Broker-Dealer Litigation - Greenberg Traurig LLP

of defendant purchased ARS bonds from defendant and distributed the ARS bonds to plaintiffs’
accounts. In 2006 the Securities and Exchange Commission (SEC) reported that it had settled an
investigation into fifteen firms, including defendant, who were participants in the ARS market.
As part of the settlement, defendant posted disclosures on its public website containing
information regarding its practices. The disclosures included statements that defendant could bid
for its own accounts to prevent auction failures, but that investors should not assume that
defendant would bid or that failed auctions would not occur. The ARS market collapsed in 2008
and in 2010 plaintiffs filed a suit alleging various claims, including violations of Louisiana Blue
Sky Law. The court held that loss causation is an essential element of fraud under Louisiana
Blue Sky Law and that plaintiffs failed to establish loss causation. The court found that even
accepting that defendant materially misrepresented or omitted the truth regarding the liquidity
risks of ARS or defendant’s participation in the ARS auctions, the corrected disclosures required
by the SEC order occurred before the plaintiffs’ economic losses occurred in 2008. Additionally,
the court found that any alleged misrepresentations or omission regarding the ARS bonds could
have been discovered by the institutional investor who purchased the ARS bonds for plaintiffs.
Because fraud under Louisiana Blue Sky Law limits recovery where reasonable care would
reveal the untruth or omission, the court held that plaintiffs could not recover.
Perfecting Church v. Royster, Carberry, Goldman & Assocs., Inc., 2011 WL 4407439 (E.D.
Mich. Sept. 22, 2011).
Plaintiff filed a complaint claiming that defendants, a financial services company and
some of its employees, violated section 451.810 of the Michigan Uniform Securities Act
(MUSA). In 2007 and 2008, defendant claimed to be a financial services company that
specialized in commodity futures contracts. Plaintiff collectively invested $504,171.04 with the
defendants. In November 2008, plaintiff sought to recover its investment and interest accrued,
but defendants were unable to repay. Plaintiff filed a motion for partial summary judgment
arguing that the defendants violated section 451.810(a) of MUSA, which creates a cause of
action against those who either (1) transact business as a broker-dealer or agent without
registering as such, or (2) offers to sell a security that is not registered, exempted, or covered by
federal securities law. The court ruled that although the company was liable for conducting the
transaction, certain employees were not because plaintiff did not buy the securities from those
employees. Plaintiff also claimed that defendants violated section 451.810(b), which extends
liability for the sale of unregistered securities to “[e]very person who directly or indirectly
controls a [liable] seller.” The court agreed and recognized numerous facts which revealed that
the employees named by the plaintiff were in control of the financial services company.
Haase v. GunnAllen Fin., Inc., 2011 WL 768045 (E.D. Mich. Feb. 28, 2011).
Plaintiffs filed a complaint against the stock broker and investment advisor (“Broker”)
who solicited them into investing in telecommunication companies that never existed. Plaintiffs
also named the securities broker-dealers that employed Broker as a registered representative.
F.1
F.1
223