Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Articles Posted in Securities Law

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The Ninth Circuit affirmed the dismissal of plaintiff's suit alleging securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, 15 U.S.C. 78j(b) and 78t(a), 17 C.F.R. 240.10b-5. Plaintiff alleged that defendants violated these statutes in connection with statements regarding Align's goodwill valuation of its subsidiary, Cadent. The Ninth Circuit held that the three standards for pleading falsity of opinion statements articulated in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, apply to Section 10(b) and Rule 10b-5 claims; plaintiff has failed to sufficiently plead falsity under any of the three Omnicare standards; plaintiff has also failed to sufficiently plead scienter; and, because plaintiff has inadequately alleged a primary violation of federal securities law, plaintiff cannot establish control person liability. View "City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align Technology" on Justia Law
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Victor Messina and International Market Ventures (IMV), challenged their liability as relief defendants in the SEC's enforcement action against Phil Ming Xu and various Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC alleged that Messina and IMV received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide, but Messina and IMV asserted that they received those funds as a loan. At issue was whether putative relief defendants may divest a district court of jurisdiction to proceed against them using summary procedures simply by asserting a claim of entitlement to the disputed funds in their possession. The court concluded that the district court properly exercised its jurisdiction to determine the legal and factual legitimacy of Messina and IMV's claim to the $5 million; the district court acted correctly under its precedent approving the invocation of relief defendant procedures in SEC enforcement actions and did not clearly err in finding that Messina and IMV had no legitimate claim to the funds; the evidence demonstrated that far more than $5 million was raised by Xu and his various entities in the United States, and the district court correctly concluded that the funds sought were proceeds of illegal activity and subject to disgorgement; and thus the district court did not abuse its discretion in later ordering disgorgement from Messina and IMV as relief defendants. Accordingly, the court affirmed the judgment. View "SEC v. Messina" on Justia Law
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This appeal relates to a last-minute addition to the anti-retaliation protections of the Dodd-Frank Act (DFA), Pub. L. No. 111-203, 124 Stat. 1376, to extend protection to those who make disclosures under the Sarbanes-Oxley Act and other laws, rules, and regulations. 15 U.S.C. 78u-6(h)(1)(A)(iii). At issue was whether, in using the term "whistleblower," Congress intended to limit protections to those who come within DFA's formal definition, which would include only those who disclose information to the SEC. If so, it would exclude those, like plaintiff here, who were fired after making internal disclosures of alleged unlawful activity. The Second Circuit, viewing the statute itself as ambiguous, applied Chevron deference to the SEC's regulation. The court agreed with the district court, and followed the Second Circuit's approach, that the regulation was consistent with Congress's overall purpose to protect those who report violations internally as well as those who report to the government. The court explained that this intent was reflected in the language of the specific statutory subdivision in question, which explicitly references internal reporting provisions of Sarbanes-Oxley and the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. Therefore, the court concluded that the SEC regulation correctly reflected congressional intent to provide protection for those who make internal disclosures as well as to those who make disclosures to the SEC. Accordingly, the court affirmed the judgment. View "Somers v. Digital Realty Trust" on Justia Law
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Sharemaster filed an application for Commission review of FINRA's final disciplinary sanction. The Commission dismissed Sharemaster's application for review, finding that it lacked jurisdiction over the matter under Section 19(d) of the Securities and Exchange Act, 15 U.S.C. 78s(d)(2), because there was no longer a live sanction for it to act upon after FINRA lifted the suspension. The court held that the Commission's interpretation of Section 19(d)(2) as limiting its review authority to final disciplinary sanctions that remain live is entitled to Chevron deference. However, the court held that the Commission unreasonably decided that the monetary penalty that FINRA imposed on Sharemaster was not a sanction and thus not a live disciplinary sanction. Accordingly, the court granted the petition for review. The court remanded to the Commission to determine whether, if Sharemaster prevails on the merits of its argument regarding the applicability of a registered-accountant requirement, the Commission may direct FINRA to reinstate Sharemaster nunc pro tunc. View "Sharemaster v. SEC" on Justia Law
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HP shareholders filed a putative class action alleging violations of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq. At issue is whether shareholders may bring a claim for securities fraud when a CEO and Chairman violates the corporate code of ethics after publicly touting the business’s high standards for ethics and compliance. The court held that Retail Wholesale, lead plaintiff in the putative class action, has failed to state a claim under the Act. The court explained that Retail Wholesale's fraud allegations must satisfy the particularity standard of Federal Rule of Civil Procedure 9(b), as well as the heightened pleading standard for securities fraud created by the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. 78u–4. In this case, the court concluded that there were no material misrepresentations or actionable material omissions. Further, even if the complaint adequately alleged the existence of a misrepresentation or a misleading omission, it would not have been actionable, as it was immaterial. Accordingly, the court affirmed the district court's dismissal of the action. View "Retail Wholesale Union v. Hewlett-Packard Co." on Justia Law
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Plaintiff filed suit against Archon, alleging breach of contract stemming from Archon's issuance of a Notice of Redemption to holders of outstanding shares of preferred stock. The court concluded that the district court properly held that it lacked federal question subject matter jurisdiction under 28 U.S.C. 1331 because plaintiff did not assert a federal claim, and the Securities Litigation Uniform Standards Act, 15 U.S.C. 77p(d)(1)(A), does not provide an independent basis for federal question jurisdiction over plaintiff's state-law claim. The court also concluded that it lacked diversity jurisdiction over the class action suit under section 1332(d)(2) because of the exception provided in section 1332(d)(9)(C). Finally, the court concluded that the district court properly held that it lacked diversity jurisdiction over plaintiff's individual claim under section 1332(a) and therefore could not exercise section 1367 supplemental jurisdiction over the class members’ claims. Accordingly, the court affirmed the district court's dismissal of the complaint. View "Rainero v. Archon Corp." on Justia Law

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Plaintiff filed a putative securities class action against defendants in connection with public statements made about Arena’s weight-loss drug, lorcaserin. When Arena filed its application with the FDA, the FDA’s advisory panel published a briefing document that disclosed, for the first time, that Arena had been in a “highly unusual” back-and-forth with the FDA regarding the results of cancer studies on rats (the “Rat Study”). Plaintiff filed suit after news of the Rat Study broke. The district court dismissed the First, Second, and Proposed Third Amended Complaints. The court agreed that once defendants touted the safety and likely approval of the drug based on animal studies, defendants were obligated to disclose the Rat Study's existence to the market. The court concluded that plaintiff has alleged scienter with sufficient particularity to survive a motion to dismiss. In this case, there is no question that plaintiff has alleged that defendants knew that the Rat Study existed, that defendants knew that the FDA’s request for bi-monthly reports and follow-up studies was highly unusual and out-of-process, and defendants went ahead and told investors about their confidence in lorcaserin’s approval based on preclinical animal studies. Therefore, the court concluded that plaintiff has properly pleaded scienter under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-4. The court reversed and remanded. View "Schwartz v. Arena Pharmaceuticals, Inc." on Justia Law

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The SEC filed suit against Peter Jensen and Thomas Tekulve, the former Chief Executive Officer and Chief Financial Officer of the now-defunct Basin Water, Inc., alleging that they had participated in a scheme to defraud Basin investors by reporting millions of dollars in revenue that were never realized. On appeal, the SEC challenged the district court's judgment in favor of defendants. The court reversed the district court’s rulings interpreting Rule 13a–14 of the Securities Exchange Act (Exchange Act), 17 C.F.R. 240.13a-14, and Section 304 of the Sarbanes-Oxley Act (SOX 304),15 U.S.C. 7201 et seq. The court concluded that Rule 13a–14 provides the SEC with a cause of action not only against CEOs and CFOs who do not file the required certifications, but also against CEOs and CFOs who certify false or misleading statements. The court also concluded that the disgorgement remedy authorized under SOX 304 applies regardless of whether a restatement was caused by the personal misconduct of an issuer’s CEO and CFO or by other issuer misconduct. The court reversed the district court’s bench trial order, vacated the judgment, and remanded for a jury trial, concluding that the SEC was entitled to a jury trial and did not consent to Jensen and Tekulve’s withdrawal of their jury demand. Nor did the SEC waive its right to a jury trial when it objected consistently and repeatedly before trial to the district court’s decision to hold a bench trial. The court approved the district court’s grant of defendants’ motion in limine to exclude evidence about the injunction against Basin’s Director of Finance. Accordingly, the court vacated and remanded. View "SEC v. Jensen" on Justia Law
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The NCUA filed suit under the Securities Act of 1933, 15 U.S.C. 77a et seq., against Wachovia and Nomura for making false and misleading statements in their offerings of residential mortgage-backed securities (RMBS) purchased by Wescorp. The district court dismissed the claims, ruling that 12 U.S.C. 1787(b)(14) (the Extender Statute) did not supplant the statute of repose contained within 15 U.S.C. 77m, and therefore that the NCUA’s claims were time-barred. The court concluded that the district court erred in holding that the Extender Statute does not supplant the 1933 Act's statute of repose. The court held that the Extender Statute replaces all preexisting time limitations - whether styled as a statute of limitations or a statute of repose - in any action by the NCUA as conservator or liquidating agent. The court further held that the Extender Statute’s scope - “any action brought by the [NCUA]” - includes actions such as this one, in which the NCUA asserts statutory claims rather than common law tort or contract claims. Because the court concluded that NCUA claims were timely filed, the court vacated and remanded the district court's dismissal of the claims as time-barred. View "NCU Admin. Bd. v. Nomura Home Equity Loan" on Justia Law
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ESG was a group of investors formed to purchase pre-Initial Public Offering (pre-IPO) Facebook shares. ESG’s managing agent negotiated the purchase with a man he believed to be "Ken Davis." "Ken Davis" was an alias for Troy Stratos, an alleged con artist. Venable represented "Dennis" in the Facebook deal, which is the subject of this securities fraud suit. After learning that ESG had been defrauded, managing agent Burns panicked and hid the news from ESG. ESG claims it did not learn of the alleged fraud and that their money had been stolen until November 2012. ESG filed suit against Stratos and Venable and attorney Meyer on March 6, 2013, alleging eight causes of action. The district court dismissed ESG's complaint, and subsequently the first amended complaint (FAC), with prejudice. The court held that ESG's federal securities fraud claim is sufficiently pled under FRCP 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. 78j(b), 17 C.F.R. 240.10b–5; ESG's state law fraud claim, which parallels the federal securities fraud claim, is sufficiently pled under FRCP 9(b); ESG’s nonfraud state law claims for conversion, unjust enrichment, unfair competition, aiding and abetting fraud, and conspiracy to commit fraud are sufficiently pled under FRCP 8(a)(2); and ESG's breach of fiduciary duty claim is barred by Cal. Civ. Proc. Code 340.6's one-year statute of limitations. Finally, the court concluded that neither the aiding and abetting fraud claim nor the conspiracy to commit fraud claim is barred by Cal. Civ. Code 1714.10’s Agent’s Immunity Rule. Accordingly, the court affirmed in part, reversed in part, and remanded. View "ESG Capital Partners v. Venable LLP" on Justia Law
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