Broker-Dealer Litigation - Greenberg Traurig LLP

Genesee County Employees Ret. Sys. v. Thornburg Mortgage Sec. Trust 2006-3, 2011 U.S. Dist.
LEXIS 133462 (D.N.M. Nov. 12, 2011).
In a securities class action suit involving mortgage-backed securities, defendants’ motion
to dismiss was denied because plaintiffs met the requirements to plead their standing under
Section 12(a)(2) of the Securities Act of 1933 and 15 U.S.C.S. § 77l(a), by sufficiently alleging
that they purchased the certificates pursuant to the offering documents in question, that
defendants sold the certificates to them by the use of communication in interstate commerce
and/or the United States mails, and that defendants orchestrated all activities necessary to effect
the sale of the certificates. With regards to the control person claims, the court held that the
plaintiffs had adequately pleaded their claims as to the individual defendants/officers as well as
to the corporate owner of a finance subsidiary that was organized for the limited purpose of
acquiring, owning, and transferring mortgage assets and selling interests in those assets or bonds
secured by those assets. With respect to the individual defendants, the plaintiffs alleged that they
all: (1) made the decision to offer the certificates for sale to investors; (2) drafted, revised,
and/or approved the offering documents; (3) finalized the offering documents and caused them to
become effective; (4) conceived and planned the sale of the certificates and orchestrated all
activities necessary to effect the sale of the certificates to the investing company, by issuing the
certificates, promoting the certificates, and supervising their distribution and ultimate sale to
investors; (5) participated in the preparation and dissemination of the false and misleading
offering documents for their own benefit; (6) by virtue of their positions were privy to and were
provided with actual knowledge of the material facts concealed from the plaintiffs and members
of the class; and (7) had the power and authority to cause, and did in fact cause, the primary
violators to engage in the alleged wrongful conduct. The court concluded that the plaintiffs had
adequately and sufficiently pleaded a Section 15 claim against the individual defendants. With
respect to the control person claim against the corporate owner of the finance subsidiary, the
court held that allegations that an entity was the parent corporation of a primary violator standing
alone is insufficient for a claim of control. Additionally, simply that an entity’s name appears
prominently on offering documents, lending credibility of the larger corporation is not sufficient
to establish control person liability. Here, however, the court held that the plaintiffs had
specifically pleaded facts that demonstrated the corporate owner had the practical ability to direct
the actions of the primary violator. The plaintiffs pointed to significant overlap in the controlling
executives and directors of each entity. The plaintiffs alleged that the corporate owner created
the subsidiary and received basically all of its revenue from securitizations. They also pointed
out that various Securities and Exchange Commission filings demonstrated that the corporate
owner exercised significant control over the subsidiary. These allegations were sufficient to state
a control person claim under Section 15. Thus, the defendants’ motions to dismiss were denied.
Wirth v. Taylor, 2011 U.S. Dist. LEXIS 101773 (D. Utah Sept. 8, 2011).
Plaintiff customer brought suit against a (1) financial company, (2) a firm with which the
financial company had a consulting agreement, and (3) an individual with whom the financial
company had a sub-advisor agreement. Plaintiff alleged fraud, breach of contract, breach of
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