Upcoming Securities Cases at SCOTUS

This year’s Supreme Court term will have some important securities cases:

A notice from Robbins Geller Rudman & Dowd notes:

The U.S. Supreme Court is currently considering a wide range of issues in securities cases that are likely to impact investors’ ability to recover for losses caused by corporate wrongdoing. Specifically, the cases currently being considered by the Supreme Court involve: who can be held liable for participating in a scheme to defraud investors; the showing required to prove loss causation; investors’ ability to assert claims when American Depositary Receipts (“ADRs”) are purchased in the United States; the ability to assert claims arising out of materially misleading tender offer statements without alleging scienter; and whether defendants are required to update a statement of historical fact that was accurate when made, but subsequently becomes inaccurate due to additional information or circumstances.

Lorenzo v. SEC, No. 17-1077

At issue in Lorenzo is who can be held liable under §10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for participating in a fraudulent scheme. The underlying case involves allegations that a securities broker sent emails to clients that included false statements written by the broker’s supervisor.

First Solar, Inc. v. Mineworkers’ Pension Scheme, No. 18-164

In First Solar, the Supreme Court is considering whether to grant defendants’ Petition for a Writ of Certiorari regarding the correct test for loss causation, an element of a §10(b) fraud claim. Defendants’ question presented is whether a private securities-fraud plaintiff may establish the critical element of loss causation based on a decline in the market price of a security even if the event or disclosure that triggered the decline did not identify the fraud on which the plaintiff’s claim is based.” aleged fraud is not necessarily revealed prior to the economic loss.’”

Toshiba Corp. v. Automotive Industries Pension Trust Fund, No. 18-486

The underlying case in Toshiba alleges that over the course of nine months in 2015, Toshiba made a series of disclosures that revealed a massive, multi-year accounting fraud at the company which Toshiba’s own internal investigation concluded was “carried out . . . in an institutional manner.” After Toshiba’s internal investigation and an outside investigation by an Independent Investigation Committee, Toshiba made a formal restatement of more than six years of reported financial results that eliminated approximately one-third ($2.6 billion) of the profits Toshiba had reported between 2008 and 2014. The investigations also led to a $1.3 billion writedown of goodwill at Toshiba’s U.S. nuclear business, Westinghouse Electric Co., and the termination of nine Toshiba senior executives. Following the disclosure of the fraud, the price of Toshiba’s securities – and the ADRs that move in tandem with that price – dropped by more than 40%.

The complaint alleges that defendants made false and misleading statements and omissions in violation of the Exchange Act and the Financial Instruments and Exchange Act of Japan, and is brought on behalf of a class of U.S. investors, including purchasers of ADRs on the over-the-counter (“OTC”) market and Toshiba common stock on the Tokyo exchange.

Emulex Corp. v. Varjabedian, No. 18-459

In Emulex, the Supreme Court is considering whether to grant defendants’ Petition for a Writ of Certiorari regarding the level of culpability required (negligence or scienter) to state a claim pursuant to §14(e) of the Exchange Act challenging false statements and omissions in connection with a tender offer, and whether §14(e) contains a private right of action at all (i.e., whether only the SEC may sue for violations, or whether private investors may also sue for damages). Unlike First Solar and Toshiba, the Supreme Court has already granted the petition, and merits briefing will occur in 2019.

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