Broker-Dealer Litigation - Greenberg Traurig LLP

egulatory provisions. The SEC alleged that defendants “pumped” the value of a publicly-traded
company’s shares and “dumped” the shares into the public market in unregistered transactions.
Defendants included an individual acting as the company’s president and CEO, an individual
acting as the company’s COO, CFO, and CAO, and an individual acting as a self-employed
consultant associated with the company. The company, defendant president, and defendant COO
allegedly made material false or misleading statements in press releases and public SEC filings
with respect to the company’s reduction in the number of its outstanding shares, business with
five customers, and a company’s revenue. The president and COO reviewed and authorized the
press releases and signed and certified the public filings before they were issued. Defendant
consultant allegedly created Internet sites and virtual office space for the fictitious customers.
He maintained the Internet sites and forwarded all e-mails sent to the Internet sites to his own
e-mail account. He also arranged for physical space for the fictitious customers. Based upon
these facts, the court found that the SEC had sufficiently shown that defendant president and
defendant COO knowingly provided substantial assistance to the company in its commission of
violations of Securities Exchange Act of 1934 Sections 13(a), 13(b)(2)A, 13(b)(2)B, and 15(d),
and Exchange Act Rules 12b-20, 13a-13, 15d-1, 15d-11, and 15d-13. The court also found that
the SEC had shown a reasonable likelihood of future violations absent the injunction given that
the parties’ conduct involved a high degree of scienter, as demonstrated by the substantial efforts
taken to hide the fraudulent scheme. The court found that the SEC did not provide sufficient
evidence or explanation in support of its contention that the defendant consultant provided
substantial assistance in violating Section 10(b) or Rule 10b-5. It therefore declined to issue an
injunction prohibiting the aiding and abetting violations of these sections. The court noted,
however, that the absence of an injunction against these provisions should not be interpreted as
an endorsement of the alleged violation. Preliminary injunctions were issued according to the
court’s findings.
In re J.P. Jeanneret Assocs., 769 F. Supp. 2d 340 (S.D.N.Y. 2011).
Investors filed a class action suit against an asset management corporation and an
investment advisory firm for losses arising from a Ponzi scheme. Plaintiffs alleged that the
investment advisor aided and abetted violations of Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 in its role as secondary actor for brokering or facilitating the asset
management corporation’s ability to place funds into the Ponzi scheme. In its motion to dismiss,
defendants argued that plaintiffs’ claims were barred because “aiders and abettors” cannot be
held liable under Section 10(b), and Rule 10b-5, for statements made to the investing public by
the issuing firm, even if the secondary actor helped craft those statements. The court held that
holding such a person liable for misstatements by another is plainly barred. Defendants’ motion
to dismiss was granted.
SEC v. Espuelas, 767 F. Supp. 2d 467 (S.D.N.Y. 2011).
The Securities and Exchange Commission brought an enforcement action against
defendants, former executives of a company, for aiding and abetting accounting fraud in
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