Articles Posted in Securities Law

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The issue this appeal presented for the Tenth Circuit’s review centered on the district court’s dismissal of Plaintiff-Appellant David Hampton’s securities-fraud class action against Defendants-Appellees root9B Technologies, Inc. (“root9B”), Joseph Grano, Jr., the Chief Executive Officer and Chairman, and Kenneth T. Smith, the former Chief Financial Officer. Hampton filed suit claiming root9B made false or misleading statements in connection with the purchase or sale of securities. Hampton identified two statements he alleged were false or misleading and material: (1) a letter from Grano to investors attesting that root9B was differentiated from competitors by its “proprietary hardware and software;” and (2) a press release and associated report published by root9B in which the company claimed to have detected a planned cyber attack against a number of international financial institutions. He further alleged that the individual defendants were jointly and severally liable under section 20(a) of the Securities Exchange Act of 1934. The district court dismissed Hampton’s claims, finding that he had failed to sufficiently plead that the identified statements were false or misleading. The Tenth Circuit concurred with the district court’s findings and affirmed its judgment. View "Hampton v. Root9B Technologies" on Justia Law

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Defendant Williams Companies, Inc. (Williams) was an energy company; its president and chief executive officer (CEO) was Defendant Alan Armstrong and its chief financial officer (CFO) was Defendant Donald Chappel. Armstrong also served on its board of directors. Defendant Williams Partners GP LLC (Williams Partners GP) was a limited-liability company owned by Williams. Armstrong was chairman of the board and CEO; and Chappel was CFO and a director. Defendant Williams Partners L.P. (WPZ) was a master limited partnership, whose general partner was Williams Partners GP. Williams owned 60% of WPZ’s limited-partnership units. Plaintiff’s case centered on merger discussions between Williams and Energy Transfer Equity L.P. (ETE), a competing energy firm. The members of the putative class purchased units of WPZ between May 13, 2015 (when Williams announced that it planned to merge with WPZ) and June 19, 2015 (when ETE announced that, despite having been rebuffed by Williams, it would seek to merge with Williams and that such a merger would preclude the merger with WPZ). The value of the units dropped significantly after this announcement. Ultimately, ETE merged with Williams and the proposed WPZ merger was not consummated. The Complaint alleged the class members paid an excessive price for WPZ units because Williams had not disclosed during the class period its merger discussions with ETE. Employees’ Retirement System of the State of Rhode Island (Plaintiff) appealed the dismissal of its amended complaint in a putative class-action suit, alleging violations of federal securities law because of the failure to disclose merger discussions that affected the value of its investment. The Tenth Circuit concluded the complaint failed to adequately allege facts establishing a duty to disclose the discussions, the materiality of the discussions, or the requisite scienter in failing to disclose the discussions. View "Employees' Retirement System v. Williams Companies" on Justia Law

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The Pioneer Centres Holding Company Employee Stock Ownership Plan and Trust and its trustees sued Alerus Financial, N.A. for breach of fiduciary duty in connection with the failure of a proposed employee stock purchase. The district court granted summary judgment to Alerus after determining the evidence of causation did not rise above speculation. The Plan appealed, claiming the district court erred in placing the burden to prove causation on the Plan rather than shifting the burden to Alerus to disprove causation once the Plan made out its prima facie case. In the alternative, the Plan argued that even if the district court correctly assigned the burden of proof, the Plan established, or at the very least raised a genuine issue of material fact regarding, causation. Finding no reversible error, the Tenth Circuit affirmed the district court. View "Pioneer Centres Holding Co v. Alerus Financial, N.A." on Justia Law

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A New Mexico county board filed a lawsuit in state court against its securities broker and registered agent. The board refrained, however, from serving process while it determined whether arbitration was available. The securities broker and agent nonetheless removed the case to federal court and moved to dismiss the suit. Four days after briefing was complete and about three months after the board had filed suit, the board voluntarily dismissed the case and filed for arbitration. The securities broker and agent then filed this action to enjoin arbitration, arguing the board waived its right to demand arbitration when it filed the state court action. The district court disagreed and instead granted the board’s counterclaim to compel arbitration. The broker and registered agent appealed the waiver issue. Finding no reversible error, the Tenth Circuit affirmed. View "BOSC v. Board of County Commissioners" on Justia Law

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The Securities and Exchange Commission (SEC) filed suit against American Pension Services ("APS"), a third-party administrator of self-directed individual retirement and 401(k) accounts (collectively "IRA Accounts"), and its President and CEO, Curtis DeYoung. The SEC alleged that DeYoung misappropriated $24 million in APS customer funds that APS had commingled in a Master Trust Account at First Utah Bank, custodian of the funds. The district court appointed a Receiver, who ultimately entered into a Settlement Agreement with First Utah. The settlement included a Claims Bar Order, which barred all other claims against First Utah relating to any IRA Accounts established with APS. Three of the approximately 5,500 APS clients who had a financial stake in the receivership entity intervened and contended that the court could not bar them from filing their own claims against First Utah. The district court disagreed and approved the settlement. The intervenors appealed, but finding no reversible error, the Tenth Circuit affirmed. View "SEC v. American Pension Services" on Justia Law

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The complaint and referenced documents show that Quiznos fast-food franchise had borrowed heavily before its business sharply declined. From 2007 to 2011, Quiznos lost roughly 3,000 franchise restaurants and profitability plunged. With this plunge, Quiznos could no longer satisfy its loan covenants. As a result, Avenue Capital Management II, L.P., “Fortress” (a collective of investment entities) and others could foreclose on collateral, call in debt, or accelerate payments. To avoid a calamity, Quiznos restructured its debt. This securities-fraud matter arose out of the attempt to restructure that debt. Multiple investment funds purchased equity in Quiznos, and despite efforts, Avenue and Fortress sued former Quiznos managers and officers, claiming they had fraudulently misrepresented Quiznos’ financial condition. The district court dismissed the causes of action based on securities fraud based on a failure to state a valid claim. Finding no reversible error in that dismissal, the Tenth Circuit affirmed the district court’s decision. View "Avenue Capital Management II, v. Schaden" on Justia Law

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The Securities and Exchange Commission (SEC) brought an enforcement action against Defendant Charles Kokesh for misappropriating funds from four SEC-registered business development companies (BDCs) in violation of federal securities laws. After a jury returned a verdict in favor of the SEC, the district court entered a final judgment permanently enjoining Defendant from violating certain provisions of federal securities laws, ordering disgorgement of $34.9 million plus prejudgment interest of $18.1 million, and imposing a civil penalty of $2.4 million. Defendant appealed, arguing that the court’s imposition of the disgorgement and permanent injunction was barred by 28 U.S.C. 2462, which set a five-year limitations period for suits “for the enforcement of any civil fine, penalty, or forfeiture.” He also argued that the district court erred by precluding him from presenting evidence of attorney and accountant participation to show his lack of knowledge of the misconduct. After review, the Tenth Circuit held that both the permanent injunction and the disgorgement order were remedial and not subject to section 2462. The Court rejected the evidentiary claim. View "SEC v. Kokesh" on Justia Law

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Spirit AeroSystems, Inc. agreed to supply parts for three types of aircraft manufactured by Gulfstream Aerospace Corporation and The Boeing Company. For these aircraft, Spirit managed production of the parts through three projects. Each project encountered production delays and cost overruns, and Spirit periodically reported to the public about the projects’ progress. In these reports, Spirit acknowledged risks but expressed confidence about its ability to meet production deadlines and ultimately break even on the projects. Eventually, however, Spirit announced that it expected to lose hundreds of millions of dollars on the three projects. Spirit’s stock price fell roughly 30 percent following the announcement. The plaintiffs brought this action on behalf of a class of individuals and organizations that had owned or obtained Spirit stock between November 3, 2011, and October 24, 2012. The named defendants were Spirit and four of its executives, whom plaintiffs alleged misrepresented and failed to disclose the projects' cost overruns and production delays, violated section 10(b) of the Securities Exchange Act of 1934, and the Securities and Exchange Commission's Rule 10b-5. The trial court granted defendants' motion to dismiss, concluding in part that plaintiffs failed to allege facts showing scienter. Finding no reversible error in the trial court's order, the Tenth Circuit affirmed. View "Anderson v. Spirit AeroSystems Holdings" on Justia Law

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Plaintiffs, shareholders of ZAGG Inc., a publicly held Nevada corporation, filed a shareholder-derivative action seeking damages, restitution, and other relief for ZAGG. They alleged that past and present officers and directors of ZAGG violated section 14(a) of the Securities Exchange Act of 1934, breached their fiduciary duties to ZAGG, wasted corporate assets, and were unjustly enriched. The district court dismissed the suit on two alternative grounds: (1) Plaintiffs filed suit before presenting the ZAGG Board of Directors (the Board) with a demand to bring suit and they failed to adequately allege that such demand would have been futile; and (2) the complaint failed to state a claim. Plaintiffs appealed the dismissal on both of the district court's alternative grounds. Because the Tenth Circuit denied the challenge to the first ground, it did not address the second. View "Pikk v. Pedersen" on Justia Law

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American Fidelity Assurance Company sued the Bank of New York Mellon (“BNYM”) for claims arising from BNYM’s conduct as Trustee of a trust holding mortgage-backed securities owned by American Fidelity. BNYM did not assert a personal jurisdiction defense in its first two motions to dismiss or in its answer. In its third motion to dismiss, BNYM argued it was not subject to general jurisdiction in Oklahoma. The district court denied the motion, concluding BNYM had waived the defense by failing to raise it in prior filings. BNYM challenges that decision in an interlocutory appeal. Finding no reversible error, the Tenth Circuit affirmed. View "American Fidelity Assurance v. Bank of New York Mellon" on Justia Law