United States Supreme Court Resolves Circuit Split Regarding Section 11 Claims Predicated Upon Allegedly Misleading Statements of Opinion

In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, 2015 WL 1291916 (U.S. Mar. 24, 2015), the United States Supreme Court addressed the circumstances under which a claim alleging that an issuer made a false statement of opinion in a registration statement suffices to state a claim for relief under Section 11 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77k.  The Court held that (1) a statement of opinion does not constitute an “untrue statement . . . of fact” in violation of Section 11 merely because it is ultimately proven incorrect and (2) a statement of opinion which omits material facts about the issuer’s knowledge may be misleading if the omitted facts conflict with what a reasonable investor would infer from reading the statement in context.  The Court’s decision resolved a split in the Circuits and may spawn a new wave of “omission” litigation under the 1933 Act. Continue Reading

California and Delaware Courts Agree: Amendments to Corporate Bylaws Do Not Apply Retroactively to Impair Pursuit of Previously Accrued Claims

Two recent decisions, one from the Delaware Court of Chancery and one from the California Court of Appeal, Fourth Appellate District, refused to apply bylaws that impaired a shareholder/member plaintiff’s ability to pursue his or her claims against the corporation where the the relevant bylaw was adopted after the plaintiff’s claims accrued. Continue Reading

SEC Requires FINRA Registration for High Frequency Traders

In an effort to keep pace with rapidly accelerating market technology, the Securities & Exchange Commission (“SEC”) has taken steps to expand oversight over high-frequency trading.  On March 25, 2015, the SEC unanimously approved a plan requiring that rapid-fire trading firms register with the Financial Industry Regulatory Authority (“FINRA”). Continue Reading

Second Circuit Holds That SIPA Does Not Permit an Inflation or Interest Adjustment to “Net Equity” Claims For Customer Property

In In re Bernard L. Madoff Investment Securities LLC, No. 14-97-bk(L), 2015 WL 727965 (2d Cir. Feb. 20, 2015), the United States Court of Appeals for the Second Circuit held that no adjustment for inflation or interest could be made under the Securities Investor Protection Act, 15 U.S.C. § 78aaa, et seq. (“SIPA”), in calculating “net equity” claims for customer property.  The Second Circuit’s opinion re-affirms that SIPA is not intended to shield investors from loss, and that its goal is limited to restoring customers of defunct broker-dealers to the pre-liquidation status quo. Continue Reading

Delaware Court of Chancery Rejects Share-Tracing Standing Requirement for Appraisal Petitioners

The Delaware Court of Chancery issued companion opinions clarifying Delaware’s standing requirements for appraisal petitions under 8 Del. C. § 262.  In In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VGC, 2015 WL 66825 (Del. Ch. Jan. 5, 2015), and Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG, 2015 WL 67586 (Del. Ch. Jan. 5, 2015), the court denied respondents’ motions for summary judgment and refused to read a “share-tracing” requirement into the appraisal statute’s standing procedures.  These cases clarify that, to perfect appraisal rights, beneficial holders of shares must show that the bulk record holder refrained from voting in favor of the merger at issue more shares than the petitioner seeks to have appraised.

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Second Circuit Clarifies that Allegations of Direct Fraudulent Representations Are Not Necessary for Market Manipulation Claims Under Section 10(b) and Rule 10b-5

In Fezzani v. Bear, Stearns & Co., Inc., No. 14-3983, 2015 WL 400547 (2d Cir. Jan. 30, 2015) (“Fezzani II”), the United States Court of Appeals for the Second Circuit clarified its opinion in Fezzani v. Bear, Stearns & Co., Inc., 716 F.3d 18 (2d Cir. 2013) (“Fezzani I”), ruling that its earlier decision did not require a plaintiff alleging market manipulation in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, to plead that a defendant directly communicated false information to a victim.  The Second Circuit’s decision in Fezzani II provides much-needed clarity on the standard for liability in market manipulation cases.

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SEC Staff To Express No Views On Conflicting Shareholder Proposals Under Rule 14a-8(i)(9)

On January 16, 2015, SEC Chair Mary Jo White issued a directive that the staff of the SEC review its position on Rule 14a-8(i)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Concurrent with SEC Chair White’s directive, the Division of Corporation Finance announced that it will “express no views” on the application of Rule 14a-8(i)(9) for the current proxy season.

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Second Circuit Notes Split with Ninth Circuit Over Whether Failure to Make Adequate Disclosures Under Item 303 of Regulation S-K May Serve as Basis for a Section 10(b) Claim

In Stratte-McClure v. Morgan Stanley, No. 13-0627-cv, 2015 WL 136213 (2d Cir. Jan. 12, 2015), the United States Court of Appeals for the Second Circuit affirmed the dismissal of securities fraud claims against Morgan Stanley arising out of its exposure to and losses from a proprietary subprime mortgage trade in 2007.  In reaching its decision, the Second Circuit held that a failure to make a disclosure required by Item 303 of Regulation S-K, 17 C.F.R. § 229.303(a)(3)(ii), may serve as a basis for a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder.  The Second Circuit recognized that its holding regarding Item 303 of Regulation S-K was directly “at odds” with the 2014 decision of the United States Court of Appeals for the Ninth Circuit in In re NVIDIA Corp. Securities Litigation, 768 F.3d 1046 (9th Cir. 2014).  Morgan Stanley establishes a circuit split between the Second and Ninth Circuits on the issue of whether failure to make adequate disclosures under Item 303 may serve as the basis for Section 10(b) claims, potentially warranting review by the United States Supreme Court.

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Higher Filing Thresholds for HSR Act Premerger Notifications and Interlocking Directorates Announced

1. Higher Thresholds For HSR Filings

On January 15, 2015, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product and will be effective thirty days after publication in the Federal Register. Publication is expected within a week, so the new thresholds will most likely become effective in late February 2015. Acquisitions that have not closed by the effective date will be subject to the new thresholds.

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