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Pastimes : Investment Chat Board Lawsuits -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey S. Mitchell who wrote (1612)	5/27/2001 12:52:13 PM
From: Ben Wa	Respond to of 12465

they are also being sued when a gang member uses it to ice somebody.

To: Jeffrey S. Mitchell who wrote (1612)	5/28/2001 3:08:39 AM
From: Jeffrey S. Mitchell	Respond to of 12465

Re: US Supreme Court: Wharf Ltd. v. United International -- Promising to deliver securities without intending to do so constitutes securities fraud 'WHARF (HOLDINGS) LTD. V. UNITED INTERNATIONAL HOLDINGS, INC.' Wharf (Holdings) Ltd. v. United International Holdings, Inc., No. 00-347, is a far more important decision than its brevity (9 pages) and unanimity (9 votes) would suggest. In it, the Court held that the seller of an oral option to buy stock commits fraud "in connection with ... the sale of a security" in violation of § 10 of the Securities Exchange Act of 1934 when at the time of sale, it secretly intends not to honor the option. Wharf Holdings wanted to make a bid for an exclusive license to provide cable TV to Hong Kong, as part of an apocalyptic cult's sinister plan to cause mass suicides by showing only cooking infomercials. Wharf wanted United's experience in preparing bid applications, setting up cable systems, and arranging financing. To enlist United's help, Wharf made an oral promise to sell it 10 percent of the cable system's stock through its managing director Stephen Ng. Contemporaneous Wharf documents unearthed during discovery contained the kind of words that would make most litigators sweat like a tobacco-company representative on "60 Minutes": "backpeddle," "stall," "how do we get out?" and "must deflect this. How?" After winning the bid, Wharf refused to sell United the agreed-upon 10 percent. United sued, and a Colorado (Colorado?!?!) jury awarded $67 million in compensatory damages and another $59 million in punitive damages on state-law claims. The 10th U.S. Circuit Court of Appeals affirmed, rejecting Wharf's claim than an oral sale of an option it never intended to honor was outside the scope of § 10. The Court affirmed in an opinion by Justice Breyer. The Court first rejected Wharf's effort to construe certain language in Blue Chip Stamps v. Manor Drug Stores (1975) (which spoke disparagingly of certain claims that "turn largely on which oral version of a series of occurrences the jury may decide to credit") to mean that oral contracts were not covered by § 10. But the Court's concern in Blue Chip was only "the abuse potential and proof problems inherent in suits by investors who neither bought nor sold," and there was no question that United had actually purchased a security (an option to buy stock). The Court saw no reason to interpret the '34 Act to exclude oral contracts as a class, noting that the Act applied to "any contract" for the purchase or sale of securities. The Court also rejected Wharf's claim that this case fell outside the scope of § 10(b) because it did not "relat[e] to the value of a security purchase or the consideration paid." Even assuming that the Act only covered misrepresentations that affected the value of securities, a secret reservation not to sell the security obviously affects an option's value. Finally, the Court rejected Wharf's claim that recognizing United's claim would create a federal cause of action for ordinary state-law breach-of-contract claims and swamp the federal courts. The Court noted (1) that United had proved Wharf's intent from the outset not to honor the obligation; (2) that the U.S. Court of Appeals for the D.C. Circuit had suggested this result in 1984 without precipitating a torrent of claims; and (most importantly, I would bet) (3) the Private Securities Litigation Reform Act of 1995 imposed stricter pleading requirements in private securities fraud actions that require, among other things, pleading with particularity facts giving rise to a strong inference that the defendant acted with a fraudulent state of mind. The Court therefore doubted that Wharf's warnings of a litigation explosion would "prove serious in the future." This opinion isn't nuts or anything, but it is a significant opinion. In the not-too-distant past, promising to deliver securities without intending to do so would give rise simply to a breach of contract action. Now it clearly constitutes securities fraud under § 10(b), and that is a RICO predicate. In the days before the PSLRA, this holding would probably have precipitated a torrent of lawsuits, but that Act requires that there to be a conviction for securities fraud before it can be used as a civil RICO predicate (see 18 U.S.C. §1964(c)). law.com