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

Articles Posted in Securities Law

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Tutor Perini Corporation, a giant construction company, sued Banc of America Securities LLC (BAS) and Bank of America, N.A. (BANA), alleging that BAS, acting as its broker-dealer and with BANA’s knowledge and acquiescence, sold Tutor Perini auction-rate securities (ARS) without disclosing that the ARS market was heading for a crash. Tutor Perini filed suit in Massachusetts’s federal district court, alleging securities fraud under state and federal law and several other state-law claims. BAS and BANA moved for summary judgment on all claims, claiming that BAS actually disclosed the risks that later materialized. The district court granted BAS and BANA’s motion. The First Circuit (1) vacated the summary judgment for BAS on the state securities-fraud claim, the federal securities-fraud claim, the state negligent-misrepresentation claim, and the state unfair-business-practices claim, holding that genuine issues of material fact existed as to these claims; and (2) affirmed in all other respects. Remanded. View "Tutor Perini Corp. v. Banc of America Securities LLC" on Justia Law

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Following an announcement that overstated the positive interim results from clinical trials for an experimental drug combination intended to treat a fatal lung disease, Vertex Pharmaceuticals, Inc.’s stock price rose from $37.41 per share to $64.85 three weeks later. After Vertex corrected the initial release’s overstatement, the stock price dropped to $57.80. Local No. 8 IBEW Retirement Plan & Trust filed a class action complaint against Vertex and six past and current Vertex employees on behalf of those who acquired Vertex stock during the period in which the overstatement stood uncorrected, charging Defendants with securities fraud under the Securities Exchange Act of 1934. Defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint, concluding that it failed to create a strong inference that Defendants acted with the mental state required to render them liable under the Act. The First Circuit affirmed, holding that the allegations in the complaint that Defendants acted with scienter fell short of what Congress demands in the securities fraud context. View "Local No. 8 IBEW Retirement Plan & Trust v. Vertex Pharm., Inc." on Justia Law

Posted in: Securities Law

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Defendant, a tile salesman, received material, nonpublic information from a corporate inside and then passed that information along to friends, who used it to obtain substantial trading gains. After a jury trial, Defendant was convicted of committing securities fraud and conspiring to commit securities fraud. Defendant appealed, arguing that there was insufficient evidence in the record to support his conviction, where he was neither a corporate insider nor a trader of securities. The First Circuit affirmed, holding (1) the evidence was sufficient to show that Defendant knowingly breached a duty of confidence; (2) the district court’s instructions did not improperly shift the burden of proof or misstate the state of mind element of the securities fraud offense; and (3) the evidence was sufficient to show that Defendant anticipated receiving a benefit as a result of his disclosure. View "United States v. McPhail" on Justia Law

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Acting on “obviously nonpublic information” that a golfing buddy, McPhail, received from a corporate insider, Parigian made more than $200,000 trading in securities. A federal criminal securities fraud indictment alleged a “misappropriation theory” against Parigian, arguing that Parigian knew or should have known that, by providing the inside information to Parigian, McPhail breached a duty of trust and confidence and personally benefited by doing so. He pled guilty to the charges conditionally. The First Circuit rejected Parigian's preserved challenges to the indictment, following the circuit’s controlling precedent: allegations of a friendship between McPhail and Parigian plus an expectation that the tippees would treat McPhail to a golf outing and assorted luxury entertainment is enough to allege a benefit if a benefit is required. The court rejected an argument that the government was obligated to allege that the insider was also expecting a benefit when passing along confidential information to McPhail in the first instance. View "United States v. Parigian" on Justia Law

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The Commodity Futures Trading Commission (CFTC) filed this commodity trading fraud action against John B. Wilson and JBW Capital LLC, alleging that Defendants were liable under the Commodity Exchange Act for failing to register with the CFTC and for violating two commodity fraud provisions. The CFTC moved for summary judgment requesting a permanent injunction, restitution, and civil monetary penalties. The district court granted the CFTC’s request for a finding of liability and imposed injunctive relief and civil penalties but declined to award restitution. Both sides appealed. The First Circuit affirmed the district court’s grant of summary judgment and the relief it ordered, holding that the district court did not err in (1) finding that Wilson was liable for failure to register as a commodity pool operator; (2) granting summary judgment on the commodity fraud provisions; and (3) concluding that restitution was unavailable. View "Commodity Futures Trading Comm’n v. Wilson" on Justia Law

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James Hopkins and John Flannery, two former employees of State Street Bank and Trust Company, were charged with violations of 15 U.S.C. 77q(a), 15 U.S.C. 78j(b), and 17 C.F.R. 240.10b-5 for engaging making material misrepresentations and omissions that misled investors about two State Street-managed funds. The United States Securities and Exchange Commission’s (SEC) Chief Administrative Law Judge (ALJ) dismissed the proceeding, finding that neither defendant was responsible for or had ultimate authority over the documents at issue and that these documents did not contain materially false or misleading statements or omissions. The SEC reversed the ALJ with regard to a slide that Hopkins used at a presentation to a group of investors and two letters that Flannery wrote or had seen before they were sent to a investors. The Commission imposed cease-and-desist orders on both defendants, suspended them from association with any investment adviser or company for one year, and imposed civil monetary penalties. The First Circuit vacated the Commission’s order, holding that the Commission’s findings were not supported by substantial evidence. View "Flannery v. Securities & Exchange Comm’n" on Justia Law

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This appeal arose out of the settlement of a securities class action brought on behalf of the purchasers of certain common stock of a corporation. Those who objected to the settlement and appealed the rejection of their objection argued that they were given too little time to register objections with the district court and that the district court should not have approved the amount of attorneys’ fees awarded to class counsel. The First Circuit (1) affirmed the district court’s rejection of the objections at issue, as the objectors had notice in fact and a sufficient opportunity to have any of their objections heard by the court before it approved the settlement; and (2) dismissed the objectors’ appeal from the court orders approving the settlement and award of counsel fees, as the objectors had no standing to complain about the fee award. View "Hill v. State Street Bank Corp." on Justia Law

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After a jury trial, Defendant was convicted of securities fraud, mail fraud, conspiracy to conceal assets and make fraudulent transfers, concealment of assets, fraudulent transfer, uttering coins, and money laundering. The offenses arose from Defendant’s fraudulent schemes used to cheat numerous victims out of more than a million dollars and to manipulate the U.S. Bankruptcy Code to shield his ill-gotten gains from creditors. The First Circuit affirmed Defendant’s conviction and sentence, holding (1) there was sufficient evidence to support the jury’s guilty verdict; and (2) the district court properly calculated the applicable Sentencing Guidelines range and imposed a procedurally and substantively reasonable sentence. View "United States v. Pacheco-Martinez" on Justia Law

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Plaintiffs here were a class of entities and individuals who purchased the stock of Abiomed, Inc. Plaintiffs brought suit against Abiomed and two of its officers (collectively, Defendants), alleging that Defendants committed securities fraud by making false and misleading statements that caused Plaintiffs to purchase Abiomed stock at artificially inflated prices. The district court granted Defendants’ motion to dismiss, concluding that Plaintiffs had plausibly alleged that Defendants made false or misleading statements that had a material effect on Abiomed’s stock price but that Plaintiffs failed to adequately plead scienter, as is required for pleadings in securities fraud cases. The First Circuit affirmed, holding that the district court did not err in concluding that Plaintiffs failed to sufficiently allege that Defendants made the allegedly false or misleading statements with the “conscious intent to defraud or a ‘high degree of recklessness.’” View "Fire & Police Pension Ass’n of Colo. v. Abiomed, Inc." on Justia Law

Posted in: Securities Law

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This shareholder derivative suit was one of several suits alleging that Smith & Wesson Holding Corporation, a major gun manufacturer incorporated in Nevada, made misleading public statements in 2007 about demand for its products. In reaction to these cases, Smith & Wesson formed a Special Litigation Committee (SLC) to investigate and evaluate the viability of any of these claims and to make a recommendation to Smith & Wesson’s Board whether to pursue any of these claims. The SLC issued a final report recommending against filing any claims. In 2010, Plaintiff asserted Nevada state law claims against Smith & Wesson’s officers and directors, including breach of fiduciary duty and waste of corporate assets. On the basis of the SLC’s conclusions, Defendants, former and current officers and directors of Smith & Wesson, moved for summary dismissal under Delaware law, as adopted by Nevada. The district court granted the motion. The First Circuit affirmed, holding that the district court did not err in finding as a matter of law that the SLC was independent and that the SLC’s investigation was reasonable and conducted in good faith. View "Sarnacki v. Golden" on Justia Law