Broker-Dealer Litigation - Greenberg Traurig LLP

those reasons, the court granted the defendant’s motion to dismiss the plaintiffs’ Section 20(a)
claim.
King County v. Merrill Lynch & Co., 2011 U.S. Dist. LEXIS 16483 (W.D. Wash. Feb. 18, 2011).
Plaintiff was an investor for a municipality, charged with the task of investing the cash
reserves of the municipality. Plaintiff brought claims against a financial institution and its
subsidiaries under the Washington State Securities Act (“WSSA”), alleging that defendants had
violated RCW 21.20.010 and RCW 21.20.430 of the WSSA. To establish liability under the
WSSA, the purchaser of a security must prove that the seller and/or others made material
misrepresentations or omissions about the security, and that the purchaser relied on those
misrepresentations or omissions. Plaintiff alleged defendants “played an integral role in the
transactions and breaches at issue.” The court noted that the relationship between a corporation
and its wholly-owned subsidiaries created a greater likelihood of control and authority than do
other forms of associations for which Washington courts had refused to dismiss claims brought
on the theory of control person liability. Further, Washington courts have held associates of
sellers to be control persons who could be liable for a seller’s actions under the WSSA, even
though the company in which the associate participated was not the company through which the
fraudulent notes were sold, and even though there was no evidence that the associate actually
controlled the sellers’ companies or that he had authority over the sale of notes by the sellers’
other companies. As such, the court found that plaintiff’s allegations were sufficient to state a
claim against defendants under the theory of control person or participant liability.
Richard v. Nw. Pipe Co., 2011 U.S. Dist. LEXIS 96200 (W.D. Wash. Aug. 26, 2011).
Plaintiff, on behalf of itself and other similarly situated shareholders, brought a
consolidated class action suit against a corporation and its officers alleging accounting
improprieties which inflated the corporation’s financial results, violated generally accepted
accounting principles and Securities and Exchange Commission disclosure rules, and made
contradictory representations. Specifically, plaintiff alleged that the corporation violated
Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and that the officers were
subject to Section 20(a) control person liability. Defendants filed a motion to dismiss. The court
found that plaintiff had adequately pleaded primary securities violations. Next, the court
analyzed the control person claim under Section 20(a). The chief financial officer joined the
company seven months after the alleged impropriety began. The court held that she could not be
liable as a control person for the time period prior to her employment. Subsequent to the
commencement of her employment, the court found that although she could not control her boss
who made many of the statements at issue, her daily control of the company and control over its
financial disclosures allowed the Section 20(a) claim against her to survive a motion to dismiss.
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