Broker-Dealer Litigation - Greenberg Traurig LLP

plaintiffs’ causes of action against them. However, plaintiffs argued that federal preemption
does not extend to their private causes of action, but rather, only extends to state’s statutory
measures embodying administrative agency regulatory functions. As a prerequisite for the
liability of an aider or abettor, the one who allegedly is aided or abetted must be liable under one
of the specified statutory grounds in the act. The futures commission merchant argued that it had
no liability because Oklahoma’s Act arose from the Uniform Securities Act from the National
Conference of Commissioners on Uniform State Laws which provides that performance by
clearing broker of the clearing broker’s contractual functions, even though necessary for the
processing of the transaction, without more, would not constitute material aid. The court
concluded that plaintiffs’ causes of action against the futures commission merchant based upon
aiding and abetting fraudulent commodities transactions were preempted under federal law and
no amendments to the pleadings could cure this defect and, thus, the claims against the futures
commission merchant were properly dismissed. However, the software distributor argued that it
merely recorded information provided by defendants. Under Section 1-509, the software
designer must meet the burden of proof that it did not know and, in the exercise of reasonable
care, could not have known, of the existence of the conduct by reason of which liability is
alleged to exist. Plaintiffs produced e-mails raising facts about which reasonable minds could
differ whether the software distributor exceeded the highly restricted role it claims to have
undertaken when performing accounting services. The court held that the question whether aid
is “material” presents a factual determination which is dependent upon the development of
evidence and not appropriate for determination on a motion to dismiss. Thus, the court held that
the dismissal of the software distributor’s secondary liability due to aiding and abetting based
upon federal preemption should be reversed.
4. Conspiracy
H.4
U.S. v. Skilling, 638 F.3d 480 (5th Cir. 2011).
In 2006, defendant was convicted of twelve counts of securities fraud, five counts of
making false representations to auditors, one count of insider trader, and one count of
conspiracy. The indictment alleged several possible objects of the conspiracy, including
securities fraud and honest-services fraud. The district court’s jury instructions permitted the
jury to convict based on any of the alleged theories of guilt and the jury found the defendant
guilty of conspiracy without identifying the specific object of the conspiracy. The appellate
court affirmed the convictions. The United States Supreme Court then invalidated the
government’s honest-services theory of liability and remanded the case to the appellate court to
determine whether the jury instruction was harmless error. On remand, the appellate court
reasoned that the jury had overwhelming evidence at trial that defendant and his co-conspirators
under-reported and shifted losses to make struggling business divisions look profitable, falsely
portrayed a business division as a low risk investment, and manipulated accounting reserves to
achieve earnings targets. Accordingly, the court held that the honest-services instruction was
harmless error beyond reasonable doubt.
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