U.S. Appeals Court Revives Securities Cases

Patrick Clark — Thu, 06 Sep 2012 18:05:50 -0400

A federal appeals court revived a pair of securities cases in decisions handed down today, reinstating a lawsuit charging Goldman Sachs with misleading mortgage investors, as well as a 10-year-old insider trading case brought against a hedge fund manager. In the former case, the Second U.S. Circuit Court of Appeals said that NECA-IBEW Health & Welfare Fund, which serves electrical workers, could lead a class action lawsuit on behalf of investors in 17 mortgage-backed securities underwritten by Goldman. According to Bloomberg, NECA only invested in two of the offerings, and in 2010, a federal judge ruled that fund lacked standing to represent investors in the other securities. Reuters reports that today's ruling reinstates claims relating to seven of the securities.

In the latter decision, the Second Circuit breathed new life into insider trading charges first brought in 2001, in which the SEC alleged that hedge fund Wynnefield Capital earned $1.3 million trading on privileged information about a company called SunSource. According to The Times, which wrote at length about the case last year, the government alleged that Wynnefield president Nelson Obus received a tip that SunSource was in play. Mr. Obus increased his holdings in SunSource, and when the company was sold, the share price doubled.

A trial court judge ruled that Wynnefield's source was not a corporate insider, thus hadn't breached his duty to protect SunSource's information. The Second Circuit disagreed, ruling that "the SEC had established genuine questions."

Observer » U.S. Appeals Court Revives Securities Cases

U.S. Appeals Court Revives Securities Cases