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

Appellants alleged they were not “brokers,” and thus did not have to register with the SEC because their client called the shots. Appellants appealed the district court’s liability and remedies orders. The Ninth Circuit affirmed the district court’s judgment in favor of the SEC in its enforcement action against Appellants alleging violations of the Securities Exchange Act of 1934.   The panel held that under the Exchange Act, the term “broker” encompassed much broader conduct: it included any person trading securities “for the account of others.” 15 U.S.C. Section 78c(a)(4)(A). Because Appellants put their client’s capital at risk on their trades and acted as his agents, they behaved as “brokers” under the Exchange Act. By not registering as brokers with the SEC, Appellants appeared as if they were merely retail investors (who receive priority for municipal bonds), allowing them to circumvent municipal bond purchasing order priority. The panel affirmed the civil penalties imposed against Appellants. Though it appears that no individual investor suffered financial harm, Appellants’ conduct undermined the SEC’s system of broker-dealer oversight and circumvented retail priority regulations allowing municipalities to raise capital at the lowest possible price. View "USSEC V. JOCELYN MURPHY, ET AL" on Justia Law

NMS Capital Group, LLC, which was wholly owned by Petitioner purchased MCA Securities, LLC, and changed its name to NMS Capital Securities. MCA, now NMS Securities, was a member of FINRA, a securities industry self-regulatory organization registered with the SEC. NMS Securities submitted a Continuing Member Application (“CMA”) to request approval of the change in ownership. FINRA discovered that NMS Securities had failed to disclose that another registered investment advisor owned by Petitioner, NMS Capital Asset Management, was being investigated by the SEC for deficiencies in its compliance with securities laws. FINRA imposed Interim Restrictions on NMS Securities. While the Interim Restrictions were in effect, Petitioner signed agreements with investment banking clients on behalf of NMS Securities and engaged in other activities. FINRA began an investigation into whether Petitioner had violated the Interim Restrictions, and a FINRA panel found that Petitioner had violated FINRA.The Ninth Circuit denied in part and dismissed in part Petitioner’s challenge to the SEC’s determination. The panel held that because the court could review only a “final order” of the SEC under 15 U.S.C. Section 78y(a), there was no jurisdiction to review whether the SEC had substantial evidence to find that Petitioner violated FINRA Rules 8210 and 2010 by failing to produce and testify truthfully about his computers because the sanction for this violation was still pending before FINRA. However, the panel further held that the SEC’s determinations concerning the sanction of two industry bars did constitute a final order for the purposes of establishing jurisdiction. The panel denied Petitioner’s petition for review of the SEC’s decision to affirm those two sanctions. View "TREVOR SALIBA V. USSEC" on Justia Law

Plaintiff alleged that corporate executives at Align Technology, Inc., a medical device manufacturer best known for selling “Invisalign” braces, misrepresented their company's prospects in China.   The Ninth Circuit affirmed the district court’s dismissal of the securities fraud class action under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5. The court rejected as unsupported Defendants’ argument that their statements could not be considered false at the time they were made because Plaintiff did not allege sufficient facts to make plausible the inference that the rate of Align’s growth in China had begun to decline significantly when the challenged statements were made. The court concluded that former employees’ reports, viewed alongside circumstantial evidence of the short period of time between the twelve challenged statements and the downturn of Align’s prospects in China, sufficiently supported the inference that Align’s growth in China had slowed materially when the statements were made.   The court held that the district court correctly found that six of the challenged statements were non-actionable “puffery,” which involves vague statements of optimism expressing an opinion that is not capable of objective verification. The district court also correctly found that the remaining six statements did not create a false impression of Align’s growth in China and so were not actionable. Having determined that all of the challenged statements were nonactionable, the panel declined to reach issues of scienter and control-person or insider-trading liability. View "MACOMB COUNTY EMPL. RET. SYS. V. ALIGN TECHNOLOGY, INC." on Justia Law

Nektar Therapeutics (“Nektar”) touted the results from a Phase 1 clinical trial (dubbed “EXCEL”) of its anti-cancer drug. A different and more comprehensive Phase 1/2 clinical trial (called “PIVOT”) showed that the drug was not as effective as the initial trial had suggested. Two public pensions sued Nektar for securities fraud, alleging that Nektar misleadingly relied on outlier data from a single patient during the Phase 1 EXCEL clinical trial. The district court dismissed their operative complaint.The Ninth Circuit affirmed the district court’s dismissal for two reasons. First, the court held that Plaintiffs did not adequately allege falsity under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Securities and Exchange Commission Rule 10b-5. The complaint failed to articulate why Nektar’s statements about the Phase 1 EXCEL clinical trial would be materially misleading to investors. Plaintiffs do not sufficiently explain what the clinical trial would have shown without the alleged outlier data, nor do they specify how that would have affected the investing public’s assessment of the drug.Second, Plaintiffs did not plausibly allege loss causation. Nothing in the operative complaint suggests that Nektar’s disclosure of its later Phase 1/2 PIVOT clinical trial results uncovered the “falsity” of the earlier Phase 1 EXCEL trial. Rather, Plaintiffs’ factual allegations suggest a more mundane explanation: the different and more robust Phase 1/2 PIVOT clinical trial merely showed that the drug may not be as effective as the initial Phase 1 EXCEL clinical trial had suggested. View "OKLAHOMA FIREFIGHTERS PENSION V. NEKTAR THERAPEUTICS" on Justia Law

The Ninth Circuit panel held that defendant was not required to disgorge to CytoDyn his short-swing profits from exercising options and warrants granted by CytoDyn, entitling him to purchase and later sell CytoDyn shares. The panel held that the short-swing transaction fell within an exemption, set forth in SEC Rule 16b-3(d)(1) because the option and warrant award was “approved by the board of directors” of CytoDyn. The circuit court concluded that the affirmative votes of three of CytoDyn’s five board members, at a meeting where only four board members were present, were sufficient, and a unanimous decision was not required under either the plain text of Rule 16-3(d)(1), Delaware corporate law, or CytoDyn’s bylaws.The court left the determination of what a corporate board must do to approve insider-issuer acquisitions to the laws of the state where the corporation is incorporated. Reasoning that federal securities law defers to—and does not displace—the state laws governing corporate boards. Thus, the circuit court affirmed the district court’s ruling. View "ALPHA VENTURE CAPITAL PARTNERS V. NADER POURHASSAN" on Justia Law

The Ninth Circuit affirmed the district court's dismissal of a securities fraud lawsuit against Twitter under sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5, alleging that Twitter misled investors by hiding the scope of software bugs that hampered its advertisement customization. The panel concluded that securities laws do not require real-time business updates or complete disclosure of all material information whenever a company speaks on a particular topic. Rather, a company can speak selectively about its business so long as its statements do not paint a misleading picture. In this case, Twitter's statements about its advertising program were not false or misleading because they were qualified and factually true, and the company had no duty to disclose any more than it did under federal securities law. View "Weston Family Partnership LLLP v. Twitter, Inc." on Justia Law

The Ninth Circuit affirmed the district court's order denying in part a motion to dismiss and ruling that plaintiff had standing to sue Slack and individual defendants under Sections 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing. Plaintiff alleges that Slack's registration statement was inaccurate and misleading because it did not alert prospective shareholders to the generous terms of Slack's service agreements, which obligated Slack to pay for service disruptions; nor did it disclose that these service disruptions were frequent in part because Slack guaranteed 99.99% uptime; and the statement downplayed the competition Slack was facing from Microsoft Teams at the time of its direct listing.The panel concluded that plaintiff had standing to bring a claim under Sections 11 and 12(a)(2) because his shares could not be purchased without the issuance of Slack's registration statement, thus demarking these shares, whether registered or unregistered, as "such security" under Sections 11 and 12 of the Act. The panel explained that because standing existed for plaintiff's section 11 claim against Slack, standing also existed for a dependent section 15 claim against controlling persons. The panel did not resolve the issue of whether plaintiff has sufficiently alleged the other elements of Section 12 liability. View "Pirani v. Slack Technologies, Inc." on Justia Law

The Ninth Circuit granted in part a petition for a writ of mandamus and ordered the district court to vacate its order appointing an individual as lead plaintiff in a consolidated securities fraud action against Nikola and related defendants. In the underlying action, plaintiffs alleged that they suffered losses from buying Nikola securities after a non-party report described apparent false statements made by the founder and contained in company advertising materials. Petitioners Mersho, Chau, and Karczynski moved to be lead plaintiff as a group under the name Nikola Investor Group II (Group II).In a securities fraud class action, the Private Securities Litigation Reform Act (PSLRA) requires the district court to identify the presumptive lead plaintiff, who is the movant with the largest financial interest and who has made a prima facie showing of adequacy and typicality. Once the presumption is established, competing movants can rebut the presumption by showing that the presumptive lead plaintiff will not fairly or adequately represent the class.The panel granted the petition to the extent it seeks to vacate the district court's order appointing Plaintiff Baio as lead plaintiff. The panel concluded that four of the five Bauman factors weigh in favor of mandamus relief and thus a writ of mandamus is appropriate. In regards to the third Bauman factor, the panel explained that the district court clearly erred by finding that the presumption had been rebutted. In this case, the district court failed to point to evidence supporting its decision, instead relying on the absence of proof by Group II regarding a prelitigation relationship and its misgivings. Therefore, the district court did not comport with the burden-shifting process Congress established in the PSLRA. The panel also concluded that the first, second, and fifth Bauman factors weigh in favor of granting the writ. However, the panel declined to instruct the district court to appoint Group II as lead plaintiff, remanding for the district court to redetermine the issue. View "Mersho v. United States District Court for the District of Arizona" on Justia Law

The Ninth Circuit reversed the district court's denial of summary judgment to defendant in a putative securities fraud class action brought by a public pension fund that purchased bonds issued by defendant. This case arose on interlocutory appeal to address the scope of the presumption of reliance in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), in "mixed" securities-fraud cases that allege both omissions and affirmative misrepresentations.Because the panel concluded that the allegations in this case cannot be characterized primarily as claims of omission, the panel held that the Affiliated Ute presumption of reliance does not apply. In this case, plaintiff alleges over nine pages of affirmative misrepresentations that it and its investment advisor relied upon when purchasing the bonds from Volkswagen. The panel explained that, while this is a mixed case that alleges both omissions and affirmative misrepresentations, plaintiff's allegations cannot be characterized primarily as claims of omission, so the Affiliated Ute presumption of reliance does not apply. The panel remanded for the district court to further consider whether a triable issue of fact exists. View "Puerto Rico Government Employees and Judiciary Retirement Systems Admin. v. Volkswagen AG" on Justia Law

After Cambridge Analytica improperly harvested user data from Facebook's social network, Google discovered that a security glitch in its Google+ social network had left the private data of some hundreds of thousands of users exposed to third-party developers. Google and its holding company, Alphabet, chose to conceal this discovery, made generic statements about how cybersecurity risks could affect their business, and stated that there had been no material changes to Alphabet's risk factors since 2017.Rhode Island, in a consolidated amended complaint, filed suit against Alphabet, Google, and others, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 for securities fraud, as well as violations of Section 20(a) of the Exchange Act. The district court granted Alphabet's motion to dismiss on the grounds that Rhode Island failed to adequately allege a materially misleading misrepresentation or omission and that Rhode Island failed to adequately allege scienter.The Ninth Circuit concluded that the complaint adequately alleged that Google, Alphabet, and individual defendants made materially misleading statements by omitting to disclose these security problems and that defendants did so with sufficient scienter, meaning with an intent to deceive, manipulate, or defraud. Applying an objective materiality standard, the panel concluded that Rhode Island's complaint plausibly alleges the materiality of the costs and consequences associated with the Privacy Bug, and its public disclosure, and how Alphabet's decision to omit information about the Privacy Bug in its 10-Qs significantly altered the total mix of information available for decisionmaking by a reasonable investor. Furthermore, the complaint adequately alleges scienter for the materially misleading omissions from the 10-Q statements. The panel also concluded that Rhode Island adequately alleged falsity, materiality, and scienter for the April 2018 and July 2018 10-Q statements. Accordingly, the panel reversed the district court's holdings to the contrary and reversed the dismissal of the section 20(a) control-person claims based on the 10-Q statements.Because the complaint does not plausibly allege that the remaining statements at issue are misleading material misrepresentations or omissions, the panel affirmed the district court's dismissal of the Section 10(b) and Rule 10b-5(b) statement liability claims based on these statements. The panel also affirmed the district court's dismissal of the Section 20(a) controlling-person claims for these statements. Finally, because the district court erred in sua sponte dismissing Rhode Island's claims under Rule 10b-5(a) and (c) when Alphabet had not targeted those claims in its motion to dismiss, the panel reversed the dismissal of the claims under Section 10(b) and Rule 10b-5(a) and (c) against all defendants and remanded to the district court. The panel also reversed the dismissal of Rhode Island's claims under Section 20(a) to the extent those claims depend on claims alleging violations of Rule 10b-5(a) and (c). View "Rhode Island v. Alphabet, Inc." on Justia Law