Broker-Dealer Litigation - Greenberg Traurig LLP

and Rule 10b-5 of the Securities Exchange Act of 1934 and control person liability under
Section 20(a). The SEC appealed the district court’s granting of the officer’s motion for
summary judgment asserting that: (1) there were genuine issues of material fact as to whether
that officer was a control person for purposes of finding liability under Section 20(a); and (2) the
district court erred in ruling that the officer met his burden of establishing a good faith defense of
relying on others. The court found that the indicia of control include whether the person
managed the company on a day-to-day basis and was involved in the formulation of financial
statements. It further held that the actual authority over the preparation and presentation to the
public of financial statements is sufficient to demonstrate control. In this case, the court held that
there was sufficient evidence to create a genuine issue of material fact as to whether the officer
was properly considered a control person because the corporation’s bylaws gave the officer
“general management and control of the business and the officers and the employees.”
Additionally, the court held that the officer did not meet his burden of showing that he was
entitled to a good faith defense. The court held that the use of the good faith defense requires
defendant to demonstrate an absence of scienter and that defendant did not directly or indirectly
induce the act or acts constituting the violation. In this case, evidence of the officer’s scienter
existed, as he engaged in the dissemination of misleading information to the public. As such, the
appellate court reversed the district court’s dismissal and held that there was a genuine issue of
material fact as to whether the officer was a control person under Section 20(a) and further held
that the officer’s good faith defense failed at the summary judgment stage.
Goldenson v. Steffens, 802 F. Supp.2d 240 (D. Me. Aug. 4, 2011).
Plaintiff filed suit against a financial company and its directors and officers for fraud
under Maine state laws and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934
and control person liability under Section 20(a) based on alleged misstatements and omissions
regarding who would control and invest plaintiff’s assets. Defendants moved to dismiss. The
court found that sufficient facts existed for the Section 10(b) claims to survive the motion to
dismiss. The court then turned to the control person liability issue under Section 20(a). The
court found that the complaint alleged that two individuals were managers and directors who
played an active role and thus was sufficiently pleaded to overcome a motion to dismiss. The
motion to dismiss was denied.
Akamai Techs., Inc. v. Deutsche Bank AG, 764 F. Supp. 2d 263 (D. Mass. 2011).
Plaintiff brought suit against a financial institution alleging that its subsidiary had made
inappropriate investments in toxic auction rate securities. Plaintiff asserted that defendant was
liable under Section 20(a) of the Securities Exchange Act of 1934 and Massachusetts General
Laws ch. 110A, § 410(b). Defendant argued that plaintiff’s “control person” liability claims
should be dismissed both for failure to plead facts that support any underlying claim of securities
fraud and for failure to plead facts that support a claim that defendant was a “control person.” In
pointing to the original pleadings, the court held that the plaintiff had adequately shown
defendant’s control over its wholly-owned subsidiary that had made the investments; thus,
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