Broker-Dealer Litigation - Greenberg Traurig LLP

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Elipas v. Jedynak, 2011 WL 1706059 (N.D. Ill. May 5, 2011).
Plaintiff brought suit against registered representatives of a company under Rule 10b-5 of
the Securities Exchange Act of 1934 and for violations of Illinois securities law Sections 12(G)
and 13(A) for control person liability. Plaintiff alleged defendants made false statements
concerning the company’s performance . The court granted plaintiff’s summary judgment
motion on the federal securities claims. The court found that plaintiff established that defendants
committed Section 12(G) violations. The court then turned to the issue of control person liability
under Section 13(A). The court noted that for the purposes of Illinois securities laws, one is
subject to control person liability if he directly or indirectly controls the activities of the issuer.
Because there was no evidence of an individual’s actual participation in the securities sale,
liability turned on whether a defendant was part of the “group of persons acting in concert” to
sell such securities. The court noted that there must be some showing of assent, approval, or
concurrence, albeit tacit approval, in an action of the group selling securities before an individual
will be liable for the actions of the controlling group. Unlike under federal securities law,
however, the court noted that there is no defense based on a defendant’s lack of knowledge of the
facts giving rise to the underlying securities fraud. As such, the court found that defendant was
liable under Illinois securities law Section 13(A) for the fraudulent sales of securities to which he
was connected.
Puskala v. Koss Corporation, 799 F. Supp.2d 941(E.D. Wis. July 28, 2011).
Plaintiff filed a class action against a corporation and its officers for violations of
securities fraud under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934
based on the embezzlement of over $30 million by an officer of the corporation. Plaintiff also
brought claims under Section 20(a) for control person liability. Defendants filed a motion to
dismiss. The court found that the corporation was liable for securities fraud and then turned to
the issue of control person liability. Defendant did not deny that he exerted control over the
corporation, but asserted that he acted in good faith and that plaintiff’s pleadings established that
good faith, granting him the protection of the good faith defense. The court held, however, that
the good faith defense is an affirmative defense, and only when a plaintiff pleads elements
constituting an impenetrable defense may a complaint that otherwise states a claim be dismissed
because of the existence of a defense. Therefore, the court denied the motion to dismiss the
Section 20(a) claim.
In re Meta Financial Group Inc., 2011 WL 2893625 (N.D. Iowa July 18, 2011).
Plaintiff shareholders filed a class action suit against a broker-dealer and its individual
employees alleging that defendants issued a number of misleading statements regarding the
operations and finances of the broker-dealer with knowledge or recklessness of their falsity in
violation of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of
1934. Defendants filed a motion to dismiss. The court found that plaintiffs’ Section 10(b) and
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