Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Articles Posted in Securities Law

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These consolidated cases stemmed from an SEC complaint against Robert Allen Stanford, the Stanford International Bank, and other Stanford entities, alleging a massive, ongoing fraud. The receiver subsequently filed suit against two of Stanford's insurance brokers as participants in the fraudulent scheme. The district court entered bar orders and approved settlements after the insurance brokers ultimately agreed to settle conditioned on bar orders enjoining related Ponzi-scheme suits filed against the brokers. Objectors appealed. The Fifth Circuit affirmed the district court's judgment, holding that the district court had subject matter jurisdiction to enjoin third party investors' claims in order to effectuate and preserve the coordinating function of the receivership. The court also held that the bar orders did not violate the Anti-Injunction Act where they prevented Florida and Texas state-court proceedings from interfering with the res in custody of the federal district court and aided the district court's jurisdiction over the receivership entities. Finally, the court held that objectors were not deprived of due process; rejected objectors' contention that the settlement agreements and bar orders were de facto class settlements; held that a right to a jury does not create a right to proceed outside the receivership proceeding; and held that the district court did not abuse its discretion in approving the settlement agreements. View "SEC v. Stanford International Bank, Ltd." on Justia Law

Posted in: Securities Law

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The Fifth Circuit withdrew its prior panel opinion and substituted the following opinion. The court reversed the district court's grant of summary judgment for the SEC in a civil enforcement action against defendants. At issue was whether investors expected to profit solely from the efforts of managers. The court held that defendants put forth enough evidence to raise genuine issues of fact regarding the three Williamson factors, which addressed situations were investors depend on a third-party manager for their investment's success. Accordingly, the court reversed the district court's ruling on the Williamson factors: whether the drilling projects left the investors so little power that the arrangement in fact distributes power as would a limited partnership; whether the drilling project investors were so inexperienced and unknowledgeable in business affairs that they were incapable of intelligently exercising their powers; and whether the investors are so dependent on some unique entrepreneurial or managerial ability of the managers that they cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers. View "SEC v. Arcturus Corp." on Justia Law

Posted in: Securities Law

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Individual retail-brokerage customers of Paine-Webber who purchased Enron securities, and Enron employees who acquired employee stock options, filed suit against subsidiaries of UBS, alleging violations of the securities laws for their role as a broker of Enron's employee stock option plan and for failure to disclose material information about Enron's financial manipulations to its retail investors. The Fifth Circuit affirmed the district court's dismissal of the complaint for failure to state a claim under the Securities Act of 1933 and the Securities Exchange Act of 1934. The court held that plaintiffs failed to demonstrate that the grant of Enron options amounted to the sale of a security, and failed to establish that either defendant had material, nonpublic knowledge to disclose and a duty to disclose. Furthermore, the district court did not abuse its discretion in denying plaintiffs an additional chance to amend their complaint. View "Lampkin v. UBS Financial Services, Inc." on Justia Law

Posted in: Securities Law

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Plaintiffs filed suit alleging that defendants induced them to join a business enterprise with material misrepresentations and omissions in violation of the Securities Exchange Act of 1934. Defendants proposed to plaintiffs that if they will set up businesses that provide intraoperative neuromonitoring procedures, defendants would manage them, and through signature billing practices, make plaintiffs a substantial profit. The district court granted defendants' motion to dismiss. The Fifth Circuit held that the limited partnership interests in this case were securities and thus plaintiffs have adequately pleaded the existence of a security; Statements 1, 6, and 7, as well as all three omissions, were properly dismissed; but plaintiffs adequately stated a 10b-5 claim with regard to Villarreal and the defendant entities for Statements 2–5. However, plaintiffs' case against Casarez failed with regard to these statements. Accordingly, the court reversed and remanded in part and affirmed in part. View "Masel v. Villarreal" on Justia Law

Posted in: Securities Law

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Plaintiff filed suit against his employer, alleging a claim under the anti-retaliation provision of the Sarbanes-Oxley Act. The district court concluded that the employer's decision to fire plaintiff was not prohibited retaliation and that plaintiff did not have an objectively reasonable belief that a violation of reporting requirements had occurred. The Fifth Circuit affirmed the district court's grant of summary judgment for the employer, holding that the district court did not abuse its discretion in finding that paragraph 22 of the declaration of plaintiff's witness was impermissible expert testimony. Therefore, there was no genuine issue of material act as to whether plaintiff's purported belief that his employer was misreporting its revenue was objectively reasonable in light of the undisputed facts. View "Wallace v. Andeavor Corp." on Justia Law

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Plaintiff filed suit on behalf of purchasers of Flotek common stock, alleging that the company and three of its officers exaggerated the usefulness of its products and made misrepresentations relating to a proprietary software the company developed to help market these products. The Fifth Circuit affirmed the district court's dismissal of the complaint, holding that plaintiffs failed to plead facts giving rise to a strong inference of fraudulent scienter. In this case, plaintiffs identified several alleged misrepresentations but each failed to raise a strong inference of scienter. View "Ho v. Flotek Industries, Inc." on Justia Law

Posted in: Securities Law

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The SEC alleged that defendants violated the Securities Exchange Act because they failed to register interests in their drilling projects as securities. Williamson v. Tucker set out three factors for determining whether investors expect to profit solely from third-party efforts. The Fifth Circuit reversed the district court's grant of the SEC's motion for summary judgment, holding that defendants raised significant issues of material fact. The court applied the first factor in Williamson and held that the investors had formal powers, they used these powers, the voting structure was not necessarily coercive, the investors received information, they communicated with each other, and the number of investors was not so high that it eliminated all of their power. In regard to the second Williamson factor, the court held that there was a genuine issue about the investors' knowledge and experience. In regard to the third Williamson factor, the court held that there was a genuine issue concerning whether the managers were effectively irreplaceable. View "SEC v. Arcturus Corp." on Justia Law

Posted in: Securities Law

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The Fifth Circuit affirmed the district court's grant of the SEC's motion for summary judgment, holding that defendant offered securities and committed securities fraud in violation of the Securities and Exchange Act. The court held that interests in defendant's drilling projects qualified as securities. In this case, the district court correctly concluded that defendant's drilling projects distributed power as if they were limited partnerships where the SEC provided unrebutted evidence showing that investors could not use their legal powers. The court also held that the district court correctly found that defendant made material misstatements to investors when he knowingly misrepresented his relationships with major oil companies. View "SEC v. Sethi" on Justia Law

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Plaintiff filed suit against Whole Foods and its executives, alleging that the company and its executives defrauded Whole Foods shareholders in violation of federal securities law by perpetuating weights-and-measures fraud against customers. The Fifth Circuit affirmed the district court's dismissal of the complaint for failure to state a claim, holding that plaintiffs failed to properly allege a material misrepresentation, scienter, or loss causation. In this case, plaintiffs failed to state a claim under section 10(b) of the Securities and Exchange Act based on defendants' comments because plaintiff failed to allege that defendants' particular statements about Whole Foods' prices were false. The court also held that defendants' comments about Whole Foods' commitments to transparency and quality, even if false, were immaterial. Furthermore, plaintiffs failed to identify a decline in stock price that shortly followed a corrective disclosure. Likewise, plaintiffs section 20(a) claims failed because they were derivative to the section 10(b) claims. View "Employees' Retirement System of the State of Hawaii v. Whole Foods Market, Inc." on Justia Law

Posted in: Securities Law

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The Fund filed suit alleging that Hangar and three of its officers engaged in securities fraud. The Fifth Circuit held that the district court did not err in dismissing the section 10(b) of the Securities and Exchange Act claims against Defendants Asar and Kirk, but erred in dismissing the claims against Defendants McHenry and Hanger. In this case, the allegations supported a strong inference of scienter as to McHenry where the court could infer from the Audit Committee's report that he intended to enhance Hanger's financial results. The court explained that, taking the allegations holistically, McHenry's having had the requisite state of mind was "cogent" and "at least as compelling" as the alternate explanations. Therefore, McHenry's scienter could be imputed to Hanger, but only as to his allegedly false statements. View "Alaska Electrical Pension Fund v. Asar" on Justia Law

Posted in: Securities Law