Justia U.S. 5th Circuit Court of Appeals Opinion SummariesArticles Posted in Securities Law
SEC v. Team Resources Inc.
While SEC's enforcement action against defendants was pending, the Supreme Court decided Kokesh v. SEC, 137 S. Ct. 1635, 1643 (2017), which held that disgorgement in SEC proceedings is a "penalty" under 28 U.S.C. 2462 and thus subject to a five-year statute of limitations. The Fifth Circuit held that Kokesh did not overrule the court's established precedent recognizing district courts' authority to order disgorgement in SEC enforcement proceedings. Accordingly, the court affirmed the district court's disgorgement order. The court also held that the district court did not deprive defendants of discovery; the district court did not abuse its discretion by ruling on the SEC's remedies motion without holding an evidentiary hearing; and the district court did not abuse its discretion in determining the amount of disgorgement in this case. View "SEC v. Team Resources Inc." on Justia Law
Broyles v. Commonwealth Advisors, Inc.
Investor plaintiffs filed suit alleging securities fraud under Louisiana law against their former investment adviser and its CEO for fraudulently inducing them to purchase falsely inflated hedge fund securities. The district court sua sponte granted summary judgment for defendants, holding that Delaware law required investor plaintiffs to bring a derivative claim on behalf of the hedge funds. The Fifth Circuit vacated the district court's judgment and held that investor plaintiffs had Article III standing where their injury-in-fact arose immediately upon their purchase of the falsely overvalued securities; were induced and caused by defendant advisers' fraudulent advice and solicitations; and were likely will be redressed by a favorable decision on the merits. The court held that, under the circumstances of this case, it was at least arguable that Delaware law does not relegate the investor plaintiffs to a derivative action on behalf of the hedge funds for losses indirectly caused them by the funds' decline or lack of value, but instead recognizes their cause of action directly against the defendant sellers of the hedge fund securities for securities fraud under Louisiana law. Accordingly, the court remanded for further proceedings. View "Broyles v. Commonwealth Advisors, Inc." on Justia Law
Municipal Employees’ Retirement System of Michigan v. Pier 1 Imports, Inc.
Investors filed suit alleging that Pier 1 and its executives violated section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 by failing to disclose Pier 1's significant markdown risk. The district court ultimately granted Pier 1's motion to dismiss the amended complaint with prejudice. The Fifth Circuit affirmed, holding that the investors failed to plead a strong inference of scienter. The court held that the district court did not improperly analyze the investors' scienter allegations, and that each of the three categories of allegations, regarding Pier 1's motive and knowledge of high inventory and significant markdown risk did not create a strong inference of scienter required under the Private Securities Litigation Reform Act. View "Municipal Employees' Retirement System of Michigan v. Pier 1 Imports, Inc." on Justia Law
SEC v. Stanford International Bank, Ltd.
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
SEC v. Arcturus Corp.
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
Lampkin v. UBS Financial Services, Inc.
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
Masel v. Villarreal
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
Wallace v. Andeavor Corp.
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
Ho v. Flotek Industries, Inc.
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
SEC v. Arcturus Corp.
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