Broker-Dealer Litigation - Greenberg Traurig LLP

allegedly illegal fundraising at defendant company, but did nothing to warn investors. It further
alleged these defendants assisted in preparing private offering memoranda which they knew were
false and misleading. Plaintiffs alleged that managers at the company made false and misleading
statements in soliciting investors. The management defendants each brought motions to dismiss,
asserting that aiding and abetting securities fraud is not a cognizable claim under A.R.S.
§ 44-1991. The court rejected this claim as the Arizona Supreme Court in State v. Superior
Court, 123 Ariz. 324 (1979), previously ruled that there is a private right of action for aiding and
abetting securities fraud under the state statute. Next, defendants argued that plaintiffs failed to
adequately plead that defendant mortgage broker and defendant company owed fiduciary duties
to their investors. The court rejected this contention as plaintiffs alleged that defendants were
agents of their investors, managers of their investments, and engaging in a joint venture. The
court found these allegations were sufficiently pleaded. The court also found that plaintiffs
alleged sufficient facts from which knowledge and substantial assistance may be inferred, as they
alleged that the mortgage company disseminated false and misleading information of which they
were aware and that the company managers were aware of the real estate broker’s insolvency,
yet arranged financing that allowed the company to appear solvent. Accordingly, the court
denied both motions to dismiss.
Scala v. Citicorp Inc., 2011 WL 900297 (N.D. Cal. Mar. 15, 2011).
Alleged fraud victims brought a class action lawsuit against financial institutions alleging
defendants aided and abetted one of their customers in perpetrating a “Madoff-style” Ponzi
scheme. Plaintiffs asserted claims under California state law. Defendants brought a
Rule 12(b)(6) motion to dismiss on the ground that the claim was preempted by the Federal
Securities Litigation Uniform Standards Act of 1998 (“FSLUSA”). Although the court agreed
with plaintiffs that FSLUSA does not require dismissal of aiding and abetting claims, it found
that dismissal was required based upon the facts alleged in this case, as the complaint, on its face,
alleged misrepresentations and omissions occurring “in connection with” the purchase or sale of
covered securities. Here, defendants were aware of its customer’s prior fraud conviction, yet
allowed this customer to open multiple accounts. In so doing, defendants did not request
appropriate identification, thereby violating its own policies and federal banking regulations. As
this conduct could be actionable by the SEC (i.e., it was not “tangential” to a securities action),
the court found plaintiffs’ aiding and abetting claim preempted by FSLUSA. Defendants’
Rule 12(b)(6) motion to dismiss was granted without prejudice.
SEC v. Daifotis, 2011 WL 2183314 (N.D. Cal. June 6, 2011).
The Securities and Exchange Commission brought an enforcement action against two
executives at a registered investment advisor, arising from their management of an ultra-short
term bond fund. One defendant, an executive vice president and the lead portfolio manager of
the fund, reported to the other defendant who oversaw the head of the product development and
management group responsible for the fund. The complaint alleged a series of misleading
statements and fraudulent acts were made in connection with the fund, by both defendants. The
H.3
H.3
275