On December 1, 2022, the US Court of Appeals for the Second Circuit not busy and overturned a district court’s decision to certify a class of more than 200,000 retirees on the grounds that guaranteed loans administered by the Teachers Insurance and Annuity Association of America (TIAA) are prohibited transactions under ERISA. This decision provides guidance beyond the ERISA context regarding what courts should consider when conducting a “predominance” investigation before certifying a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
In quashing the district court’s order and remanding the case for further proceedings, the Second Circuit found that the district court “determined that the lien was satisfied without analyzing the § 408 exemptions or TIAA-claimed variances between the loans,” as he was forced to do. Under Rule 23(b)(3), a claimant must show that issues of law or fact common to the putative class “outweigh” issues affecting only individual members. This analysis “is not simply a problem counting exercise; it is qualitative research that involves a ‘careful examination’ of the nature and significance of common and individual problems in a case”. Therefore, courts must consider “all questions of fact or law”, including affirmative defenses, even if the defendant bears the burden of proof on the merits stage.
In applying these principles, the Second Circuit concluded that the district court failed to adequately analyze the § 408 exemptions, including TIAA’s arguments that “non-party plan fiduciaries must gather individualized evidence showing how each plan fiduciary valued assets and whether, given other options available to the plan, the trustee acted in good faith in selecting the terms offered by TIAA,” and that “by submitting only she Loan contract, [the named plaintiff] failed to provide the district court with the necessary evidence that the various plans in the purported class were sufficiently similar.” In addition, the Second Circuit concluded that the district court did not “commit to the evidence that TIAA presented to substantiate the alleged variations between the plans. . . A district court cannot simply ‘take the plaintiff’s word that there are no material differences’”.
SEC Announces Record Recovery of $6.4 Billion
On November 15, 2022, the SEC published its tax report year-end data on enforcement actions. In total, the Commission filed 760 actions in fiscal year 2022, recovering a record $6.4 billion in penalties and repayment. Compared to 2021, those numbers represent an increase of approximately 9% in the number of enforcement actions filed, and an increase of almost 60% in the total amount of funds recovered or returned. Several notable execution trends emerged in 2022. In particular, the total number of offering-related enforcement actions decreased from 142 in 2021 to 106 in 2022. By contrast, nearly all other categories of enforcement actions, except actions against investment advisers and investment companies, which fell from 120 to 119, increased between 2021 and 2022.
Notably, several of this year’s actions were the first of their kind. For example, the Commission charged Western International Securities, Inc. and five of its registered representatives in the first-ever enforcement action under the Best Interest Obligation regulations, also known as the Best Interest Regulation, which requires that Stockbrokers act in the best interest. of retail investor clients when recommending a stock transaction or investment strategy. In addition, the Commission initiated a significant number of actions this year under the “individual liability” “pillar” of its enforcement program, which places particular emphasis on specific and general deterrence by charging individual actors. In fact, more than two-thirds of independent actions this year accused at least one person of securities law violations, a trend that is consistent with previous years.
In addition, the SEC reported that it took 15 cases to trial, winning 12 at least in part, which it noted was its busiest trial year in a decade. In context, however, even a record 15 trials doesn’t change the fact that the Enforcement Division almost never goes to court: if the current rate of cases tried and filed continues, it will mean more than 98% of those cases.” archived”. in 2022 it will be settled or dropped before a judge or jury decides whether anyone did anything wrong.
Looking ahead, SEC Chief Compliance Officer Gurbir Grewal cautioned that he does not expect to set any more settlement recovery records next year, noting that the SEC does not measure itself by annual recovery results. In his words: “While we set a Commission record last fiscal year for total money requested of $6.4 billion, including a record $4.2 billion in penalties, we do not expect to break these records and set new ones each year because we expect behaviors change. We look forward to compliance.”
California district court dismisses EthereumMax lawsuit filed against celebrity endorsers
On December 6, 2022, the United States District Court for the Central District of California fired with permission to amend, a “pump and dump” class action lawsuit brought by a group of cryptocurrency investors against the executives of the blockchain-based digital asset EthereumMax/EMAX (the “Executive Defendants”), and a handful of celebrities and athletes, including Kim Kardashian and Floyd Mayweather Jr. (the “Defendants Promoters”). According to the investors, the various defendants enriched themselves by perpetrating an alleged promotional scheme to increase the trading volume and price of the EthereumMax token through repeated allegedly false misrepresentations and omissions through “numerous celebrity endorsements.”
This decision reveals the challenges faced by those who sue to recover investor losses from crypto and digital transactions by invoking traditional securities law theories, here, “pump and dump” and “promoter liability,” without even trying to argue that they actually carried out transactions in securities. Instead, these Plaintiffs tried and failed to wedge their theory of investor loss into federal racketeering (RICO) claims and a handful of consumer protection, unfair competition, and false advertising claims. The Court recognized that, as alleged: “[t]their action demonstrates that almost anyone with the technical skills and/or connections can mint a new coin and create their own digital marketplace overnight. . . [which has] . . . it apparently allowed unvetted and highly volatile investment firms to go viral based solely on the paid word of celebrity promoters,” but it was just as clear that investors must “act reasonably before basing their bets on the zeitgeist.” From there, the Court dismantled the entire case following a traditional claim-by-claim analysis.
As to the RICO claim, the Court found that Plaintiffs made conclusive allegations with “enormous leaps of logic to link unconnected acts that, when read together, allegedly evidence a premeditated and well-orchestrated bomb and dump scheme in violation of the federal RICO statute.” . ” About Consumer Legal Remedies Act (CLRA) complaints, a law that protects against unfair or deceptive practices in connection with the sale of goods, defined as tangible movable property, the Court found that “[t]The EMAX tokens in question here (namelycryptocurrency) cannot be described as anything other than intangible property, more like investment securities, and therefore the CLRA does not apply.” The Court also addressed the sufficiency of Plaintiffs’ state statutory consumer protection claims, holding that Plaintiffs failed to invoke actual reliance as to “what statements [made by the Promoter Defendants] saw or exactly when each Claimant purchased EMAX Tokens.”
The Court allowed Plaintiffs to try again with an amended complaint, but put them on a short leash to file by December 22, 2022. We’ll see if the next pleading fares better than the failed predecessor.