Broker-Dealer Litigation - Greenberg Traurig LLP

of the Exchange Act based on Merrill’s participation in the ARS market because Merrill failed in
its duty to disclose the description of its auction practices. Plaintiffs further argued that Merrill
could be liable as a secondary actor. The court found that plaintiffs’ allegations were essentially
a fraud based on nondisclosure, which only would have arose with a fiduciary or similar
relationship. The court held that no such relationship existed because there was no relationship
of trust and confidence between plaintiffs and Merrill. Moreover, the court reasoned that
plaintiffs’ claim against a secondary actor under the Exchange Act is only cognizable based on
an actor’s own articulated statement, or on statements made by another that have been explicitly
adopted by the secondary actor. The court found Merrill neither made nor adopted such
statements and granted defendants’ motion to dismiss.
Valentini v. Citigroup, Inc., 2011 WL 6780915 (S.D.N.Y. Dec. 27, 2011).
C.1.g
Plaintiffs brought a complaint against defendants alleging violations of Section 10(b) and
Rule 10b-5 of the Securities Exchange Act of 1934 related to the purchase of equity linked
securities (“ELKs”). In particular, plaintiffs alleged that defendants made misrepresentations or
omissions related to the risks associated with ELKs. On defendants’ motion to dismiss,
defendants claimed that the court lacked jurisdiction to hear the Exchange Act claims because
the transaction did not involve a security listed on a domestic exchange. Specifically, defendants
argued that the ELKs were not purchased in the United States. The court disagreed, and found
that the notes, even though not purchased in the United States, were linked to securities listed on
a domestic exchange, namely the NYSE. The court reasoned that the purchase of a foreign
derivative instrument whose value was linked to the value of stock traded on a domestic
exchange constituted the “functional equivalent” of a purchase of a domestically traded stock.
Accordingly, the court had jurisdiction over the plaintiffs’ claims.
In re Optimal U.S. Litig., 2011 U.S. Dist. LEXIS 119141 (S.D.N.Y. Oct. 14, 2011).
C.1.g
Defendants, a Madoff feeder fund, filed a motion to dismiss claims under Section 10(b)
and Rule 10b-5 of the Securities Exchange Act of 1934 brought by plaintiffs relating to
fraudulent statements made in the feeder fund’s Explanatory Memorandum. Defendants claimed
that they did not “make” the fraudulent statements because they were not the issuer of the
Explanatory Memorandum. In dismissing the Section 10(b) and Rule 10b-5 claims, the court
followed the U.S. Supreme Court’s holding in Janus Capital Group v. First Derivative Traders,
131 S.Ct. 2296 (2011), which held that an investment advisor was not liable for fraud in
prospectus of sponsored mutual fund because investment advisor was not the “maker” of those
statements. The court reasoned that a statement is only made by the entity that delivers it.
However, the court found control person liability under Section 20(a) of the 1934 Act.
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