Broker-Dealer Litigation - Greenberg Traurig LLP

was, according to plaintiff’s allegations, due in part to the defendant’s own actions. The court
further found that purchasers of mortgage-backed securities did in fact have an expectation that
they would be able to utilize a secondary market. Finally, accepting defendant’s argument would
place severe limits on the application of the ‘33 Act to securities such as bonds.
Elton v. McClain, 2011 WL 6934812 (W.D. Tex. Dec. 29, 2011).
The court entered default judgment for plaintiffs on claims under the Securities Exchange
Act of 1934 and RICO, and under Texas law for breach of contract and fraud, among others. On
the issue of damages, the court noted that out-of-pocket losses are the appropriate measure of
damages under Rule 10b-5. Because one plaintiff had suffered out of pocket losses of $10,000,
the court found he was entitled to trebling of damages under RICO and awarded $30,000.
Another plaintiff sought lost profits (as an alternative to treble damages). The plaintiff’s wellpleaded
allegations showed he had purchased 100,000 shares of the stock for $25,000, and that
the stock had traded for several months at $5.00 per share. The court found that the appropriate
measure for lost profits was the actual price of the stock, and awarded lost profits of $500,000.
Wehrs v. Benson York Group, Inc., 2011 WL 4435609 (N.D. Ill. Sept. 23, 2011).
After entering default judgment against defendant Wells on the issue of liability, the court
considered arguments on the issue of damages. The allegations in the complaint established that
Wells breached a duty to the plaintiff by failing to faithfully execute a stock purchase order,
failing to execute a stop loss order, and repurchasing the stock without plaintiff’s authorization.
The court found that the proper measure of damages was the amount needed to restore plaintiff
to the position he would have been in had the breach not occurred. Because neither party had
presented any cases addressing damages in an analogous factual situation, the court noted that it
was in an awkward position and would consider motions under Rule 59(e) to alter or amend the
judgment if appropriate. On the claim of failure to faithfully execute the purchase order, the
court found Wells liable for $17,659, which was the difference between the price at which
plaintiff had authorized the purchase and the price at which it was actually made. On the failure
to execute a stop loss order, the court found that Wells was only liable for the amount of losses
that exceeded the stop loss amount. Wells was not liable for the commission on that trade,
because the sale would have happened in any event. On the unauthorized purchase claim, Wells
was liable for the difference between the total purchase price and the total sale price. Although
Wells argued that he was not liable for losses that occurred after the unauthorized purchase,
because of a failure to mitigate, the court held that failure to mitigate was an affirmative defense
and Wells had waived it by failing to answer the complaint.
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