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

Plaintiffs, participants in retirement plans offered by defendants and covered by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq., appealed from a judgment dismissing their ERISA class action complaint. Plan documents required that a stock fund consisting primarily of Citigroup common stock be offered among the plan's investment options. Plaintiffs argued that because Citigroup stock became an imprudent investment, defendants should have limited plan participants' ability to invest in it. The court held that plan fiduciaries' decision to continue offering participants the opportunity to invest in Citigroup stock should be reviewed for an abuse of discretion and the court found that they did not abuse their discretion here. The court also held that defendants did not have an affirmative duty to disclose to plan participants nonpublic information regarding the expected performance of Citigroup stock and that the complaint did not sufficiently allege that defendants, in their fiduciary capacities, made any knowing misstatements regarding Citigroup stock. Accordingly, the court affirmed the judgment.

Plaintiffs appealed from a dismissal of their complaint, which sought a declaratory judgment that, inter alia, the Financial Industry Regulatory Authority, Inc. (FINRA) lacked the authority to bring court actions to collect disciplinary fines as imposed. The court held that the heavy weight of evidence suggested that Congress did not intend to empower FINRA to bring court proceedings to enforce its fines and that the 1990 Rule Change did not authorize FINRA to judicially enforce the collection of its disciplinary fines.

UBS appealed the denial of their motion for a preliminary injunction enjoining defendants from proceeding with an arbitration before the Financial Industry Regulatory Authority (FINRA), and alternatively requiring that the arbitration proceed in New York County. In the arbitration, defendants sought damages for UBS's alleged fraud in connection with defendants' issuances of auction rate securities. The court held that defendants were entitled to arbitration because they became UBS's "customer" under FINRA's rules when they undertook to purchase auction services from UBS. The court also held that the enforceability of the forum selection clause was a procedural issue for FINRA arbitrators to address and that the district court lacked jurisdiction to resolve it.

This case arose out of the attempts of two federal agencies to disgorge funds from Janet Schaberg, the ex-wife of alleged Ponzi-scheme artist Stephen Walsh. Schaberg subsequently appealed from a memorandum decision and orders of the district court granting preliminary injunctions freezing Schaberg's assets. In response to certified questions, the New York Court of Appeals held that (a) proceeds of a fraud could constitute marital property, and (b) when part or all of the marital estate consisted of the proceeds of fraud, that fact did not, as a matter of law, preclude a determination that a spouse paid fair consideration according to the terms of New York's Debtor and Creditor Law section 272. The court held that because those rulings undermined the key legal assumptions supporting the preliminary injunctions, the court vacated those orders, without prejudice to further proceedings applying the legal principles pronounced by the New York Court of Appeals.

Defendant, James Gansman, appealed from a judgment convicting him of insider trading under the so-called "misappropriation theory." At issue was whether the district court erred in declining to adopt an instruction proposed by Gansman setting forth a theory of the defense based in part on SEC Rule 10b5-2, 17 C.F.R. 240.10b5-2. The court held that Gansman was entitled to assert a defense theory that he did not have the requisite intent to commit securities fraud, and that in defining the nature of his relationship with Donna Murdoch, a woman with whom he was having an affair, to the jury, he had the right to use language found in Rule 10b5-2. The court held that, nevertheless, Gansman was not entitled to a new trial in the circumstances presented because the slightly modified instruction given by the district court was legally sufficient. Gansman raised a number of other challenges to his conviction, all of which were without merit. Accordingly, the court affirmed the judgment of the district court.

This case arose when plaintiff filed a putative class action complaint against defendant and others following the decline of defendant's stock price. At issue was whether certain statements concerning goodwill and loan loss reserves in a registration statement of defendant's gave rise to liability under sections 11 and 12 of the Securities Act of 1933, 15 U.S.C. 77a et seq. The court held that the statements in question were opinions, which were not alleged to have falsely represented the speakers' beliefs at the time they were made. Therefore, the court affirmed the judgment of the district court.

This case stemmed from appellant's participation in the Bayou Hedge Fund Group (Bayou), a classic Ponzi scheme masked as a group of domestic and offshore hedge funds. Appellant appealed from his sentencing, following a plea of guilty to misprision of felony in violation of 18 U.S.C. 4. At issue was whether the district court's order of restitution in the amount of $60 million was improper because it relied on events occurring outside the relevant time period and the putative victims' losses were neither directly nor proximately caused by his actions as required by the Mandatory Victims Restitution Act of 1996 (MVRA), 18 U.S.C. 3663A. The court found no error, much less plain error, in the district court's use of appellant's fraudulent 2003 faxes at sentencing. The court also found no error in the district court's conclusion that appellant's failure to report the Bayou fraud was both the direct and the proximate cause of the victim investors' losses. Accordingly, the judgment was affirmed.

Former investors with Bernard L. Madoff appealed from an order entered by the United States Bankruptcy Court in the liquidation proceedings of Bernard L. Madoff Investment Securities LLC under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa et seq. At issue was whether the Net Investment Method the trustee selected for carrying out his responsibilities under SIPA was legally sound under the language of the statutes. The court held that the trustee's determination as to how to calculate "net equity" under SIPA was legally sound in light of the circumstances of the case and the relevant statutory language. Accordingly, the court affirmed the order of the bankruptcy court.

This was a consolidated appeal from, inter alia, an order of the district court lifting an asset freeze for the purpose of authorizing the interlocutory sale of a vacation home owned by relief-defendant Lynn A. Smith. The magistrate judge held in relevant part that the sale was necessary to preserve the value of the asset pending resolution of the merits of the action. The court held that there was no error in this finding and held that it was not an abuse of discretion to lift the asset freeze in order to authorize the sale. Accordingly, the court affirmed the judgment of the district court.

Petitioner, a former stockbroker, sought review of an order of the Securities and Exchange Commission (SEC), which found that he willfully violated the antifraud provisions of the Securities and Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78j(b), 17 C.F.R. 240.10b-5, by orchestrating a scheme that allowed certain customers to engage in late trading of mutual funds, and that he aided and abetted and caused the failure of his firm to keep accurate books and records, in violation of the Exchange Act's recordkeeping requirements. At issue was whether the SEC's order, which barred petitioner from working in the securities industry, issued a cease and desist order against him, ordered him to disgorge his unjust enrichment amount plus interest, and imposed a civil penalty, should be vacated. The court denied the petition and affirmed the SEC's order because petitioner's conduct clearly violated the Exchange Act's antifraud and recordkeeping provisions and because the penalties imposed by the SEC were not unreasonable.