Broker-Dealer Litigation - Greenberg Traurig LLP

Securities Exchange Act of 1934. The court held that the alleged misstatements at issue
(concerning customer supply agreements, and the failure to file same pursuant to Item 601(b)(1)
of Regulation S-K) were not material misstatements or omissions sufficient to state a claim under
Section 11. To the extent statements concerning STEC’s customers did constitute a material
misstatement, the court nonetheless dismissed the Section 11 claim on the ground that plaintiffs
“ha[d] not alleged” loss causation.
Maine State Ret. Sys. v. Countrywide Fin. Corp., 2011 WL 4389689 (C.D. Cal. May 5, 2011).
The district court granted in part and denied in part motions to dismiss a second amended
class action complaint alleging violation of, inter alia, Section 11 of the Securities Act of 1933,
arising from 427 separate offerings in which disclosures regarding Countrywide’s loan
origination practices were alleged to be materially untrue or misleading. For tranches of
mortgage-backed securities where none of the named plaintiffs had made a purchase, the Section
11 claim was dismissed for lack of standing. Because “each tranche is indisputably a separate
security,” the court held it was not enough to have purchased from a tranche issued pursuant to
the same prospectus supplements; plaintiffs were required to have purchased from each tranche
at issue. Failure to purchase from each tranche also deprived plaintiffs of constitutional standing
under Article III (because they suffered no personal injury, and therefore had no standing to sue
upon, tranche investments that they did not make); the interconnectedness of the tranches was
deemed “largely irrelevant.” The Section 11 claim was otherwise sustained on the grounds that
allegations concerning systematic deviations from and disregard for underwriting guidelines
were sufficient to state a claim, and plaintiffs had sufficiently pleaded materiality and injury in
that the allegations in the complaint did not conclusively demonstrate the absence of loss
causation. The court reserved judgment on whether aftermarket purchasers had sufficiently
pleaded reliance on the registration statement given its decision on standing, which may have
mooted the reliance issue.
In re STEC Inc. Sec. Litig., 2011 WL 2669217 (C.D. Cal. June 17, 2011).
The district court denied the STEC defendants’ motion to dismiss and granted the motion
to dismiss by the underwriter defendants, without prejudice to replead, in connection with a
second consolidated amended complaint alleging violation of, inter alia, Section 11 of the
Securities Act of 1933, arising from alleged misstatements and omissions that inflated the
company’s stock price (which allegedly collapsed upon corrective disclosure of same). The
court held that plaintiffs adequately alleged material misrepresentations in support of their
Section 11 claim on the grounds that disclosures in the prospectus regarding a large customer
sales order constituted misleading “half-truths” because they failed to disclose that the order was
not truly reflective of product demand, was not an ordinary course contract, and could not be
expected to drive ongoing sales at similar levels, all of which was revealed when the company
later described the agreement as a “one-off”. Plaintiffs’ Section 11 claim against the underwriter
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