Tagged: Securities

Supreme Court Rules That Statute of Repose Trumps Class Action Tolling

The Supreme Court has given a boost to companies defending against securities claims, ruling in California Public Employees’ Retirement System v. ANZ Securities that a statute of repose cannot be extended by the doctrine that the filing of a class action tolls the statute of limitations for the claims of absent class members. The case emanated from a prior class action that had alleged, in connection with certain offerings by Lehman Brothers Holdings Inc., violations of Section 11 of the Securities Act of 1933, which relates to misrepresentations and omissions made in a securities registration statement. Section 13 of the Act provides that any such claim must be brought within “three years after the security was bona fide offered to the public.” CalPERS, which was an absent class member in the original class action, filed its own class action complaint more than three years after the transactions at issue and then opted out of the original class action. Affirming the decisions of the Southern District of New York and the Second Circuit, the Supreme Court held that the three-year limit in Section 13 is a statute of repose, and that such a limit cannot be extended by any court-made tolling doctrine. CalPERS argued that the statute was tolled under American Pipe & Construction Co. v. Utah during...

Wrap Up of United States Supreme Court’s 2015-2016 Term

With the close of the United States Supreme Court’s 2015-16 term, we offer this wrap up of the Court’s term, focusing on decisions of special interest from the business and commercial perspective (excluding patent cases): Upon being granted a discharge from a Bankruptcy Court, a bankrupt’s debts are discharged unless a particular debt falls within one of the Bankruptcy Code’s statutory exclusions. One of those exclusions is for debts arising from “false pretenses, a false representation, or actual fraud.” Husky Int’l Elecs., Inc. v. Ritz asked whether a debt arising from a fraudulent transfer made for the purpose of frustrating a creditor, but accomplished without making a false representation, is subject to this exclusion.

Wrap Up of United States Supreme Court’s 2014-2015 Term

With the close of the United States Supreme Court’s 2014-15 term, we offer this wrap up of the Court’s term, focusing on the Court’s most important business and commercial cases (excluding patent cases). Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund: It is widely known that if the registration statement an issuer files with the SEC contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading, then a purchaser of securities sold pursuant to the registration statement may sue the issuer for damages.

Wrap Up of United States Supreme Court’s 2013-2014 Term

With the close of the United States Supreme Court’s 2013-14 term, we offer this wrap-up of the Court’s term, focusing on the Court’s most important business and commercial cases (excluding intellectual property opinions): Halliburton Co. v. Erica P. John Fund: The Court upheld the fraud-on-the-market theory first set forth in Basic Inc. v. Levinson, which allows investors to satisfy the reliance element of a section 10b-5 securities fraud claim by invoking a presumption that the price at which stock is purchased in an efficient market reflects all public, material information — including material misstatements.

New Jersey Supreme Court Limits Emerging “Intertwinement” Theory of Compelling Arbitration

The New Jersey Supreme Court, in Hirsch v. Amper Financial Services, LLC ruled that “intertwined” parties and claims alone are insufficient to compel arbitration on grounds of equitable estoppel. The plaintiffs in Hirsch purchased two securitized Med Cap notes worth $550,000 through a financial advisor representing broker-dealer Securities America, Inc. (“SAI”). They ultimately lost their investment after an SEC investigation indicated that Med Cap was a Ponzi scheme. Pursuant to an arbitration clause in their purchase applications, plaintiffs initiated FINRA arbitration proceedings against SAI and the financial advisor. In tandem with their arbitration claims, plaintiffs filed a civil action against their accountant EisnerAmper, LLP—who had recommended the financial advisor—and Amper Financial Services, LLC (“AFS”) of which the financial advisor was managing partner and 50% shareholder. EisnerAmper and AFS impleaded SAI for indemnification and contribution. In response, SAI moved to compel arbitration, despite the fact that plaintiffs had not agreed to arbitrate claims with either EisnerAmper or AFS. EisnerAmper and AFS joined in SAI’s motion to compel arbitration, which the trial court granted.

Second Circuit Holds That a Post-Disclosure Stock Price Rebound Does Not Per Se Preclude Damages for Alleged Federal Securities Fraud

Recently, the Second Circuit vacated a District Court’s dismissal of a securities fraud action brought by Acticon AG, shareholder of China North East Petroleum Holdings Ltd. (“NEP”), for failure to plead economic loss—a necessary element to maintain a private damages action under § 10(b) of the Securities Exchange Act of 1934 (“§10(b)”). Acticon had multiple opportunities to, but did not, sell its NEP shares at a profit after NEP’s disclosure of the alleged fraud. The Court held that economic loss is not conclusively negated at the pleadings stage where the price of a security recovers shortly after a disclosure of alleged fraud. Significantly, in drawing all reasonable inferences in favor of the plaintiff under NEP’s 12(b)(6) motion, the Court explained that a rise in the price of a stock following a corrective disclosure requires an inquiry into whether the security rose for “reasons unrelated to [the] initial drop,” and thus introduces factual questions and competing theories of causation that would be inappropriate to resolve on a motion to dismiss.

The SDNY’s Recent Application of Janus

In the few months since the Supreme Court announced the bright line rule of Janus Capital Group, a number of courts have applied the rule, giving us a better picture Rule 10b-5 liability post-Janus. The Supreme Court held in Janus that, for purposes of Rule 10b-5, the maker of a statement is “the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” The Court analogized to the relationship between a speechwriter and a speaker: a speechwriter may draft a speech, but the content is within the control of the speaker who delivers it. Thus, the Court found that the investment adviser to a mutual fund was not liable for alleged misrepresentations in the fund’s prospectuses under Rule 10b-5, because the fund, and not the manager, was the maker of the statements.