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

Plaintiff brought a putative class action against defendants, alleging that defendants violated Section 10(b) and Section 20(a) of the Securities and Exchange Act of 1934, 15 U.S.C. 78u-4(b)(2)(A), by issuing a misleading press release concerning the results of a clinical trial for a drug called bapineuzumab. Plaintiff appealed from the district court's dismissal of his amended complaint with prejudice for failure to state a cause of action under Rule 12(b)(6) and denying leave to amend. The court concluded that, in the context of the full presentation of the details surrounding the study of the drug, nothing omitted from the press release rendered it false or misleading to a reasonable investor. Moreover, the court held that plaintiff offered insufficient additional allegations to cure this deficiency. Accordingly, the court affirmed the judgment of the district court. View "Kleinman v. Elan Corp., PLC" on Justia Law

Plaintiff appealed the district court's dismissal of his complaint for failure to state a viable section 16(b) disgorgement claim pursuant to the Securities Exchange Act of 1934, 15 U.S.C. 78p(b). At issue was whether the "short-swing profit rule" applied when a corporate insider sold shares of one type of stock issued by the insider's company and purchased shares of a different type of stock in that same company. The court held, absent any guidelines from the SEC, that section 16(b) did not apply to transactions of this sort involving separately traded, nonconvertible stocks with different voting rights. Accordingly, the court affirmed the judgment. View "Gibbons v. Malone" on Justia Law

Argentina appealed from permanent injunctions entered by the district court designed to remedy Argentina's failure to pay bondholders after a default in 2001 on its sovereign debt. The district court granted plaintiffs summary judgment and enjoined Argentina from making payments on debt issued pursuant to its 2005 and 2010 restructurings without making comparable payments on the defaulted debt. The court held that an equal treatment provision in the bonds barred Argentina from discriminating against plaintiffs' bonds in favor of bonds issued in connection with the restructurings and that Argentina violated that provision by ranking its payment obligations on the defaulted debt below its obligations to the holders of its restructured debt. Accordingly, the court affirmed the judgment of the district court; found no abuse of discretion in the injunctive relief; and concluded that the injunction did not violate the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. 1602-1611. However, given the need for clarity as to how the injunctions were to function, the court remanded for further proceedings. View "NML Capital, Ltd. v. The Republic of Argentina" on Justia Law

Defendant appealed from a Memorandum and Order of Restitution by the district court resentencing him to pay restitution to the victims of a massive "pump-and-dump" securities fraud scheme he and his co-conspirators designed and executed. Defendant contended, inter alia, that the district court should have released some or all of defendant's money held by the court pending his resentencing. The court held that a district court could exercise its authority under the All Writs Act, 28 U.S.C. 1651(a), to restrain a convicted defendant's funds in anticipation of sentencing. Therefore, the court affirmed the restitution order. View "United States v. Catoggio" on Justia Law

Defendants appealed from the district court's award to plaintiff, suing on behalf of an issuer of securities, the short-swing profits realized by defendants from trading in the issuer's stock in violation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78p(b). Defendants challenged plaintiff's constitutional standing to maintain the action, arguing that the proscribed trading caused no actual injury to the issuer to establish a genuine case or controversy. The court concluded that short-swing trading in an issuer's stock by a 10% beneficial owner in violation of Section 16(b) of the Act caused injury to the issuer sufficient for constitutional standing. Accordingly, the court affirmed the judgment. View "Donoghue v. Bulldog Investors General Partnership" on Justia Law

The SEC filed a civil enforcement action against defendants alleging insider trading in violation of section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5. The SEC alleged that Defendant Strickland learned material non-public information in the course of his employment and revealed it to Defendant Black, his friend and hedge fund employee, and that Black in turn relayed the information to his boss, Defendant Obus, who traded the information. The court held that the SEC's evidence created genuine issues of material fact as to each defendant's liability under the misappropriation theory and therefore summary judgment for defendants was erroneous. Accordingly, the court vacated and remanded. View "Securities and Exchange Commission v. Obus, et al." on Justia Law

Plaintiff appealed the district court's order dismissing a putative securities class action brought under sections 11, 12(a)(2), and 15 of the Securities Act of 1993, 15 U.S.C. 77k, l(a)(20, o, on behalf of all persons who acquired certain mortgage-backed certificates issued under the same allegedly false and misleading shelf registration statement, but sold in 17 separate offerings by 17 unique prospectus supplements. The court held that plaintiff had class standing to assert the claims of purchasers of certificates backed by mortgages originated by the same lenders that originated the mortgages backing plaintiff's certificates, because such claims implicated "the same set of concerns" as plaintiff's claims. The court further held that plaintiff need not plead an out-of-pocket loss in order to allege a cognizable diminution in the value of an illiquid security under section 11. Accordingly, the court affirmed in part and vacated in part the judgment of the district court and remanded with further instructions to reinstate plaintiff's sections 11, 12(a)(2), and 15 claims to the extent they were based on similar or identical misrepresentations in the Offering Documents associated with certificates backed by mortgages originated by the same lenders that originated the mortgages backing plaintiff's certificates. View "Neca-Ibew Health & Welfare Fund v. Goldman Sachs & Co." on Justia Law

National Union appealed from the district court's award of consequential damages to plaintiffs, following a jury trial, for National Union's breach of its duty to defendant plaintiffs in a securities arbitration. At issue was whether consequential damages, which were traditionally available for breach of contract claims, were also available for a claim of breach of a duty to defend an insured under Connecticut law, and if so, whether they could include damages for harm to reputation and loss of income. Absent a precedential decision from the Connecticut courts, the court certified the two issues. View "Ryan v. Nat'l Union Fire Ins." on Justia Law

Contorinis was a co-portfolio manager of the Fund, which invested in companies in the retail and personal products sectors. In 2000, Contorinis befriended Stephanou, who became an investment banker in the Mergers and Acquisitions group at UBS in 2002. Stephanou regularly provided confidential information to several friends and, in 2005, shared information about a planned acquisition with Contorinis and others. Based on a series of transactions following Stehanou’s disclosures the about and on-again, off-again acquisition, Contorinis was convicted of conspiracy to commit securities fraud and insider trading. The district court imposed a forfeiture order of $12.65 million. The Second Circuit affirmed the conviction. A challenged jury instruction adequately conveyed the definition of material, nonpublic information; the court was within its discretion in admitting evidence of contemporaneous trades by individuals who received inside information from the same source as Contorinis. The court vacated the order to forfeit gains acquired by Contorinis’s employer, but not by him.View "United States v. Contorinis" on Justia Law

Auction Rate Securities are variable-rate equity or debt instruments that pay interest or dividends at rates set by periodic auctions. ARS were used as an alternative financing vehicle and were promoted as a safe, liquid alternative to money market funds. Merrill Lynch placed support bids at the auctions. In 2006, the SEC ordered investment banks, including Merrill Lynch, to cease intervention in the ARS market in the absence of adequate disclosures and found violations of 15 U.S.C. 77q(a)(2). In 2007 Merrill Lynch discontinued placing support bids and auctions for ARS failed. Anschutz holds $18.95 million of “illiquid and severely impaired securities.” Anschutz claimed that because of the support bids, it earned less interest on its ARS that it otherwise would have earned; that it relied on the appearance of ARS liquidity manufactured by Merrill Lynch, and on previous success with similar ARS, in deciding to make purchases; and that credit agencies committed fraud in rating ARS at issue. The district court dismissed, holding that disclosures on the Merrill Lynch website, in conjunction with the SEC Order, were sufficient to apprise Anschutz of ARS support bidding practices and that Anschutz failed to allege any actionable misstatements by the rating agencies. The Second Circuit affirmed. View "Anschutz Corp. v. Merrill Lynch & Co., Inc." on Justia Law