Broker-Dealer Litigation - Greenberg Traurig LLP

noted that the SEC had “merely rephrase[ed] one of its arguments for why [defendant] provided
the requisite ‘substantial assistance’ to establish aiding and abetting liability” without offering
additional evidence.
6. Section 18
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SRM Global Fund Ltd P’ship v. Countrywide Fin. Corp., 2011 U.S. App. LEXIS 23526 (2d Cir.
Nov. 23, 2011).
Plaintiff asserted violations of Section 18 of the Securities Exchange Act of 1934,
claiming that defendants’ statements of adequate liquidity in 2007 SEC filings were false and
misleading in light of the fact that defendants later acknowledged that the company had lost
liquidity and viability during 2007. The Second Circuit affirmed the district court’s dismissal of
the claims, reasoning that (1) because fraud cannot be pled by hindsight, a claim must be
dismissed where plaintiff fails to allege that defendants knew the allegedly fraudulent statements
were false at the time the statements were made; (2) defendants’ optimistic statements were
forward-looking and non-actionable; and (3) plaintiff improperly failed to allege that the
liquidity position in the SEC filings was, in fact, misstated.
Special Situations Fund III, L.P. v. Am. Dental Partners, Inc., 775 F. Supp. 2d 227 (D. Mass.
2011).
Defendants moved to dismiss claims under Section 18 of the Securities Exchange Act of
1934 where claims were asserted more than one year after plaintiffs discovered facts giving rise
to their claims. Plaintiffs argued that the Section 18 statute of limitations had been tolled by a
class action pending against the defendants under Section 10(b) of the Exchange Act. The court
dismissed the Section 18 claim as time-barred, rejecting the proposed application of the class
action tolling doctrine on the ground that, because of the Section 10(b) scienter requirement, “the
facts required to be pleaded and proved under section 10(b) are significantly different from the
facts that give rise to section 18 claims.”
Maverick Fund, L.D.C. v. Comverse Tech. Inc., 801 F. Supp.2d 41 (E.D.N.Y. 2011).
Plaintiffs alleged that defendants violated Section 18 of the Securities Exchange Act of
1934 because: (i) Comverse’s SEC filings stated that the company complied with GAAP when in
fact the company was improperly accounting for stock options and (ii) the company announced
that it would be become current in its SEC filings by the end of 2007 but thereafter failed to do
so. The court granted defendants’ motion to dismiss with respect to the latter category of claims
because the allegations were based on forward-looking statements protected by the Private
Securities Litigation Reform Act. The court denied the motion to dismiss with respect to the
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