The Securities and Exchange Commission (the “SEC”) has taken to using humor and sarcasm to educate retail investors about the potential risks of purchasing tokens in initial coin offerings (“ICOs”).This week, the SEC issued a press release presenting “a hot investment opportunity.” The release pointed to a website touting the HoweyCoin—a fictional crypto token intending to disrupt the luxury travel industry—as “one of the largest cryptocurrency platforms ever built” and promising that it would provide potential investors with “excitement and guaranteed returns.” The website closely mimics common components of ICO issuer websites, including offers for tiered pre-sale purchaser discounts and an invitation to review a whitepaper, and contains egregious claims that the tokens are SEC-compliant, images of opulence, and fake celebrity endorsements for good measure. Read the full blog post on Blockchain and the Law.
On March 20, 2018, the Supreme Court ruled that the 1998 amendments to the federal securities laws did not strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933. The Court further held that those amendments do not empower defendants to remove those federal-law cases from state to federal court.
The Court’s unanimous decision in Cyan, Inc. v. Beaver County Employees Retirement Fund (No. 15-1439) ensures that, if a plaintiff chooses to file a state-court class action asserting only Securities Act claims arising from a public offering of a listed security, the case will remain in state court – and will not be subject to the procedural requirements that Congress imposed on federal-court securities class actions. The preservation of a state-court forum thus increases the difficulty of coordinating or consolidating related cases filed in multiple federal and state courts.
The Fourth Circuit ruled yesterday that a plaintiff can sufficiently plead loss causation to establish a securities-fraud claim based on an “amalgam” of two theories: corrective disclosure, and materialization of a concealed risk. In so holding, the court concluded in Singer v. Reali that the issuer’s disclosure of a government subpoena and an analyst’s report discussing that subpoena collectively revealed sufficient additional information to connect the company’s alleged misstatements and omissions to the subsequent 40% stock-price drop.
Because of the Fourth Circuit’s “amalgam” analysis, it is unclear whether and, if so, to what extent the Singer decision is in tension with decisions by other Courts of Appeals holding that disclosures of governmental investigations or internal investigations do not, without more, sufficiently establish loss causation for pleading purposes. Various appellate courts appear to be putting their own refinements on the analysis, and the law might not be entirely settled on this issue. Continue Reading
On February 5, 2018, U.S. District Court for the Southern District of New York granted Defendant Khan Funds Management America, Inc.’s Rule 12(b)(6) motion to dismiss a whistleblower retaliation claim under Dodd-Frank on the grounds that Plaintiff failed to state a claim upon which relief could be granted. Read the full post on Proskauer’s Whistleblower Defense blog.
Last week, the staff of the SEC’s Office of Compliance Inspections and Examinations (OCIE) recently released its sixth annual examination priorities announcement. The alert lays out general issues industry can expect OCIE to focus on during the administration of the agency’s examination program in 2018. While reflecting a renewed emphasis of SEC Chair Jay Clayton on investment products and services offered to retail investors, the announcement contains information relevant to all entities subject to SEC oversight.
On January 25, 2018, the Delaware Supreme Court held that the dismissal of a shareholder derivative action for lack of demand futility can preclude other derivative actions as long as the plaintiff in the dismissed case adequately represented the corporation’s interests. The Court’s decision in California State Teachers’ Retirement System v. Alvarez – a suit brought on behalf of Wal-Mart Stores, Inc. – refused to adopt the Delaware Court of Chancery’s recommendation that, as a matter of federal due process, a judgment in one derivative action should not bind the corporation or its stockholders in another derivative action unless either (i) the first action has survived a motion to dismiss because a pre-suit demand on the corporation’s board of directors would have been futile or (ii) the board has given the plaintiff authority to proceed on the corporation’s behalf by declining to oppose the derivative suit.
The Second Circuit ruled today that a “meaningfully close personal relationship” is not required for insider-trading liability where a tipper discloses inside information as a gift or in exchange for some other type of nonpecuniary personal benefit. The requisite personal benefit exists “whenever the information was disclosed ‘with the expectation that [the recipient] would trade on it’ . . . and the disclosure ‘resemble[s] trading by the insider followed by a gift of the profits to the recipient,’ . . . whether or not there was a ‘meaningfully close personal relationship’ between the tipper and the tippee.” Continue Reading