Broker-Dealer Litigation - Greenberg Traurig LLP

ought numerous motions to dismiss. The motions to dismiss the claims alleging control person
liability under Section 20(a) of the Exchange Act were granted because of a lack of a primary
violation necessary to reach the secondary liability issues. However, the motion to dismiss the
alleged violation of Section 15 of the Securities Act was denied because the plaintiffs had
adequately pleaded a primary violation under Section 11 of the Securities Act and had
sufficiently pleaded that the individual defendants had exercised control over the documents in
question.
Employees’ Ret. Sys. v. JP Morgan Chase & Co., 2011 Fed. Sec. L. Rep. (CCH) 96,278
(S.D.N.Y. Mar. 23, 2011).
A putative class of purchasers of mortgage pass-through certificates brought a claim
against the defendant issuer. The lead plaintiff alleged causes of action against the defendant
along with six officers or directors under Sections 11, 12(a)(2), and 15 of the Securities Act of
1933. The defendants moved to dismiss. For the control person liability Section 15 claim, the
court granted the motion to dismiss as to the corporation, but denied the motion to dismiss as to
the individual defendants. The court first noted that allegations that an entity was the parent
corporation of a primary violator, standing alone, were insufficient to state a claim of control
person liability. Nor did the fact that the corporate name appeared prominently on the prospectus
supplement lending the investment the approval of the larger corporation, establish control
person liability. Further, the court found that the plaintiffs’ allegation that the corporation “had
the power to, and did, direct [the subsidiary]” was too conclusory to warrant an inference in the
plaintiffs’ favor. However, the court found that the plaintiffs’ allegations of liability as to the
individual defendants were sufficient. The plaintiffs alleged that the individual defendants were
officers or directors of the corporation, and that they directly participated in the alleged primary
violation because their signatures enabled the corporation’s participation in the allegedly
unlawful conduct. The court found this to be sufficient to sustain control person liability at the
motion to dismiss stage. The motion to dismiss as to those defendants was thus denied.
N.J. Carpenters Health Fund v. Residential Capital, LLC, 2011 Fed. Sec. L. Rep. (CCH)
96,303 (S.D.N.Y. Apr. 28, 2011).
Plaintiff investors alleged misrepresentations and omissions in the offering documents for
certain mortgage-backed securities the plaintiffs purchased from defendants. Plaintiffs filed
claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. Defendants moved to
dismiss. The court held that the allegations of control in the claim were insufficient to sustain
the Section 15 claims. The court noted that “control” was not the mere ability to persuade but
rather the practical ability to direct the actions of people who issue or sell securities. The court
found the conclusory allegations made by plaintiffs that the individual defendants had the power
to influence, and exercised power and influence insufficient to claim violations of Section 15.
The court had previously found identical allegations were insufficient under Section 15;
therefore, the court dismissed the plaintiffs’ amended complaint since they failed to correct the
original anemic allegations. Thus, the Section 15 claims were dismissed.
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