Broker-Dealer Litigation - Greenberg Traurig LLP

component of defendants’ full portfolio of investments. The court also found that the omissions
were not qualitatively material because although the price of the defendants’ stock dropped
significantly after its announcement of the impairment of the loans, other unfavorable
announcements were included in that press release and could have caused the price to fall.
Litwin v. Blackstone Group, L.P., 634 F.3d 706 (2d Cir. 2011).
The court of appeals vacated the district court’s dismissal of the plaintiffs’ putative
securities class action complaint, alleging that defendants violated Section 12(a)(2) of the
Securities Act of 1933 and remanded it for further proceedings. Plaintiffs alleged claims against
an asset management company and its officers that they knew of problems in their real estate
investments and in two of their portfolio companies yet failed to disclose these problems and the
known possibility of a clawback and reduced performance fees in their registration and
prospectus statements filed for their IPO. Defendants argued on appeal that plaintiffs did not
adequately plead that the defendants should have disclosed a presently existing trend, event, or
uncertainty, and that the omission was not material. The court disagreed. The court held: that
the district court erred in evaluating materiality in the aggregate noting that the defendants were
not permitted to omit disclosure of negative information if poor performance would be offset by
positive performance elsewhere in the portfolio; that the structure of defendants’ organization
was still subject to the same disclosure requirements when going public as those companies that
are already public; that the district court erred in finding that the alleged loss of an exclusive
contract by a company in which defendants invested significantly was immaterial; and that the
district court erred in failing to consider that the defendants’ omissions masked a reasonably
likely change in earnings.
Gerstner v. Sebig, LLC, 426 Fed. App’x. 470 (8th Cir. 2011).
The court of appeals affirmed the district court’s dismissal of plaintiffs’ unregisteredsecurities
claims under Section 12 of the Securities Act of 1933 as untimely and not entitled to
equitable tolling.
Katz v. Gerardi, 655 F.3d 1212 (10th Cir. 2011).
The court of appeals affirmed the district court’s dismissal of plaintiffs’ class action
securities claims under Section 12(a)(2) the Securities Act of 1933 where plaintiffs lacked
standing to sue. The court of appeals also affirmed the district court’s dismissal of claims by
class members who exchanged stock for new units for improper claim-splitting. Plaintiffs who
cashed out their stock in a merger argued that they were purchasers under Section 12 because the
merger fundamentally changed their investment units in a real estate investment trust and that
they were forced to purchase new, altered investment units. The court rejected this argument,
noting that the plaintiffs merely had to sell or exchange the units during the merger. It held that
an investor who was forced to sell his shares as a result of a merger does not have standing to sue
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