Broker-Dealer Litigation - Greenberg Traurig LLP

of trades by defendants did not amount to substantial assistance sufficient to trigger aider and
abettor liability. The Court of Appeals affirmed the district court’s granting of the merchants’
motion to dismiss.
SEC v. Shanahan, 646 F.3d 536 (8th Cir. 2011).
Plaintiff brought a civil action against defendant director for, among other claims, aiding
and abetting under Section 20(e) of the Securities Exchange Act of 1934 for his participation in
the granting of backdated stock options to corporate officials. Defendant filed a motion to
dismiss. To establish aiding and abetting liability, plaintiff must prove: (1) a primary violation
of the securities laws; (2) ”knowledge” of the primary violation on the part of the alleged aider
and abettor; and (3) ”substantial assistance” by the alleged aider and abettor in achieving the
primary violation. The court held that even assuming a primary violation of Section 13(a) of the
Exchange Act and Rules 12b-20 and 13a-1 by the corporation occurred, plaintiff’s failure to
prove that the director was severely reckless or negligent regarding the secondary violations
alleged against him was a failure to prove “knowledge” of the corporation’s primary violations.
Thus, the court affirmed the dismissal of the Section 20(e) claim.
SEC v. Locke Capital Mgmt. Inc., 794 F. Supp. 2d 355 (D.R.I. 2011).
The Securities and Exchange Commission brought suit against defendant, the founder
and sole owner of an investment advisory firm, asserting claims including aiding and abetting
fraud in violation of Section 206 of the Investment Advisors Act of 1940, aiding and abetting in
the making of false statements and filings with the SEC in violation of Section 207 of the
Advisors Act, aiding and abetting in the making of false statements in advertising materials in
violation of Section 206(4) of the Advisors Act, and aiding and abetting in the falsification of
records in violation of Section 204 of the Advisors Act. The court found that the undisputed
facts revealed that defendant fabricated a Swiss client to create business among potential
advisors. Defendant then included the fictitious client and its fictitious assets in her investment
advisory firm’s records, SEC filings, and marketing materials, inflating the firm’s apparent
assets. The court found these established facts all constituted Advisors Act violations. The court
denied defendant’s motion for summary judgment and granted the SEC’s motion for summary
judgment for all claims set forth in its complaint. The court also enjoined defendant from
committing future securities violations and, upon finding that the firm’s and defendant’s
violations were closely intertwined, held defendant jointly and severally liable with the firm for
disgorgement of profits. Finally, the court ordered defendant to pay civil penalties.
SEC v. Sponge Tech. Delivery Sys. Inc., 2011 Fed. Sec. L. Rep. (CCH) 96,246 (E.D.N.Y.
Mar. 14, 2011).
The Securities and Exchange Commission brought a motion for preliminary injunctive
relief seeking to enjoin defendants from aiding and abetting violations of various statutory and
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