Broker-Dealer Litigation - Greenberg Traurig LLP

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Merkin v. Gabriel Capital, L.P., 2011 U.S. Dist. LEXIS 112931 (S.D.N.Y. Sept. 23, 2011).
Investors in three different hedge funds brought suit against defendants, the investment
advisor to the funds and the auditors of the funds, for fraud, perpetuated by Bernard L. Madoff
through his investment firm. Plaintiffs asserted, among other claims, common law claims for
aiding and abetting breach of fiduciary duty. Defendants moved to dismiss arguing that New
York Blue Sky law, commonly known as the Martin Act, provides for the attorney general to
regulate and enforce New York’s securities laws, and thus precludes private causes of action.
The court held that the Martin Act preempts plaintiffs’ claim for aiding and abetting breach of
fiduciary duty, and thus granted defendants’ motion to dismiss.
Wu v. Tang, 2011 WL 145259 (N.D. Tex. Jan. 14, 2011).
Plaintiff investors claimed that defendants operated a Ponzi-like scheme targeting
members of the Chinese-American community to obtain direct and indirect investments in the
Overseas Chinese Fund (“OCF”). Defendants raised capital for OCF from U.S. investors by
selling interests in a partnership managed by a limited liability company. The limited liability
company was never registered with the Securities and Exchange Commission but was registered
with the Texas Securities Board. Plaintiffs and other investors were told that the limited liability
company was managing their investments, but were never informed that the responsibilities for
managing their investments were transferred to a third-party individual. Plaintiffs alleged that
the limited liability company was aware of the third-party individual’s Ponzi scheme and,
therefore, defrauded investors through their actions in promoting the underlying partnership
investment. Plaintiffs brought claims against the third-party individual for violations of the
Texas Securities Act under Articles 581-33 and 581-33-1. Article 581-33 contains a provision
for finding liability under Section 33(A) for aiding and abetting a seller or issuer of a security. In
their motion to dismiss, defendants argued that Article 581-33 applies specifically to investment
advisors, and because plaintiffs and the third-party individual lacked an investment advisor
relationship, the claim should be dismissed. The court held that although plaintiffs do not
explicitly state in the complaint that the third-party individual acted as investment advisor, they
nonetheless found enough facts to show that the third-party individual may have been asking for
compensation in advising the plaintiffs to invest. Thus, the court denied defendants’ motion to
dismiss claims under the Texas Securities Act.
Newby v. Enron Corp. (In re Enron Corp. Sec. Derivative & ERISA Litig.), 761 F. Supp. 2d 504
(S.D. Tex. 2011).
Investors alleged in 1999 and 2000 that a defendant bank fraudulently induced plaintiffs
to purchase beneficial ownership interests in a special purpose entity (“SPE”), allegedly secured
by worthless or nearly worthless assets purchased from Enron Corporation purportedly through
“arm’s-length” transactions and dumped into the SPE as a part of a larger conspiracy with Enron
to manipulate Enron’s financial statements and defraud investors. Specifically, the plaintiff
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