Broker-Dealer Litigation - Greenberg Traurig LLP

acknowledged that difficulty of pleading sufficient facts because outside auditors have more
limited information and exercise complex and subjective professional judgments that can be
difficult to second guess. However, court held that auditor’s participation in corrective reforms
undertaken to ensure future option grants were treated properly was sufficient to support an
inference of scienter.
Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681 (9th Cir. 2011).
Shareholder brought a putative class action for securities fraud against an oil company
and related defendants. The court held that the defendant’s alleged breach of the operator
standard in its agreement, did not provide actionable misrepresentation supporting private
securities fraud claim. On appeal, the court held that the breach of a contractual promise, even
though filed in conjunction with U.S. Securities and Exchange Commission reporting
requirements, was not a sufficient foundation for a securities fraud action.
WPP Luxembourg Gamma Three Sari v. Spot Runner, Inc., 655 F.3d 1039 (9th Cir. 2011).
Plaintiff shareholder, brought action against defendants, corporation asserting securities
fraud claims. The court granted defendants’ motion to dismiss without prejudice to which both
parties appealed. On appeal, the court held that shareholder had sufficiently pleaded scienter
with regard to the founders, and loss causation against founders, but failed to allege that the
remaining parties acted with scienter. The court found that plaintiffs sufficiently alleged that the
founders knew of and ignored notice requirements in the shareholder’s agreement that mandated
the company’s management provide information about the eventual sale of their shares. The
court subsequently found that the plaintiffs adequately pled loss causation by alleging that
founders’ secret sales of shares caused the shareholders’ shares of the corporation to immediately
become worthless. The court reasoned that an email conversation where the general counsel
referenced the wrong offering in response to the shareholders’ questions about secondary
offerings refuted the scienter requirement.
New York State Teachers’ Ret. Sys. v. Fremont General Corporation, 2011 WL 5930459 (9th
Cir., Nov. 29, 2011).
The court granted defendants’ motion to dismiss reasoning that plaintiff’s allegations
failed to raise strong inference of scienter with the specificity required under PSLRA. Plaintiffs’
failed to show that each individual defendant possessed contemporaneous knowledge of
undisclosed information that would render their public statements consciously misleading.
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