Securities Regulation Daily Wrap Up, WORTH NOTING—Other litigation, regulatory activity and industry news, (Nov 30, 2018)

A weekly roundup of other items of interest to the securities community.

SEC NEWS AND SPEECHES—Jina L. Choi will leave her post as director of the SEC’s San Francisco regional office at the end of November. Choi served more than 16 years at the SEC and has led the San Francisco office since 2013. During that time, she oversaw investigations leading to the SEC’s actions against Tesla and Elon Musk, Theranos and Elizabeth Holmes, and Yahoo!, among others. Peter B. Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations, said that Choi’s "strategic thinking on examination initiatives, particularly those involving developing technology, has advanced OCIE’s mission and protected investors."

FRAUD AND MANIPULATION—In an unpublished opinion, the Court of Appeals for the Ninth Circuit reversed the dismissal of a shareholder class action against high-ranking officials of Allied Nevada Gold Corp. Although the district court had held that the plaintiff failed to adequately allege falsity and scienter under the PSLRA, a majority of the appellate panel noted that the defendants possessed knowledge that left them with no basis for their optimistic statements during the class period. Taken as a whole, the complaint gave rise to a strong inference that the defendants made false or misleading statements intentionally or with deliberate recklessness. The district court also erred when, in its loss causation analysis, it failed to consider the drop in Allied’s stock price in the context of gold price fluctuations at the same time.

FRAUD AND MANIPULATION—A federal judge in California consolidated class action suits against Elon Musk and Tesla and appointed a lead plaintiff. Multiple actions have been filed alleging that Musk committed securities fraud when he stated that he had secured funding to take Tesla private. After considering seven competing motions for appointment of lead plaintiff, the court decided that an individual with a total loss of $3.5 million should represent the class. Even if the individual overstated his loss, he would still have the largest clear financial interest of the parties under consideration, and the interests he held—long positions in common stock and options, and short positions in options—would cover most of the likely class members. Levi & Korsinsky, LLP, will be lead counsel.

SUPREME COURT NEWS—Upon request by the parties, a petition for certiorari has been dismissed under Rule 46 as moot. The petition in Quality Systems, Inc. v. City of Miami Fire Fighters' and Police Officers' Retirement Trust (17-1056) asked the Supreme Court to resolve a circuit split over how to interpret the PSLRA safe harbor provision for forward-looking statements. At issue was whether a defendant must admit that non-forward-looking statements made as part of "mixed statements" are false in order to have safe harbor protection for the accompanying forward-looking statements. In this case, the Ninth Circuit held that if the non-forward-looking statement is alleged to be false, the forward-looking statement is not protected by the safe harbor unless the cautionary language admits that the non-forward-looking statement is false. On November 19, the District Court for the Central District of California granted final approval of the settlement and dismissed the case without prejudice.

FRAUD AND MANIPULATION—The Northern District of California has issued an order preliminarily settling the multidistrict litigation by Volkswagen bondholders for fraud relating to emissions failures. After lengthy discovery, the parties agreed to settle, and the court conditionally certified a proposed class for settlement purposes. If approved, the settlement will require Volkswagen AG to contribute $48 million to a settlement fund, the balance of which, after attorney's fees and litigation expenses are paid, will be distributed to class members and the class representatives. The court concluded that the settlement appears to be fair, adequate, and reasonable. A fairness hearing will be held on May 10, 2019.

INVESTOR EDUCATION—The SEC warned investors to be alert to scammers attempting to capitalize on the California wildfires. Investors, including those who might receive insurance payouts, should watch for scams involving companies purporting to help with cleanup, repair, and recover efforts; false claims of affiliation with governments or large companies; and offers promising high returns for investments in companies that supposedly would reap profits from recovery and cleanup efforts.

COMMODITY FUTURES—The CFTC proposed a rule that would exempt certain futures commission merchants, retail foreign exchange dealers, commodity trading advisors, commodity pool operators, introducing brokers, major swap participants, and swap dealers from having to provide annual privacy notices under certain conditions. The rule implements FAST Act requirements, and the Commission worked with the Bureau of Consumer Financial Protection to harmonize its proposal with the CFPB’s rules. CFTC Chairman Giancarlo said in a statement, "In proposing to implement what is now almost a three-year-old statutory requirement, this proposal is a good demonstration of this Commission’s commitment to supporting good governance."

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