Broker-Dealer Litigation - Greenberg Traurig LLP

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Valentini v. Citigroup, Inc., 2011 WL 6780915 (S.D.N.Y. Dec. 27, 2011).
Over a two-year period, plaintiff purchased almost two dozen structured notes from
defendants. As the declining value of the notes triggered margin calls, defendants liquidated
portions of the plaintiff’s note investments, causing him to lose millions of dollars. He brought
suit against them under § 10(b) of the Securities Exchange Act of 1934 alleging that he had been
misled by defendants into significantly underestimating the risk of purchasing the notes,
including the risk of forced liquidation. Defendants moved to dismiss the suit, claiming that the
plaintiff failed to allege that the misstatements were material, scienter, reasonable reliance, and
loss causation. Defendants also claimed that U.S. courts lacked jurisdiction because the notes
were purchased outside of the U.S. and were not listed on a domestic exchange, and that
plaintiff’s suit was time-barred. The district court rejected nearly all of defendants’ arguments
and allowed the complaint to stand. It held that (1) the “bespeaks caution” doctrine did not apply
because the warnings provided did not cover all of the risks that plaintiff complains defendants
did not disclose; (2) the defendants’ failure to provide the plaintiff with prospectuses or other
detailed written information about the complex debt instruments was an extreme departure from
ordinary standards of care, supporting the inference of scienter; (3) the defendants’ active efforts
to circumvent federal regulations designed to protect investors also supported the inference of
scienter; (4) the plaintiff’s negligence in failing to ask for additional information did not entirely
undermine the reliance element of his claim, finding that failing to read documents in one’s
possession, which can affect the reliance prong, and failing to ask for information are sufficiently
distinct; (5) the fact that the financial harm suffered by the plaintiff occurred during a period of
financial market decline did not prevent him from pleading loss causation; (6) the case was not
time-barred because the plaintiff was not a sophisticated investor, and thus he fulfilled his
responsibility of reasonable diligence to investigate potential fraud notwithstanding the various
warning signs that a sophisticated investor would have noticed; and (7) although the notes
themselves were not listed on a domestic exchange, they were all linked to securities listed on a
domestic exchange, and this was enough to give the court jurisdiction under § 10(b).
In re Anadigics, Inc., Sec. Litig., 2011 WL 4594845 (D.N.J. Sept. 30, 2011).
The plaintiffs brought securities fraud claims against the defendants claiming that they
misled investors about Anadigics’s capacity to meet demand for its products. The defendants
sought dismissal for failure to satisfy the pleading demands of Rule 9(b) and the Private
Securities Litigation Reform Act of 1995, and the district court granted the motion. The court
found that most of the allegedly misleading statements were forward-looking and accompanied
by meaningful cautionary language and while the plaintiffs had identified two potentially false or
misleading statements with the requisite particularity, they nevertheless failed to plead facts
supporting an inference that the defendants were under a duty to disclose alleged over-ordering
and dual-sourcing being done by the company’s customers. In addition, the plaintiffs failed to
adequately allege scienter because the confidential witness allegations used in an attempt to
support an inference of knowledge lacked particularity. The complaint’s confidential witness
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