Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

This derivative action arose out of the London Whale trading debacle. Plaintiff, a JPMorgan shareholder, filed suit seeking to compel JPMorgan to take action, up to and including suing the alleged wrongdoers. The district court dismissed the complaint, finding that plaintiff had not pleaded facts showing that the JPMorgan Board of Directors had wrongfully refused the demand for action. The court noted that the abuse‐of‐discretion standard of review for the dismissal of derivative action cases should be retired, and that dismissals of derivative actions should be reviewed under the same de novo standard that the court followed in all other similarly situated cases. However, because the court is bound by the rule of the Circuit, the court concluded that the district court did not abuse its discretion by dismissing this derivative action. Accordingly, the court affirmed the judgment. Finally, the district court did not err by denying plaintiff an opportunity to amend his complaint. View "Espinoza v. Dimon" on Justia Law

Plaintiffs are individuals and entities that purchased shares in the Kingate funds and continued to hold their shares until the 2008 exposure of the Bernie Madoff Ponzi scheme, resulting in loss most of the funds’ assets. A purported class action was filed against persons and entities affiliated with the funds. The district court dismissed, citing the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227, which bars certain state‐law‐based class actions alleging falsity in connection with transactions in six categories of “covered securities.” The Second Circuit vacated, noting the Supreme Court’s intervening ruling in Chadbourne & Parke LLP v. Troice, (2014). The alleged fraud in this case is “in connection with the purchase or sale of a covered security” and brings the case within SLUSA’s prohibition (assuming SLUSA’s 12 other elements are met). The state law claims that do not depend on false conduct are not within the scope of SLUSA, even if the complaint includes peripheral, inessential mentions of false conduct. Claims accusing the defendant of complicity in the false conduct that gives rise to liability are subject to SLUSA’s prohibition, while claims of false conduct in which the defendant is not alleged to have had any complicity are not. View "In re: Kingate Mgmt. Ltd. Litig." on Justia Law

Financial Guaranty Insurance Company (FGIC) sued Putnam Advisory for fraud, negligent misrepresentation, and negligence, claiming that Putnam misrepresented its management of a collateralized debt obligation called Pyxis to induce FGIC to provide financial guaranty insurance for Pyxis. According to FGIC’s complaint, Putnam stated that it would select the collateral for Pyxis independently and in the interests of long investors (i.e., investors who profit when the investment succeeds), but in fact permitted the collateral selection and acquisition process to be controlled by a hedge fund that maintained significant short positions in Pyxis (i.e., investments that would pay off if Pyxis defaulted). Essentially, FGIC alleged that Putnam misrepresented the independence of its management of a structured finance product, which, upon default, caused FGIC millions of dollars in losses. The district court dismissed FGIC’s fraud claim on the ground that the complaint did not adequately plead loss causation and dismissed FGIC’s negligence claims on the ground that the complaint failed to allege a special or privity‐like relationship between FGIC and Putnam. The Second Circuit vacated, holding that FGIC sufficiently alleged both its fraud and negligence‐based claims. View "Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC" on Justia Law

In a putative securities class action, investors who purchased or acquired American Depository Shares (ADSs) of The Royal Bank of Scotland (RBS), alleged that RBS and several of its top executives made false and misleading statements that inflated the ADSsʹ prices, in violation of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), 78t(a), and Rule 10b‐5, 17 C.F.R. 240.10b‐5. RBS had experienced rapid growth by repackaging residential subprime mortgages and leveraged loans into residential mortgage backed securities, collateralized debt obligations, and collateralized loan obligations. The housing market bubble burst in 2006, mortgage delinquencies soared, and subprime assets lost much of their value. The district court dismissed and denied plaintiffsʹ motions for reconsideration, to alter or amend the judgment, and for leave to amend. The Second Circuit affirmed, finding that many of the statements at issue were “inactionable puffery.” In light of the total mix of information available to the reasonable investor, RBSʹs statements were not a basis for a securities fraud claim. View "IBEW Local Union v. Royal Bank of Scotland" on Justia Law

The district court dismissed a suit brought by Sanderson, individually and on behalf of all others similarly situated, alleging that auditors (defendants) committed securities fraud by falsely representing that they performed their audits of Advanced Battery Technologies in accordance with professional standards and that the company’s filings accurately reflected its financial condition from the 2007 through the 2010 fiscal years. The court found that the complaint failed adequately to plead scienter as required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u‐4. Sanderson sought to correct these deficiencies by moving to file an amended complaint. The court denied the motion, concluding that even the new allegations failed to “rise to the level of recklessness.” The Second Circuit affirmed, finding that the factual allegations did not give rise to a strong inference of either fraudulent intent or conscious recklessness, rather than mere negligence. View "In re: Advanced Battery Techs., Inc." on Justia Law

Between 2004 and 2009, Stryker submitted information to the Securities and Exchange Commission’s Enforcement Division regarding alleged wrongdoing by ATG and an involved individual. In 2009, the SEC opened an investigation and interviewed Stryker. The SEC subsequently filed an enforcement action against ATG and the individual, charging them with violating Section 5 of the Securities Act of 1933. In 2010, the SEC reached a settlement with the respondents to the enforcement action. The district court approved the settlement, whereby ATG and the individual were held liable for more than $19 million. In 2011, Stryker sought a whistleblower award under Section 21F of the Dodd-Frank Act, 15 U.S.C. 78u-6, based on the successful enforcement action. The SEC denied the award because the information was submitted before enactment of Dodd-Frank. The Second Circuit affirmed, concluding that the SEC’s interpretation was within its authority and consistent with the legislation. View "Stryker v. Secs. & Exch. Comm'n" on Justia Law

Claimants, former investors of BLMIS, asked that the appointed trustee for the liquidation of BLMIS adjust their proportional share of customer property to reflect inflation and one claimant also asks for an interest adjustment, to reflect the time-value of money. The bankruptcy court upheld that trustee's determination that no adjustment for inflation or interest could be made. The court agreed, holding that the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa, et seq., does not permit an inflation or interest adjustment to "net equity" claims for customer property. Accordingly, the court affirmed the bankruptcy court's order approving the trustee's adjusted net equity calculation and overruling claimants' objections. View "Securities Investor Protection Corp. v. 2427 Parent Corp." on Justia Law

Plaintiffs petitioned for rehearing from the court's summary order and from the opinion filed the same day. The complaint alleged that Bear Stearns was liable as the clearing broker for Baron's fraud. The court reaffirmed its holding that Bear Stearns' conduct as alleged in the Amended Complaint is not sufficient to state a claim for relief under Section 10(b) and Rule 10(b)(5) of the Securities Exchange Act, 15 U.S.C. 78j, 17 C.F.R. 10b-5. Therefore, the petition for panel rehearing with respect to Bear Stearns is denied. The court next addressed the SEC's arguments made in an amicus brief. The court concluded that plaintiffs' and the SEC's concerns that the court's opinion disregarded ATSI Commc'ns, Inv. v. Shaar Fund, Ltd. are wholly unfounded. The facts alleged in this complaint do not involve any ongoing market affected by false pricing signals by Isaac Dweck. Rather, they involve misrepresentations to the victims by Baron salespeople as to how the price they were charging for particular securities was arrived. There is no presumption of reliance based on any identifiable market, and given the lack of an allegation that any plaintiff knew of the stock parking or prices used therein, no allegation of reliance upon the parking transactions at issue. View "Fezzani v. Bear, Stearns & Co." on Justia Law

Plaintiffs filed suit under Sections 10(b) and 20(a) of the Securities and Exchange Act, 15 U.S.C. 78j(b) and 78t(a), alleging that Morgan Stanley and six of its officers and former officers made material misstatements and omissions during the class period in an effort to conceal the company's exposure to and losses from the subprime mortgage market. The district court dismissed all claims for failure to state a claim. The court affirmed, concluding that the district court properly dismissed plaintiffs' claim that defendants' omission of information purportedly required to be disclosed under Item 303 of Regulation S-K, 17 C.F.R. 229.303(a)(3)(ii), violated Section 10(b). The court also affirmed the district court's order dismissing plaintiffs' other claims in a summary order issued simultaneously with this decision. View "Fjarde AP-Fonden v. Morgan Stanley" on Justia Law

Plaintiffs, pension funds, filed suit, seeking to hold BNYM responsible for the losses allegedly caused by Countrywide's breach of its representations and warranties in connection with 530 residential mortgage-backed securities (RMBS) created between 2004 and 2008 for which BNYM acts as trustee. The court affirmed the portion of the district court's order dismissing plaintiffs' claims related to the trusts in which they did not invest for lack of standing because plaintiffs' claims do not implicate the "same set of concerns" as those of absent class members who purchased certificates issued by trusts in which no named plaintiff invested; reversed the portion of that order denying BNYM's motion to dismiss plaintiffs' Trust Indenture Act (TIA), 15 U.S.C. 77aaa-77aaaa, claims related to the PSA-governed (pooling and servicing agreements) New York trusts where the New York certificates at issue are exempt from section 304(a)(2) of the TIA; and the court remanded in part for further proceedings. View "Retirement Board v. Bank of New York Mellon" on Justia Law