Tag Archives: Ninth Circuit

Ponzi Schemes

Another Securities Case for the Supreme Court. Next Up: Ponzi Scheme Cases

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Agreeing to take up yet another securities case, the Supreme Court granted cert on January 18 in three related appeals arising out of the alleged multi-billion dollar Ponzi scheme involving R. Allen Stanford’s Stanford International Bank. The Court’s decision in this case will likely resolve a circuit split over the scope of the preclusion provision of the Securities Litigation Uniform Standards Act (SLUSA).

Congress passed SLUSA in 1998 because plaintiffs were bringing class actions in state court to get around the tough pleading standards and other limitations imposed by the Private Securities Litigation Reform Act of 1995. SLUSA precludes state law class actions involving misrepresentations made “in connection with” the purchase or sale of a security covered under SLUSA. Lower courts have struggled with the meaning of those three words: “in connection with.” If a state court case has anything at all to do with securities, will it fail?How closely must a claim relate to the sale of covered securities before SLUSA bars state law remedies? The Supreme Court is about to weigh in on these questions.

In the Stanford ponzi scheme cases, the plaintiffs are investors who purchased CDs issued by Stanford International Bank. The investors asserted claims against third-party advisors (including law firms and an insurance broker) under Texas and Louisiana law, alleging that the investors were duped into believing the CDs were backed by safe securities. Although the CDs themselves were not securities covered by SLUSA, the third-party advisors argued that SLUSA nevertheless barred the state law claims because the alleged misrepresentations related to the SLUSA-covered securities that purportedly backed the CDs. The district court agreed, dismissing the actions. But the Fifth Circuit reversed the district court, holding that the alleged fraudulent scheme was only “tangentially related” to the trading of securities covered by SLUSA. The Fifth Circuit agreed with the Ninth Circuit that misrepresentations are not made “in connection with” sales of SLUSA-covered securities when they are only “tangentially related” to those sales. This means the Fifth and Ninth Circuits are at odds with the Second, Sixth, and Eleventh Circuits, which have all adopted broader views of SLUSA’s preclusion provision.

The third-party advisor defendants asked the Supreme Court to resolve the split, and the Supreme Court agreed, given that the circuit split threatensinconsistent outcomes in some of the biggest, mostcomplex, and multi-layered securities cases. The Court’s resolution will likely go a long way towards defining the role of state courts in adjudicating important class actions relating to securities issues.

Class Certification

Supreme Court To Hear Amgen’s Appeal of Class Cert

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The Supreme Court will hear Amgen’s appeal in Amgen v. Connecticut Retirement Plans in the upcoming October term, the Court announced on Monday June 11. The lawsuit against Amgen alleges that the biotech company made misrepresentations about the safety of two anti-anemia drugs for US FDA-approved uses. In certifying the class, the Ninth Circuit held that plaintiff only needed to plausibly allege that Amgen’s misrepresentations were material based on a fraud-on-the-market theory for the class to be certified. Amgen’s appeal claims the district court must both require proof of materiality and allow Amgen to present evidence rebutting the fraud-on-the-market theory before certifying the class.

SEC

9th Circuit Says Yes to Restatement, Yes to the SEC, and a Big No to Backdating Maxim CFO

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On May 15, 2012, the Ninth Circuit Court of Appeals affirmed the decision of the district court finding in favor of the Securities Exchange Commission (“SEC”) on allegations that Carl Jasper, the former Chief Financial Officer of Maxim Integrated Products, Inc., violated various provisions of the securities laws in connection with the company’s stock options backdating scheme.  SEC v. Jasper, Case No. 10-17064 (9th Cir. May 15, 2012).  The court found that for ten consecutive quarters, Maxim granted backdated options with an exercise price equal to the lowest price of Maxim stock for each quarter.  Read More

Insider Trading

Supreme Court Sets Two Year Limit for Section 16(a) Insider Trading Claims

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The United States Supreme Court held on March 26th that the two-year statute limitation for Section 16 insider trading begins to run as the fraudulent trade is or should have been discovered by a shareholder plaintiff.  See Credit Suisse Securities LLC et al v. Simmonds.  This decision was yet another rebuke to the Ninth Circuit, which had previously held that the limitations period for a Section 16(b) claim could be tolled until the insider actually discloses his or her improper trade to the SEC and shareholders.

Defendant underwriters challenged the Ninth Circuit’s holding, calling it contrary to language of Section 16(b) that indicates the limitation period should begin to run as soon as an insider makes a profit from an illegal short-swing trade.  In an unanimous decision penned by Justice Scalia, the Court agreed, noting that if the filing of a Section 16(a) disclosure statement were necessary for Section 16(b) liability to attach, company insiders and underwriters who failed to file a 16(a) disclosure would forever face the possibility of claims under 16(b).  The Court held that “the potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general.”  The Court did not reach the larger question of whether Section 16(a) are subject to any equitable tolling and thus remanded the case to the Ninth Circuit for further consideration.

The Credit Suisse case is notable because it was one of 55 nearly identical actions filed over ten days in October 2007 by Vanessa Simmonds, then a 22-year old college student.  The cases all alleged Section 16(b) claims against the underwriters and other financial institutions who had participated in IPO’s during the late 1990’s and 2000.