Broker-Dealer Litigation - Greenberg Traurig LLP

defendants had misrepresented the note as investment grade, given that the sale documents made
clear that Verizon was not necessarily the only reference entity on the note and that the note was
unrated.
Anwar v. Fairfield Greenwich, Ltd., 2011 WL 5282684 (S.D.N.Y. Nov. 2, 2011).
Investors brought suit against a securities broker and its corporate affiliates alleging
securities fraud under Florida law based upon the broker’s recommendation to invest in a feeder
fund that in turn invested in a Ponzi scheme. The defendants moved to dismiss for failure to
plead the elements of fraud with particularity as required by Rule 9(b). The court found the
plaintiffs’ claims based upon the riskiness of the feeder fund and the lack of due diligence were
defectively pleaded due to the failure to allege where the misstatements were made and, with one
exception, when they were made. The plaintiffs’ fraud claims were also deemed defective
because they failed to specifically plead facts indicating what the defendants obtained through
the fraud, or that the defendants had a motive to commit fraud. In addition, the court dismissed
the negligent misrepresentation claims due to the failure to comply with Rule 9(b)’s
requirements, as those claims were essentially identical to the defective fraud claims.
Sawabeh Info. Servs. Co. v. Brody, 2011 WL 6382701 (S.D.N.Y. Dec. 16, 2011).
The plaintiff and its wholly-owned subsidiary brought suit against the subsidiary’s former
officers and shareholders arising out of the defendants’ sale of all of the outstanding shares of the
subsidiary to the plaintiff. The plaintiff asserted federal securities fraud and assorted state law
claims against the defendants, accusing them of failing to disclose certain significant potential
liabilities stemming from the transaction, including an agreement that transferred all of the
subsidiary’s intellectual property to one of the former officers and an employment agreement
that entitled the same officer to a large severance package. The defendants moved to dismiss,
and the district court granted the motion in part and denied it in part. With respect to the
securities fraud claims, the court held the allegations sufficiently specific and plausible to survive
the motion to dismiss under the heightened pleading requirements of the Private Securities
Litigation Reform Act of 1995 and Rule 9(b). In particular, the court found that the complaint
adequately alleged that the failure to disclose the agreements with the former officer constituted
material misrepresentations or omissions, that it was at least reckless not to do so, that the
defendants relied on these misrepresentations, and that this caused their losses, as the plaintiffs
specifically stated that neither they nor any reasonable purchaser would have entered into the
transaction had they known the true facts. In addition, the court found that Rule 9(b) does not
require the plaintiffs to plead damages with specificity.
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