Justia U.S. 10th Circuit Court of Appeals Opinion Summaries

Plaintiffs filed this complaint on behalf of a class of all persons and entities who purchased or otherwise acquired Chesapeake common stock from 2009 to 2012, and who were damaged from those purchases/acquisitions. The complaint alleged that Defendants materially misled the public through false statements and omissions regarding two different types of financial obligations: (1) Volumetric Production Payment transactions (under which Chesapeake received immediate cash in exchange for the promise to produce and deliver gas over time); and (2) the Founder Well Participation Program (under which Chesapeake CEO Aubrey McClendon was allowed to purchase up to a 2.5% interest in the new gas wells drilled in a given year). With respect to the "VPP program," Plaintiffs alleged Defendants touted the more than $6.3 billion raised through these transactions but failed to disclose that the VPPs would require Chesapeake to incur future production costs totaling approximately $1.4 billion. Plaintiffs contended the failure to disclose these future production costs was a material omission that misled investors into believing there would be no substantial costs associated with Chesapeake’s obligations to produce and deliver gas over time. The district court granted Defendants’ motion to dismiss the complaint, holding that Plaintiffs had failed to plead with particularity facts giving rise to a strong inference of scienter as required by the Private Securities Litigation Reform Act of 1995. Viewing all of the allegations in the complaint collectively, the Tenth Circuit was not persuaded they gave rise to a cogent and compelling inference of scienter. Accordingly, the Court affirmed the district court's dismissal of the case. View "Weinstein, et al v. McClendon, et al" on Justia Law

In 2008 Chesapeake Energy Corporation was one of the largest producers of natural gas in the United States, with thousands of wells in several states. By early July of that year the price of natural gas had risen and Chesapeake's stock price had risen about 50% in the prior six months. On July 9, 2008, Chesapeake sold 25 million shares of common stock in a public offering. Soon thereafter, a financial crisis rocked the global economy. The New York Stock Exchange Composite Index fell more than 30% in the three months after the Chesapeake offering. Chesapeake was hit even harder, with sharp drops in the prices of natural gas and Chesapeake's stock. Plaintiff United Food and Commercial Workers Union Local 880 Pension Fund represented the class of all persons who purchased securities in the offering, argued that Chesapeake and named individual defendants violated sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. sections 77k, 77l(a)(2), and 77o, because the Registration Statement for the offering was materially false and misleading. According to Plaintiff, Chesapeake should have disclosed: (1) that it had expanded a risky gas-price hedging strategy that made it vulnerable to a fall in natural-gas prices; and (2) that CEO Aubrey McClendon had pledged substantially all his company stock as security for margin loans and lacked the resources to meet margin calls. The district court granted summary judgment for Chesapeake. Plaintiff appealed. But finding that Chesapeake's alleged omissions were not material or misleading, the Tenth Circuit affirmed. View "United Food & Comm. Workers v. Chesapeake Energy, et al" on Justia Law

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Defendant-Appellees GeoDynamics, Inc., its managing director Jeffory Shields, and several other business entities affiliated with Shields, alleging securities fraud in connection with four oil and gas exploration and drilling ventures Shields marketed to thousands of investors as Joint Venture Agreements (JVAs). The district court granted defendants' 12(b)(6) motion to dismiss. The SEC appealed, contending that despite their labels as JVAs, the investment agreements were actually "investment contracts" and thus "securities" subject to federal securities regulations. Because it could not be said as a matter of law that the investments at issue were not "investment contracts," the Tenth Circuit reversed. View "SEC v. Shields, et al" on Justia Law

The issue before the Tenth Circuit in this case stemmed from a civil-enforcement action brought by the Securities and Exchange Commission ("SEC") against Defendant-Appellant Ralph Thompson, Jr., in connection with an alleged Ponzi scheme Thompson ran through his company, Novus Technologies, L.L.C. ("Novus"). The district court granted summary judgment in favor of the SEC on several issues, including the issue of whether the instruments Novus sold investors were "securities." Thompson's single issue on appeal was that the district court ignored genuine disputes of material fact on the issue of whether the Novus instruments were securities, and that he was entitled to have a jury make that determination. After careful consideration, the Tenth Circuit concluded that under the test articulated by the U.S. Supreme Court in "Reves v. Ernst & Young" (494 U.S. 56 (1990)), the district court correctly found that the instruments Thompson sold were securities as a matter of law. View "SEC v. Thompson" on Justia Law

The National Credit Union Administration (NCUA) placed two credit unions, U.S. Central Federal Credit Union and Western Corporate Federal Credit Union (WesCorp), into conservatorship. Then, as liquidating agent, NCUA sued 11 defendants on behalf of U.S. Central, alleging federal and state securities violations.In a separate matter, NCUA sued one defendant on behalf of U.S. Central and WesCorp, alleging similar federal and state securities violations. The United States District Court for the District of Kansas consolidated the cases. All defendants moved for dismissal, arguing that NCUA’s claims were time-barred. The district court denied the motion, concluding that the "Extender Statute" applied to NCUA’s claims. Defendants moved for an interlocutory appeal for the Tenth Circuit to determine whether the Extender Statute applied to NCUA's claims. Finding that it did, the Tenth Circuit affirmed. View "National Credit Union Admin. v. Nomura Home Equity Loan, et al" on Justia Law

Defendant-Appellant Brian McKye was charged with eight counts of securities fraud and one count of conspiracy to commit money laundering. The district court refused to give the jury his tendered instruction that would have permitted the jury to decide whether the investment notes at issue were securities under federal securities law. He was convicted and received a 262-month sentence. Upon review, the Tenth Circuit concluded the district court erred by not giving the tendered instruction, and reversed the convictions. View "United States v. McKye" on Justia Law

The government alleged Defendant-Appellant Richard Clark, along with other co-conspirators, manipulated shares of several penny-stocks by using false and backdated documents to make those shares publically tradable, then coordinated the trading among themselves to create the false appearance of an active market for those shares. The shares were sold after the prices surged. The conspirators laundered the proceeds through multiple bank accounts and nominees (a "pump-and-dump" scheme). Defendant was charged and convicted on multiple counts for his participation in the scheme. He appealed his conviction to the Tenth Circuit, arguing: (1) the pretrial placement of a caveat on his property violated his constitutional rights; (2) the evidence presented at trial was insufficient to support his conviction; (3) the district court erred in refusing to appoint additional or substitute counsel better versed in complex securities issues; (4) the district court erred by failing to sever his case from his co-conspirator's; and (5) his rights under the Speedy Trial Act were violated by a fourteen-month delay between filing of the indictment and the start of trial. The Tenth Circuit addressed each of Defendant's contentions in its opinion, but found no discernible error. View "United States v. Clark" on Justia Law

Defendant-Appellant George David Gordon was a former securities attorney convicted of multiple criminal charges relating to his alleged participation in a "pump-and-dump" scheme where he (along with others) violated the federal securities laws by artificially inflating the value of various stocks, then turning around and selling them for a substantial profit. The government restrained some of his property before the indictment was handed down and ultimately obtained criminal forfeiture of that property. On appeal, Defendant raised multiple issues relating to the validity of his conviction and sentence, and the propriety of the government’s conduct (both before and after trial) related to the forfeiture of his assets. In the end, the Tenth Circuit found no reversible error and affirmed Defendant's conviction and sentence, as well as the district court’s forfeiture orders. View "United States v. Gordon" on Justia Law

At the behest of the Oklahoma Department of Securities, Oklahoma courts found early investors in a Ponzi scheme carried out by a third party to have been unjustly enriched and required disgorgement. Judgments were entered against those investors. The issue before the Tenth Circuit was whether the judgments entered against Robert Mathews, Marvin Wilcox, and Pamela Wilcox qualified as a nondischargeable debt under 11 U.S.C. 523(a)(19). The bankruptcy court decided the debts were nondischargeable because they were in violation of securities laws. The district court affirmed. Upon review, the Tenth Circuit reversed and remanded: "the Department's position conveniently serves its ends (and in the abstract) a public good. But the language of the statute cannot reasonably be stretched that far." View "Oklahoma Dept. of Securites v. Wilcox, et al" on Justia Law

In this civil enforcement action brought by the Securities and Exchange Commission (SEC) against Defendants-Appellants Brian Smart and Smart Assets, LLC, the district court entered a $4,715,580 judgment against Defendants for operating a Ponzi scheme, and it permanently enjoined them from further violations of federal securities laws. Defendant Smart appealed pro se. Upon review, the Tenth Circuit affirmed, concluding Defendant did not cite any evidence that would contradict declarations, bank records and other evidence submitted by the SEC. View "SEC v. Smart" on Justia Law