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

The case involves the National Association of Manufacturers and Natural Gas Services Group, Incorporated (plaintiffs-appellants) against the United States Securities and Exchange Commission (SEC) and Gary Gensler, in his official capacity as Chair of the SEC (defendants-appellees). The dispute arose after the SEC, in 2020, adopted a rule regulating businesses that provide proxy voting advice to institutional shareholders of public corporations. Two years later, the SEC rescinded this rule. The appellants challenged the rescission in district court, arguing that the SEC arbitrarily and capriciously failed to provide an adequate explanation for its abrupt change in policy. The district court rejected the appellants’ contentions and granted summary judgment in favor of the SEC.The United States Court of Appeals for the Fifth Circuit reversed the district court's decision. The court found that the SEC's explanation for rescinding the 2020 rule was arbitrary and capricious, and therefore unlawful. The court held that the SEC failed to provide an adequate justification for contradicting its prior factual finding that the 2020 Rule did not threaten the timeliness and independence of proxy voting advice. The court also found that the SEC failed to provide a reasonable explanation why these risks were so significant under the 2020 Rule as to justify its rescission. The court vacated the 2022 rescission in part and remanded the case back to the SEC. View "National Association of Manufacturers and Natural Gas Services Group, Inc. v. Securities and Exchange Commission" on Justia Law

The case involves a challenge to a rule adopted by the Securities and Exchange Commission (SEC) aimed at enhancing the regulation of private fund advisers. The rule was designed to protect investors who invest in private funds and to prevent fraud, deception, or manipulation by the investment advisers to those funds. The petitioners, a group of associations representing private fund managers, challenged the rule, arguing that the SEC exceeded its statutory authority in adopting it.The case was heard in the United States Court of Appeals for the Fifth Circuit. The petitioners argued that the SEC had overstepped its authority under the Investment Advisers Act of 1940 and the Dodd-Frank Act. They contended that the rule imposed requirements that were not authorized by these statutes and that the SEC had failed to adequately consider the rule's impact on efficiency, competition, and capital formation.The SEC, on the other hand, argued that it had the authority to adopt the rule under sections 206(4) and 211(h) of the Advisers Act. It contended that these provisions authorized it to define and prescribe means to prevent fraudulent, deceptive, or manipulative acts by investment advisers.The Fifth Circuit sided with the petitioners, holding that the SEC had exceeded its statutory authority in adopting the rule. The court found that the rule was not authorized by the relevant provisions of the Advisers Act and that the SEC had failed to establish a close nexus between the rule and the prevention of fraud or deception. As a result, the court vacated the rule. View "NA of Private Fund Managers v. SEC" on Justia Law

The case involves Tammy O’Connor and Michael Stewart (the Sellers) who sold their company, Red River Solutions, LLC, to Atherio, Inc., a company led by Jason Cory, Greg Furst, and Thomas Farb (the Executives). The agreement stipulated that the Sellers would receive nearly half of their compensation upfront, with the rest—around $3.5 million—coming in the form of ownership units and future payments. However, Atherio went bankrupt and the Sellers received none of the promised $3.5 million. The Sellers sued the Executives, alleging fraud under federal securities law, Delaware common law, and the Texas Securities Act.The district court granted summary judgment to the Executives on all claims. The Sellers appealed the decision, arguing that the district court erred in applying the summary-judgment standard to the federal securities law and Delaware common law claims.The United States Court of Appeals for the Fifth Circuit affirmed the district court's decision on the extracontractual and Texas Securities Act fraud claims, but reversed the summary judgment grants on the federal securities law and Delaware common law claims. The court found that there was a genuine dispute as to whether the Executives' misrepresentation of Farb's role as CFO was a substantial factor in the Sellers' loss. The case was remanded for further proceedings. View "Cory v. Stewart" on Justia Law

During the 2008 financial crisis, Highland Capital Management, L.P., an investment manager, faced numerous redemption requests from investors of the Highland Crusader Fund. The Fund was placed in wind-down, and a dispute arose over the distribution of assets. This led to the adoption of a Joint Plan of Distribution and the appointment of a Redeemer Committee to oversee the wind-down. The Committee accused Highland Capital of breaching its fiduciary duty by purchasing redemption claims of former investors. An arbitration panel ruled in favor of the Committee, ordering Highland Capital to pay approximately $3 million and either transfer or cancel the redemption claims.Before the Committee could obtain a judgment for the award, Highland Capital filed for Chapter 11 bankruptcy. CLO HoldCo, a creditor, filed a claim for approximately $11 million, asserting it had purchased interests in the redemption claims. However, after a settlement agreement between Highland Capital and the Committee led to the cancellation of the redemption claims, CLO HoldCo amended its claim to zero dollars.After the bankruptcy court confirmed Highland Capital's reorganization plan, CLO HoldCo filed a second amended proof of claim, asserting a new theory of recovery. It argued that the cancellation of the redemption claims resulted in a credit for Highland Capital, which it owed to CLO HoldCo. The bankruptcy court denied the motion to ratify the second amended proof of claim, a decision affirmed by the district court.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. It held that post-confirmation amendments require a heightened showing of "compelling circumstances," which CLO HoldCo failed to provide. The court found that the bankruptcy court did not abuse its discretion in denying CLO HoldCo's motion to ratify the second amended proof of claim. View "CLO Holdco v. Kirschner" on Justia Law

A class of stock purchasers alleged that Anadarko Petroleum Corporation fraudulently misrepresented the potential value of its Shenandoah oil field project in the Gulf of Mexico, violating federal securities law. The plaintiffs claimed that a decline in Anadarko’s stock price resulted from the company's disclosure that the Shenandoah project was dry and that Anadarko was taking a significant write-off for the project. The plaintiffs invoked the Basic presumption, a legal principle that allows courts to presume an investor's reliance on any public material misrepresentations if certain requirements are met.The District Court for the Southern District of Texas certified the class, relying on new evidence presented by the plaintiffs in their reply brief. Anadarko argued that it was not given a fair opportunity to respond to this new evidence and appealed the decision.The United States Court of Appeals for the Fifth Circuit agreed with Anadarko, stating that the district court should have allowed a sur-reply when the plaintiffs presented new evidence in their reply brief. The court held that when a party raises new arguments or evidence for the first time in a reply, the district court must either give the other party an opportunity to respond or decline to rely on the new arguments and evidence. The court also agreed that the district court failed to perform a full Daubert analysis, a standard for admitting expert scientific testimony. The court vacated the class certification order and remanded the case for further proceedings. View "Georgia Firefighters' Pension Fund v. Anadarko Petroleum Corp." on Justia Law

In 2015, Christopher Novinger and ICAN Investment Group, L.L.C. were sued by the Securities and Exchange Commission (SEC) for fraudulently offering and selling life settlement interests in violation of the Securities and Exchange Acts. As part of the settlement, Novinger and ICAN were prohibited from casting doubt on the validity of the SEC’s investigation or enforcement against them or proclaiming their innocence unless they also indicated their lack of innocence.Later, Novinger sought judicial review of the decree, claiming it violated his First Amendment rights. His motion for relief was denied by the district court, and this decision was affirmed by the United States Court of Appeals for the Fifth Circuit. Novinger then moved for a declaratory judgment under the Declaratory Judgment Act (DJA) and Federal Rule of Civil Procedure 57, essentially raising the same claims as in his initial motion. The district court again denied his motion, ruling that it was procedurally improper and that there was no change in the law or facts that called for a modification of the decrees.Novinger appealed this decision, but the Fifth Circuit ruled that it did not have jurisdiction to review a procedurally improper motion that was denied as such. The court stated that the district court's order did not change the status quo or resolve any substantive issues, and thus, it was not a final decision that could be appealed. The court also rejected the assertion that the motion for declaratory judgment could be construed as an appropriate pleading under the DJA, maintaining the distinction between a pleading as an initial filing in a case and a motion as a subsequent filing. The appeal was dismissed for lack of jurisdiction. View "SEC v. Novinger" on Justia Law

The United States Court of Appeals for the Fifth Circuit reversed and vacated parts of a judgment against EOX Holdings, L.L.C., and Andrew Gizienski ("Defendants") in a case initiated by the Commodity Futures Trading Commission ("CFTC"). The CFTC had accused the defendants of violating a rule that prevents commodities traders from "taking the other side of orders" without clients' consent. The court ruled that the defendants lacked fair notice of the CFTC's interpretation of this rule. The case revolved around Gizienski's actions while working as a broker for EOX, where he had discretion to make specific trades on behalf of one of his clients, Jason Vaccaro. The CFTC argued that Gizienski's actions violated the rule because he was making decisions to trade opposite the orders of other clients without their knowledge or consent. The court, however, ruled that the CFTC's interpretation of the rule was overly broad, as it did not provide sufficient notice that such conduct would be considered taking the other side of an order. The court reversed the penalty judgment against the defendants, vacated part of the injunction against them, and remanded the case for further proceedings. View "Commodity Futures v. EOX Holdings" on Justia Law

The Securities and Exchange Commission (“SEC”) adopted a rule requiring issuers to report day-to-day share repurchase data once a quarter and to disclose the reason why the issuer repurchased shares of its own stock. Despite Petitioners’ comments, however, the SEC maintained that many of the effects of the daily disclosure requirement could not be quantified. Petitioners filed a petition for review of the final rule.   The Fifth Circuit granted the petition for review and remanded with direction to the SEC to correct the defects in the rule within 30 days of this opinion. The court found that the e SEC’s notice and comment period satisfies the APA’s requirements. However, the court held that the SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to Petitioners’ comments and failed to conduct a proper cost-benefit analysis. The court explained that almost every part of the SEC’s justification and explanation of the rule reflects the agency’s concern about opportunistic or improperly motivated buybacks. That error permeates—and therefore infects—the entire rule. The court explained that short of vacating the rule, it affords the agency limited time to remedy the deficiencies in the rule. View "Chamber of Com of the USA v. SEC" on Justia Law

The Nasdaq Stock Market, LLC (Nasdaq) proposed a rule that would require companies listed on its stock exchange to disclose information about their board members, as well as a rule that would give certain companies access to a board recruiting service. After the Securities and Exchange Commission (SEC or Commission) approved these rules, the Alliance for Fair Board Recruitment (AFBR) and the National Center for Public Policy Research (NCPPR) petitioned for review.   The Fifth Circuit denied the petitions because the SEC’s Approval Order complies with the Exchange Act and the Administrative Procedure Act (APA). The court wrote that the SEC’s point is that because the meaning of diversity varies globally, it is fair and desirable to let foreign issuers report diversity information according to nationally appropriate standards. Further, the court explained that AFBR does not explain how the SEC acted arbitrarily and capriciously in weighing burdens on competition against the purposes of the Exchange Act. Instead, AFBR argues that the SEC ignored “tremendous costs for firms that dare to defy the quotas. The court explained that the SEC did account for the costs that AFBR asserted in its comment letter. The SEC made a rational decision that those burdens on competition were “necessary or appropriate” to further the purposes of the Exchange Act. Therefore, AFBR has failed to meet its burden to show that the SEC’s Approval Order is arbitrary and capricious on this basis. View "Alliance for Fair Board Recruitment v. SEC" on Justia Law

A jury convicted United Development Funding (“UDF”) executives (collectively “Appellants”) of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud. Jurors heard evidence that Appellants were involved in what the Government deemed “a classic Ponzi-like scheme,” in which Appellants transferred money out of one fund to pay distributions to another fund’s investors without disclosing this information to their investors or the Securities Exchange Commission (“SEC”). Appellants each filed separate appeals, challenging their convictions on several grounds. Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or, alternatively, (2) they are entitled to a new trial because the jury instructions were improper. Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during.   The Fifth Circuit affirmed the jury verdict in its entirety. The court explained that considering the evidence and drawing all reasonable inferences in the light most favorable to the verdict, a reasonable juror could have determined that Appellants made material misrepresentations in UDF III and UDF V’s filings that were sufficient to uphold their convictions. The court explained that multiple witnesses testified that the industry had shifted away from affiliate transactions because they were disfavored and that a no-affiliate-transaction policy in UDF V would enable it to participate in a larger network of brokers, dealers, and investors. View "USA v. Greenlaw" on Justia Law