Broker-Dealer Litigation - Greenberg Traurig LLP

inadequate representation. Moreover, the court noted that the plaintiff had notice of the prior
action and failed to intervene. As such, the court granted Hurst’s motion to amend, and granted
summary judgment in Hurst’s favor.
Klawonn v. YA Global Investments, L.P., 2011 U.S. Dist. LEXIS 88535 (D. N.J., Aug. 10, 2011).
Plaintiff alleged that defendant earned short-swing profits from trading in the stock of a
public company under a variety of theories under which defendant would be treated as a
statutory insider by virtue of beneficial ownership of more than ten percent of the company’s
common stock. The court considered the allegations under an amended complaint, designed to
remedy deficiencies concerning the beneficial ownership allegations in the original complaint.
Defendant argued that conversion caps were in place for all the relevant securities agreements
that plaintiff relied upon to establish ten percent ownership, which limited defendant’s voting
rights 4.99 percent. Plaintiff, in turn, argued that the caps were ineffective for various reasons,
both factual and legal.
The court rejected theories that the conversion caps were ineffective based on theories that: (a)
voting rights conferred to defendant by a convertible series of stock established greater than ten
percent beneficial ownership; (b) defendant was the beneficial owner of the stock held in
“escrow” by a third party; (c) the conversion caps should be deemed illusory, based on the
position taken by the SEC an amicus brief filed in a different case; and (d) SEC Rule 13d-3(b),
which prohibits the use of agreement as part of a plan or scheme to evade reporting
requirements, rendered the caps invalid. The court, however, found that the claim based a
waiver of the conversion caps as to certain convertible debentures, caused by the company’s
registration-related defaults, was sufficient to state a plausibly viable claim, and allowed the case
to proceed solely on that theory. As such, the motion to dismiss was granted in part and denied
in part.
C.4
5. Section 17
C.5
SEC v. Tecumseh Holdings Corp., 765 F.Supp.2d 340 (S.D.N.Y 2011).
This case concerns an alleged fraudulent securities offering by virtue of false and
misleading offering memoranda. The material statements and omissions were charged as
violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC also
alleged that one of the defendants (who served as counsel to one of the broker-dealer defendants)
aided and abetted the brokerage firm’s violation of Section 17(a). In a prior decision, the court
found that the evidence was insufficient to establish substantial aiding and abetting liability, but
directed the SEC to inform the court if it had additional evidence, indicating the court’s intention
to grant summary judgment against the defendant. SEC v. Tecumseh Holdings Corp., 2009 U.S.
Dist. LEXIS 119869 at *5 (S.D.N.Y., Dec. 22, 2009). The SEC provided no new evidence in
support of its renewed motion for summary judgment on the Section 17 claim, and thus, the court
granted summary judgment in favor of the individual counsel defendant. In so doing, the court
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