Securities Litigation

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In Indiana State District Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 2013 WL 2248970 (6th Cir. May 23, 2013), the United States Court of Appeals for the Sixth Circuit held that a claim alleging a false statement of opinion or belief in a registration statement may proceed under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, despite the absence of allegations suggesting that the defendants did not actually hold the opinion or believe the statement. In reaching this decision, the Sixth Circuit declined to follow decisions by the Second Circuit (see Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011) [blog article here]) and Ninth Circuit (see Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009) [blog article here]) holding that a Section 11 complaint which fails to allege that the defendant did not actually believe the false statement or hold the opinion at issue would be dismissed. This clear Circuit split on an important issue of federal securities law will require resolution by the United States Supreme Court.
Continue Reading Sixth Circuit Splits with Second and Ninth Circuits Regarding Need to Allege Defendants’ State of Mind for Claims Challenging Soft Information Under Section 11 of the Securities Act of 1933

In Fezzani v. Bear, Stearns & Co., Inc., No. 09-4414-cv, 2013 WL 1876534 (2d Cir. May 7, 2013), a 2-1 majority of a panel of the United States Court of Appeals for the Second Circuit held that plaintiffs’ failure to plead direct misrepresentations from defendant to plaintiffs was fatal to their market manipulation claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. This is the first decision from a Court of Appeals applying the strict limitations on the scope of primary liability set in recent decisions by the Supreme Court to claims involving market manipulation.Continue Reading Second Circuit Holds that Allegations of Direct Fraudulent Representations Are Necessary for Market Manipulation Claims Under Section 10(b) and Rule 10b-5

In City of Livonia Employee Retirement System v. Boeing Co., Nos. 12-1899, 12-2009 2013 WL 1197791 (7th Cir. Mar. 26, 2013), the United States Court of Appeals for the Seventh Circuit (Posner, J.) affirmed the dismissal of a securities fraud class action against the Boeing Company (“Boeing”) and remanded the question of whether sanctions under Rule 11 of the Federal Rules of Civil Procedure should be levied against plaintiffs’ counsel after allegations attributed to a confidential witness, which initially saved the case from dismissal, were later denied by the witness. The Court’s ruling provides a strong reminder that plaintiffs’ counsel in securities cases must exercise great care when using allegations of confidential witnesses to satisfy the heightened pleading standards of the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (“Reform Act”).Continue Reading Seventh Circuit Affirms Dismissal of Securities Fraud Class Action, Remanding Question of Sanctions Against Plaintiffs’ Counsel

In New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group, PLC, 2013 U.S. App. LEXIS 4317 (2d Cir. Mar. 1, 2013), the United States Court of Appeals for the Second Circuit reversed the dismissal of a claim for violations of Sections 11 and 12(a)(2) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77l, holding that the plaintiff pleaded sufficient facts to support a reasonable inference that defendants misstated mortgage underwriting guidelines to investors. This decision is notable for its application of the Federal Rule of Civil Procedure 8(a) pleading standard, as clarified by the United States Supreme Court in BellAtlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), to claims under the Securities Act.Continue Reading Second Circuit Reverses Dismissal of Section 11 and 12(a)(2) Claims, Holding that Plaintiff’s Allegations Were Sufficient to Plead a Reasonable Inference of Misrepresentations in a Prospectus

In Belmont v. MB Investment Partners, Inc., No. 12-1580, 2013 WL 646344 (3d Cir. Feb. 22, 2013), the United States Court of Appeals for the Third Circuit held that a mere failure by corporate directors to oversee enforcement of compliance protocols which, if properly enforced, might have led to the directors’ knowledge of securities fraud by a corporate employee does not establish the directors’ “culpable participation” in the employee’s misconduct sufficient to support controlling person liability under Section 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78t(a). Third Circuit held additionally that corporate directors may not be held personally liable for misconduct of corporate employers under a theory of negligent supervision. These rulings reinforce protections for directors from personal exposure to damages caused to third parties by harmful acts of employees, even where better corporate oversight might have been able to prevent the harm caused by the employees.Continue Reading Third Circuit Reinforces Limits to Directors’ Exposure for Misconduct by Corporate Employees

In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085, 2013 WL 691001 (U.S. Feb. 27, 2013), the United States Supreme Court affirmed the decision of the United States Court of Appeals for the Ninth Circuit holding that a securities fraud plaintiff need not prove that the alleged false statements made by defendants were material in order to invoke the fraud-on-the-market presumption of reliance established by Basic, Inc. v. Levinson, 485 U.S. 224 (1988), at the class certification stage of the proceedings. The 6-3 majority opinion, written by Justice Ginsburg, resolved a split in the Circuits, which had pitted the First, Second, Fifth and, to a certain extent, Third Circuits against the Seventh and Ninth Circuits on this point. The Supreme Court’s decision deprives securities fraud defendants a means of limiting or effectively defeating a securities class action lawsuit at an early stage in the case before the bulk of fact discovery has begun.Continue Reading United States Supreme Court Holds that Class Action Securities Fraud Plaintiffs Need Not Prove the Materiality of the Alleged False Statements or Omissions to Support Certification of a Class, Resolving Circuit Split

In Kleinman v. Elan Corporation, No. 11-3706-cv, 2013 WL 388006 (2d Cir. Feb. 1, 2013), the United States Court of Appeals for the Second Circuit affirmed the dismissal of a securities class action lawsuit alleging that defendants violated 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, by issuing a misleading press release describing the preliminary clinical trial results for an Alzheimer’s drug. The Second Circuit concluded that, in the context of the full presentation of details surrounding the study of the drug, nothing omitted from the press release rendered the release false or misleading to a reasonable investor. This decision reconfirms that in order to be actionable under Section 10(b) and Rule 10b-5, an alleged omission must be misleading, not just material.Continue Reading Second Circuit Affirms Dismissal of Securities Fraud Claims Relating to Allegedly Misleading Press Release

In the first SEC enforcement action of its kind, the SEC announced on February 8, 2013 that it had filed civil charges against, and received an emergency order to freeze assets of, the Intercontinental Regional Center Trust of Chicago, a designated Regional Center under the EB-5 Immigrant Investor Program administered by U.S. Citizenship and Immigration Services (USCIS), and the Regional Center’s principal. See full complaint here.Continue Reading SEC Freezes Assets and Brings Civil Charges against EB-5 Investor Visa Project

In Freeman Investments, LP v. Pacific Life Insurance Co., No. 09-55513, 2013 WL 11884 (9th Cir. Jan 2, 2013), the United States Court of Appeals for the Ninth Circuit held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) precluded plaintiffs’ class claims for violations of California Business & Professions Code § 17200, but did not preclude plaintiffs’ breach of contract claims. The Court held that the Section 17200 claims were predicated on alleged misrepresentations and omissions, whereas the contract claims were not. The Ninth Circuit’s holding reaffirms the courts’ broad application of SLUSA to class claims that are dependent upon allegations of misrepresentations or omissions.Continue Reading Ninth Circuit Applies Securities Litigation Uniform Standards Act to Affirm Dismissal of Section 17200 Class Action Involving Variable Life Insurance Policies

In Gibbons v. Malone, No. 11-3620-cv, 2013 WL 57844 (2d Cir. Jan. 7, 2013), the United States Court of Appeals for the Second Circuit held that the “short-swing profits rule” imposed by Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), requiring corporate insiders to disgorge profits earned from certain purchases and sales of their company’s securities that take place within a six month period, applies only to purchases and sales of the same equity security of the company. This decision clarified the restrictions that Section 16(b) places on the types of securities that are covered by the statute, thereby limiting the scope of the statute.Continue Reading The Second Circuit Finds No Section 16(b) Violation Where Different Securities of the Same Issuer Are Bought and Sold