Broker-Dealer Litigation - Greenberg Traurig LLP

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This Survey identifies significant court decisions and administrative proceedings before the SEC and FINRA, which involve issues relevant to broker-dealers and investment banking firms during the year 2011. Although the Survey does not purport to necessarily be comprehensive, it is intended to include all notable decisions and proceedings during 2011. This Survey is an annual project of the ABA’s Broker-Dealer Subcommittee, conducted with the assistance and support of the full Securities Litigation Committee. Again this year, the Survey has been prepared in conjunction with the annual Compliance and Legal Seminar of the Securities Industry and Financial Markets Association. In addition to the Subcommittee members participating in the project listed below, we gratefully acknowledge the special assistance of Ellen Taylor, Andy Clark and Brenda McDonald of Greenberg Traurig in Atlanta, Georgia, for their efforts in editing, revising, and organizing the Survey. Dated: March 1, 2012 Terry R. Weiss Atlanta, Georgia Co-Chair, Broker-Dealer Subcommittee, Litigation Section, American Bar Association Subcommittee Members Participating in the Project: Timothy P. Burke Bingham McCutchen Boston, MA Jeff G. Hammel Latham & Watkins New York, NY Christine M. Debevec Stradley Ronon Stevens & Young LLP Philadelphia, PA Jeffrey W. Willis Rogers & Hardin Atlanta, GA Joseph D. Edmondson, Jr. Foley & Lardner, LLP Washington, DC Michele R. Fron Keesal, Young & Logan Long Beach, CA H. Nicholas Berberian Neal Gerber & Eisenberg LLP Chicato, IL Thomas C. Sand Miller Nash LLP Portland, OR Bennett Falk Bressler, Amery & Ross Miramar, FL Peter S. Fruin Maynard Cooper & Gale PC Birmingham, AL Alyson M. Weiss Loeb & Loeb LLP New York, NY Matthew R. Stammel Vinson & Elkins LLP Dallas, TX
Rocky Pozza Miller, Canfield, Paddock and Stone PLC Detroit, MI Additional Contributors: The Subcommittee would also like to acknowledge the efforts of the following individuals on this year’s Annual Survey: Matthew C. Applebaum Brian M. Bohn Keith Cantrelle Alexander J. Casnocha Jonathan Cyprys Christina N. Davilas David DeVito Kirstin L. Ericson Justin Helsby Todd A. Holleman Julie M. Jarvis Kristin J. Jones Tyson W. Kovash Juliette B. McCullough Thomas J. Mew Daniel J. Moore Bryan Reyhani Adrian Rodriguez A.J. Rosenthal Inge Selden Melissa M. Smith James M. Walker Michael R. Weissmann Adrienne K. Eason Wheatley Sandra J. White-Hall Tina L. Winer
Page 1: Broker-Dealer Litigation 2011 Annua
Page 5 and 6: 3. Safe Harbor/Bespeaks Caution Def
Page 7 and 8: (iii) Falsification of Documents...
Page 9 and 10: SECURITIES LITIGATION A. Definition
Page 11 and 12: Purvis v. Arizona Corp. Comm’n, N
Page 13 and 14: allegation of fraud. The complaint
Page 15 and 16: Silverstrand Investments v. AMAG Ph
Page 17 and 18: complaint lacked named plaintiffs w
Page 19 and 20: egarding loan-to-value ratios repor
Page 21 and 22: appraisers’ alleged acceptance of
Page 23 and 24: that statutes of repose are not sus
Page 25 and 26: Pension Trust Fund for Operating En
Page 27 and 28: Securities Exchange Act of 1934. Th
Page 29 and 30: authorities versus those reported i
Page 31 and 32: In re Oppenheimer Rochester Funds G
Page 33 and 34: claims as to the appraisal standard
Page 35 and 36: under Section 12 and declined to ex
Page 37 and 38: however, the court found that the s
Page 39 and 40: that a mutual fund’s share price
Page 41 and 42: allege a material misrepresentation
Page 43 and 44: over common questions, given the nu
Page 45 and 46: lending practices; and its solvenci
Page 47 and 48: partnership and worked to obtain in
Page 49 and 50: Section 12(a)(2) required the court
Page 51 and 52: initially inflated the company’s
Page 53 and 54:
B.2 Self v. Chase Bank, N.A., 2011
Page 55 and 56:
“associated with,” or “acted
Page 57 and 58:
Gibbons v. Nat’l Real Estate Inve
Page 59 and 60:
avoid ambiguous, potentially mislea
Page 61 and 62:
B.3 SEC v. Kelly, 2011 WL 44331161
Page 63 and 64:
B.3 SEC v. Woodruff, 778 F. Supp. 2
Page 65 and 66:
C. Liabilities under the Securities
Page 67 and 68:
easonable juror could conclude that
Page 69 and 70:
Claimants requested compensatory da
Page 71 and 72:
C.1.d Ashland Inc. v. Morgan Stanle
Page 73 and 74:
C.1.d AnchorBank, FSB v. Hofer, 649
Page 75 and 76:
experiencing large operating losses
Page 77 and 78:
C.1.d Resnik v. Woertz, 744 F. Supp
Page 79 and 80:
substantial likelihood that disclos
Page 81 and 82:
C.1.d In re Evergreen Ultra Short O
Page 83 and 84:
In re Merrill Lynch Auction Rate Se
Page 85 and 86:
fiduciary duty and negligent misrep
Page 87 and 88:
corporation’s earnings forecasts
Page 89 and 90:
C.1.e In re Bank of America Corp. S
Page 91 and 92:
f. Affirmative Defenses Wilson v. M
Page 93 and 94:
that the complaint failed to allege
Page 95 and 96:
immaterial; or (3) made without act
Page 97 and 98:
of the Private Securities Litigatio
Page 99 and 100:
held that the statute of limitation
Page 101 and 102:
C.1.f In re Novatel Wireless Securi
Page 103 and 104:
parent company liable for statement
Page 105 and 106:
C.1.g SEC v. Tecumseh Holdings Corp
Page 107 and 108:
C.1.g Fishman v. Morgan Keegan & Co
Page 109 and 110:
C.2 Litwin v. Oceanfreight, Inc., 2
Page 111 and 112:
Hysong v. Encore Energy Partners LP
Page 113 and 114:
and created an uncertainty that KBR
Page 115 and 116:
consented to the entry of a final j
Page 117 and 118:
3. Section 15(c) C.3 SEC v. Ficeto,
Page 119 and 120:
SEC v. Stifel, Nicolaus & Co., Inc.
Page 121 and 122:
settled with the SEC prior to the c
Page 123 and 124:
equity interests in real estate ass
Page 125 and 126:
noted that the SEC had “merely re
Page 127 and 128:
ing such court actions (the “1990
Page 129 and 130:
D. Liabilities under the Securities
Page 131 and 132:
its’ liquidity problems and plans
Page 133 and 134:
few of defendant’s employees were
Page 135 and 136:
D.1 Dronsejko v. Thornton, 632 F.3d
Page 137 and 138:
In re Smith & Wesson Holding Corp.
Page 139 and 140:
particularized as materially mislea
Page 141 and 142:
D.1 Stephenson v. Pricewaterhouseco
Page 143 and 144:
D.1 Russo v. Bruce, 777 F. Supp. 2d
Page 145 and 146:
D.1 Jacquemyns v. Spartan Mullen Et
Page 147 and 148:
granted the defendants’ motion to
Page 149 and 150:
D.1 Egan v. Tradingscreen, Inc., 20
Page 151 and 152:
City of Roseville Employees’ Reti
Page 153 and 154:
D.1 Solow v. Citigroup, Inc., 2011
Page 155 and 156:
Local 731 I.B. of T. Excavators and
Page 157 and 158:
D.1 Love v. Alfacell Corp., 2011 WL
Page 159 and 160:
disregarded and resulted in omissio
Page 161 and 162:
dismiss finding that plaintiff’s
Page 163 and 164:
from a decline of defendant’s sto
Page 165 and 166:
plaintiffs failed to (i) create str
Page 167 and 168:
D.1 In re St. Jude Med., Inc. Sec.
Page 169 and 170:
D.1 Scala v. Citicorp Inc., 2011 WL
Page 171 and 172:
granted defendants’ motion to dis
Page 173 and 174:
improperly recognized revenue on sa
Page 175 and 176:
D.1 Henning v. Orient Paper, Inc.,
Page 177 and 178:
plaintiffs alleged that defendants
Page 179 and 180:
in various contracts of the company
Page 181 and 182:
D.1 In re Crocs, Inc. Securities Li
Page 183 and 184:
Phila. Fin. Mgmt. of S.F., LLC v. D
Page 185 and 186:
Waterford Twp. Police & Fire Ret. S
Page 187 and 188:
Group met the requirements of Fed.
Page 189 and 190:
appointed a lead plaintiff. The cou
Page 191 and 192:
IBEW Local 90 Pension Fund v. Deuts
Page 193 and 194:
D.2 Vandevelde v. China Natural Gas
Page 195 and 196:
typicality.” Accordingly, the cou
Page 197 and 198:
D.2 Sparano v. Lief, 2011 WL 830109
Page 199 and 200:
argument was irrelevant because the
Page 201 and 202:
issue, and therefore qualified for
Page 203 and 204:
was not available. Moreover, the co
Page 205 and 206:
misstatements were shielded from li
Page 207 and 208:
D.3 Hopson v. MetroPCS Commc’ns,
Page 209 and 210:
D.3 In re St. Jude Med., Inc. Sec.
Page 211 and 212:
D.3 Curry v. Hansen Med., Inc., 201
Page 213 and 214:
D.3 In re Coinstar Sec. Litig., 201
Page 215 and 216:
Plumbers and Pipefitters Local Unio
Page 217 and 218:
E. Backus v. Conn. Cmty. Bank, N.A.
Page 219 and 220:
Securities Litigation Uniform Stand
Page 221 and 222:
willfully ignored numerous red flag
Page 223 and 224:
material facts “relating to” th
Page 225 and 226:
E. Northstar Fin. Advisors, Inc. v.
Page 227 and 228:
precluded or removable under SLUSA.
Page 229 and 230:
circumvent SLUSA, the Court of Appe
Page 231 and 232:
of defendant purchased ARS bonds fr
Page 233 and 234:
2. Consumer Protection and Other St
Page 235 and 236:
F.3 Borsellino v. Putnam, 2011 WL 6
Page 237 and 238:
F.4 Haase v. GunnAllen Fin., Inc.,
Page 239 and 240:
that the complaint failed to allege
Page 241 and 242:
eing directed to return improperly
Page 243 and 244:
H.1 U.S. v. Reyes, 660 F.3d 454 (9t
Page 245 and 246:
to dismiss the complaint pursuant t
Page 247 and 248:
Act of 1934 alleging it made false
Page 249 and 250:
and Rule 10b-5 of the Securities Ex
Page 251 and 252:
exert control over the content of c
Page 253 and 254:
H.2 In re Sanofi-Aventis Sec. Litig
Page 255 and 256:
Camofi Master LDC v. Riptide Worldw
Page 257 and 258:
solvency. The district court held t
Page 259 and 260:
(1) the investment corporations’
Page 261 and 262:
held that, in taking plaintiffs’
Page 263 and 264:
Rule 10b-5 claims were pleaded with
Page 265 and 266:
to judgment as a matter of law beca
Page 267 and 268:
H.2 Rafton v. Rydex Series Funds, 2
Page 269 and 270:
those reasons, the court granted th
Page 271 and 272:
Genesee County Employees Ret. Sys.
Page 273 and 274:
Fernea v. Merrill Lynch, Pierce, Fe
Page 275 and 276:
3. Aiding & Abetting H.3 Janus Capi
Page 277 and 278:
of trades by defendants did not amo
Page 279 and 280:
violation of securities laws. To st
Page 281 and 282:
H.3 Merkin v. Gabriel Capital, L.P.
Page 283 and 284:
allegedly illegal fundraising at de
Page 285 and 286:
to any of the claims except the “
Page 287 and 288:
mere suspicion that the broker-deal
Page 289 and 290:
H.4 U.S. v. Speer, 419 F. App’x 5
Page 291 and 292:
equirements of Federal Rule of Civi
Page 293 and 294:
compliance officer testified as a r
Page 295 and 296:
In re Torrey Pines Sec. Inc., Relea
Page 297 and 298:
In re Torrey Pines Sec. Inc., Relea
Page 299 and 300:
or nationally-recognized statistica
Page 301 and 302:
activity, including activity in the
Page 303 and 304:
timely and complete information upd
Page 305 and 306:
J. RICO J. MLSMK Inv. Co. v. JP Mor
Page 307 and 308:
J. In re Refco Inc. Sec. Litig., 20
Page 309 and 310:
Beaman v. Barth, 2011 Bankr. LEXIS
Page 311 and 312:
General Retirement System of City o
Page 313 and 314:
K. Damages and Other Relief in Priv
Page 315 and 316:
K.2 U.S. v. Gushlak, 2011 WL 315917
Page 317 and 318:
K.2 Elipas v. Jedynak, 2011 WL 1706
Page 319 and 320:
are wanton and reckless when done i
Page 321 and 322:
settlement agreement constituted an
Page 323 and 324:
The court held that the trustee was
Page 325 and 326:
L. Contribution, Indemnification L.
Page 327 and 328:
L. MBIA Ins. Corp. v. Credit Suisse
Page 329 and 330:
warranted under these circumstances
Page 331 and 332:
1933. In opposition to the motions,
Page 333 and 334:
M.1 SEC v. Wyly, 788 F. Supp. 2d 92
Page 335 and 336:
as barred by the statute of repose
Page 337 and 338:
equitable estoppel did not apply as
Page 339 and 340:
support the FINRA arbitration as pr
Page 341 and 342:
N.1 Citibank, N.A. v. Franco, 2011
Page 343 and 344:
ecause it overlapped with and was p
Page 345 and 346:
2. Eligibility/Limitations N.2 Yuan
Page 347 and 348:
the legislature did not intend the
Page 349 and 350:
Plaintiff in fact derived a direct
Page 351 and 352:
arbitrator the right to determine w
Page 353 and 354:
and ordering of all parties into ar
Page 355 and 356:
impeachment upon proof of changed c
Page 357 and 358:
N.4.c Aviles v. Charles Schwab & Co
Page 359 and 360:
S.Ct. 1784 (2010). Prior to Merck,
Page 361 and 362:
market sector downturn rendered the
Page 363 and 364:
defendants had misrepresented the n
Page 365 and 366:
allegations did not reference parti
Page 367 and 368:
were disclosed by the timely filing
Page 369 and 370:
improper attempt to file the Third
Page 371 and 372:
O.3 In re Evergreen Ultra Short Opp
Page 373 and 374:
would primarily focus on establishi
Page 375 and 376:
the power of a sovereign.” It was
Page 377 and 378:
the admission by the investment man
Page 379 and 380:
permit exercise of personal jurisdi
Page 381 and 382:
anyway because the connection to ba
Page 383 and 384:
5. Discovery O.5 Mori v. Saito, 802
Page 385 and 386:
O.5 Davis v. Duncan Energy Partners
Page 387 and 388:
censure, a civil money penalty of $
Page 389 and 390:
anch office, which did not have any
Page 391 and 392:
In re Application of Kaminski, Admi
Page 393 and 394:
prejudgment interest. The payment w
Page 395 and 396:
Specifically, the firm’s procedur
Page 397 and 398:
In re Pagliarini, Admin. Proc.File
Page 399 and 400:
firm settled charges that it violat
Page 401 and 402:
capacities. The NAC cited the fact
Page 403 and 404:
maintain and enforce a system of su
Page 405 and 406:
The hearing panel found respondents
Page 407 and 408:
firm also consented to findings tha
Page 409 and 410:
In re Keybanc Capital Markets, Inc.
Page 411 and 412:
$30,000 civil fine, disgorgement of
Page 413 and 414:
The Commission’s complaint allege
Page 415 and 416:
Commission, a federal district cour
Page 417 and 418:
(ii) Misrepresentation Q.1.c.(ii) I
Page 419 and 420:
Q.1.c(ii) In re Chiaese, Release No
Page 421 and 422:
The Commission censured the Firm. A
Page 423 and 424:
particular, CSIM and CS&Co. markete
Page 425 and 426:
Q.1.e.(i) SEC v. Devlin, Litig. Rel
Page 427 and 428:
clearance trades without being a re
Page 429 and 430:
Q.1.e(ii) In re Huntleigh Sec. Corp
Page 431 and 432:
assisted in the Firm’s creation o
Page 433 and 434:
Q.1.e(iii) In re Schaefer, Release
Page 435 and 436:
and hedge fund accounts, to the det
Page 437 and 438:
f. Failure to Supervise Q.1.f In re
Page 439 and 440:
Firm policy disallowing wires from
Page 441 and 442:
The Commission alleged that Lopez-T
Page 443 and 444:
suspension concerning his complianc
Page 445 and 446:
Commission barred LeBouef from asso
Page 447 and 448:
Direct Edge ECN LLC, doing business
Page 449 and 450:
(ii) Falsification of Documents . N
Page 451 and 452:
unavailable, Gizankis and FINRA agr
Page 453 and 454:
j. Procedural Issues (i) Evidence N
Page 455 and 456:
FINRA Rule 2010 by submitting an an
Page 457 and 458:
R. Broker-Dealer Employment Litigat
Page 459 and 460:
discovery responses was also meritl
Page 461 and 462:
R. Frankel v. McDonough, 2011 WL 50
Page 463 and 464:
must not have ruled on that defense
Page 465 and 466:
FINRA award was entitled to full fa
Page 467 and 468:
Lorbietzki v. Merrill Lynch, Pierce
Page 469 and 470:
failed to show that it was prejudic
Page 471 and 472:
Antelis v. Freeman, 2011 WL 6009609
Page 473 and 474:
Berman v. Morgan Keegan & Co., 2011
Page 475 and 476:
Citigroup Smith Barney v. Henderson
Page 477 and 478:
Department of Enforcement v. Hedge
Page 479 and 480:
FINRA Department of Enforcement v.
Page 481 and 482:
Grecco v. Local.Com Corp., 806 F. S
Page 483 and 484:
IAC/InterActiveCorp v. O’Brien, 2
Page 485 and 486:
In re Cell Therapeutics, Inc. Class
Page 487 and 488:
In re Franklin Bank Corp. Sec. Liti
Page 489 and 490:
In re Kim, Release No. 64862, 2011
Page 491 and 492:
In re Mutascio, Release No. 65351,
Page 493 and 494:
In re Shankar, Release No. 64714, 2
Page 495 and 496:
In re Wash. Mut. Mortgage-Backed Se
Page 497 and 498:
KeyBank, N.A. v. Bingo, Coast Guard
Page 499 and 500:
Marini v. Adamo, 2011 WL 4442710 (E
Page 501 and 502:
McCafferty v. A.G. Edwards & Sons,
Page 503 and 504:
Murray v. Citigroup Global Mkts., I
Page 505 and 506:
Picard v. Madoff (In re Bernard L.
Page 507 and 508:
Rafton v. Rydex Series Funds, 2011
Page 509 and 510:
SEC v. Aragon Capital Advisors, LLC
Page 511 and 512:
SEC v. N. Am. Clearing, Inc., Litig
Page 513 and 514:
Solow v. Citigroup, Inc. , 2011 WL
Page 515 and 516:
U.S. Bank N.A. v. Cold Spring Grani
Page 517:
West Va. Laborers Trust Fund v. STE
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