CEO’s intent to defraud can be charged to the company. A district court dismissed Section 10(b) and Rule 10b-5 claims brought against China North and Wang, its former CEO, who signed all relevant SEC filings attesting to the company’s internal controls while allegedly simultaneously looting its treasury and engaging in unauthorized transfers of company funds. The Second Circuit vacated the dismissal, holding that the plaintiff sufficiently pleaded Wang’s intent with allegations of his motive and opportunity to commit fraud. The Second Circuit also found that these allegations supported the claim brought against China North, as Wang’s intent can be imputed to the company. (8/28/2015) Acticon AG v. China North East Petroleum Holdings Limited.
Court rejects Constitutional challenge over SEC enforcement proceedings.Plaintiff, who is also a respondent in a pending administrative enforcement proceeding before the SEC, challenged in federal district court, as unconstitutional, the SEC’s authority to conduct the underlying in-house proceeding. The district court granted the SEC’s motion to dismiss the action. The court held that the administrative review system created by Congress stripped the court of jurisdiction to hear this sort of challenge. The Seventh Circuit agreed and affirmed dismissal, determining that if the SEC later renders an adverse final decision, the plaintiff will then be able to bring her constitutional claims to the court of appeals. (8/24/2015) Bebo v. Securities and Exchange Commission.
Class action suit does not adequately plead intent under the PSLRA. The Tenth Circuit affirmed dismissal of a securities class action that was brought against ZAGG, Inc. and Robert Pedersen, its former CEO and Chairman. On appeal, the plaintiffs alleged violations of the antifraud provisions of the securities laws. Plaintiffs contended that Pedersen failed to disclose in several of ZAGG’s SEC filings that he had pledged almost half of his ZAGG shares as collateral in a margin account. The Tenth Circuit determined that the plaintiffs failed to properly plead facts to show that Pedersen acted with intent to defraud, as is required by the Private Securities Litigation Reform Act of 1995 (PSLRA). (8/18/2015) Swabb v. ZAGG Inc.