Broker-Dealer Litigation - Greenberg Traurig LLP

that cautionary language in the press release relied upon by defendants did not shield the relevant
statements from liability given that plaintiffs had adequately alleged facts establishing a strong
inference of scienter. Accordingly, the court denied defendants’ motion to dismiss.
Simmons Invs., Inc. v. Conversational Computing Corp., 2011 WL 673759 (D. Kan. Feb. 17
2011).
In a securities fraud action, the district court denied defendants’ motion to dismiss claims
related to an allegedly false and misleading statement about expected investments by other
investors in the defendant company. Defendants argued that the alleged misstatement was
forward-looking and shielded from liability by the Private Securities Litigation Reform Act of
1995’s safe harbor provisions. The court acknowledged the Tenth Circuit’s recognition that
neither vague statements of corporate optimism nor forward-looking statements accompanied
with sufficient cautionary language were material as a matter of law. The court found, however,
that plaintiff adequately alleged it had relied on optimistic statements about future investments
that defendants knew were false at the time they were made. Accordingly, the court found that
the safe harbor did not apply and denied defendants’ motion to dismiss.
Genesee County Employees’ Ret. Sys. v. Thornburg Mortgage Sec. Trust, 2011 WL 5840482
(D.N.M. Nov. 12, 2011).
In a putative securities fraud class action related to several investment offerings of
mortgage-backed securities (“MBS”), the district court denied in part defendants’ motion to
dismiss claims related to allegedly false and misleading statements regarding the risks associated
with the MBS investments at issue. Plaintiffs alleged that defendants misrepresented several
aspects of the MBS, including loan origination and underwriting standards and failed to disclose
alleged manipulation of appraisal information. Plaintiffs also alleged that credit rating agency
defendants knowingly issued false and misleading credit ratings in connection with the MBS
offerings. The court first rejected defendants’ argument that cautionary language in the MBS
offering documents was sufficient to bar plaintiffs’ claims pursuant to the bespeaks caution
doctrine. The court found that defendants’ warnings were insufficient to warn that loan
originators would systematically abandon underwriting guidelines. The court further found that
an alleged disclosure about loan originators possibly pressuring property appraisers did not help
defendants because the court could not find this disclosure in the MBS offering documents at
issue. Finally, the court found that cautionary language accompanying MBS credit ratings was
insufficient to invoke the protection of the bespeaks caution doctrine because plaintiffs had
adequately alleged that the credit rating agency did not believe its own ratings and/or lacked any
reasonable basis for them. Accordingly, the court denied defendants’ motion to dismiss to the
extent it relied on the safe harbor and/or bespeaks caution doctrine.
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