Broker-Dealer Litigation - Greenberg Traurig LLP

had no direct contact with the principal. The court found plaintiff receiver equitably estopped
from avoiding the arbitration provisions found in the agreement. Although plaintiff receiver was
not a signatory to this agreement, he was nonetheless bound to its provisions because the claims
he asserted against the clearing broker would not have existed but for the agreement between the
principal and the introducing broker. The receiver was thus seeking a direct benefit from the
relationship created by the agreement. The court refused to allow plaintiff receiver to
simultaneously assert claims arising from the agreement while avoiding the arbitration
provisions contained therein. Defendant’s motion to compel arbitration was granted.
Prestwick Capital Mgmt. Ltd. v. Peregerine Fin. Group, Inc., 2011 U.S. Dist. LEXIS 95324
(N.D. Ill. Aug. 25, 2011).
Plaintiff investment advisory firm brought suit for commodities fraud under the
Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq. against an introducing broker and
certain of its principals. Plaintiffs alleged that the introducing broker engaged in unauthorized
trading in an account opened with a clearing firm resulting in losses of roughly $4 million. The
firm also sought to hold the clearing firm liable for the introducing broker’s alleged fraud by
virtue of a guarantee agreement between the clearing firm and the introducing broker. The
clearing firm moved for summary judgment arguing that the guarantee agreement was not
effective at the time of the introducing broker’s fraudulent activities. The court applied contract
interpretation principals and found that at the time the introducing broker engaged in the fraud
the guarantee agreement between the clearing firm and the introducing broker had terminated
and no new agreement had been put in its place. The court also noted that the Commodity
Futures Trading Commission has promulgated regulations designed to address the problem of
judgment-proof introducing brokers in that introducing brokers are required to meet certain net
capitalization requirements unless they have a guarantee agreement with a futures commission
merchant such as the defendant. The court rejected plaintiff’s assertion of equitable estoppel as
plaintiff failed to make clear precisely when any alleged misrepresentation was made. Although
plaintiff requested it be allowed to take additional discovery pursuant to Federal Rule of Civil
Procedure 56(d)(2), the court found that such discovery would be futile and granted the
introducing broker’s motion for summary judgment.
J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2011 N.Y. App. Div. LEXIS 8829 (N.Y. App. Div.
Dec. 13, 2011).
Plaintiffs, an introducing broker and its clearing firm, brought suit against defendant
insurance company for breach of contract in a declaration that defendant had a duty to indemnify
plaintiffs for a disgorgement payment that plaintiffs made pursuant to a settlement with the
Securities and Exchange Commission. The insurance program at issue obligated defendant to
indemnify plaintiffs for all “loss which the insured shall become legally obligated to pay as a
result of any claim . . . for any wrongful act.” Defendant filed a motion to dismiss arguing the
payment was not an insurable loss or was excluded from coverage. The trial court denied
defendant’s motion to dismiss. On appeal, the court found that under New York law the risk of
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