In an opinion Tuesday, Judge Forrest dismissed various class action suits accusing stock exchanges of improperly allowing high-frequency traders to pay to obtain and trade on market data faster than other investors.  The plaintiffs subscribed to market data via subscriber contracts that, in turn, incorporated the terms of standardized market data dissemination “plans.”  Those plans, which the SEC approved, stated the data would be provided on “fair and reasonable terms” that are “not discriminatory” (or used similar language). Judge Forrest ruled that the claims were preempted by the detailed federal statutory and regulatory regime governing stock exchanges:
Continue Reading Judge Forrest: “Flash Boys” Suit Against Exchanges is Preempted by Federal Law

In an opinion Friday, Judge Scheindlin largely denied Barclays’ motion to dismiss a securities fraud class action alleging that Barclays misled investors about its anonymous trading platform, or “dark pool,” referred to as “LX.”  At the outset, Judge Scheindlin found it appropriate for the plaintiffs to have borrowed substantially from the New York Attorney General’s

In an opinion today, Judge Swain ruled Section 13 of the Securities Act, which states that no action may be brought “more than three years after the security was bona fide offered to the public” was not extended by the so-called “FDIC Extender Provision” of the Financial Institutions Reform, Recovery, and Enforcement Act (or

In an opinion today in a securities fraud case, Judge Engelmayer denied a class certification motion that was based on a somewhat novel theory:  the plaintiffs allege that insiders of a company called SmartHeat publicly touted a “lockup” restricting their ability to sell shares, but then secretly “unlocked” those shares, thereby causing extra shares to flood the market and depress prices. He ruled that there was insufficient evidence of the plaintiffs’ theorized cause and effect:
Continue Reading Judge Engelmayer Rejects Class Certification Premised on Extra Shares Being “Secretly” Available and Depressing Price

In an opinion last week, Judge Scheindlin denied the plaintiffs in a securities class action leave to amend their complaint to assert securities fraud claims against the company’s auditors, PriceWaterhouseCoopers and Ernst & Young. The proposed amendment would have alleged that PwC and E&Y took at face value the erroneous opinion of a third party tax preparer (referred to as “Frankel”), which the plaintiffs argued is as reckless and fraudulent as simply taking management representations as true:
Continue Reading Judge Scheindlin: Auditors’ Failure to Investigate Tax Preparer’s Opinions is Not Fraud

In an opinion today, Judge Gardephe dismissed a securities class action accusing Avon of defrauding its investors about its compliance with the FCPA.  Avon’s management received a whistleblower letter about bribes to Chinese officials, and Judge Gardephe found that it was not fraudulent for Avon to investigate the allegations before disclosing them:
Continue Reading Judge Gardephe Dismisses Class Action Accusing Avon of Hiding FCPA Exposure

In an opinion dated yesterday, Judge Castel dismissed a suit challenging the proposed merger between a Chilean bank (Itau) and a Brazlian bank (CorpBanca) because the plaintiff, Cartica, was not a “purchaser” or “seller” in relation to the alleged fraud.  It was merely a stockholder. In doing so, he took one side of an issue that has divided the lower courts:
Continue Reading Judge Castel Rules 10(b) Claims Are Limited to Buyers and Sellers, Even in Injunction Cases

In an opinion yesterday, Judge Swain dismissed a securities class action accusing GM of “channel stuffing” — forcing excess inventory onto dealers to create the appearance of improving revenue — because the inventory at dealerships was fully disclosed:

The fundamental flaw of Lead Plaintiff’s thesis is that is own Amended Complaint reflects public knowledge of

In an opinion today, Judge Forrest granted summary judgment to two affiliated accounting firms in a securities fraud suit arising from what Judge Forrest described as an accounting firm’s “worst nightmare”:

An accounting firm’s worst nightmare might be to wake up one morning and discover that the company that one of its teams had audited for the past several years had in fact disappeared, and that what the team had been auditing had been merely a mirage. A twist that could serve only to heighten this distress might be the discovery that the company had been stolen a few years prior — its operations and related revenues transferred away — but that the engagement team had not discovered this fact. The team had issued a “clean opinion.” The accounting error in such a case would be fundamental: all aspects of the financial position of the company would have been entirely misstated, because the operations on which it was based were long gone. This scenario is not the storyline for an auditor’s version of a horror film; it is what happened here.



Continue Reading Judge Forrest Grants Summary Judgment to Auditors in Case of Missing Subsidiary

In a one-page Order Wednesday, Judge Swain stayed a securities class action accusing AIG of concealing its exposure to subprime securities pending a ruling from the Supreme Court in Halliburton Co. v. Erica P. John Fund, Inc., a case challenging the presumption of classwide reliance on the price of securities that are traded in efficient markets. The Halliburton case is scheduled for argument in March and a ruling is expected by July. The lead plaintiff argued that other courts have rejected stays pending the Halliburton ruling, but the defendants responded that, unlike in those other cases, fact discovery was already complete. The defendants also argued that Halliburton is a potential “game changer” for securities litigation:

Continue Reading Judge Swain Stays Securities Class Action Pending Supreme Court Challenge to Fraud-on-The-Market Presumption