Justia U.S. 10th Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
Indiana Public Retirement, et al. v. Pluralsight, et al.
Defendant Pluralsight was a software company offering a cloud-based technology skills platform. Defendant Aaron Skonnard was Pluralsight’s Chief Executive Officer; defendant James Budge was the Chief Financial Officer. Plaintiffs purchased Pluralsight stock between January 16, 2019, and July 31, 2019. Beginning on January 16, 2019, Skonnard and Budge allegedly made materially false and misleading statements about the size and productivity of Pluralsight’s sales force, which Plaintiffs claim artificially inflated Pluralsight’s stock price, including during a secondary public offering (“SPO”) in March 2019. Pluralsight announced disappointing second-quarter earnings on July 31, 2019. Defendants attributed the low earnings to a shortage of sales representatives earlier in the year—but this explanation contradicted representations Pluralsight made in the first quarter of 2019 about the size of its sales force. Lead Plaintiffs Indiana Public Retirement System (“INPRS”) and Public School Teachers’ Pension and Retirement Fund of Chicago (“CTPF”) brought claims on behalf of a putative class of Pluralsight stock holders under the Securities Exchange Act of 1934 (“Exchange Act”), and the Securities Act of 1933 (“Securities Act”) in federal district court in Utah. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), contending Plaintiffs failed to adequately allege: (1) any materially false or misleading statements or omissions; and (2) that Defendants acted with the requisite scienter. The district court found one statement (of eighteen alleged) was materially false or misleading but dismissed Plaintiffs’ Exchange Act claims because the complaint failed to allege a strong inference of scienter. The district court dismissed Plaintiffs’ Securities Act claims because none of the statements in Pluralsight’s SPO documents were materially false or misleading. The Tenth Circuit concluded the district court erred in dismissing Plaintffs’ Exhcange Act claims. “Although the district court correctly determined that Plaintiffs sufficiently alleged only one materially false or misleading statement, the district court’s scienter determination was erroneous.” The Court also concluded the district court relied on erroneous reasoning to dismiss the alleged violation of Item 303 of SEC Regulation S–K, so the case was remanded for further consideration. The judgment was affirmed in all other respects. View "Indiana Public Retirement, et al. v. Pluralsight, et al." on Justia Law
SEC v. GenAudio Inc., et al.
Taj Jerry Mahabub, founder and Chief Executive Officer (“CEO”) of GenAudio, Inc. (“GenAudio”; collectively referred to as “Appellants”) attempted to secure a software licensing deal with Apple, Inc. (“Apple”). Mahabub intended to integrate GenAudio’s three-dimensional audio software, “AstoundSound,” into Apple’s products. While Appellants were pursuing that collaboration, the Securities and Exchange Commission (“SEC”) commenced an investigation into Mr. Mahabub’s conduct: Mahabub was suspected of defrauding investors by fabricating statements about Apple’s interest in GenAudio’s software and violating registration provisions of the securities laws in connection with sales of GenAudio securities. The district court found Mahabub defrauded investors and violated the securities laws. The court determined that Appellants were liable for knowingly or recklessly making six fraudulent misstatements in connection with two offerings of GenAudio’s securities in violation of the antifraud provisions of the securities laws. Appellants appealed, but finding no reversible error, the Tenth Circuit affirmed the district court’s grant of summary judgment in favor of the SEC. View "SEC v. GenAudio Inc., et al." on Justia Law
Obeslo, et al. v. Great-Western Life & Annuity, et al.
Plaintiff-Appellants were shareholders in a major mutual fund complex through their employer-sponsored retirement plans. They alleged the complex’s investment adviser, Great-West Capital Management LLC (“GWCM”), and affiliate recordkeeper, Great-West Life & Annuity Insurance Co. (“GWL&A”), breached their fiduciary duties by collecting excessive compensation from fund assets. After holding an eleven-day bench trial in January 2020, the district court adopted and incorporated by reference, with few changes, Defendants’ Proposed Findings of Fact and Conclusions of Law. It also found for Defendants on every element of every issue, concluding “even though they did not have the burden to do so, Defendants presented persuasive and credible evidence that overwhelmingly proved that their fees were reasonable and that they did not breach their fiduciary duties.” Plaintiffs appealed, but finding no reversible error, the Tenth Circuit affirmed. View "Obeslo, et al. v. Great-Western Life & Annuity, et al." on Justia Law
United States v. Jean-Pierre
Guy Jean-Pierre, a corporate and securities attorney, aided an illegal stock trading operation. Through a series of self-dealing transactions, Jean-Pierre and his co-conspirators artificially inflated stock prices of a company they controlled. Jean- Pierre sent letters on the company’s behalf to the U.S. Securities and Exchange Commission (“SEC”) that contained false and misleading information and omitted material information from disclosures to potential investors. Jean-Pierre appealed his convictions for conspiracy to commit securities fraud and securities fraud as to four of the twenty-eight counts of conviction, arguing the district court erred in admitting evidence that he had previously used his niece’s signature without her permission to submit attorney letters to a stock trading website. Jean- Pierre also argued that three of the four convictions should have been reversed because the district court declined to give a requested instruction reiterating the government’s burden as to a specific factual theory. Finding no reversible error, the Tenth Circuit affirmed. View "United States v. Jean-Pierre" on Justia Law
Foxfield Villa Associates v. Robben
This appeal stemmed from an attempt to hold Defendant Paul Robben liable for securities fraud. Various Plaintiffs alleged that Robben fraudulently induced them to purchase ownership interests in a Kansas limited liability company named Foxfield Villa Associates, LLC (“Foxfield”). Plaintiffs argued that those interests were securities under the Securities Exchange Act of 1934. Plaintiffs contended Robben violated section 10(b) of the 1934 Act (its broad antifraud provision) and SEC Rule 10b-5 (an administrative regulation expounding upon that antifraud provision) when engaging in his allegedly deceitful conduct. The Tenth Circuit Court of Appeals determined that the specific attributes of the LLC interests in this case lead it to conclude the interests at issue were not securities as that term was defined by the Securities Exchange Act of 1934. The Court affirmed the district court's order declining to characterize the LLC interests as securities, thus granting summary judgment to defendants on those grounds. View "Foxfield Villa Associates v. Robben" on Justia Law
Mid Atlantic Capital v. Bien
A married couple, Beverly Bien and David Wellman, invested money with Mid Atlantic Capital Corporation (“Mid Atlantic”). Their investments performed poorly. Stung by the losses, Ms. Bien and Mr. Wellman initiated arbitration proceedings against Mid Atlantic. The arbitration panel awarded damages, fees and costs to the couple. The panel also ordered Ms. Bien and Mr. Wellman to reassign their ownership interests in their investments to Mid Atlantic. Mid Atlantic moved the federal district court to modify the arbitration award to correct “an evident material miscalculation of figures.” The district court denied the motion because the alleged error that Mid Atlantic sought to remedy did not appear on the face of the arbitration award. In the amended final judgment, in addition to ordering Mid Atlantic to pay Ms. Bien and Mr. Wellman certain damages, the court ordered that prejudgment interest would accrue on the damages portion of the award and that postjudgment interest would accrue at the federal rate specified in 28 U.S.C. 1961. Both parties appealed the district court’s order. Mid Atlantic specifically challenged the court’s denial of its motion to modify the arbitration award; the couple cross-appealed to challenge the court’s rulings with respect to prejudgment interest and the reassignment of distributions they received since the arbitration award due to their ownership interests in the investments. Finding no abuse of discretion or other reversible error, the Tenth Circuit affirmed the district court. View "Mid Atlantic Capital v. Bien" on Justia Law
Smallen Revocable Living Trust v. Western Union Company
A district court dismissed Plaintiff–Appellant Lawrence Smallen and Laura Smallen Revocable Living Trust’s securities-fraud class action against Defendant–Appellee The Western Union Company and several of its current and former executive officers (collectively, “Defendants”). Following the announcements of Western Union’s settlements with regulators in January 2017 and the subsequent drop in the price of the company’s stock shares, Plaintiff filed this lawsuit on behalf of itself and other similarly situated shareholders. In its complaint, Plaintiff alleged Defendants committed securities fraud by making false or materially misleading public statements between February 24, 2012, and May 2, 2017 regarding, among other things, Western Union’s compliance with anti-money laundering and anti-fraud laws. The district court dismissed the complaint because Plaintiff failed to adequately plead scienter under the heightened standard imposed by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). While the Tenth Circuit found the complaint may have given rise to some plausible inference of culpability on Defendants' part, the Court concurred Plaintiff failed to plead particularized facts giving rise to the strong inference of scienter required to state a claim under the PSLRA, thus affirming dismissal. View "Smallen Revocable Living Trust v. Western Union Company" on Justia Law
Malouf v. SEC
Dennis Malouf held key roles at two firms. One of the firms (UASNM, Inc.) offered investment advice; the other firm (a branch of Raymond James Financial Services) served as a broker-dealer. Raymond James viewed those dual roles as a conflict, so Malouf sold the Raymond James branch. But the structure of the sale perpetuated the conflict. Because Malouf did not disclose perpetuation of the conflict, administrative officials sought sanctions against him for violating the federal securities laws. An administrative law judge found that Malouf had violated the Securities Exchange Act of 1934, the Securities Act of 1933, the Investment Advisers Act of 1940, Rule 10b–5, and Rule 206(4)–1. Given these findings, the judge imposed sanctions. The SEC affirmed these findings and imposed additional sanctions, including disgorgement of profits. Malouf appealed the SEC’s decision, but finding no reversible error, the Tenth Circuit affirmed. View "Malouf v. SEC" on Justia Law
City of Cambridge Retirement v. Ersek
In this shareholder-derivative action, Shareholders of The Western Union Company averred several of Western Union’s Officers and Directors breached their fiduciary duties to the company by willfully failing to implement and maintain an effective anti-money-laundering-compliance program (AML-compliance program), despite knowing of systemic deficiencies in the company’s AML compliance. The Shareholders didn’t make a pre-suit demand on Western Union’s Board of Directors to pursue this litigation, and the district court found no evidence that such demand would have been futile. The district court thus dismissed the case, reasoning that the Shareholders’ obligation to make a pre-suit demand on the Board was not excused. The Tenth Circuit concurred with the district court's decision to dismiss, and affirmed. View "City of Cambridge Retirement v. Ersek" on Justia Law
SEC v. Traffic Monsoon
This case involved an alleged worldwide Ponzi scheme and the antifraud provisions of the federal Securities Act of 1933 and the Securities Exchange Act of 1934. Defendant Charles Scoville operated an internet traffic exchange business through his Utah company, Defendant Traffic Monsoon, LLC. The Securities and Exchange Commission (“SEC”) initiated this civil enforcement action, alleging Defendants were instead operating an unlawful online Ponzi scheme involving the fraudulent sale of securities. In this interlocutory appeal, Scoville challenged several preliminary orders the district court issued at the outset, including orders freezing Defendants’ assets, appointing a receiver, and preliminarily enjoining Defendants from continuing to operate their business. The Tenth Circuit upheld those preliminary rulings, finding the SEC asserted sufficient evidence to make it likely that the SEC would be able to prove that Defendants were operating a Ponzi scheme. View "SEC v. Traffic Monsoon" on Justia Law