Broker-Dealer Litigation - Greenberg Traurig LLP

complaint stated eight claims for relief against the defendants, including: aiding and abetting
violations of Section 10(b) of the Securities Exchange Act of 1934, aiding and abetting
violations of Section 206(4) of the Investment Advisors Act of 1940, and Rule 2064-8, aiding
and abetting violations of Section 34(b) of the Investment Company Act, aiding and abetting
violations of Section 13(a) of the Investment Company Act, and aiding and abetting violations of
Sections 206(1) and (2) of the Advisors Act against the executive vice president. Defendants
separately filed motions to dismiss and strike portions of the complaint. They argued the claims
against them for aiding and abetting must be dismissed as the complaint failed to plead fraud
with particularity under F.R.C.P. Rule 9(b), as it failed to allege factual allegations of primary
violations and that they aided and abetted or that they substantially assisted in the primary
violations. The court found that the complaint contained multiple direct statements by both
defendants that could serve as a basis for the direct liability claims against them and that the
misrepresentations by one defendant could serve as a primary violation underlying the aiding and
abetting by the other defendant and vice versa. Alternatively, the complaint alleged
misstatements attributable to other entities, which could also serve as a primary violation. The
court found the complaint sufficiently stated that the defendants substantially assisted each
other’s alleged misstatements, noting that the complaint alleged that where one defendant made a
misleading statement in a filing, the other defendant reviewed the filing and failed to remedy the
misstatement. The court rejected the executive vice president’s assertion that the complaint did
not adequately allege aiding and abetting liability under Section 206 of the Advisors Act. The
court noted that the Advisors Act did not require the SEC to allege a personal benefit to the
defendant in order to state a claim. Further, the court found that defendants cited no authority
that would require the SEC to comply with the heightened pleading requirements of the Private
Securities Litigation Reform Act of 1995 when asserting claims under the Advisors Act. The
court noted that although the Dodd-Frank Act gave the SEC standing to bring a claim in federal
court for aiding and abetting violations of the Investment Company Act of 1940, because the
alleged misconduct occurred before passage of the Dodd-Frank Act and in light of considerations
of fairness, dictated that individuals should have an opportunity to know what the law is and
conform their conduct and, accordingly, the SEC did not have authority to retroactively bring
claims for aiding and abetting Investment Company Act violations. With the exception of the
claims for aiding and abetting Investment Company Act violations, defendants’ motions to
dismiss were denied.
SEC v. Daifotis, 2011 WL 2183314 (N.D. Cal. June 6, 2011).
The Securities and Exchange Commission brought an enforcement action against two
executives of a registered investment advisor arising from their conduct in managing an ultrashort
term bond fund. Before the court were defendants’ motions to reconsider a prior order
granting in part and denying in part defendants’ motions to dismiss and strike portions of the
complaint, in light of the subsequent Supreme Court decision Janus Capital Group, Inc. v. First
Derivative Traders, 131 S. Ct. 2296 (2011). In Janus, the Supreme Court held that a mutual
fund investment advisor could not be held liable in a private action under Securities Exchange
Act of 1934 Section 10(b) and Rule 10b-5 for false statements included in its client’s mutual
funds prospectuses, because the advisor did not “make” the statements therein. The court noted
that, as an initial matter, defendants were not granted leave to file a motion for reconsideration as
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