Broker-Dealer Litigation - Greenberg Traurig LLP

claims as to the appraisal standards and the credit ratings were not sufficient to survive a motion
to dismiss. The court vacated the district court’s judgment on the issue of the lending standards
holding that the plaintiffs had sufficiently alleged that the defendants misrepresented the lending
standards used in its prospectus because the allegations were specific as to particular lenders and
the practices used were widely understood to have been used in the industry. The court also held
that the district court erred in dismissing the plaintiffs’ claims for failure to allege that defendants
sold the certificates to or solicited the sales from plaintiffs.
Fait v. Regions Fin. Corp., 655 F.3d 105 (2d. Cir. 2011).
The court of appeals affirmed the district court’s 12(b)(6) dismissal of plaintiffs’ claims
under Section 12(a)(2) of the Securities Act of 1933 because defendant’s statements concerning
goodwill and loan loss reserves in a prospectus for a securities offering were statements of
subjective opinion rather than statements of objective fact. Plaintiffs also failed to allege that
defendants did not believe the statements when they were made. Plaintiffs, purchasers of
securities offered by defendants, filed a putative class action lawsuit under Section 12, alleging
that defendants failed to write down goodwill and increase loan loss reserves to account for
deterioration of the mortgage and housing markets in its prospectus for a securities offering in
2008. The court of appeals affirmed the district court’s holding that statements concerning
goodwill and loan loss reserves were statements of subjective opinion rather than statements of
objective fact. The court also affirmed the district court’s dismissal of the plaintiffs’ complaint
because the plaintiffs did not allege that the defendants knew the statements were untrue at the
time they made them. Plaintiffs argued that the court was imposing a scienter requirement for
Section 12 claims, but the court rejected this argument distinguishing a misstatement of a truly
held belief from a misstatement made with fraudulent intent.
Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479 (2d Cir. 2011).
The court of appeals affirmed the district court’s dismissal of the plaintiffs’ claims under
Section 12 of the Securities Act of 1933, but on different grounds than the district court. The
plaintiffs alleged that the defendants made false statements and omissions of material facts in a
registration statement and prospectus for its initial public offering concerning the impairment of
two mezzanine loans. Plaintiffs appealed the court’s dismissal of their complaint alleging that
defendants failed to disclose that two loans in its portfolio of loans were impaired and that
defendants knew that the loans were impaired at the time that they issued the registration
statement and incorporated prospectus. The district court dismissed the plaintiffs’ second
amended complaint on the ground that the alleged misstatements and omissions in the prospectus
were not material because the subordinated loans were adequately collateralized at the time of
the defendants’ IPO. The court of appeals ultimately rejected this ground as the sole basis for
dismissal given the diminished role of collateralization in the registration statement. Instead, it
affirmed the dismissal on the ground that the omission was not quantitatively material since the
loans were a small part of the defendants’ full portfolio of investments and because the plaintiffs
failed to allege that the two loans were of distinct interest to investors other than as another
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