Broker-Dealer Litigation - Greenberg Traurig LLP

In re Bear Stearns Companies, Inc. Securities, Derivative, and Erisa Litigation, 763 F. Supp. 2d
423 (S.D.N.Y. 2011).
Investors in brought a class action suit against a bank, its officers and directors, and
accounting firm that performed audits alleging violations of federal securities laws. Defendants
moved to dismiss for failure to state a claim. Plaintiffs claimed that defendants made materially
misleading statements regarding the banks financial condition and use of flawed models in its
valuations despite being aware of the its liquidity issues and potential of market failures in their
models to inflate prices. The court denied defendants’ motions to dismiss, finding that the
allegations in the complaint regarding the defendants’ continued use of out-dated valuation
models of mortgage-backed assets and allegations of glaring oversights by the auditor were
pleaded sufficiently under the PSLRA.
In re Merrill Lynch Auction Rate Securities Litigation, 765 F. Supp. 2d 375 (S.D.N.Y. 2011).
Plaintiffs, purchasers of auction rate securities (“ARS”) brought class a action suit against
a defendant, broker-dealer alleging violations of federal securities laws. Defendants moved to
dismiss for failure to state a claim as required under the heightened pleading requirements of the
PSLRA. Plaintiffs alleged that defendant in failed to disclose its own bidding activity and role in
propping up the ARS market, while the auction rate market was deteriorating. The court granted
defendant’s motion to dismiss and found that the purchasers’ conclusory allegations of
“fraudulent” or “ intentional” misrepresentations and omissions by defendant failed to meet the
PSLRA scienter requirement.
In re Smith Barney Transfer Agent Litigation, 765 F. Supp. 2d 391 (S.D.N.Y. 2011).
Plaintiff, investors in mutual funds brought class action suit against a defendant, funds’
investment advisors and their affiliates alleging violations of federal securities laws. Defendants
then moved to dismiss for failure to state a claim in accordance with the heightened pleading
requirements of the PSLRA. Plaintiffs alleged defendants’ fraudulently induced them into
purchasing shares in its fund based on material misrepresentations regarding transfer agent fees
in prospectuses. The court held that plaintiff sufficiently alleged that defendants’ subsidiary’s
senior vice president had helped evaluate an agreement to use the transfer agent, drafted a
comprehensive memorandum concerning its details, and presented the allegedly fraudulent
proposal to the board. The court also found that the plaintiff adequately alleged that over a fouryear
defendant signed numerous prospectuses that failed to disclose the transfer agent scheme.
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