Broker-Dealer Litigation - Greenberg Traurig LLP

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Facciola v. Greenberg Traurig, 781 F. Supp. 2d 913 (N.D. Ariz. 2011).
In a case arising from the collapse of a real estate lender, investors alleged securities
fraud under Arizona securities statutes against the managers at a private mortgage lender
company and a related company. The Arizona securities statutes impose presumptive liability
for every person who directly or indirectly controls any person liable for a primary violation
under the statute. A.R.S. § 44.1997(B). Arizona courts have held that the controlling person
need not have actually participated in the specific action upon which the securities violation is
based. Eastern Vanguard Forex Ltd., 206 Ariz. 399, 411 (2003). The court noted that titles can
be sufficient to allege control person liability under the Arizona statutes since “control liability
may be premised on the power to control and does not require actual participation in the
wrongful conduct.” Moreover, the court found that the defendants were incorrect in stating that
the plaintiffs had only alleged in a conclusory fashion that they controlled the primary violators.
Thus, the court found that the allegations were sufficient to support a claim for control person
liability under the Arizona statutes because the plaintiffs had shown that the defendants
controlled, reviewed, and had the ability to prevent the publication of materially misleading
information. The motions to dismiss were denied.
Petrie v. Elec. Game Card Inc., 2011 U.S. Dist. LEXIS 6203 (C.D. Cal. Jan. 12, 2011).
Plaintiffs filed a class action alleging that a small company and its officers engaged in
fraud to conceal from and misstate to the company’s investors the true financial condition and
performance of the company. The individual defendants filed motions to dismiss, arguing that
plaintiffs failed to state viable claims against them for violations of Section 10(b), Rule 10b-5,
and Section 20(a) of the Securities Exchange Act of 1934. The court first found that the
plaintiffs had adequately pleaded a primary violation, a prerequisite to defining defendants’
status as control persons. The court then applied the pleading standards of F.R.C.P. 8(a) to
plaintiffs’ control person allegations, as opposed to the more demanding standard of
F.R.C.P. 9(b). Under the relatively lenient standards of Rule 8(a), the court held that the
plaintiffs successfully alleged each individual defendant’s status as a control person as each
defendant served as either an officer or director of the company. That, in conjunction with the
allegations that the company was small in size, with no more than 10 employees, and that each
moving defendant participated in the company’s day-to-day operations, allowed the court to find
plaintiffs’ control person allegations sufficiently plausible to survive a motion to dismiss.
Homestore.com, Inc. Sec. Litig., 2011 U.S. Dist. LEXIS 46552 (C.D. Cal. Apr. 22, 2011).
Plaintiffs filed consolidated securities class actions on behalf of common stock
purchasers against an internet-based company that provided links to various services related to
home ownership, including real estate sales, home renovation, and relocation services. Plaintiffs
brought two claims against all defendant for violations of Section 10(b), Rule 10b-5, and
Section 20(a) of the Securities Exchange Act of 1934. Defendant contended that he was entitled
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