Broker-Dealer Litigation - Greenberg Traurig LLP

holdings in mortgage backed securities and CMOs. Plaintiffs had previously amended their
complaint in an attempt to avoid references to any alleged misrepresentations by defendants.
Nevertheless, the court found that plaintiffs’ amended complaint still alleged that defendants
“did not keep their word” about how the fund would be managed and that plaintiff suffered
losses as a result. The court also rejected plaintiffs’ argument that their claims were not barred
by SLUSA because they were not “in connection with the purchase or sale of a covered security”
because plaintiffs’ allegations centered around defendants’ alleged deviation from the Index and,
thus, plaintiffs’ allegations sufficiently “coincided” with the purchase or sale of covered
securities. Accordingly, the court granted defendants’ motion to dismiss but allowed plaintiffs
leave to amend their complaint in order to state a claim based on an alleged violation of §§ 13(a)
and 48(a) of the Investment Company Act for deviating from the investment objective of the
Fund without a shareholder vote – a claim the court found could be stated without implicating
SLUSA.
Scala v. Citicorp Inc., 2011 WL 900297 (N.D. Cal. Mar. 15, 2011).
The district court held that plaintiffs’ proposed class action on behalf of victims of an
alleged Ponzi scheme was precluded by the Securities Litigation Uniform Standards Act of 1998
(“SLUSA”). Plaintiffs alleged that defendant brokerage firm knew that a non-party actor
misappropriated funds that plaintiffs believed were being used to purchase securities. The court
rejected plaintiffs’ argument that SLUSA did not apply because some of the securities at issue
were not “covered securities.” The court also held that the “in connection with” requirement was
satisfied because defendant was alleged to have actively participated in misleading plaintiffs to
give their funds to the non-party actor, who plaintiffs believed would use their funds to purchase
covered securities. The court rejected plaintiffs’ argument that the alleged misrepresentations
were only tangential or extraneous to a fraudulent securities transaction because plaintiffs
themselves alleged that their losses resulted directly from what they believed to be legitimate
transactions involving covered securities. The court distinguished the securities purchase
agreements at issue from a mere pledge of a security as collateral, which the Ninth Circuit had
held did not satisfy the “in connection with” requirement. The court also held that SLUSA
applied to plaintiffs’ aiding and abetting claims even though § 10(b) of the 1934 Act does not
permit a private right of action against secondary actors. Accordingly, the court dismissed
plaintiffs’ claims as precluded by SLUSA but granted leave to amend.
West Palm Beach Police Pension Fund v. Cardionet, Inc., 2011 WL 1099815 (S.D. Cal. Mar. 24,
2011).
The district court granted plaintiff’s motion to remand a federal securities class action to
state court pursuant to the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).
Plaintiff alleged that defendants’ registration statements and prospectuses for an IPO and
secondary offering contained false and misleading statements and omissions in violation of the
1933 Act. The court concluded that because plaintiff’s action was brought in state court alleging
only federal claims under the Securities Act of 1933 and no claims under state law, it was not
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