Broker-Dealer Litigation - Greenberg Traurig LLP

suggesting that the company’s initial statements regarding a planned leveraged buyout were
overly optimistic, they did not disclose that Penn had perpetrated a fraud on the market by
omitting in its eight prior press releases related to state regulatory approvals any mention that the
leveraged buyout would not close as written, and thus did not sufficiently “relate back” to the
alleged fraud.
Frank v. Dana Corp., 646 F.3d 954 (6th Cir. 2011).
A class of investors who purchased securities in defendant Dana Corporation alleged that
the CEO’s and CFO’s continually optimistic statements misrepresented the company’s dire
financial straits, constituting securities fraud under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5. The district court dismissed the plaintiffs’ complaint for
failing to adequately plead scienter under Rule 9(b). Plaintiffs appealed, arguing that the
defendant’s receipt of internal reports demonstrating financial distress, their cover-up of
malfunctioning accounting systems, the magnitude of false statements and temporal proximity of
false statements and corrective statements, their motivation to earn bonuses, the retirement of
one of the fraud participants just after the accounting errors were revealed, their signing false
Sarbanes-Oxley certifications, and the fact that the SEC investigated the company’s accounting
practices demonstrated scienter. The Sixth Circuit agreed. Following the Supreme Court’s lead
in Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (2011), which provided a post-Tellabs
example of how to consider scienter pleadings “holistically” in section 10(b) cases, the Sixth
Circuit held that the inference that the defendants recklessly disregarded the falsity of their
extremely optimistic statements was at least as compelling as their excuse of failed accounting
systems. The Sixth Circuit also held that the district court erred when it required Plaintiffs to
plead as part of their section 20(a) claim that the defendants did not act in good faith; it joined
the First, Fourth, Fifth, Seventh, and Eleventh Circuits in concluding that good faith is an
affirmative defense.
AnchorBank, FSB v. Hofer, 649 F.3d 610 (7th Cir. 2011).
A bank and the trustee for the bank’s investment fund filed suit against a bank employee
alleging that he engaged in a collusive trading scheme in violation of sections 9(a) and 10(b) of
the Securities Exchange Act of 1934. The complaint explained the scheme as a conspiracy
between the defendant and other fund participants to cyclically cause drastic swings in the fund
price, which allowed the conspirators to increase the value of their fund holdings by more than
200%, even though the value of the fund units plummeted 95%. The employee successfully
moved to dismiss the case on the grounds that the complaint inadequately pled reliance, scienter,
and loss causation; but the Seventh Circuit reversed. The complaint stated that trustee himself
relied on the distorted stock prices and the facts pleaded demonstrated that scienter was as
plausible an explanation as any other, as required by Tellabs. As for loss causation, neither the
fact that the trustee’s discretionary behavior might also have altered stock price nor the general
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