Articles Posted in Securities Law

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The Eleventh Circuit vacated its original opinion in this case and issued the following opinion in its place. The CFTC begain investigating defendants in response to a customer's complaint of commodities fraud. The NFA also opened an investigation, which proceeded in tandem with the CFTC's, but ended in a settlement. The CFTC then filed suit alleging that defendants violated the Commodities Exchange Act (CEA) when they failed to register as futures commission merchants, transacted the purchase and sale of contracts for the future delivery of a commodity (futures) outside of a registered exchange, and promised to invest customers' money in precious metals (metals) but instead invested the funds in so-called "off-exchange margined metals derivatives" (metals derivatives). The court affirmed the district court's judgment except as to the restitution award for the group of investors whose losses were associated solely with the registration violations. In regard to the restitution award, the court vacated and remanded with instructions to consider other equitable remedies. View "U.S. Commodity Futures Trading Commission v. Southern Trust Metals, Inc." on Justia Law

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The Eleventh Circuit reversed the district court's dismissal of plaintiff's putative class action complaint alleging state law claims for breach of contract and negligence. Plaintiff claimed that because Passport Account customers had agreed only to pay for "expenses incurred in facilitating the execution and clearing" of their trades, RJA's undisclosed profit built into the Processing Fees breached the Passport Agreement. The court held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) did not prohibit plaintiff's putative class action because RJA's alleged failure to disclose the hidden profit built into the Processing Fee was not a misrepresentation of a material fact for purposes of SLUSA. Accordingly, the court remanded for further proceedings. View "Brink v. Raymond James & Associates, Inc." on Justia Law

Posted in: Securities Law

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The Eleventh Circuit vacated a cease and desist order issued by the FTC against LabMD. The FTC brought an enforcement action against LabMD, alleging that LabMD's data-security program was inadequate and thus constituted an "unfair act or practice" under Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a). The court agreed with LabMD that the order was not enforceable because it did not direct LabMD to cease committing an unfair act or practice within the meaning of Section 5(a). Assuming arguendo that LabMD's negligent failure to design and maintain a reasonable data-security program invaded consumers' right of privacy and thus constituted an unfair act or practice, the court held nonetheless that the cease and desist order was not enforceable where it contained no prohibitions, but rather commanded LabMD to overhaul and replace its data-security program to meet an indeterminable standard of reasonableness. View "LabMD, Inc. v. Federal Trade Commission" on Justia Law

Posted in: Securities Law

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Petitioners challenged the Commission's issuance of an order approving Rule 2030, a regulation governing the political contributions of FINRA members who solicit government officials for investment advisory services contracts. The Eleventh Circuit held that it could not consider the petition on the merits because the Georgia party did not have standing to challenge the Rule and this court was not the proper venue for either the New York Committee or the Tennessee Party. Accordingly, the court dismissed the Georgia Party for lack of jurisdiction, and transferred the appeal of the remaining two parties to the United States Court of Appeals for the District of Columbia Circuit. View "The Georgia Republican Party v. Securities and Exchange Commission" on Justia Law

Posted in: Securities Law

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Petitioners challenged the Commission's issuance of an order approving Rule 2030, a regulation governing the political contributions of FINRA members who solicit government officials for investment advisory services contracts. The Eleventh Circuit held that it could not consider the petition on the merits because the Georgia party did not have standing to challenge the Rule and this court was not the proper venue for either the New York Committee or the Tennessee Party. Accordingly, the court dismissed the Georgia Party for lack of jurisdiction, and transferred the appeal of the remaining two parties to the United States Court of Appeals for the District of Columbia Circuit. View "The Georgia Republican Party v. Securities and Exchange Commission" on Justia Law

Posted in: Securities Law

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The CFTC filed suit alleging that defendant violated the Commodities Exchange Act (CEA), when they failed to register as futures commission merchants, transacted the purchase and sale of contracts for the future delivery of a commodity (futures) outside of a registered exchange, and promised to invest customers' money in precious metals (metals) but instead invested the funds in futures. The Eleventh Circuit affirmed the district court's judgment in favor of the CFTC on all claims except as to the restitution award for the group of investors whose losses were associated solely with the registration violations. The court vacated that portion of the judgment and remanded with instructions to consider other equitable remedies. In this case, the district court erred in finding that the registration violation alone proximately caused any loss. View "U.S. Commodity Futures Commission v. Southern Trust Metals, Inc." on Justia Law

Posted in: Securities Law

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In 2011 and 2012, a number of individuals and closely held corporations known as Treasure Your Success (TYS) operated a fraudulent credit card interest reduction scheme. Universal Processing Services of Wisconsin, LLC (Universal) violated the Telemarketing Sales Rule (TSR), 16 C.F.R. 310.1 et seq., by providing substantial assistance to the TYS schemers. The district court found that a violation of the TSR constitutes an “unfair or deceptive act or practice” in violation of the Federal Trade Commission Act. As such, the district court was authorized to order restitution and disgorgement. Furthermore, the court clarified that substantial assistance under the TSR was itself sufficient to justify joint and several liability. The court reaffirmed its order holding Universal jointly and severally liable; Universal contended that was error and joint and several liability can only lie where the defendant is a participant in a common enterprise with the primary violators. The Eleventh Circuit concluded after review the district court did not abuse its discretion in holding Universal jointly and severally liable with the members of the TYS scheme. View "Federal Trade Comm'r v. Universal Processing Services of Wisconsin, LLC" on Justia Law

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The Eleventh Circuit affirmed the district court's dismissal of plaintiff's complaint against FINRA and its denial of plaintiff's motion to remand the case to Florida state court. The court held that removal was proper in this case because suits against self-regulatory organizations (SROs) like FINRA for violating their internal rules "arise under" the Securities Exchange Act of 1934, 15 U.S.C. 78o(a)(1), (b)(1), and therefore fall under the Act's grant of exclusive jurisdiction to the federal district courts. The court also held that the district court correctly dismissed plaintiff's claim because no private right of action exists for SRO members and associated persons to sue SROs for violating their own internal rules. View "Turbeville v. Financial Industry Regulatory Authority" on Justia Law

Posted in: Securities Law

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ZPRIM sought review of the SEC's final order finding that petitioners made material misrepresentations to prospective clients in violation of the Investment Advisers Act of 1940, 15 U.S.C. 80b-1. The Eleventh Circuit vacated the violations and monetary sanctions related to the newsletter ZPRIM published in December 2009. In this case, ZPRIM's disclaimer was not boilerplate and was not buried among too many other things, but was explicit, repetitive and linked to the statement about which the SEC complains. Therefore, in light of the clear cautionary statements in the newsletter, the Commission's finding of materiality for that newsletter was not supported by substantial evidence. The court affirmed all other violations and sanctions. View "ZPR Investment Management Inc. v. SEC" on Justia Law

Posted in: Securities Law

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The SEC filed suit against defendant, alleging violations of the registration provisions of the Securities Act, 15 U.S.C. 77a et seq., and fraud in the sale of securities in violation of the Securities and Exchange Act, 15 U.S.C. 78a et seq. The court awarded summary judgment to the SEC, finding no merit in defendant's affirmative defenses. A jury found defendant liable on the fraud claims. The court concluded that the district court erred in granting summary judgment to the SEC because it found the Banyon note offerings were not eligible for a Regulation D exemption from the registration requirements of Section 5 of the Securities Act. The court held that Rule 508(a) not only preserves the safe harbor for certain insignificant deviations in private actions, but it also preserves the safe harbor in SEC enforcement actions. In this case, the court reasoned that defendant established a genuine dispute of material fact whether the Banyon note offering, as a whole, falls under the safe harbor provision in Rule 508. The court also concluded that defendant failed to show serious prejudice to his case from the district court's denial of the motion for continuance; the district court properly based the disgorgement order upon defendant's gains and not the investors' losses; and the district court did not plainly err in questioning defendant and another witness during trial. Accordingly, the court affirmed in part, reversed in part, and remanded. View "SEC v. Levin" on Justia Law

Posted in: Securities Law