second Circuit vacated the class certification order and remanded for further proceedings because it is unclear whether the district court considered the generic nature of Goldman's alleged misrepresentations in its evaluation of the evidence relevant to price impact and in light of the Supreme Court's clarifications of the legal standard. View "Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc." on Justia Law
Plumbers & Steamfitters Local 773 Pension Fund v. Danske Bank
Three pension funds filed a putative securities class action on behalf of themselves and all others who purchased Danske Bank American Depositary Receipts (ADRs), alleging that Danske Bank and several of its corporate officers made materially misleading statements about a money laundering scandal that was perpetrated through the Bank's branch in Estonia.The Second Circuit affirmed the district court's dismissal of the Funds' claims for failure to plead actionable misstatements or omissions under Federal Rule of Civil Procedure 12(b)(6). In this case, none of the misstatements or omissions identified by the Funds are actionable and the allegations do not move the claims outside the realm of corporate mismanagement and into the realm of securities fraud. View "Plumbers & Steamfitters Local 773 Pension Fund v. Danske Bank" on Justia Law
SEC v. Fowler
In this SEC enforcement action, defendant appealed the district court's judgment entered after a jury found that he recommended an unsuitable trading strategy and made unauthorized trades in customer accounts.The Second Circuit affirmed, holding that 28 U.S.C. 2462, which imposes a five-year statute of limitations on SEC enforcement actions for civil penalties, is not jurisdictional and may be tolled by the parties. The court also concluded that the SEC's suitability claim and the civil penalties imposed in this case were proper and that the other challenges on appeal are without merit. The court modified the judgment to correct one error in the amount of disgorgement. View "SEC v. Fowler" on Justia Law
Myun-Uk Choi v. Tower Research Capital, LLC
Plaintiffs, five South Korean citizens who traded a derivative financial product called KOSPI 200 futures on an overnight market of the Korea Exchange (KRX), filed suit against Tower and its CEO, alleging that, in 2012, Tower's trading of KOSPI 200 futures violated the anti-manipulation provisions of the Commodity Exchange Act (CEA).The Second Circuit affirmed the district court's grant of summary judgment on plaintiffs' CEA claims. The court concluded that the trading of KOSPI 200 futures on the KRX is not subject to the rules of the Chicago Mercantile Exchange (CME), and therefore rejected plaintiffs' contention that there is a genuine factual dispute as to whether Tower's trading was subject to the rules of the CME. The court also concluded that the district court did not abuse its discretion by excluding a report from plaintiffs' expert witness who opined that Tower's trading of KOSPI 200 futures was "subject to" the rules of the CME. The court further concluded that the district court's judgment does not contradict the court's prior ruling in this case. Finally, the court concluded that the district court properly rejected plaintiffs’ public policy arguments. View "Myun-Uk Choi v. Tower Research Capital, LLC" on Justia Law
Set Capital LLC v. Credit Suisse Group AG
Set Capital filed a class action against Credit Suisse, Individual Defendants, and Janus, principally alleging that, on February 5, 2018, defendants executed a complex fraud to collapse the market for VelocityShares Daily Inverse VIX Short Term Exchange Traded Notes (XIV Notes), earning hundreds of millions of dollars in profit at their investors' expense. The district court dismissed the complaint for failure to plead a strong inference of scienter.The Second Circuit concluded that the complaint plausibly alleges a strong inference of scienter to support Set Capital's claim for market manipulation, and that it has identified actionable misstatements or omissions in the Offering Documents. However, the court agreed with the district court that the complaint does not support a strong inference that Credit Suisse and Janus acted with scienter when they failed to correct the Flatline Value during afterhours trading on February 5. Therefore, the court vacated the judgment dismissing the claims pertaining to the manipulative scheme, the alleged misstatements or omissions in the offering documents, and the corresponding liability of control persons. The court remanded those claims for further proceedings. The court affirmed the judgment dismissing the claims for failure to correct the Flatline Value, while vacating the district court's denial of leave to amend those claims. View "Set Capital LLC v. Credit Suisse Group AG" on Justia Law
In re: Synchrony Financial Securities Litigation
Plaintiffs filed suit alleging that Synchrony Financial and others involved in a December 2017 promissory note offering are liable for materially misrepresenting the scope and degree of changes to the company's underwriting practices beginning in mid-2016 and the impact these changes had on its business relationships with retail companies. The district court dismissed the case in its entirety.With one exception, the Second Circuit agreed with the district court that, from the face of the amended complaint, many allegations were too vague to constitute material misrepresentations on which a reasonable investor would rely. The court also agreed that many alleged material misstatements were properly contextualized by the total mix of publicly available information and appropriately dismissed. However, in regard to one alleged misstatement claiming that a corporate representative of Synchrony Financial publicly stated that the company had received no "pushback" from retail partners during negotiations, the court found that the alleged statement was sufficiently specific to plausibly allege a violation of the Securities Exchange Act of 1934. The court explained that because the alleged statement purported to make a factual assertion about events that had already transpired or were currently in progress, it is materially distinct from the other allegations. Furthermore, particularized allegations in the amended complaint explain how and why this statement may have been false at the time it was made. View "In re: Synchrony Financial Securities Litigation" on Justia Law
Cavello Bay Reinsurance Ltd. v. Stein
The Second Circuit affirmed the district court's dismissal of Cavello Bay's claims of securities fraud for failure to plead a domestic application of the law. The court assumed without deciding that the transaction was "domestic," and agreed with the district court that Cavello Bay's claims are predominantly foreign under Parkcentral Global HUB Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198 (2d Cir. 2014). In this case, the claims are based on a private agreement for a private offering between a Bermudan investor (Cavello Bay) and a Bermudan issuer (Spencer Capital); Cavello Bay purchased restricted shares in Spencer Capital in a private offering; and the shares reflect only an interest in Spencer Capital, and they are listed on no U.S. exchange and are not otherwise traded in the United States. The court explained that it is not enough for Cavello Bay to allege that Spencer Capital made a misstatement from New York (through defendant); planned to use the funds to invest in U.S. insurance services; had its principal place of business and CEO and directors in New York; and was managed by a U.S. company. The court concluded that the contacts that matter are those that relate to the purchase and sale of securities. View "Cavello Bay Reinsurance Ltd. v. Stein" on Justia Law
United States Securities and Exchange Commission v. Alpine Securities Corp.
The SEC filed a civil enforcement action against Alpine, a registered broker-dealer specializing in penny stocks and micro-cap securities, claiming that Alpine's failure to comply with the reporting requirements for filing Suspicious Activity Reports (SARs) violated the reporting, recordkeeping, and record retention obligations under Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 17a-8 promulgated thereunder. The district court granted in part and denied in part the SEC's motion for summary judgment and denied Alpine's motion for summary judgment.The Second Circuit affirmed the district court's judgment, holding that the SEC has authority to enforce Section 17(a) of the Exchange Act through this civil action; Rule 17a-8, which requires compliance with Bank Secrecy Act requirements, is a reasonable interpretation of Section 17(a); Rule 17a-8 does not violate the Administrative Procedure Act; the district court did not err in granting summary judgment with respect to the SARs; and, in imposing the civil penalty, the district court did not abuse its discretion. View "United States Securities and Exchange Commission v. Alpine Securities Corp." on Justia Law