Broker-Dealer Litigation - Greenberg Traurig LLP

eing directed to return improperly acquired funds is not insurable and, thus, disgorgement of illgotten
gains or restitution damages does not constitute an insurable loss. As the SEC order
illustrated how plaintiff’s trading desk actively collaborated with its clients to execute an illegal
late trading and market timing scheme, the court rejected plaintiff’s arguments that it was merely
found guilty of inadequate supervision and failure to place adequate controls on its electronic
entry system. The court also rejected plaintiff’s arguments that the fact that the SEC did not
itemize how it reached the disgorgement figure raised an issued as to whether the disgorgement
payment was in fact compensatory, thus bringing it within the ambit of the insurance program.
The court noted that the amount disgorged must only be a reasonable approximation of profits
causally connected to the violation. Accordingly, the appellate court reversed the trial court’s
order denying defendant’s motion to dismiss.
Brooks v. Transamerica Fin. Advisors, 57 So. 3d 1153 (La. Ct. App. 2011).
Plaintiff customer brought suit against defendant clearing broker alleging defendant paid
unauthorized checks from plaintiff’s brokerage checking account without obtaining proper
identification and approval from plaintiff. Defendant moved for summary judgment claiming it
was entitled to the preclusive effects of Chapter 4 of the Uniform Commercial Code (“U.C.C.”),
codified by Louisiana Revised Statute 10:4-101 et seq., which requires customers to exercise
reasonable promptness in examining the account statements issued to them by a bank, to
determine if any payment was unauthorized, and if so, to promptly notify the bank of the relevant
facts. If the bank proves the customer failed to exercise reasonable care, the customer is
precluded from asserting her unauthorized signatures against the bank. Here, it was undisputed
that the customer did not exercise reasonable care in handling her brokerage account; she failed
to examine account statements for five years and did not notify the clearing broker of alleged
forgeries until she amended her petition to add the clearing broker as a defendant, sixteen months
after filing her initial suit. As such, the case turned on whether the clearing broker was a “bank”
under the U.C.C./Louisiana Revised Statutes. The court noted that the U.C.C. broadly defines
“bank” as a “person engaged in the business of banking.” Here, the clearing broker provided a
checking account as a service to customers who opened a brokerage account with a particular
introducing firm. The clearing broker created the account and administered the checking account
in connection with a bank to which it supplied the customers’ names and account numbers. As
part of its regular business, the clearing broker maintained the checking accounts to allow
customers easy access to, and use of, their funds. The court found that considering the U.C.C.’s
broad definition of “bank” and the U.C.C.’s directive that its provisions be liberally construed,
the clearing broker engaged in the business of banking and was therefore entitled to the
protections of Louisiana Revised Statute 10:4-406. Defendant’s motion for summary judgment
was granted.
G.
G.
Howard Family Charitable Found., Inc. v. Trimble, 259 P.3d 850 (Okla. Civ. App. 2011).
Plaintiffs, investors in a hedge fund, brought suit against a Futures Commission Merchant which
acted as a clearing broker for the hedge fund’s principal and manager. The clearing broker
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