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

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

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

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

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

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

The Fifth Circuit affirmed the district court's grant of summary judgment for the SEC on liability and damages in a complaint against defendant and his company for the purchase and resale of unregistered securities. The court affirmed summary judgment as to liability against TJM and defendant where they failed to show that the sales fell under an exception to the registration requirements under Section 5 of the Securities Act of 1933, 15 U.S.C. 77e. Because defendants failed to identify anything in the summary judgment record that would show the transactions at issue occurred in Texas, the court rejected their claim under Rule 504(b)(1)(iii), which allows offerings and sales to avoid registration requirements if they are conducted exclusively according to state law exemptions from registration that permit general solicitation and general advertising so long as sales are made only to accredited investors. The court also held that the district court did not abuse its discretion in barring all future transactions, in ordering a permanent injunction from future securities law violations, and in disgorgement of all revenue. View "SEC v. Kahlon" on Justia Law

The SEC brought an enforcement action against LPHI and two of its senior officers, Pardo and Peden, alleging violations of reporting and anti-fraud provisions of the federal securities laws. The SEC alleged that LPHI, a company in the business of facilitating the sales of existing life insurance policies to investors, knowingly underestimated life expectancies for the insureds in public filings with the SEC. A jury found defendants liable for violations of section 17(a) of the Securities Act of 1933 and section 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. 77q(a), 78m(a). The district court sustained the jury's verdict as to section 13(a), but the district court set aside the verdict as to section 17(a). The district court then imposed civil penalties and issued injunctions restraining them from committing additional violations of the securities laws. The district court declined to order Pardo to reimburse LPHI for compensation under section 304 of the Sarbanes-Oxley Act (SOX), 15 U.S.C. 7243(a). Both parties appealed. The court found no abuse of discretion in the admission of the SEC expert witness's opinion; the evidence was sufficient to support the jury verdict that defendants aided and abetted LPHI's violation of section 13(a) and the rules thereunder; the court affirmed the district court's imposition of second-tier penalties; remanded the case specifically for recalculation of the number of violations without the flaws conceded by the SEC and for reassessment of the amounts of civil penalties imposed on defendants; and affirmed the district court's injunctions. As for the SEC's cross-appeal, the court concluded that the jury's section 17(a) verdict must stand and reversed the district court's grant of judgment as a matter of law, remanding for determination of appropriate remedies; the district court erred in concluding that the restatements were not required by LPHI's misconduct in connection with its underestimated life expectancy estimates; and the court reversed the district court's judgment, remanding for that court to determine the appropriate amount of SOX reimbursements. View "SEC v. Life Partners Holdings, Inc." on Justia Law

Plaintiffs, shareholders of ATP, filed a securities class action concerning ATP's collapse into bankruptcy. Plaintiffs alleged that defendants, each of whom was an officer or director of ATP, misrepresented the production of Well 941 #4, ATP's liquidity and whether the company had the available funds to complete the Clipper pipeline, and the true reason that Matt McCarroll resigned as CEO of ATP. The district court dismissed plaintiffs' Second Amended Complaint with prejudice. The court concluded that, viewing plaintiffs' allegations as a whole, plaintiffs failed adequately to allege scienter with regard to Defendant Reese's statements; plaintiffs' allegations of scienter as to ATP's liquidity and the Clipper project failed as a matter of law; and there was no basis for the court to conclude that Defendants Bulmahn and Reese knew or were reckless in not knowing McCarroll's true reasons for resigning. Accordingly, the court affirmed the judgment. View "Neiman v. Bulmahn" on Justia Law

Plaintiffs, investors, filed suit contending that defendants sold securities representing shares in SaiNaith L.L.C. based on false statements that a hotel was owned by that company. The court focused on one of plaintiffs’ theories under Louisiana Revised Statutes 51:712(A)(2) and 51:714, which allows purchasers of securities to recover their investment from the seller of the securities, who made the sale based on false representations. The court agreed with the district court that the summary judgment evidence establishes that SaiNaith never owned the hotel and the investors received interests in a shell company and defendants violated Louisiana law by representing otherwise. Accordingly, the court affirmed the judgment in favor of plaintiffs against defendants personally under the Louisiana statutes. View "Meadaa v. Karsan" on Justia Law

The Court Appointed Receiver for the Stanford International Bank Ltd. filed a fraudulent transfer claim against defendant, a former international advisor to the Stanford entities. The court concluded that there was a legally sufficient evidentiary basis for the jury’s finding that the Receiver did not discover and could not reasonably have discovered the transfers to defendant and their fraudulent nature until after February 15, 2010, and that, therefore, the Receiver’s fraudulent transfer claim was timely under the Texas Uniform Fraudulent Transfer Act’s, Tex. Bus. & Com. Code 24.010 statute of repose. Therefore, the district court did not err in denying defendant's post-verdict motion for judgment as a matter of law as to the fraudulent transfer. The court did not reach the alternative issues raised by defendant. Finally, the court denied defendant's request to abate this appeal where defendant did not object during trial to this specific language in the jury instruction and he did not request a jury finding on market value even though the parties presented conflicting evidence of market value at trial. Further, defendant failed to brief this issue on the merits. Accordingly, the court affirmed the judgment. View "Janvey v. Romero" on Justia Law