Broker-Dealer Litigation - Greenberg Traurig LLP

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Barnard v. Verizon Communications, Inc., 2011 WL 5517326 (3d Cir. Nov. 14, 2011).
Plaintiffs, former shareholders of a spin-off of Verizon, appealed from the district court’s
dismissal of their claims that the spin-off was designed to defraud shareholders of their
shareholdings of Verizon in favor of the secured and unsecured creditors of the spin-off.
Plaintiffs failed to specifically allege that they individually relied on any misrepresentations
made by Verizon and essentially argued that Verizon had created a “fraud on the market” by
artificially inflating the market. Recognizing that the Third Circuit has rejected the fraud on the
market theory, the court affirmed the district court’s ruling.
Dronsejko v. Grant Thornton, 632 F.3d 658 (10th Cir. 2011).
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Plaintiffs brought suit alleging violations of Section 10(b) of the Securities Exchange Act
of 1934 on behalf of a class of members who purchased certain common stock based on what
turned out to be an overstatement of revenues. In considering the scienter element, the Tenth
Circuit reasoned, in dicta, that other circuits have adopted a recklessness standard for Section
10(b) claims against outside auditors. Based on that standard, outside auditors act recklessly
only when accounting practices were so deficient that the audit amounted to no audit at all, to an
egregious refusal to see the obvious, or that accounting judgments that were made were such that
no reasonable accountant would have made the same decision. However, the court dismissed the
complaint and did not adopt the reckless standard because the complaint was deficient.
Basis Yield Alpha Fund v. Goldman Sachs Group, Inc., 798 F.Supp.2d 533 (S.D.N.Y. 2011).
C.1.g
Plaintiff fund brought suit against Goldman Sachs alleging securities fraud under Section
10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Plaintiff alleged that Goldman
Sachs offered assurance that the CDO market was price stable and that certain collateralized debt
obligations (“CDOs”) were stable. Shortly after plaintiff purchased $50 million of CDOs that
were not listed on any exchange, it received a series of margin calls and the securities dropped by
$30 million. The district court granted Goldman Sachs’s motion to dismiss, with leave to amend,
because the complaint failed to allege sufficient facts indicating that the purchase or sale of the
CDOs was made in the United States. The district court reasoned that the Securities Exchange
Act of 1934 only applies to domestic securities transactions, and that the CDOs at issue were not
listed on any exchange. Absent a listing on the exchange, plaintiffs were required to plead in the
complaint that the securities were bought or sold in the United States.
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