Saints and Sinners.  I’ve blogged here before about Ed Rock’s thesis that Delaware common law operates as much by singling out particular corporate actors for scathing criticism than by imposing formal sanction (arguably, the recent conflagration was because Delaware departed from that practice – but maybe not; at least some seem to have taken issue with judicial “tone,” as well).

Anyhoo, VC Laster’s opinion in Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P.  is a shining example of the genre.  Laster ended up only imposing nominal damages of $1 on the defendant fund manager, but man did he rake the fund manager over the coals.  The case, incidentally, is also an interesting little window into private company capitalization – and, as I previously have blogged about, how private companies increasingly work closely with supposedly “independent” funds that hold their shares.

The setup: Iqbaljit Kahlon is a fund manager with ties to Peter Thiel. He formed a fund designed to buy certain shares of SpaceX.  One of the investors in the fund was supposed to be a publicly traded Chinese company, but Chinese law required that it disclose the investment.  SpaceX was not happy; for various political and regulatory reasons, it tries to avoid having Chinese investors.  So, SpaceX refused to allow the fund to have the shares unless the fund kicked out the Chinese investor, which then sued the fund.  Laster found that Kahlon largely acted within his fiduciary obligations – his duties ran to the fund, not individual investors, and getting rid of this one investor was the best way to protect the fund – and within his contractual obligations.  But, as Laster demonstrates, his entire approach to this deal was extraordinarily sloppy, from failing to understand the kinds of disclosures the Chinese investor would have to make to trying to place all the blame on the investor after the fact in order to remain in SpaceX’s good graces, to – Laster notes almost as an aside – misleading other investors about the Fund’s access to SpaceX shares in order to prompt some voluntary withdrawals.  Laster concludes, “Leo Group did not show that Kahlon acted recklessly. Leo Group proved that Kahlon acted callously towards one of his investors. Leo Group would be justified in never doing business with Kahlon again, and other investors might want to think twice.”  Yikes.

To Be Fair, My Inbox is Pretty Full Too.  In 1995, Congress passed the Private Securities Litigation Reform Act, which, among other things, imposes high pleading burdens on plaintiffs bringing claims under Section 10(b).  These plaintiffs must “state with particularity facts giving rise to a strong inference that the defendant acted with” scienter – and of course, they must do so without access to discovery.  These days, plaintiffs usually try to get hold of former employees who are willing to dish, but it’s often practically or legally impossible to take statements from the higher ranking employees who are really in a position to know what the top officials knew.

So the plaintiffs in Washtenaw County Employees’ Retirement System v. Dollar General Corp. et al., 2025 WL 1749664 (M.D. Tenn. June 24, 2025), must have thought they hit the jackpot when former employees told them they had actually emailed the individual defendants with reports of the internal problems, and received responses from, inter alia, a vice president and the CEO’s secretary.  But was that enough to plead scienter?  Reader, it was not:

[T]he defendants correctly note that the Complaint does not allege that any of the Individual Defendants actually read or responded to the emails. On this point, after first merely noting that the emails “prompted . . . response[s] from Defendants’ subordinates,” the plaintiffs state that two Individual Defendants “had their subordinates respond.” But the Complaint does not actually allege that any defendant directed anyone to respond to either [former employee]. Thus, consistent with the facts alleged in the Complaint, certain Individual Defendants’ subordinates could have read the emails and responded, or forwarded them to other Company employees for response, without consulting any Individual Defendant. While it may be a plausible inference from the facts alleged that subordinates would not respond to emails of this sort—or forward them to another high-level official for response—without consulting their bosses, it strikes the court as also plausible that, at a company of Dollar General’s size, CEOs and CFOs may not manage their own inboxes and are not consulted about emails from individual Store Managers or mass-emails individual Store Managers send upon their resignation, listing problems with the Company….[T]he Complaint does not allege that any defendant read the emails and does not allege with particularly any fact showing that any defendant either knew about the emails or directed their subordinates to respond.

In other words, it is not sufficient under the PSLRA to identify the specific communications informing the defendants of problems, because how can you be sure they check their email?

Goes to show, a requirement of “particularity” in pleading is standardless when the rubber meets the road; there are always going to be facts missing, if you want them to be.

A cert grant. The Supreme Court will hear argument over whether individual investors (i.e., Saba Capital) can sue under the Investment Company Act to invalidate fund takeover defenses. I’ve blogged a few times about Saba’s battles with closed-end funds; Mike Levin and I also discussed the cert petition while it was still pending on the Shareholder Primacy podcast, here on Apple, here on Spotify, and here on YouTube.

Some personal news. I’ve moved!  In case anyone missed it, I’ve recently left Tulane to join the faculty at the University of Colorado Law School.  Tulane was a fantastic academic home for me for 10 years, and there is nowhere in the world like New Orleans; I will miss them both terribly.  But I am also excited for my new adventure.

And there is no other thing.  The Shareholder Primacy podcast is on a break this week for the holiday.  Happy 4^th, everyone!

On May 22, 2025, Chief Justice Herndon of the Nevada Supreme Court announced that he “will file a petition next month with the Supreme Court to approve the creation of the Commission to Study the Adjudication of Business Law with the expectation that the dedicated business court will be operational within a year.”

He explained the need for the Commission:

“We currently have tremendous district judges working very hard on our state’s business law cases and we want to find ways to better support them. We have been closely following the discussion related to Assembly Joint Resolution 8 in the Nevada Legislature and compliment the Legislature for focusing on the desire to greatly improve how the courts resolve complex business matters,” Herndon said. “To that end, I’m confident that within our own court system we can enhance our existing approach to business law cases and create a dedicated court where district court judges hear only business cases and do it without any additional fiscal impact on the state.”

“In addition, we can address the timeliness and efficiency of judicial review of business cases, eliminate the need to amend the constitution and the uncertainty associated with waiting years to see if the resolution gets approved,” Herndon continued.

Earlier this year, the Nevada legislature approved a constitutional amendment to authorize an appointed business court. It’ll need to be approved again in the 2027 session and then pass a referendum to become part of the constitution so it remains years out.

I’m hopeful that shifting resources around within the existing judiciary in the near term can improve case times by allowing the existing bench of elected judges to specialize to a greater degree. If this brings case resolution times down and results in more efficient resolution, I’d be delighted. It’s also the sort of infrastructure change that will make it easier for persons residing outside of Nevada to select Nevada as their preferred jurisdiction for new entities.

And Nevada’s judiciary does appear overworked. In the run up to the constitutional amendment launch, I requested records from the Nevada Judiciary to have data to hand about case resolution times. Statewide statistics were not available, but the Clark County numbers for FY’2024 showed 1,228 days to disposition. ’23 and ’22 were better at 656 and 582 respectively. This still lags far behind Delaware which disposes of about 9 out of 10 motions in under 90 days. Of course, this isn’t a perfect apples to apples comparison as the different courts have different jurisdictions–and Delaware’s Chancery never needs to run a jury trial.

This is how the Nevada Supreme Court described the forthcoming Commission:

The Commission to Study the Adjudication of Business Law will invite stakeholders to participate in promulgating rules for the business court program, identify and create a training /certification process to certify eligible judges for business court, decide how eligible judges will be chosen, and how their opinions are disseminated, among other matters.

According to Herndon, the Commission will include members of the Nevada Legislature, the Governor’s office, judges from district courts, attorneys who specifically practice in the area of business law, representatives of the broader business community and other members of the State Bar of Nevada.

Although I haven’t yet been able to find the Commission to Study the Adjudication of Business Law on the Court’s website or administrative order docket, it appears likely to bring together a community of stakeholders invested in the success of Nevada’s business law.

If so, you’re in luck! I was fortunate enough to be a guest on Fordham’s Bite-Sized Business Law podcast, hosted by Amy Martella, for an Elon Musk conversation. Here at Apple, here at Spotify, here at Amazon Music.

And speaking of podcasts. On this week’s Shareholder Primacy, Mike Levin talks to Andrew Droste of Columbia Threadneedle. Here at Apple, here at Spotify, and here at YouTube.

Earlier this week, SNDY Judge Torres released an order denying the second joint request by Ripple and the SEC for the court to “to state that it would (1) “dissolve” the Court’s permanent injunction ordering Ripple to obey the law, and (2) cut the monetary penalty imposed against Ripple by more than half.”

This is not the case’s first appearance on the blog. Ann has covered this litigation before here. Joan has also discussed it. I covered a change in SEC practice from discovery from the case. For context, this litigation has been going on since 2020. Judge Torres succinctly summarized some of the past:

The SEC’s theory was that Ripple offered and sold a security called “XRP” without first registering it with the Agency, so investors were deprived of information about XRP and Ripple’s business that would allow them to make informed investment decisions. ECF No. 46. In 2023, the SEC moved for summary judgment, contending that it was “indisputable” that Ripple violated the Securities Act. ECF No. 837 at 50, 53, 63. In other words, the SEC asked the Court to rule in the Agency’s favor because Ripple could not win. On July 13, 2023, the Court agreed in part with the SEC, finding that Ripple offered XRP as a security without registration, in violation of the Act, when Ripple sold XRP to certain institutional buyers. SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 328 (S.D.N.Y. 2023).

And this case just keeps generating interesting things. In recent months, the SEC has made some curious decisions–also with ties to this litigation. Earlier this year, the SEC transferred “Jorge Tenreiro, who had overseen a half-dozen lawsuits against crypto exchanges and other platforms that were critical for deciding the reach of the SEC’s authority over the volatile market.” Tenreiro went from leading the crypto enforcement cases “to a role in the agency’s office of information technology.” The WSJ described him as the “key man” for litigation strategy. Opposing counsel Jason Gottleib described him as “a hell of a good litigator and a bulldog, but an ethical bulldog.”

Ripple’s leadership had other comments about Tenreiro:

David Schwartz, the chief technology officer at Ripple, has facetiously predicted that Tenreiro will become a movie critic.

Stuart Alderoty, Ripple’s top lawyer, joked that Tenreiro had been reassigned to Macrodata Refinement, referring to the department where workers have to classify numbers with seemingly little purpose in hit TV show “Severance.”

Ripple CEO Brad Garlinghouse has suggested that Tenreiro’s next career move could be working for tech support at Best Buy. “I guess he could try Geek Squad next?” he quipped.

He did not end up at any of those places. He’s now a partner at Bernstein Litowitz Berger & Grossmann LLP.

Returning to the order, Ripple and the SEC asked how the court would have ruled if it had brought a motion under Rule 60(b). The Rule allows courts to set aside or modify judgments for a narrow range of reasons, ordinarily including mistake, excusable neglect, fraud, a void judgment, or “any other reason that justifies relief.” This is a narrow exception because it disturbs the finality of judgments.

Judge Torres was not persuaded. She first reviewed the state of play:

Not that long ago, the SEC made a compelling case that the public interest weighed heavily in favor of a permanent injunction and a substantial civil penalty. The Agency made clear that the public has a right to “full and fair disclosure of information . . . in the sales of securities,” and it explained why a penalty and injunction against Ripple would protect that interest. Motion for Judgment at 25 (quoting Pinter, 486 U.S. at 646). First, a penalty was necessary because Ripple had violated the law. Id. at 4. In fact, the Agency believed that a “significant penalty that [was] not just a ‘slap on the wrist’ or ‘cost of doing business’” was warranted because of the enormous sums of money Ripple made in violating the law and Ripple’s incentives to continue doing so. Id. at 8–9, 24 (emphasis added) (quoting SEC v. Rajaratnam, 918 F.3d 36, 45 (2d Cir. 2019)).

Second, the SEC pressed for a permanent injunction because Ripple’s misconduct was reckless and likely to continue. The Agency claimed that Ripple had deliberately violated the Securities Act for eight straight years because it knew that registering institutional offerings of XRP would damage its business. Id. at 5. And it likely continued to violate the law even after the Court issued its Summary Judgment Order. Id. at 8–9. Ripple’s conduct was so egregious, according to the SEC, that the Agency “fully expect[ed]” Ripple “to keep hidden the information that Section 5 requires be disclosed for the benefit of investors.” Id. In other words, all signs pointed to the likelihood that, without an injunction, Ripple would continue to disregard the laws of Congress in a manner that would hurt investors.

Ripple and the SEC both asked the Court to grant relief from the order because the SEC’s priorities and approach has changed on crypto. The Court was not persuaded:

The Court is not persuaded. For starters, none of the enforcement actions cited by the parties involved an injunction or a civil penalty. In each of those cases, the SEC dismissed its case before a court found a violation of federal securities laws. Moreover, dissolution of the injunction as a precondition to the termination of the parties’ appeals is only necessary because the parties, in their Agreement, made it so. If the parties genuinely wish to end this litigation today, they are free to withdraw their appeals. Or, if the parties wish to make the Court’s orders go away, they may utilize the “primary route” that Congress has created for parties to “seek relief from the legal consequences of judicial judgments,” which is to take an appeal. U.S. Bancorp, 513 U.S. at 27. Neither option involves requiring this Court to absolve Ripple of its
obligations under the law. Id. at 26.

The Court respects the freedom of parties to amicably resolve their disputes. It is also true that the SEC, like any other law enforcement agency, has discretion to change course after an enforcement action is initiated. But the parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again. See id. at 26, 29. For that, the parties must show exceptional circumstances that outweigh the public interest or the administration of justice. Major League Baseball, 150 F.3d at 153. They have not come close to doing so here.

In thinking about this, I can draw a few conclusions. First, wow, Ripple or the crypto industry really has an astounding amount of juice now. I don’t know if anything will ever come out to show that anyone at Ripple asked for the SEC to reassign or otherwise alter the job duties of particular SEC lawyers or if the current SEC just did it on its own to address the perceived overreaches of the Gensler-era SEC. I’m also not aware of any instance where a change in administration has resulted in similar maneuvers on cases or personnel.

Thinking about the appeal, it’s going to be interesting to see how the SEC will argue against itself. So I looked at the docket for the appeal. Golly, the SEC’s brief was filed on January 15, 2025. Jorge Tenreiro is on it. In April, the SEC and Ripple agreed to hold the appeal in abeyance. Now that this run at the SDNY has fizzled, it’s going to be interesting to see what they and the Second Circuit do.

Federal Rule of Civil Procedure 9 provides:

(b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.

That said, there are certain causes of action under the securities laws, like claims under Section 11 and 12 of the Securities Act, that do not require plaintiffs to prove that the defendant had any particular state of mind.  These claims do not, therefore, sound in fraud by their nature.  And, because the PSLRA did not alter the pleading standards for claims under the Securities Act, that means Section 11 and 12 claims are ordinarily subject to the more limited demands of Rule 8 pleading.

Nonetheless, federal courts have generally agreed that if a particular plaintiff’s allegations in a particular case come across as rather fraudy, the higher pleading standard will apply.  Plaintiffs have therefore gone to great lengths to avoid alleging fraud in connection with Securities Act claims, which can be particularly challenging when Section 10(b) claims arise out of the same facts – plaintiffs usually try to completely separate the two sets of allegations in their complaints, which is part of the reason why securities fraud complaints can be hundreds of pages long and exceedingly complex (which can be, naturally, another basis for dismissal, see, e.g., United Assoc. Nat’l Pension Fund v. Carvana Co., 2024 WL 863709 (D. Ariz. Feb. 29, 2024)).

Anyway, this all becomes particularly awkward when the statement alleged to be false concerns a matter of opinion.  That’s because opinion statements can be misleading if they are uttered under circumstances that obscure the basis for the opinion, but can only be false if they are subjectively disbelieved by the speaker – i.e., if the speaker misportrays his or her own actual opinion.  It’s very difficult to imagine that someone could accidentally or negligently misstate what they actually, you know, believe, which means opinion statements might almost always require Rule 9(b) pleading.

Or so I assumed.

In Pino v. Cardone Capital (which is a case I blogged about two years ago, after its first trip to the Ninth Circuit), the Ninth Circuit held that a Section 12 claim would not necessarily sound in fraud and require Rule 9(b) pleading, even for subjectively disbelieved opinion statements.  In that case, the plaintiff’s complaint contained a commonplace disclaimer that none of the claims sounded in fraud; on that basis, the district court dismissed the complaint, treating the disclaimer as an admission that certain opinion statements were not subjectively disbelieved.  The Ninth Circuit reversed, finding that the disclaimer did not bar allegations of subjective disbelief, and also, that the complaint sufficiently alleged subjective disbelief, noting that, in the usual course, claims under Section 11 and 12 do not sound in fraud and do not require Rule 9(b) pleading.  The court made no attempt to offer a theory of mind or probe the mysteries of the human soul; it simply held what it held.

So. There you go.

And another thing.  On this week’s Shareholder Primacy podcast, Mike Levin and I talk to Professor Joseph Grundfest, and then to Delaware litigator Joel Fleming, about Prof. Grundfest’s papers on Delaware attorney fee awards. Here on Apple, here on Spotify, and here on YouTube.

Stacie Strong recently posted Pro Bono Publico Versus Pro Bono Presidential on SSRN. It’s a look at the propriety of agreements to perform pro bono work to escape punitive executive orders against law firms. This is how the abstract describes it:

This Essay considers the propriety of these pro bono agreements from several perspectives. First, this Essay considers the voluntary nature of pro bono and examines the propriety of the executive branch coercing private lawyers to accede to particular pro bono obligations. Second, this Essay discusses the nature of pro bono activities as a means of assisting indigent individuals and considers whether presidential efforts to direct how private law firms fulfill their pro bono obligations constitute an improper privatization of the executive branch’s policy goals, particularly given presidential cuts to and curtailment of conventional public means of fulfilling those policy goals. Third, this Essay considers whether and to what extent the executive orders and settlement agreements discussed herein violate hard or soft principles of international law. The Essay concludes with brief suggestions about how to proceed going forward.

My initial reaction to these orders was to wonder whether services performed as consideration for a settlement even qualify as pro bono. The lawyers are being paid with the settlement of a claim–does that mean it isn’t really pro bono? Strong notes that the “conception of pro bono can vary by state.” She also agrees that “the legal services at issue fall outside the standard definition of pro bono.”

They appear to fall outside at least one federal definition as well. The Department of Justice has a definition for the Executive Office for Immigration Review (EOIR). That definition provides that “Pro Bono legal services are “those uncompensated legal services performed for indigent aliens or the public good without any expectation of either direct or indirect remuneration, including referral fees (other than filing fees or photocopying and mailing expenses).” 8 C.F.R. § 1003.61(a)(2) (emphasis added). 

If you’re performing services as part of a settlement, I’d prefer not to classify those services as pro bono.

My quibbles to the side about the definition of pro bono, Strong raises some, well, strong arguments that the orders violate separation of powers principles and undercut the rule of law. It’s worth a read for an informed take on the issue.

We invite submissions of paper abstracts for the Fall series of the Miami Law & Finance Workshop. The workshop will take place online on Fridays from 1pm to 2pm EST. We welcome papers on all finance-related topics, including corporate law and finance.

Abstracts should be sent to the workshop co-organizers nikita.aggarwal@miami.edu,cbradley@law.miami.edu and ggeorgiev@miami.edu no later than Friday July 18th, 2025, with the following information:
– Name of author(s)
– Affiliation
– Summary of paper’s main thesis, contribution to the prior literature, and methods employed (Abstract length: 500-1000 words max).

We will notify selected authors by July 25th. Note that selected authors must be ready to send a complete draft of their paper to us at least one week before the scheduled date of the workshop, which we will circulate to the discussant and registered workshop participants.