Broker-Dealer Litigation - Greenberg Traurig LLP

Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In finding that the state law
claims were “covered” claims under SLUSA, the court reasoned that the Supreme Court’s
holding in Morrison v. Nat’l Australia Bank Ltd., 130 S. Ct. 2869 (2010) – that §10(b) of the
1934 Act was not intended by Congress to regulate extraterritorial conduct – did not bar the
application of SLUSA to a class action in a court of the United States, regardless of where
plaintiffs made their investment. Plaintiffs’ argument that they invested in foreign funds, and not
“covered securities,” was equally unavailing. The court concurred with the majority of district
courts within the Second Circuit which have considered this issue, and found that SLUSA only
requires that the claims be “in connection with covered securities” and that the conduct at issue
arising from plaintiffs’ intended purchase and sale of securities by the Madoff fund satisfied this
standard.
Grund v. Delaware Charter Guar. & Trust Co., 2011 WL 2118754 (S.D.N.Y. May 26, 2011).
In a consolidated putative state law class action brought on behalf of IRA investors who
directed investments in a fund which proved to be a Ponzi scheme, the district court denied
defendant’s motion to dismiss plaintiffs’ claims as precluded by the Securities Litigation
Uniform Standards Act of 1998 (“SLUSA”). Plaintiffs alleged that defendant breached its
fiduciary duties to plaintiffs by improperly delegating control of plaintiffs’ accounts. The court
found that plaintiffs’ claims did not allege any misrepresentation or omission of material fact in
connection with the purchase or sale of any covered security. The court also found that fraud
was not a necessary component of any of plaintiffs’ claims. Additionally, the investment at issue
was an intermediate fund, not a covered security. Accordingly, the court found that SLUSA
preclusion was not warranted and denied defendant’s motion to dismiss.
Brecher v. Citigroup Inc., 797 F.Supp.2d 354 (S.D.N.Y. 2011).
In a class action alleging securities fraud and various state law claims brought on behalf
of employees, the district court granted defendants’ motion to dismiss, in part, because plaintiffs’
state law claims were precluded by the Securities Litigation Uniform Standards Act of 1998
(“SLUSA”). Plaintiffs alleged that the defendant company and its board of directors
misrepresented and omitted material information in selling and managing securities purchased by
plaintiffs through the company’s Voluntary Financial Advisor Capital Accumulation Program.
Plaintiffs alleged that they were “prevented from learning” about the defendant company’s
exposure to subprime risk and misled by overly optimistic and false projections about overall
performance. The court dismissed plaintiffs’ federal securities fraud claims as time-barred and
for failure to state a claim. The court then dismissed plaintiffs’ state law claims as precluded by
SLUSA. Plaintiffs argued that SLUSA preclusion only applied when a state law claim is
“coterminous with a federal securities fraud claim.” The court disagreed, citing Second Circuit
precedent precluding claims brought under the same state law statute upon which plaintiffs relied
for their claims. Accordingly, the district court granted defendants’ motion to dismiss.
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