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

Articles Posted in Securities Law
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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

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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

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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

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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

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Southfield appealed the dismissal of its consolidated class-action securities fraud complaint against St. Joe and St. Joe's current and former officers for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), 78t(a), and Securities and Exchange Commission (SEC) Rule 10b-5, 17 C.F.R. 240.10b-5. Southfield argued that the district court erred in holding that they failed to adequately plead loss causation, actionable misrepresentation, or scienter, and also by denying their post-judgment motion to alter or amend. The court held that the complaint as framed by Southfield failed to adequately allege loss causation and the district court was therefore correct to dismiss Southfield's complaint for failure to state a claim. Accordingly, the court affirmed the judgment. View "City of Southfield Fire & Police Retirement System v. Greene, et al" on Justia Law

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Petitioners, husband and wife, sought review of a judgment of the Tax Court sustaining the Commissioner's determination of a deficiency, an accuracy-related penalty, and a penalty for filing a delinquent tax return. Husband worked for IBM and acquired IBM stock by exercising his employee stock options. Husband subsequently participated in a program operated by Derivium, whereby it would "lend" a client ninety percent of the value of securities that the client pledged to it as collateral. The court concluded that a combination of factors pointed decidedly to the conclusion that husband disposed of his stock by signing a Master Agreement and addenda and retained no real interest in his collateral or the "loan" after Derivium had transferred the proceeds to him. The court also concluded that plaintiffs have not shown that they acted with reasonable cause and in good faith when they declared their income from the sale of IBM shares to Derivium. Consequently, the court affirmed the Tax Court's imposition of an accuracy-related penalty. Further, plaintiffs have not carried their burden of establishing reasonable cause for failing to timely file their return and therefore, the Commissioner's assessment of a late-filing penalty was appropriate. View "Calloway v. Commissioner of IRS" on Justia Law

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During an eight-month period, Plaintiff and Counterclaim-Defendant Hemispherx Biopharma, Inc. (“Hemispherx”) hired three different investment brokers to raise capital for it. Hemispherx hired the first two brokers at a time when it was difficult to sell Hemispherx’s stock. Months later, when market forces made Hemispherx’s stock much more attractive, Hemispherx hired a third broker was able very quickly to raise $31 million in capital for Hemispherx through stock sales. All three brokers focused their capital-raising efforts on several of the same prospective investors and, when several of those investors eventually purchased Hemispherx stock, a dispute arose as to which of the three brokers was entitled to a commission on the stock sales. The first investment broker Hemispherx hired, Defendant and Counterclaimant Mid-South Capital, Inc. (“Mid-South”), sought to recover a commission for its efforts in identifying investors and introducing them to Hemispherx. Hemispherx contendsed that Mid-South and its employees, Defendants Robert Rosenstein and Adam Cabibi, tortiously interfered with Hemispherx’s business relationship with its investors and with the third investment broker who ultimately closed the stock deals at issue here. The district court denied each party relief, granting judgment on the pleadings to Hemispherx on Mid-South’s breach-of-contract claim, and summary judgment to Hemispherx on Mid-South’s remaining claims and to Mid-South on Hemispherx’s intentional interference with business relationships claim. After review of the matter, the Eleventh Circuit affirmed the district court in granting summary judgment to Mid-South on the tortious interference claim; reversed the judgment on the pleadings on Mid-South's breach-of-contract claim; and reversed the grant of summary judgment for Hemispherx on Mid-South's promissory estoppel, quantum meruit and unjust enrichment claims. The case was remanded for further proceedings. View "Hemispherx Biopharma, Inc. v. Mid-South Capital, Inc." on Justia Law

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The issue before the Eleventh Circuit concerned a private securities fraud class action suit brought against a bank holding company and its management. State-Boston Retirement System, a shareholder and lead plaintiff, sought to prove that the holding company had misrepresented the level of risk associated with commercial real estate loans held by its subsidiary. After the trial, the District Court submitted the case to the jury on a verdict form seeking general verdicts and answers to special interrogatories. When the jury returned a verdict partially in favor of State-Boston, the holding company moved for judgment as a matter of law. Perceiving an inconsistency between two of the jury's interrogatory answers, the District Court discarded one of them and granted the motion on the basis of the remaining findings. The Eleventh Circuit concluded that was error: "[w]hen a court considers a motion for judgment as a matter of law -even after the jury has rendered a verdict- only the sufficiency of the evidence matters. . . .The jury’s findings are irrelevant." Despite the District Court’s error, the Eleventh Circuit concluded that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim. The Court therefore affirmed. View "State-Boston Retirement System v. BankAtlantic Bancorp, Inc." on Justia Law

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The SEC brought a civil enforcement action against defendant after he orchestrated a plan to manipulate the amount of money his company was required to set aside to safeguard customer assets. Defendant was subsequently liable for committing securities fraud and on appeal, defendant challenged the district court's holding on liability and the propriety of the resulting injunction. After reviewing the record and having the benefit of oral argument, the court agreed with defendant that the facts as found by the district court did not support securities fraud liability and the court reversed the judgment on this claim. The court held, however, that it was clear from the district court's factual findings that defendant aided and abetted violations of the Securities Exchange Act, 15 U.S.C. 78a et seq., so the court affirmed the judgment finding liability on these counts. Since the court reversed the district court's finding of securities fraud, the court vacated the portion of the injunction restraining defendant from violating section 10(b) of the Exchange Act and Rule 10b-5. The court also vacated the injunction barring defendant from the securities business for life. Defendant contended that the remaining portions of the injunctions were impermissible "obey-the-law" commands and the court agreed in part, vacating these paragraphs of the injunction. View "Securities & Exchange Comm. v. Goble" on Justia Law

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In this civil enforcement action, the SEC sued Morgan Keegan, alleging that, in the critical time period of late 2007 and early 2008, Morgan Keegan's brokers (1) misrepresented that auction rate securities (ARS) were safe cash-equivalents with no liquidity risk and (2) despite myriad auction failures and significant trouble in the ARS market, continued to recommend ARS as short-term, liquid investments and failed to disclose the known liquidity risk. The court concluded that the district court erred in granting summary judgment for Morgan Keegan based on the "materiality" element of the securities violations charged. The court's holding was narrow and limited to materiality and did not address whether the SEC had met any other element of its claims or whether the SEC would ultimately prevail in the litigation. Accordingly, the court vacated and remanded. View "Securities & Exchange Comm. v. Morgan Keegan & Co., Inc." on Justia Law