Broker-Dealer Litigation - Greenberg Traurig LLP

equity interests in real estate assets and businesses.” Defendant was allegedly a member of a
shareholder group as defined in Section 13(d) of the Exchange Act, which allegedly included the
investment corporation, and other individuals who were insiders of the public company, and
officers of the investment corporation. Plaintiff alleged that the existence of a shareholder group
could be inferred from a series of at least five agreements for the purpose of acquiring, holding,
voting, or disposing of the company’s common stock a “Credit Agreement” and “Lock-Up
Agreements,” among others. While the court credited the existence of the agreements, it did not
agree that the existence of the agreements amounted to a plausible claim that the defendant had
made an agreement with the others to form a shareholder group. The court denied leave to
amend.
Gibbons v. Malone, 801 F. Supp. 2d 243; (S.D.N.Y. 2011).
Plaintiff filed suit under Section 16(b) against a director of a public company seeking to
recover disgorgement of short-swing profits from a series of purchases and sales occurring in an
eleven day period in 2008. Referring to the plaintiff’s legal theory of liability as “novel,” the
court considered the contention that the directors sales of shares of Series C stock should be
matched with his purchases of Series A stock. The district court held that a director’s alleged
sales of the one series of stock and purchases of a different series did not constitute a short swing
transaction under Section 16(b). The court looked to the language of Section 16(b), which refers
to profits realized from “the purchase and sale, or sale and purchase, of any equity security of the
issuer.” Analyzing the features of the Series A and C shares, the court noted that unlike some
situations, where courts have held that different securities could be “matched” for Section 16(b)
purposes, the Series A and C shares were neither derivatives of, nor convertible into the same
security. Further, the voting rights of the shares were different and they had different dividend
features. As a result, the court dismissed plaintiff’s action.
Grecco v. Local.Com Corp., 806 F. Supp. 2d 653; 2011 U.S. Dist. LEXIS 4319 (S.D.N.Y. 2011).
Plaintiff, a shareholder of a public company, filed a derivative action alleging that
defendant Hearst Communications, Inc. (“Hearst”) purchased securities of the company in
violation of Section 16(b). Hearst moved for leave to amend its answer to assert the affirmative
defenses of res judicata and collateral estoppel, and for summary judgment based on such
defenses.
Plaintiff’s action challenged the same transactions as a prior action filed by a different
derivative plaintiff. That prior plaintiff’s action failed, having been dismissed on summary
judgment, with such dismissal affirmed on appeal. The new plaintiff attempted to justify the
new case, and opposed Hurst’s res judicata argument, by contending that he was not in privity
with the prior plaintiff, and that the prior plaintiff’s prosecution of the case was inadequate to
represent the shareholders. The court found that plaintiff had alleged no conflict of interest
between himself and the prior plaintiff, and that differences in legal strategy do not amount to
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