Justia U.S. 11th Circuit Court of Appeals Opinion Summaries

The Securities and Exchange Commission (SEC) brought a civil enforcement action against defendants Big Apple Consulting USA, Inc., MJMM Investments, LLC, Marc Jablon, and Mark Kaley (collectively, defendants) for violations of the Securities Act of 1933, and the Securities Exchange Act of 1934. The SEC's allegations stemmed from the defendants' relationship with CyberKey Solutions, Inc. and its CEO James Plant. CyberKey sold customizable USB drives that could be loaded with encryption software to secure content stored on the drives. CyberKey's stock traded on a website called "Pink Sheets." Kaley executed a consulting agreement with CyberKey on behalf of MJMM, in which MJMM agreed to provide services intended to promote CyberKey's business. At first, there was no demand for CyberKey stock, but that changed when Plant began reporting fabricated contracts. A fake contract purportedly with the Department of Homeland Security (DHS) "was a game changer." CyberKey publicized the DHS contract in several press released; MSI drafted the press release and Big Apple was listed as the primary contact. The National Association of Securities Dealers (NASD - now known as the Financial Industry Regulatory Authority (FINRA)), sent a fax to Plant informing him that it was reviewing CyberKey's trading activity. NASD requested that CyberKey provide it with the "documents and information" concerning: (1) the DHS contract; (2) an explanation of how the DHS contract was negotiated; (3) a list of CyberKey's contacts at DHS; and (4) details of CyberKey's relationship with Big Apple. Plant e-mailed the fax to Jablon and Kaley, and they advised Plant to have his securities attorney handle the matter. Jablon and Kaley did not follow up on the status of the inquiry. In early 2007, the SEC issued an order suspending the trading of CyberKey stock due to concerns as to the accuracy of assertions made by CyberKey and others in press releases and public statements to investors. Over the course of the defendants' relationship with CyberKey, Big Apple and MJMM sold more than a combined 720 million CyberKey shares for approximately $7.8 million. During the time that CyberKey was a client, it was one of the top five most actively traded stocks on Pink Sheets. The SEC filed its complaint in federal court and alleged that the defendants "knew, or were severely reckless in not knowing, that CyberKey did not have a $25 million purchase order from the DHS or any other [f]ederal government agency, and thus had very little legitimate revenue at all." Nonetheless, the defendants "persisted in promoting CyberKey and selling hundreds of millions of unregistered CyberKey shares to unsuspecting investors." The district court granted summary judgment in favor of the SEC as to some of the claims, and the remainder of the claims proceeded to trial. A jury found in favor of the SEC as to the remaining claims against all defendants. Defendants raised six errors on appeal to the Eleventh Circuit. But finding no reversible error, the Court affirmed the trial court's decision and the jury's verdict. View "U.S. Securities & Exchange Comm'n v. Big Apple Consulting USA, Inc." on Justia Law

The plaintiffs in this case, Carlos Zelaya and George Glantz, were victims of one of the largest Ponzi schemes in American history: the Ponzi scheme orchestrated by R. Allen Stanford. Plaintiffs were taken by surprise, yet, according to Plaintiffs, the federal agency entrusted with the duty of trying to prevent, or at least reveal, Ponzi schemes was not all that surprised. To the contrary, the United States Securities and Exchange Commission (“SEC”), had been alerted over a decade before that Stanford was likely running a Ponzi operation. According to Plaintiffs, notwithstanding its knowledge of Stanford’s likely nefarious dealings, the SEC dithered for twelve years, "content not to call out Stanford and protect future investors from his fraud." And though the SEC eventually took action in 2009, many people lost most of their investments. Pursuant to the Federal Tort Claims Act, Plaintiffs sued the United States in federal court, alleging that the SEC had acted negligently. The federal government moved to dismiss, arguing that it enjoyed sovereign immunity from the lawsuit. The district court agreed, and dismissed Plaintiffs’ case. Plaintiffs appealed that dismissal to the Eleventh Circuit Court of Appeals. In reviewing the district court’s dismissal, the Court reached no conclusions as to the SEC’s conduct, or whether the latter’s actions deserved Plaintiffs’ condemnation. The Court did, however, conclude that the United States was shielded from liability for the SEC’s alleged negligence in this case. The Court therefore affirmed the district court’s dismissal of the Plaintiffs’ complaint. View "Zelaya v. United States" on Justia Law

An interlocutory appeal before the Eleventh Circuit centered on an order granting motions to dismiss by two defendants in a securities class action against Jiangbo Pharmaceuticals, Inc., its principal officers, and its audit firm. Jiangbo came into existence as a U.S. corporation in 2007 when its Chinese operational arm, Laiyang Jiangbo, executed a reverse merger with a Florida shell company. Jiangbo's tenure as a public company "was short and fraught with suspicion of misconduct." Shares began trading on NASDAQ on June 8, 2010 and traded on that exchange for just under a year. Only six months after trading began, the Securities and Exchange Commission (SEC) initiated an informal, non-public investigation into Jiangbo. The company's fortunes unraveled quickly soon thereafter, and the SEC formalized its investigation, which remained non-public. Jiangbo made two significant disclosures in late May 2011 that marked the culmination of its decline: it publicly acknowledged the formal SEC investigation for the first time and reported that the company had defaulted on a relatively small principal payment toward debt from its initial financing. Trading ended days later on May 31, 2011, by which time the share price had fallen from a class-period high of $10.49 per share to $3.08. By November 2011, after Jiangbo had moved to another exchange, its shares were trading for just $0.14. The investors' consolidated amended complaint alleged, inter alia, that Elsa Sung (the former Chief Financial Officer) and Frazer LLP (the external auditor) misrepresented the company's cash balances and failed to disclose a material related-party transaction in statements within or appurtenant to those filings, in violation of Section 10(b) of the Securities Exchange Act. The district court found that the investors failed to sufficiently plead their allegations of fraud against defendants Sung and Frazer LLP ("Frazer"). Applying the heightened pleading standard imposed by the Private Securities Litigation Reform Act ("PSLRA"), the Eleventh Circuit Court of Appeals affirmed the district court. View "Brophy v. Jiangbo Pharmaceuticals, Inc." on Justia Law

A 2004 judgment entered against John Zelaya was rendered in the United States District Court for the Southern District of New York and was registered in the Southern District of Florida. ZC was not party to the suit that led to the judgment and, instead, the prevailing parties assigned their interests in the judgment to ZC. ZC then sought a writ of execution against Zelaya from the Southern District of Florida. In 2010, Zelaya deposited the full amount of the judgment into the district court's registry where the district court then dissolved writs of garnishment against all of the banks at issue, granted Zelaya's motion for a satisfaction judgment, and awarded attorney fees and costs to Deutsche Bank. The court concluded that it had jurisdiction over the consolidated appeal; the district court did not err in allowing Zelaya to deposit the disputed funds into the court's registry; the district court did not err in granting Zelaya's motion for a satisfaction of the judgment; the district court did not err in its award of attorney fees and costs to Deutsche Bank; and, therefore, the court affirmed the judgment. View "Zelaya/Capital Int'l Judgment, LLC v. Zelaya, et al." on Justia Law

Plaintiff filed suit against SLI alleging violations of section 10(b) of the Securities Exchange Act of 1934 and accompanying Rule 10b-5, 15 U.S.C. 78j and 17 C.F.R. 240.10b-5. Plaintiff alleged that SLI withheld material information about preliminary merger negotiations that it was obliged to disclose. The jury returned a verdict in favor of plaintiff and SLI subsequently renewed a motion for judgment as a matter of law and, alternatively, a motion for a new trial. The district court denied the motions. The court concluded that there was sufficient evidence of actionable omissions where SLI's August 2007 statements that it "will continue to be privately held, and that the Stiefel family will retain and continue to hold a majority-share ownership of the company" gave rise to a duty to update when SLI considered itself to be a serious acquisition target; there was sufficient evidence that the omitted information was material; the district court did not err by refusing to give SLI's proposed jury instruction where SLI has demonstrated no prejudice from the district court's refusal to give the instruction; and the court rejected SLI's remaining arguments. Accordingly, the court affirmed the judgment of the district court.View "Finnerty v. Stiefel Laboratories, Inc., et al." on Justia Law

The SEC filed suit against Arthur Nadel and two of his investment companies for operating a Ponzi scheme. The district court appointed a receiver to take possession and control over Quest because the officers were funding the company with proceeds from a Ponzi scheme. The district court enjoined the current officers from taking any actions on behalf of Quest and vested the receiver with the authority to "[d]efend, compromise or settle legal actions, including the instant proceeding." The officers now appeal the appointment of the receiver. The court granted the receiver's motion to dismiss for lack of jurisdiction because the officers did not have standing to appeal in the name of Quest where the district court enjoined the officers from taking any action on behalf of Quest. View "SEC v. Quest Energy Mgmt. Grp." on Justia Law

Defendant challenged his conviction and sentence for conspiracy to commit securities fraud in violation of 18 U.S.C. 371. This case arose out of a complex scheme designed to defraud investors through a group of hedge funds called the Lancer Fund. The court affirmed defendant's conviction; affirmed the denial of defendant's motion for a new trial; but vacated defendant's sentence because the district court erred when it enhanced defendant's sentence and ordered restitution based on the losses from Morgan Stanley's investment. The court remanded for resentencing. View "United States v. Isaacson" on Justia Law

Amendments to the Commodity Exchange Act, Pub. L. No. 111-203, 124 Stat. 1376, made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 purported to expand the enforcement authority of the Commodity Futures Trading Commission. The Dodd-Frank amendments authorize the Commission to regulate retail commodity transactions offered "on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the officer or counterparty on a similar basis." In light of the district court's factual findings and legal conclusions with which the court agreed, the court held that the Commission has enforcement authority over these transactions, and no exception applied. The court affirmed the district court's grant of the preliminary injunction because the Commission had pleaded a prima facie case of a violation of the Act. View "U.S. Commodity Futures v. Martin, Jr., et al." on Justia Law

Plaintiff (the customer) filed suit against State Street (the custodian bank), alleging in essence that it had a duty to notify him that the securities in his account were worthless. The district court granted State Street's motion to dismiss the contract claims on the ground that State Street had a merely administrative role in managing plaintiff's accounts and thus owed him no duty to guard against his investment advisor's misconduct. The district court concluded that plaintiff's negligence claims were barred by Florida's economic loss rule and plaintiff had not sufficiently alleged knowledge on the part of State Street in regards to the aiding and abetting claims. The court affirmed, holding that, under these facts, the custodian bank breached no duty, contractual or otherwise, by accepting on behalf of its customer securities that later turn out to be fraudulent and listing those securities on monthly account statements issued to the customer. Plaintiff's allegations failed to state claims for breach of contract; plaintiff failed to establish that State Street owed him an independent duty to monitor the investments in his account, verify their market value, or ensure they were in valid form; therefore, he failed to state valid negligence claims; plaintiff's allegations were insufficient to state a claim for aiding and abetting; and plaintiff's claims for breach of fiduciary duty and negligent misrepresentation also failed. View "Lamm v. State Street Bank and Trust" on Justia Law

Appellants, purchasers of stock, alleged that appellees made material misstatements and omissions in an IPO Registration Statement and prospectus for a September 2009 public offering of the stock in violation of sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. 78a et seq. Because appellants failed to plausibly allege a material misstatement or omission in the prospectus, each of their claims failed. Accordingly, the court affirmed the district court's grant of appellees' motion to dismiss for failure to state a claim under the Act. View "Miyahira, et al. v. Vitacost.com, Inc., et al." on Justia Law