As I have frequently noted (most recently here), Brazil’s ever-expanding corruption investigation that initially focused on Petrobras, the country’s state-run oil company, has swept up an increasing number of companies across the country’s economy (and elsewhere in Latin America as well). Among the companies caught up in the investigation is the country’s state-run electrical energy company, Eletrobras, which like many of the companies under investigation that have securities trading on U.S. exchanges, was hit with a corruption-related U.S. securities class action lawsuit. The defendants in the Eletrobras securities suit moved to dismiss. In a lengthy and interesting March 25, 2017 opinion (here), Southern District of New York Judge John Koeltl largely denied the dismissal motion. The ruling is interesting not only because it relates to one of the Brazilian companies caught up in the corruption scandal, but also because it addresses a number of interesting legal issues.
Continue Reading Brazilian Energy Company’s Corruption-Related U.S. Securities Suit Survives Dismissal Motion
Fidelity Bond Rescission Denied Where Application Signatory Was Embezzling Credit Union’s Funds
Material misrepresentations in an insurance application can serve as the basis for rescission of the resulting policy. A recent federal district court decision examined the question of whether or not an insurer could rescind a fidelity bond on the grounds that the credit union manager who signed the credit union’s insurance application failed to disclose that she was embezzling funds from the credit union. In a March 17, 2017 opinion (here), District of Minnesota Judge Donovan Frank, applying Minnesota law, held that because the manager was acting entirely for her own benefit when she failed to disclose her theft, the misrepresentation could not be imputed to the credit union, and therefore the insurer was not entitled to rescind the bond.
Continue Reading Fidelity Bond Rescission Denied Where Application Signatory Was Embezzling Credit Union’s Funds
Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit
For purposes of determining the scienter of a corporate entity defendant under the federal securities laws, a company’s executives’ knowledge generally is imputed to company. There is an exception to these general principles – the “adverse interest exception” – which provides that an executive’s knowledge will not be imputed to the company if the executive acted for his or her own purposes and contrary to the interests of the company. There is also an exception to the exception, which provides further that a rogue executive’s knowledge will nevertheless be imputed to the company when an innocent third-party has relied on the executive’s representations made with apparent authority.
In an October 23, 2015 opinion (here), the Ninth Circuit applied these principles to reverse the district court’s dismissal of the ChinaCast Education Corp. securities class action lawsuit, holding that the knowledge of the company’s CEO, who had embezzled funds and mislead investors through omissions and false statements, could be imputed to the company for purposes of innocent third-party investors’ claims.
Continue Reading Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit