Article: The PSLRA’s Discovery Stay During the Pendency of a Motion To Dismiss Applies in State Court Actions Asserting 1933 Act Claims

Article - Media, Publications

The PSLRA’s Discovery Stay During the Pendency of a Motion To Dismiss Applies in State Court Actions Asserting 1933 Act Claims

Craig S. Waldman ,  08 November 2019

One of the PSLRA’s key procedural protections is the automatic stay of discovery during the pendency of a motion to dismiss. This serves “to protect defendants … from the burden and expense of premature discovery … until the court sustains the sufficiency of the complaint.” ATSI Communications v. Shaar Fund, Ltd., 2003 WL 1877227, at *2 (S.D.N.Y. April 2, 2003). “The legislative history of the PSLRA indicates that Congress enacted the discovery stay to prevent plaintiffs from filing securities class actions with the intent of using the discovery process to force a coercive settlement.” In re LaBranche Sec. Litig., 333 F. Supp. 2d 178, 181 (S.D.N.Y. 2004). Congress also aimed “to prevent plaintiffs from … using [a meritless lawsuit] as a vehicle ‘in order to conduct discovery in the hopes of finding a sustainable claim not alleged in the complaint.’” In re Vivendi Universal, S.A. Sec. Litig., 381 F. Supp. 2d 129, 129-30 (S.D.N.Y. 2003) (quoting S. Rep. No. 104-98, at 14 (1995)). Continue reading “Article: The PSLRA’s Discovery Stay During the Pendency of a Motion To Dismiss Applies in State Court Actions Asserting 1933 Act Claims”

Article: Short Selling and the New Market Manipulation

Article - Media, Publications

Short Selling and the New Market Manipulation

John C. Coffee, Jr. and Joshua Mitts,  18 March 2019

Stock market manipulation has been around since shortly after stock markets were invented. Everyone is familiar with the methodology in the standard “pump and dump” scheme: False rumors are circulated, the stock is bid up by the manipulators, supply might be constrained, and, once the public’s appetite is aroused, the stock is dumped by the manipulators.

But the internet has changed all that. No need exists today for the boiler shop or its battery of phones or even carefully assembled lists of suckers. All that one needs today is to put one’s message (written under a pseudonym) on a blog that features hot news about individual stocks. Of these sites, the best known and most watched is Seeking Alpha, whose “Short Ideas” column contains numerous posts recommending that specific stocks be shorted. Reversing the old pattern, the focus is no longer on touting stocks for an immediate rise, but rather on suggesting a dark downside. Once the professional media may have played a gatekeeper role, refusing to publish wild and unsubstantiated reports. But on the blogs, it is the Wild West today. Continue reading “Article: Short Selling and the New Market Manipulation”

Article: PURE MARKET MANIPULATION CLAIMS REMAIN OUT OF REACH FOR SOME SHAREHOLDERS VICTIMIZED BY MYSTERIOUS STOCK PRICE REVERSALS

Article - Media, Publications

PURE MARKET MANIPULATION CLAIMS REMAIN OUT OF REACH FOR SOME SHAREHOLDERS VICTIMIZED BY MYSTERIOUS STOCK PRICE REVERSALS

Emergent Law,  31 October 2017

Wins Finance Holdings Inc. (“Wins”), a company that guarantees loans and leases equipment for small businesses in China, has been the target of multiple securities class action lawsuits ever since the news broke in March of this year that it was under investigation by the SEC for market manipulation of its stock. Incredibly, the stock price of Wins soared over 4,000% since the inception of trading near the end of 2015, with no company news headlines to explain this market bubble. On March 30, 2017, the investment analytics site Seeking Alpha reported the SEC investigation and the fact that Wins had mislead the Russell Index into including the company based upon a false report of the location of its headquarters.

On this news, the stock price plunged back to levels below $50 per share, only to be followed by another mysterious spike up to the $200 level in the early summer of this year. On June 7, 2017, NASDAQ announced that it was halting trade in Wins stock pending the receipt of further information from the company. On August 4, 2017, NASDAQ sent Wins a delisting determination letter, but withdrew this letter on October 19, 2017. The stock remains halted while NASDAQ awaits further information from Wins. Continue reading “Article: PURE MARKET MANIPULATION CLAIMS REMAIN OUT OF REACH FOR SOME SHAREHOLDERS VICTIMIZED BY MYSTERIOUS STOCK PRICE REVERSALS”

Article: FCA comes down on Wirex after allegations of turning a blind eye to money laundering

Article - Media, Publications

FCA comes down on Wirex after allegations of turning a blind eye to money laundering

Michael Asaro and Richard Williams,  19 July 2017

New York Law Journal has published the article “‘Spoofing’: The SEC Calls It Manipulation, But Will Courts Agree?” written by Michael Asaro and Richard Williams Jr., partner and associate, respectively, in the litigation practice at Akin Gump.

Asaro and Williams analyze the act of spoofing, which they describe as “a relatively new form of alleged market manipulation,” under the open-market manipulation case law. They focus on a decision by the U.S. Court of Appeals for the 2nd Circuit in ATSI Communications v. Shaar Fund, which is seen as binding precedent. Continue reading “Article: FCA comes down on Wirex after allegations of turning a blind eye to money laundering”

Article: ‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?

Article - Media, Publications

‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?

Michael A. Asaro,  17 July 2017

In recent years, the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission, and the Department of Justice have pursued an increasing number of cases involving a relatively new form of alleged market manipulation known as “spoofing.” See, e.g., U.S. v. Coscia, No. 14-cr-00551 (N.D. Ill.); In re Panther Energy Trading, CFTC Docket No. 13-26 (2013); CFTC v. Nav Sarao Futures, No. 15-cv-03398 (N.D. Ill.); In re Hold Brothers On-Line Investment Services, Exchange Act Release No. 67924 (SEC Sept. 25, 2012); SEC v. Lek Secs., No. 17-cv-1789 (S.D.N.Y.). Continue reading “Article: ‘Spoofing’: The SEC Calls It Manipulation, But Will Court Agree?”

Article: Grounding the Short Circuit: The Need for Supreme Court Intervention in Scienter Pleading Requirements for Private Securities Fraud Cases After the Second Circuit’s Decision in ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007)

Article - Media, Publications

Grounding the Short Circuit: The Need for Supreme Court Intervention in Scienter Pleading Requirements for Private Securities Fraud Cases After the Second Circuit’s Decision in ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007)

Joe Ehrich,  08 March 2013

The Second Circuit, in ATSI, disregarded the pleading and review instructions the Supreme Court established in Tellabs by stating that plaintiffs may plead a strong inference of scienter using only allegations of motive and opportunity or conscious misbehavior or recklessness. This decision has allowed plaintiffs to plead scienter using only such individual allegations; encouraged courts within the Second Circuit to conduct abbreviated reviews of complaints at the dismissal stage; undermined the Court’s intent for a heightened, uniform scienter pleading standard capable of reducing frivolous litigation and allowing the advancement of meritorious claims; and contributed to the renewal of a wide circuit split over whether motive and opportunity allegations are sufficient to plead scienter.

In sharp contrast to the divergent policies and practices of the Second Circuit, the Third Circuit adopted the full Tellabs provisions. It therefore utilizes the scienter pleading standard that the Supreme Court intended. Given the serious consequences of this split, the Second Circuit standard merits further discussion. This Note begins by discussing the Private Securities Litigation Reform Act (PSLRA), which established the pleading requirements for private securities fraud claims. Part II details the post-PSLRA circuit split over motive and opportunity allegations, and the pleading provisions the Supreme Court established in Tellabs. Part III describes the pleading prescriptions created by the Second Circuit in ATSI.

Part IV discusses how the ATSI standard diverges from Tellabs by allowing plaintiffs to plead scienter through individual allegations, which has led to only partial application of the Tellabs dismissal review process in the Second Circuit and has undermined the Supreme Court’s intent for a heightened, uniform scienter pleading standard capable of reducing frivolous claims. This Part also details how ATSI contributed to the post-Tellabs circuit split over motive and opportunity allegations, and argues that the Supreme Court must rectify this untenable situation by fortifying the Tellabs review test. If the Court does not, plaintiffs who sue in the Second Circuit, as the Doe shareholders may, will continue to receive more favorable treatment at the pleading stage and have a greater opportunity to receive undeserved settlements from innocent defendants such as the Doe CFO than those who sue in the Third Circuit.

Read Full Article

Article: United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule

Article - Media, Publications

United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule

Maxwell K. Multer,  01 September 2011

Regulators have addressed market manipulation with Rule 10b-5 since its promulgation under the Securities Exchange Act in 1942. While Section 9 of the Securities Exchange Act addresses manipulation of securities prices, it requires the specific intent “for the purpose of inducing the purchase or sale of such security by others”1 or “for the purpose of creating a false or misleading appearance [of market activity] . . ..”2 It is likely for that reason that prosecutors rarely use Section 9, choosing instead to bring manipulation proceedings under Rule 10b-5.3 But as the tools available for accomplishing market manipulation have evolved, the judicially narrowed contours of Rule 10b-5 may be such that certain new schemes escape liability. With modern advances in trade execution, market platforms and derivatives, it is now possible to accomplish a profitable market manipulation without engaging in any overtly fraudulent or illegal behavior.

Several courts have elected to distinguish between these alleged schemes and schemes which do include illegal behavior, employing a higher level of scrutiny and requiring proof of additional elements in the former situation. Manipulative schemes are referred to as “open market manipulations” when the alleged scheme is accomplished solely through the use of facially legitimate open market transactions. That is, where the manipulator has not engaged in any conduct that is inherently or otherwise illegal, such as fictitious transactions, wash sales or by disseminating false reporting. The transactions are seemingly legitimate, but for their manipulative intent and effect in combination. Continue reading “Article: United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule”

Article: ATSI Communications, Inc. v. Shaar Fund, Ltd.

Article - Media, Publications

ATSI Communications, Inc. v. Shaar Fund, Ltd.

Smarter Legal Research,  02 September 2009

More detailed factual background is provided in our previous opinion in this case, ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (” ATSI I”).

ATSI describes itself as a firm which was “founded in December of 1993 to capitalize on the opportunities anticipated by trends towards deregulation and privatization of telecommunications markets within Mexico and other Latin American countries.” In 1999, needing capital, ATSI issued four series of convertible preferred stock (“Preferred Stock”), shares of which were convertible, with minimal restrictions, to ATSI common shares in increasing amounts as the price of ATSI common shares declined. Because there was no limit on the number of common shares into which the Preferred Stock could convert, securities such as these are called “floorless” convertibles. ATSI I, 493 F.3d at 94. A holder of such Preferred Stock who wanted to increase ownership or acquire the company could actually benefit from a decline in ATSI share price. Accordingly, ATSI elicited the purchasers’ representations that they would not sell shares short, or were not purchasing with an intent to resell. Id. at 95-96. ATSI issued Preferred Stock at various points to (among others) defendants The Shaar Fund, Ltd. (“Shaar Fund”) and Rose Glen Capital Management, L.P. (“Rose Glen”).

Read Full Article

Article: In Pursuit of the Naked Short by Alexis Stokes

Article - Academic

In Pursuit of the Naked Short

Alexis Stokes, Texas State University

Journal of Law and Business 5/1 (Spring 2009)

This article explores the origins of naked short-selling litigation; considers
the failures of significant naked short-selling lawsuits in federal court;
surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and new FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for
small cap failure, what remedies are, or should be, available?

PDF (62 Pages): Article In Pursuit of the Naked Short

Article: SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance

Article - Media, Publications

SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance

Caryn Mazin Schechtman; Perrie M. Weiner,  02 November 2008

The SEC has charged a San Francisco investment adviser, MedCap Management and Research LLC (MMR), and its principal, Charles Toney, Jr., with falsely inflating the price of a thinly-traded portfolio security to enhance fund asset values at the end of a reporting period so that it could avoid reporting a 40 percent loss and stave off a rash of investor redemptions. This practice, which the SEC calls “portfolio pumping,” is alleged by the SEC to violate the antifraud provisions of the Investment Advisers Act of 1940. The charges were filed October 16.

MedCap Partners L.P. (MedCap), a fund managed by Toney and MMR, was plagued by poor performance and investor redemptions in 2006. According to the SEC, facing mounting losses in the third quarter of the year, Toney and MMR allegedly placed numerous buy orders during the last few days of the quarter in a thinly traded over-the-counter security heavily owned by MedCap through another MMR-controlled fund. The SEC alleges that this purchasing activity caused the portfolio security to quadruple and fraudulently increased MedCap’s value for the third quarter of 2006 by $29 million; both the stock price of the underlying security and MedCap’s value subsequently declined back to their previous levels. Continue reading “Article: SEC Focuses on Efforts by Hedge Fund Managers to Conceal Poor Performance”

Article: Nanopierce Technologies, Inc. v. Southridge Capital Management

Article - Media, Publications

Nanopierce Technologies, Inc. v. Southridge Capital Management

Find a Case, 29 January 2008

Before the Court are three motions for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. The three motions are addressed in the following order: first, the motion for summary judgment filed by Harvest Court (a co-defendant and subsidiary of Southridge); second, the motion for summary judgment filed by Counterclaim-Plaintiffs Kampmann and Metzinger (Nanopierce executives); and third, the motion for summary judgment filed by H. Glenn Bagwell, Jr. For the reasons stated below, Harvest Court’s motion for summary judgment is granted, Kampman and Metzinger’s motions for summary judgment are denied with respect to Counts 1, 7, 8, and 13, and granted with respect to Count 9. Bagwell’s motion for summary judgment is denied.

I. Background*fn1
In a September 26, 2000, meeting at defendant Southridge’s office, Nanopierce President Paul Metzinger negotiated an agreement with two Southridge employees, Defendants Singer and Pickett.*fn2 The negotiated agreement between Southridge and Nanopierce called for $7.5 million in initial financing in exchange for approximately 4.5 million shares of Nanopierce stock. The agreement also contained a provision providing “reset rights,” which entitled the Southridge to additional shares of common stock in the event the stock price declines. The reset clause included three reset dates (at 65, 130, and 195 days after the closing) at which additional shares would be issued if the stock was trading below the initial purchase price. Finally, the agreement also provided for an additional $7.5 million in financing at a future date, on the condition that Nanopierce’s stock met certain price and volume thresholds. Continue reading “Article: Nanopierce Technologies, Inc. v. Southridge Capital Management”

Article: ATSI COMMUNICATIONS INC v. SHAAR FUND LTD RGC LDC

Article - Media, Publications

ATSI COMMUNICATIONS INC v. SHAAR FUND LTD RGC LDC

FindLaw,  11 July 2007

ATSI COMMUNICATIONS, INC., a Delaware Corporation, Plaintiff-Appellant, v. The SHAAR FUND, LTD., Shaar Advisory Services, N.V., RGC International Investors, LDC, Rose Glen Capital Management, L.P., Corporate Capital Management, InterCaribbean Services Ltd., Citco Fund Svcs., Luc Hollman, Sam Levinson, Hugo Van Neutegem, Declan Quilligan, Wayne Bloch, Gary Kaminsky, Steve Katznelson, Trimark Securities, Inc., Levinson Capital Management, and W.J. Langeveld, Defendants-Appellees,

Marshall Capital Services, LLC., Jesup & Lamont Structured Finance Group, MG Security Group, Inc., Crown Capital Corporation, John Does 1-50, Kenneth E. Gardiner, Nathan Lihon, and Sei Investment Co., Defendants. ATSI Communications, Inc., a Nevada Corporation, Plaintiff-Appellant, v. Uri Wolfson, Defendant-Appellee, Sam Levinson, Defendant.

Read Full Article