Justia U.S. 2nd Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
Arkansas Public Employees Retirement System v. Bristol-Myers Squibb Co.
The Second Circuit affirmed the district court's grant of Bristol-Myers's motion to dismiss for failure to state a claim in a securities class action brought by investors. This securities class action arose from a failed clinical trial conducted to ascertain whether a cancer drug in development would be more effective than chemotherapy in treating a specific type of lung cancer. The second amended complaint alleged that the drop in stock price was attributable to the study's failure, and that Bristol-Myers had obscured the risk of such failure by declining to disclose the precise PD-L1 expression threshold in cancer cells and by misrepresenting that the study focused on patients "strongly" expressing PD-L1.The court concluded that the investors failed to adequately allege a material misstatement or omission or facts giving rise to a strong inference of scienter. In this case, rates of PDL1 expression remained a topic of research throughout the putative class period; there was no generally understood meaning of "strong" expression that contradicted Bristol-Myers’s use of the term to mean 5%; and some observers correctly predicted Bristol-Myers's use of a 5% threshold before it was publicly disclosed. Furthermore, the complaint alleges no facts indicating that Bristol-Myers had an obligation to disclose the precise threshold; Bristol-Myers cautioned the public that it would not do so; and the complaint fails to allege facts giving rise to a strong inference of scienter. View "Arkansas Public Employees Retirement System v. Bristol-Myers Squibb Co." on Justia Law
United States v. Afriyie
The Mandatory Victims Restitution Act requires defendants convicted of certain crimes to reimburse their victims for “lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense,” 18 U.S.C. 3663A(b)(4). The Second Circuit previously held that “other expenses” could include attorneys’ fees incurred by victims while helping the government investigate and prosecute the defendant and costs incurred while privately investigating the defendant. The Supreme Court subsequently held that “the words ‘investigation’ and ‘proceedings’ are limited to government investigations and criminal proceedings.”Afriyie was convicted of securities fraud after trading on inside information he misappropriated from his employer, MSD. The district court entered the restitution order, covering the fees MSD paid its law firm to guide MSD’s compliance with investigations by the U.S. Attorney’s Office and the SEC; to help prepare four MSD witnesses to testify at Afriyie’s criminal trial; and to represent MSD during the post-verdict restitution proceedings.The Second Circuit held that attorneys’ fees can sometimes be “other expenses” but a victim cannot recover expenses incurred while participating in an SEC investigation. Restitution is appropriate only for expenses associated with criminal matters; civil matters, including SEC investigations, even if closely related to a criminal case do not qualify. View "United States v. Afriyie" on Justia Law
Posted in: Criminal Law, Securities Law, White Collar Crime
In re: The Hain Celestial Group, Inc. Securities Litigation
The Second Circuit vacated the district court's grant of Hain's motion to dismiss a class action alleging securities fraud for failure to state a claim. Plaintiffs alleged that Hain violated Section 10(b) and section 20(a) of the Securities Exchange Act of 1934 by asserting in public statements that Hain's favorable sales figures were attributable to strong consumer demand for its products while failing to disclose that demand for its products was declining and that a significant percentage of sales was in fact attributable to the practice of channel stuffing.The court held that the district court erred in granting Hain's motion because the district court relied on the erroneous assumption that plaintiffs' Rule 10b-5(b) claim was contingent on plaintiffs successfully pleading a fraudulent business scheme or practice in violation of Rules 10b-5(a) or (c). The court also concluded that the district court erred in failing to consider the cumulative weight of all of plaintiffs' scienter allegations. Accordingly, the court remanded for further proceedings. View "In re: The Hain Celestial Group, Inc. Securities Litigation" on Justia Law
Altimeo Asset Mgmt. v. Qihoo 360 Technology Co. Ltd.
The Second Circuit vacated the district court's dismissal of a putative class action on behalf of investors who traded Qihoo 360 Technology securities between December 18, 2015, and July 15, 2016. The investors alleged that defendants violated the Exchange Act by, among other things, deceiving investors about the plan to relist the company. The court concluded that the allegations in the complaint were sufficient to survive a motion to dismiss on that ground. In this case, plaintiffs alleged, and provided supporting evidence, that defendants represented to shareholders that there were no plans to relist the company following a shareholder buyout, when in fact the company had such a plan at the time of the buyout. Therefore, plaintiffs adequately alleged a misstatement or omission of material fact. The court remanded for further proceedings. View "Altimeo Asset Mgmt. v. Qihoo 360 Technology Co. Ltd." on Justia Law
Securities and Exchange Commission v. Romeril
The Second Circuit affirmed the district court's order denying defendant's motion pursuant to Federal Rule of Civil Procedure 60(b)(4) for relief from judgment. In 2003, the SEC brought a civil enforcement action against defendant and, to resolve the matter, defendant consented to the entry of a final judgment against him, agreeing not to deny any of the factual allegations of the complaint. Almost 16 years later, defendant sought to invalidate the judgment on the basis that it incorporated a "gag order" that violated the First Amendment and his right to due process. The court agreed with the district court that defendant's motion fails on the merits because it does not allege either a jurisdictional or due process violation that would permit relief under Rule 60(b)(4). View "Securities and Exchange Commission v. Romeril" on Justia 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
Posted in: Contracts, Securities Law, White Collar Crime
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
Posted in: Class Action, Securities 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