Broker-Dealer Litigation - Greenberg Traurig LLP

authorities versus those reported in the prospectus. Plaintiffs satisfied Rule 9(b)’s heightened
pleading standard with respect to identifying the allegedly false statements, who made them, and
their materiality given that the statements concerned profits and revenues. Plaintiffs failed to
meet the heightened pleading standard for the claim that profit and revenue reports reported to
the SEC were false; although the numbers were different from those reported to Chinese
regulatory authorities, Section 11 requires greater specificity to show that the SEC numbers were
actually false, by pleading, for example, that Chinese and American accounting standards are
similar or that the reports were made based on the same data. The court held that plaintiffs need
not plead loss causation given that defendants bear the burden of proving the absence of loss
causation (a burden the court found it unlikely to be met at the pleading stage because it seemed
“evident” that the facts alleged could have caused the company’s delisting and plaintiffs’
resulting injuries).
Plichta v. SunPower Corp., 790 F.Supp.2d 1012 (N.D. Cal. 2011).
The district court granted defendants’ motion to dismiss a putative class action complaint
alleging violation of, inter alia, Section 11 of the Securities Act of 1933, in connection with
accounting entries in financial statements filed with the Securities and Exchange Commission
that allegedly understated the cost of goods sold. The court held that plaintiffs lacked standing to
sue under Section 11 because they concededly did not purchase their stock in the public offering,
and therefore could not allege facts sufficient to show that the stock purchased was traceable to
the offering in dispute. The one named plaintiff who had purchased shares close in time to the
offering had sold the securities in excess of the offering price, and therefore lacked recoverable
damages. The court also dismissed the Section 11 claim based upon shares received by certain
shareholders through a spinoff because those plaintiffs paid nothing for the shares, and therefore
had no recoverable damages. Although the court said it was not clear how the pleading defects
could be cured, plaintiffs were given leave to replead.
Rafton v. Rydex Series Funds, 2011 WL 31114 (N.D. Cal. Jan. 5, 2011).
The district court granted in part and denied in part defendants’ motions to dismiss a
putative securities class action complaint alleging violation of, inter alia, Section 11 of the
Securities Act of 1933, in connection with alleged misrepresentations concerning a long bond
strategy fund. The court denied the motion to dismiss the Section 11 claim brought by
defendants responsible for issuing, managing, and distributing shares of the fund because
plaintiffs sufficiently alleged a material misrepresentation (regarding suitability of the fund for
certain investors) and an omission of material fact (regarding alleged failures adequately to
disclose a “mathematical compounding effect” that caused the fund to deviate from its
benchmark). The court granted the motion to dismiss the Section 11 claim brought by
independent trustees to the extent plaintiffs lacked standing to sue on securities that they did not
purchase. The trustees’ motion to dismiss the Section 11 claim was otherwise denied. The court
held that plaintiffs claims were timely (because annual reports and “well-publicized” news
B.1
B.1
21