Securities Regulation

During the survey period, the Texas courts dealt with several cases concerning the scope of the Texas Securities Act and Texas Stock Fraud Act. For the Texas Securities Act on court determined that whether a certificate of deposit is a security is a fact question for the jury and another court failed to determine that an interest in a viatical settlement is a security as an investment contract. With respect to standing to sue, they determined for the Texas Securities Act that shareholders holding in street name may sue as purchasers without privity since their identity can be found by the issuer and for the Texas Stock Fraud Act that one induced to into a contract involving a sale or purchase stock may sue even if not a purchaser or seller. With respect to the choice of law under the Texas Securities Act and the Texas Stock Fraud Act, they used the significant contacts test to determine that the law of the other state applied to lawyers' acts in that other state in assisting an issuer to maintain the illusion of an impending public offering defrauding Texas investors while the Texas statutes applied for non-resident investors against accounting misrepresentations committed by accountants in Texas. The Texas Courts dealt with several cases concerning securities fraud. For the Texas Securities Act and the Texas Stock Fraud Act the Fifth Circuit determined an indemnity policy exclusion for "an insured" who receives a benefit from a misrepresentation bars coverage for all insureds when one insured commits the violation. For the Securities Litigation Uniform Standards Act, the Fifth Circuit determined that the Act did not apply to acts committed before its passage. For the federal Securities Act, the Fifth Circuit found that failure to disclose a price drop immediately before a public offering was not material since it did not significantly alter the total mix of available information which includes publicly available information about the price drop and cautionary statements in the prospectus, rejected the group pleading doctrine for a class action and instead required the identity of the speaker and location of the misstatement, found for applying the fraud on the market substitute for reliance in a class action the investors failed to show the price drop came from disclosure of the corrective information included with other negative information, and for disgorgement damages refused to apply an offset of legitimate business expenses