Justia U.S. 1st Circuit Court of Appeals Opinion Summaries

In 2017, the SEC filed a lawsuit against investment advisers Louis Navellier and Navellier & Associates, Inc. (NAI), alleging violations of sections 206(1) and 206(2) of the Investment Advisers Act. The SEC claimed that the defendants made materially false and misleading statements about the performance track record of their investment strategies. The United States District Court for the District of Massachusetts granted summary judgment in favor of the SEC, ordering disgorgement exceeding $22 million. The defendants appealed, challenging the summary judgment, the denial of their motion to stay pending appeal, and the denial of their motion to reduce the supersedeas bond.The district court found that the defendants had violated sections 206(1) and 206(2) by making false statements about the inception date and performance of the AlphaSector strategy, which they marketed as having been live-traded since 2001. The court determined that these statements were material and that the defendants acted with scienter (intent to defraud) or, at the very least, negligence. The court also rejected the defendants' selective enforcement defense, concluding that they were not similarly situated to other firms that were not prosecuted.The United States Court of Appeals for the First Circuit reviewed the case and affirmed the district court's decisions. The appellate court agreed that the defendants' statements were false and material, and that they acted with a high degree of recklessness, satisfying the scienter requirement. The court also upheld the disgorgement order, finding it to be a reasonable approximation of the profits causally connected to the violations. The court rejected the defendants' argument that disgorgement was inappropriate because their clients did not suffer pecuniary harm, emphasizing that disgorgement is meant to deprive wrongdoers of their ill-gotten gains. Finally, the court found no abuse of discretion in the district court's decision not to reduce the supersedeas bond amount. View "SEC v. Navellier & Associates, Inc." on Justia Law

The case revolves around Frequency Therapeutics, a biotech startup that was developing a treatment for severe sensorineural hearing loss called "FX-322". Initial trials were positive, but subsequent testing yielded disappointing results, causing a sharp drop in Frequency's stock price. Three stockholders filed a class action lawsuit alleging violations of sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and Securities and Exchange Commission Rule 10b-5. They claimed that Frequency's CEO, David Lucchino, and its Chief Development Officer, Carl LeBel, knew of problems with the study before the results were announced, yet gave investors assurances to the contrary.The United States District Court for the District of Massachusetts dismissed the complaint, finding that the plaintiffs failed to allege sufficient facts to support a finding of scienter under the Private Securities Litigation Reform Act. The plaintiffs appealed to the United States Court of Appeals for the First Circuit.The Court of Appeals affirmed the dismissal. The court found that the plaintiffs failed to demonstrate that the defendants had made the false statements with the degree of scienter required to state a Securities and Exchange Act claim. The court noted that the complaint did not provide specific facts about when the defendants learned of the adverse events, which was a glaring omission. The court also found that the increase in stock sales by the CEO was not sufficient to establish an inference of scienter on its own. The court concluded that the plaintiffs' allegations, taken collectively, did not give rise to a strong inference of scienter. View "Quinones v. Frequency Therapeutics, Inc." on Justia Law

The case involves a dispute over the rights of parties holding certain revenue bonds issued by the Puerto Rico Electric Power Authority ("PREPA") before it entered reorganization proceedings under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). The Financial Oversight and Management Board for Puerto Rico ("the Board") filed an adversary proceeding within the Title III restructuring proceeding to define the rights and remedies that bondholders had against PREPA. The United States District Court for the District of Puerto Rico held that the bondholders only had a secured claim on moneys deposited into the Sinking and Subordinate Funds, and that the bondholders had an unsecured claim on PREPA's Net Revenues.The United States Court of Appeals for the First Circuit disagreed with the district court's findings. The appellate court held that the bondholders have a lien on PREPA's present and future Net Revenues, and that the bondholders' lien is not avoidable. The court also held that the proper amount of the bondholders' claim is the face value (i.e., principal plus matured interest) of the Revenue Bonds. The court affirmed the district court's dismissal of the bondholders' breach of trust claim, but reversed the dismissal of the bondholders' accounting claim. The case was remanded for further proceedings consistent with the appellate court's opinion. View "Financial Oversight and Management Board v. U.S. Bank National Assn." on Justia Law

The case involves Francis M. Reynolds, who was convicted of three counts of obstruction of a United States Securities and Exchange Commission proceeding and one count of securities fraud. The District Court sentenced him to seven years of imprisonment plus three years of supervised release, ordered him to pay restitution to the victims of his fraud in the amount of $7,551,757, a special assessment of $400, and to forfeit $280,000 to the United States. Reynolds appealed his conviction, but he died while the appeal was pending.Reynolds was convicted in the United States District Court for the District of Massachusetts. He appealed his conviction to the United States Court of Appeals for the First Circuit. While the appeal was pending, Reynolds died. The government suggested that the court should either dismiss the appeal as moot or follow the practice of the Supreme Judicial Court of Massachusetts and dismiss the appeal as moot while instructing the District Court to add a notation in the record.The United States Court of Appeals for the First Circuit had to decide whether to apply the doctrine of abatement ab initio, which holds that when a criminal defendant dies during the pendency of a direct appeal from his conviction, his death abates not only the appeal but also all proceedings had in the prosecution from its inception. The court decided to apply the doctrine, aligning itself with other federal courts of appeals and its own past decisions. The court dismissed the appeal and remanded the case to the District Court to vacate the convictions and dismiss the indictment. The court also instructed the District Court to vacate the orders of restitution and criminal forfeiture that were imposed in this case, as well as the special assessment. View "United States v. Reynolds" on Justia Law

In this case, the United States Securities and Exchange Commission (SEC) sought to recover approximately $3.3 million from Raimund Gastauer, a German citizen residing in Germany, alleging that Gastauer received the money from his son, who had obtained the money through securities fraud in the United States. Gastauer challenged the jurisdiction of the United States District Court for the District of Massachusetts over him, contending that he had no relevant contacts with the United States. The district court, however, ruled it could assert jurisdiction over Gastauer because it had jurisdiction over his son, the primary defendant. The judgment ordered Gastauer to pay the $3.3 million, plus prejudgment interest, to the SEC.Gastauer appealed, and the United States Court of Appeals for the First Circuit reversed the district court's decision. The appellate court rejected the SEC's argument that a court may impute the jurisdictional contacts of a primary defendant to a relief defendant who received ill-gotten funds from the primary defendant. It held that such an approach would violate the relief defendant's due process rights, particularly where, as here, the relief defendant had no relevant contacts with the United States and was not accused of any wrongdoing. The appellate court also underscored that the relief defendant's status as a foreign resident further cautioned against an expansive view of the district court's jurisdiction, given the potential risks to international comity. The appellate court remanded the case to the district court for further proceedings consistent with its opinion. View "SEC v. Gastauer" on Justia Law

In 2021, the Securities and Exchange Commission (SEC) sued Luis Jimenez Carrillo for securities violations he allegedly committed well after his divorce from Yolanda Sanchez-Diaz. Sanchez-Diaz was named as a relief defendant in the suit and the SEC sought to recover from her the value of a car she received four years earlier, claiming Carrillo paid for it with illicit funds. The SEC did not accuse Sanchez-Diaz of any wrongdoing but argued she had no legitimate claim to the car because she had not provided any consideration for it. The district court agreed and ordered her to pay almost $170,000, including interest.On appeal, the United States Court of Appeals for the First Circuit held that a relief defendant in an SEC enforcement action has a legitimate claim to funds if they have provided something of value in exchange and the value they provided is more than nominal in relation to the money received. In this case, the court concluded that through a 2016 child support agreement, Sanchez-Diaz provided more than nominal value in exchange for Carrillo's promise to purchase the car. The court found that the district court erred in its finding that Sanchez-Diaz provided no value at all. Accordingly, the Appeals Court reversed the district court's disgorgement order. View "SEC v. Sanchez Diaz Monge" on Justia Law

The First Circuit affirmed the judgment of the district court dismissing Investors' securities fraud claims, with one exception with respect to one particular statement for which the Court concluded that Investors' pleadings adequately stated a claim, holding that the district court correctly dismissed Investors' remaining fraud claims.Investors brought this class action following a significant drop in Biogen Inc.'s stock price, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Investors specifically alleged that Defendants' statements regarding its Alzheimer's disease drug's clinical trials were misleading. The district court granted Defendants' motion to dismiss, concluding that Investors failed adequately to allege a materially false or misleading statement or omission, loss causation, and scienter. The First Circuit (1) reversed the judgment of the district court dismissing the section 10(b) and section 20(a) claims predicated upon a certain statement, holding that dismissal was not warranted as to this issue; and (2) otherwise affirmed the dismissal of the remaining fraud claims, holding that the district court did not err as to these claims. View "Shash v. Biogen Inc." on Justia Law

In this civil enforcement action, the First Circuit affirmed the interlocutory order of the district court ruling that a violation of the right to poll each of the jurors individually under Civil Rule 48(c) is per se reversible and that, therefore, Defendant was entitled to a new trial, holding that there was no error.At issue was whether, under this Court's precedent, the district court's denial of Defendant's right to poll each juror individually after the jury had collectively been polled was per se reversible error. The trial court judge ruled that the error was per se reversible. The First Circuit affirmed, holding that the arguments raised by the Securities and Exchange Commission on appeal were unavailing. View "U.S. Securities & Exchange Comm'n v. Sargent" on Justia Law

The First Circuit affirmed the judgment of the district court entering judgment upon the jury verdict finding Defendant liable for three undue statements of a material fact in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and SEC Rule 10b-5, 17 C.F.R. 240.10b-5, holding that Defendant was not entitled to relief on his claims of error.The U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against Defendant. Defendant was found liable by a jury for three untrue statements of a material fact, and the district court judge ordered him to pay a civil penalty and enjoined him from violating Section 10(b) and Rule 10b-5 for five years. The First Circuit affirmed, holding (1) the SEC presented sufficient evidence to support the jury's determination that the statements were of fact rather than opinion, material, and made with scienter; and (2) the district court did not abuse its discretion or commit an error of law in entering the injunction. View "US Securities & Exchange Comm'n v. Lemelson" on Justia Law

The First Circuit affirmed the judgment of the district court dismissing the complaint brought by two retirement funds in this putative securities fraud class action against CVS Health Corporation and the court's subsequent denial of Plaintiffs' motion to reconsider, holding that there was no error.In this action arising out of difficulties CVS Health experienced in the wake of its acquisition of Omnicare, Inc., Plaintiffs alleged that CVS Health's executives and its newly-acquired subsidiary used false statements and misleading nondisclosures to conceal from investors the disintegration of Omnicare's customer base. The complaint included claims for violations of the Securities Exchange Act and its implementing rule. The district dismissed the complaint after finding that it failed to allege any materially false or misleading statements and denied Plaintiffs' ensuing motion to reconsider. The Supreme Court affirmed, holding that the district court did not abuse its discretion or commit legal error in dismissing Plaintiffs' complaint and denying the motion to reconsider. View "City of Miami Fire Fighters' & Police Officers' Retirement Trust v. CVS Health Corp." on Justia Law