Broker-Dealer Litigation - Greenberg Traurig LLP

parent company liable for statements made under Rule 10b-5, because the mutual fund company,
not the parent company, had control over the content of the allegedly misleading SEC filings.
Preparation or publishing of a statement on behalf of another may not constitute making a
statement under rule 10b-5.
U.S. v. Tzolov & Butler, 642 F.3d 314 (2nd Cir. 2011).
C.1.g
Defendants were convicted in the Eastern District of New York of inducing their
customers to purchase ARS by misrepresenting the non-guaranteed nature of the particular ARS
at issue. Defendants appealed the appropriateness of invoking venue in the Eastern District of
New York solely based on defendants’ use of JFK Airport for flights to their clients. The Second
Circuit reversed the Defendants’ conviction on the Section 10(b) Securities Exchange Act of
1934 count. The court held that Section 10(b) requires that a defendant be tried in the district
where his crime was “committed,” which is anywhere any act “constituting the violation
occurred.” The court found that the flights from JFK were only preparatory acts that did not
constitute the violation.
VanCook v. SEC, 653 F.3d 130 (2nd Cir. 2011).
C.1.g
Defendant stockbroker developed a scheme whereby he exploited a loophole in his
clearing firm’s mutual fund order routing system which allowed him to place mutual fund orders
up to an hour and a half after the NYSE closing bell and after the funds’ NAVs were calculated.
Based on this exploitation, defendant was able to execute trades for certain clients after NAVs
were calculated. Defendant falsified the books and records of his firm by printing screenshots of
his computer monitor by showing all orders being entered prior to 4 p.m. The court concluded
that the undisclosed late-trading of mutual funds, in conjunction with the falsification of records,
constituted a device, scheme or artifice to defraud in violation of Section 10(b) and Rule 10b-5
of the Securities Exchange Act of 1934.
Amorosa v. AOL Time Warner Inc., 409 Fed. App’x 412 (2nd Cir. 2011).
C.1.g
Plaintiff brought suit against defendants alleging violation of Section 10(b) of the
Securities Exchange Act of 1934 based on misleading statements contained in an audit of AOL’s
financial statements. The district court granted defendants’ motion to dismiss based on
Plaintiff’s failure to plead loss causation. In affirming the district court, the Second Circuit
reasoned that the plaintiff was unable to show any corrective disclosure regarding AOL’s audit
that implicated the audit opinion. Absent such a showing, plaintiff could not have established
that any misstatement or omission in the audit was revealed to the market. Without such
showing, the risk never materialized, and the plaintiff failed to establish loss causation on a
“materialization of the risk” theory.
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