Securities Act of 1933

Equity Trust Notches a Rare Defense Win in SEC Administrative Proceedings

and Posted on

Pen and Calculator

On June 27, 2016, SEC Administrative Law Judge Carol Fox Foelak dismissed the Division of Enforcement’s charges against IRA custodian Equity Trust Company in connection with the company’s processing of investments marketed by two convicted fraudsters.  Judge Foelak’s decision—a complete defense victory for Equity Trust—shows that while the Division of Enforcement may still win most of its cases in administrative proceedings, it doesn’t win them all.

READ MORE →

Second Circuit Applies Omnicare to Affirm Dismissal of Securities Fraud Actions

and Posted on

On March 4, 2016, the Second Circuit affirmed the dismissal of two related securities actions against Sanofi Pharmaceuticals, its predecessor Genzyme Corporation, and three company executives (collectively, “Sanofi”).  In doing so, the Second Circuit offered its first substantial interpretation of the Supreme Court’s March 2015 decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), which addresses how plaintiffs can allege securities claims based on statements of opinion.

READ MORE →

Mark Cuban Challenges the Referee: the Constitutionality of SEC In-House Courts

Posted on

in-house courts

After the repeated challenges to the SEC’s in-house courts as previously reported, Mark Cuban joined the debate by filing an amicus curiae brief in support of petitioners Raymond J. Lucia Companies, Inc. and Raymond J. Lucia (collectively “Lucia”) in Lucia v. SEC.  Cuban, describing himself as a “first-hand witness to and victim of SEC overreach” in a 2013 insider trading case brought against him in an SEC court, argued that the D.C. Circuit should grant the petitioners’ appeal because SEC in-house judges are unconstitutionally appointed.

READ MORE →

The Supreme Court’s Omnicare Decision: Implications And Remaining Questions Regarding When Opinions Are Actionable Under The Federal Securities Laws

, , and Posted on

On March 24, 2015, the Supreme Court issued its much anticipated decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, 2015 WL 1291916 (Mar. 24, 2015).  With some significant caveats (discussed below), the decision is largely protective of issuers: it enshrines the distinction between “opinions” and “facts,” and generally makes it difficult to hold issuers liable for securities fraud based on statements of opinion.

In brief, the Court held that issuers that include opinions in a registration statement may be liable under Section 11 of the Securities Act of 1933 (the “Securities Act”) for making an untrue statement of fact only when the issuer does not subjectively believe the stated opinion.  In so holding, the Court rejected the Sixth Circuit’s view that an honestly-held opinion that was at the time or later proved to be untrue could subject the issuer to liability.  As the Court put it, Section 11 “is not, as the Court of Appeals and the [plaintiffs] would have it, an invitation to Monday morning quarterback an issuer’s opinions.”

READ MORE →

The Sixth Circuit – The New Hotspot for Section 11 Suits

Posted on

The Sixth Circuit recently made it easier for plaintiffs to bring securities suits brought under Section 11 of the Securities Act of 1933. In a recent ruling in Indiana State Dist. Council v. Omnicare, Inc., No. 12-5287 (6th Cir. May 23, 2013), the court of appeals revived a purported class action lawsuit against Omnicare. The suit, which had been dismissed by the District Court for the Eastern District of Kentucky, alleged that Omnicare artificially inflated its stock price by failing to disclose a kickback scheme in its registration statement.

The Sixth Circuit (which covers Kentucky, Ohio, Tennessee, and Michigan), held that the shareholders did not have to allege that the defendant executives knew that statements were false at the time they were made. In a unanimous opinion, Judges Cole, Griffin, and Gwin reasoned that Section 11 imposes strict liability for misstatements made in offering documents – whether or not the executive “making” the statement knew them to be false at the time they were made. The panel expressly refused to extend the U.S. Supreme Court’s ruling in Virginia Bankshares v. Sandberg, 501 U.S. 1083 (1991) (which requires plaintiffs to allege both objective and subjective falsity to pursue a Section 14(a) claim) to Section 11 claims. This ruling will likely embolden plaintiffs to bring Section 11 claims in the Sixth Circuit. READ MORE →