Broker-Dealer Litigation - Greenberg Traurig LLP

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Solow v. Citigroup, Inc., 2011 WL 5869599 (S.D.N.Y. Nov. 22, 2011).
Investor brought action against financial corporation and its chief executive officer
alleging misrepresentations and omissions in violation of Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934. Defendants filed a motion to dismiss under the heightened
pleading standards of the PSLRA. The court found that defendants knew that the corporation’s
capital and liquidity were deteriorating, while continuing to represent that its capital and liquidity
were strong. The court reasoned that this gave rise to a strong inference of scienter. The court
found, however, that investors had failed to establish loss causation because the complaint did
not draw any link between these events and artificial inflation of stock price or loss of value of
the investments at issue.
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Sawabeh Information Services Co. v. Brody, 2011 WL 6382701 (S.D.N.Y. Dec. 16, 2011).
Plaintiffs brought suit against defendants alleging various violations of federal securities
law. Defendants filed a motion to dismiss. The court found that plaintiff’s allegations of fraud
were sufficiently specific and plausible to survive a motion to dismiss under the heightened
pleading standards imposed by the PSLRA. Specifically, defendants failed to reveal the
presence of certain documents establishing substantial liabilities owed to the defendants by the
company prior to selling the company to the plaintiffs. The court found that defendant’s failure
to disclose such material documents prior to the sale was a material omission and that failure to
disclose constituted a sufficient allegation of scienter. The court also held that the complaint
sufficiently pleaded reliance and causation of damages in the plaintiff’s decision to purchase the
company while being unaware of these outstanding liabilities.
U.S. Education Loan Trust III, LLC v. RBC Capital Markets Corp., 2011 WL 6778480
(S.D.N.Y. Dec. 21, 2011).
Plaintiffs were issuers of auction rate securities (“ARS”) that brought suit against their
underwriter and broker-dealer alleging violations of Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934. The court granted defendant’s motion to dismiss finding that
plaintiff did not provide a factual basis for the omissions it alleged and did not suggest a
plausible inference with respect to the facts that were actually known. Specifically, the court
found that while the defendant had discussed whether it was advisable to stop supporting ARS
auctions and developed contingency plans should the ARS market collapse, this alone was not
sufficient to show the defendant came to a firm conclusion the market was doomed prior to
selling ARS to plaintiffs. The court found the allegation of defendant’s improper behavior in
extracting fees to be insufficient to adequately plead scienter under the heightened requirements
of the PSLRA.
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