Broker-Dealer Litigation - Greenberg Traurig LLP

One of the broker-dealer defendants (“BD”) filed a motion to dismiss the claims filed against it
by plaintiff, including plaintiff’s claims that BD violated the Michigan Uniform Securities Act
(“MUSA”) by selling unregistered securities and selling securities by means of an untrue
statement or omission of a material fact. The court held that BD was not a statutory seller
subject to MUSA liability because BD did not urge the sale of the securities or actively
participate in the solicitation.
Louisiana-Pacific Corp. v. Money Market 1 Institutional Investment Dealer, 2011 WL 1152568
(N.D. Cal. 2011).
Louisiana Pacific Corporation (“LP”) brought an action against Deutsche Bank Securities
Inc. (“DBSI”) and Money Market 1 Institutional Investment Dealer (“MM1”) for violation of the
California Corporate Securities Law of 1968 (the “Code”), §§ 25500 and 25501. These sections
of the Code prohibit misrepresentation and market manipulation in the sale of securities. In its
complaint, LP alleged that DBSI, in its capacity as sole broker-dealer, placed support bids on
Auction Rate Securities (“ARS”), which artificially inflated their value. In addition, LP claimed
that MM1, in its capacity as LP’s financial advisor and broker-dealer, made representations that
ARS were highly liquid and safe cash equivalents that posed virtually no risk of principal loss.
In reliance on MM1’s advice, LP invested more than $300 million of its working capital in ARS.
The court dismissed LP’s claim because (1) LP failed to allege strict contractual privity in the
purchase of the subject securities, and (2) the facts alleged did not establish scienter under
California law.
Gibbons v. Nat’l Real Estate Investors, LC, 2011 WL 1086364 (D. Utah Mar. 23, 2011).
Defendant, an individual, was the manager and 50% owner of a limited liability company
that invested in various real estate projects. Defendant sold plaintiffs a total 15% interest in the
LLC for $1.1 million. Plaintiffs brought suit against defendant under Utah Code Ann. Section
61-1-22(1)(b) for violation of Utah Uniform Securities Act. Specifically, plaintiffs alleged that
defendant violated Utah Code Ann. Sections 61-1-3(1) and 61-1-7 by acting as a broker-dealer
without the proper license and selling unregistered securities. The court found that defendant
was never licensed as a broker-dealer, that under Utah law a security includes an interest in a
limited liability company (notwithstanding certain exceptions), and that the securities sold by
defendant were never registered and did not fit into any exception. The court granted plaintiffs’
motion for summary judgment on the Utah Securities Act claims. Additionally, the court found
that the defendant knew and intentionally sold interests in the limited liability company, which
made his conduct intentional and reckless, and the court awarded plaintiffs treble damages under
Utah Code. Ann. Section 61-1-22(2).
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