Broker-Dealer Litigation - Greenberg Traurig LLP

equirements of Federal Rule of Civil Procedure 9(b) to sustain a claim for civil conspiracy. As
to the third co-defendant, the court reasoned that the plaintiffs’ allegation that “[t]he defendants
and the non-parties conspired with each other . . .” and that “Each defendant is liable for the
wrongful acts of the other defendants . . .” was insufficient to sustain a claim for civil conspiracy.
Specifically, the court noted that it was not clear from the complaint whether the plaintiffs
intended to state a claim for civil conspiracy. In addition, the court reasoned that the plaintiffs
did not allege facts going to each element of civil conspiracy. In particular, nowhere in the
complaint did the plaintiffs allege facts which established a meeting of the minds between
defendants and any other party. Accordingly, the court granted defendants’ motion to dismiss
plaintiffs’ conspiracy claim against the third co-defendant.
5. Failure to Supervise
H.5
Busacca v. SEC, No. 10-15918, 2011 U.S. App. LEXIS 25933 (11th Cir. Dec. 28, 2011).
The Eleventh Circuit upheld a final order of the Securities and Exchange Commission
sustaining a disciplinary action against the former president of a broker-dealer which resulted in
a total fine of $30,000 and six months’ suspension from serving in any principal securities
capacity. FINRA found that the former president failed to exercise reasonable supervision over
the broker-dealer’s operations and compliance functions in violation of NASD Conduct
Rules 3010 and 2110. Specifically, the president knew that the broker-dealer’s conversion to a
new computer program for preparing required books and records created widespread errors in the
firm’s fundamental operations, yet failed to take reasonable steps to solve the problems. The
court found that substantial evidence supported the finding that the president failed to act with
the requisite vigor, decisiveness, and vigilance to address known operational deficiencies, as well
as to prevent the occurrence of future regulatory violations. The president was not denied any
due process rights during the FINRA proceeding. Assuming, without deciding, that FINRA
constitutes a governmental entity subject to the due process clause, the court found that the
president was afforded a meaningful opportunity to be heard during the disciplinary proceedings.
The court also found that the president failed to show that he was improperly singled out for
prosecution and punishment based on his criticisms of FINRA and the securities industry. The
president had not shown any evidence that FINRA’s prosecution of him was based on a
constitutionally impermissible motive. Rather, the prosecution was based on the numerous
customer complaints and operational violations uncovered during FINRA’s investigation of the
broker-dealer. The president also failed to provide evidence that similarly situated individuals in
the securities industry were not targeted by FINRA. Finally, the court rejected the president’s
argument that the sanctions imposed against him by FINRA were impermissibly punitive. The
disciplinary sanctions imposed by FINRA, which were upheld by the SEC, fell within the
recommended guidelines for failure to supervise. In upholding the sanctions, the SEC
appropriately gave appropriate weight to the president’s failures to adequately respond to known
operational problems at the firm.
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