On February 21, 2018, in Class v. United States, the U.S. Supreme Court reaffirmed that a defendant who pleads guilty can still raise on appeal any constitutional claim that does not depend on challenging his or her “factual guilt.”  The Court’s holding preserves a federal criminal defendant’s ability to challenge the constitutionality of the statute underlying his or her conviction, even in the event of a guilty plea.  In other words, where the appellate claim implicates “the very power of the State” to prosecute the defendant, a guilty plea alone cannot bar it. 
Continue Reading SCOTUS Speaks:  Guilty Pleas Don’t Waive All Appellate Claims

On May 23, 2016, the Second Circuit presented a significant setback to the Department of Justice (DOJ) by reversing a $1.27 billion penalty against Bank of America and Countrywide Loans.  As we’ve posted before, in October 2012, DOJ filed a civil suit against Bank of America and Countrywide based on mortgages sold to Fannie Mae and Freddie Mac.  The Government alleged that Countrywide had a program named “the Hustle” or “High-Speed Swim Lane,” which rewarded the speed of processing residential mortgage loans regardless of their quality.  This, according to the Government, resulted in thousands of fraudulent or defective loans that were subsequently sold to Government Sponsored Entities (GSEs) such as Fannie Mae and Freddie Mac.  Although Countrywide started the program in August 2007, the program continued after Bank of America purchased Countrywide in 2008.  
Continue Reading Second Circuit Reverses $1.27B Penalty Under FIRREA

In a somewhat rare decision, U.S. District Judge Gardephe of the SDNY granted a motion to stay his previous order regarding the scope of the SEC’s ability to subpoena information from Congress, pending its appeal to the Second Circuit.  As noted in our previous post, the SEC is investigating the House Ways and Means

Late last week, Judge Engelmayer in the Southern District of New York accepted a voluntary dismissal of a securities class action, but the dismissal was anything but routine. Instead, it was accompanied by a twenty-five page opinion & order which serves as an important warning to plaintiffs’ counsel in securities class action cases regarding the investigation process that often precedes securities class action complaints.

In In re Millennial Media, Inc. Securities Litigation, the plaintiffs alleged that executives of Millennial Media, Inc. engaged in securities fraud by releasing false and misleading information that artificially inflated the stock price. In an effort to satisfy the heightened pleading requirements under federal securities law, the complaint relied upon information and direct quotes from eleven “Confidential Witnesses” or “CWs.” However, the vast majority of these witnesses never spoke with plaintiffs’ counsel before the complaint was filed, though ten of the CWs had been interviewed by an investigator employed by plaintiffs’ counsel. After filing the complaint, plaintiffs’ counsel sent a copy of it to each CW, at which point one of them promptly requested that all attributions to him be removed. This request led to further inquiry from the Court as to the accuracy of the statements in the complaint, and revealed additional facts that the court found to be “unsettling.”
Continue Reading Judge Cautions Plaintiffs’ Counsel to Exercise Proper Diligence in Drafting Securities Class Action Complaints

Last week, U.S. District Court Judge Shira Scheindlin of the Southern District of New York ordered disgorgement of $187.7 million in U.S. Securities and Exchange Commission v. Wyly et al, and further estimated that the amount will balloon to between $300 million to $400 million after the SEC recalculates pre-judgment interest.  The award, to be paid by Sam Wyly and the estate of his brother Charles Wyly, was measured in part by calculating the amount of taxes that the Wylys should have paid on unlawful gains.  This is a case of first impression, as no court has ever approved this methodology for calculating unjust profits, and it has resulted in one of the largest SEC awards against individual defendants.
Continue Reading SEC Measures Unpaid Taxes to Achieve “Staggering” Disgorgement Award