Broker-Dealer Litigation - Greenberg Traurig LLP

penalty. The Second Circuit held that there was sufficient evidence in the record to support the
SEC’s finding that petitioner had actual knowledge that his firm’s records were inaccurate,
including that he himself had failed to record the actual times that final trading instructions were
given and that he had also designed the mechanism by which the records were falsified, and in so
doing, aided and abetted the recording keeping requirements. The Second Circuit denied the
petition and affirmed the SEC’s order.
Simmonds v. Credit Suisse Securities (USA), LLC, 638 F.3d 1072 (9th Cir. 2011)
Plaintiff appealed the district court’s dismissal of fifty-four related derivative complaints
brought under Section 16(b), seeking to recover disgorgement of alleged short-swing trading
profits. Specifically, plaintiff alleged that defendants, who were investment banks participating
in Initial Public Offerings (IPOs) of companies coordinated their activities with the issuers’
officers, directors, and principal shareholders to obtain financial benefits from increases in the
stock prices after the IPOs. The transactions in question occurred in 1999 and 2000, while the
complaints were filed in 2007.
As to thirty of the cases, the Ninth Circuit affirmed the district court’s dismissal based on
lack of a proper pre-suit demand letter. The court, however, reversed the district court’s decision
that the remaining twenty-four cases were by the two-year statute of limitations for Section 16(b)
claims. The Ninth Circuit reaffirmed its rule articulated in Whittaker v. Whittaker Corp., 639
F.2d 516 (9th Cir. 1981), tolling the two-year limitations period to recover short-swing profits
from corporate insiders under Section 16(b) until the insider reports the offending trades to the
SEC under Section 16(a). Under the Ninth Circuit rule, the plaintiff’s actual knowledge of his or
her claim and failure to sue in spite of that knowledge is not considered, which prompted the
author of the main opinion, in a special concurring opinion, to note that the rule ignores the text
of Section 16(b) and congressional intent, and that were it not for clear precedent in the Ninth
Circuit, he would have would limited the filing of Section 16(b) suits to within two years after
the short-swing trades actually took place.
The Supreme Court granted certiorari and heard oral argument on November 29, 2011.
Chechelle v. Sheetz, 2011 U.S. Dist. LEXIS 97489 (S.D.N.Y., Aug. 29, 2011).
The district court granted a motion to dismiss a shareholder’s short-swing insider trading
claim under Section 16(b) on the grounds that defendant was not shown to have beneficially
owned more than ten percent of the corporation’s stock. Although the plaintiff alleged the
existence of agreements that defendant was part of a shareholder group, the court found those
allegations too conclusory to justify maintaining the action.
Defendant was president and CEO of a public company, as well as the co-founder, cochairman
and co-CEO of a separate corporation formed “for the purpose of investing in debt and
C.4
C.4
114