Broker-Dealer Litigation - Greenberg Traurig LLP

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SEC v. Carroll, 2011 WL 5880875 (W.D. Ky. Nov. 23, 2011).
The SEC accused several defendants of insider trading, and they responded by filing
individual motions to dismiss. One of the defendants argued that the SEC failed to supply a
specific description of the alleged inside information, but the court rejected this argument,
finding that Rule 9(b)’s particularity requirements were relaxed where facts are peculiarly within
the knowledge of defendants. Another defendant argued that the SEC’s scienter allegations were
insufficient, but the court held that Rule 9(b) permitted general allegations as to state of mind,
finding that the SEC should not be held to the higher standard imposed on private litigants by the
Private Securities Litigation Reform Act of 1995.
SEC v. Steffes, 2011 WL 3418305 (N.D. Ill. Aug. 3, 2011).
The SEC brought an enforcement action against employees, alleging that they engaged in
insider trading by disseminating non-public information to family members regarding the
company’s pending acquisition. The defendants moved to dismiss, and the court denied the
motion, holding that the SEC sufficiently alleged misappropriation of material non-public
information, breach of fiduciary duty, and scienter, all with the particularity required by Rule
9(b). Though the defendants admittedly were not involved in the merger negotiations, the SEC
claimed that they pieced the situation together for themselves based on information that was
available to them as employees, and the complaint identified with the requisite particularity what
information the employees used to reach the conclusion that the company was being sold. The
employees also pointed to the complaint’s failure to identify the dates and times of the phone
calls they allegedly made to family members to discuss the misappropriated information, or the
specific contents of the conversations, but the court found that the SEC’s allegation that the
suspicious trading immediately followed such phone calls sufficed to support a reasonable
inference that the calls involved misappropriation. The court also concluded that several prior
decisions involving the SEC and referencing the “strong inference” standard with respect to
scienter did not mean that the Private Securities Litigation Reform Act of 1995 standard applied
to the SEC, and instead held that Rule 9(b) allows scienter to be alleged generally.
Teamsters Local 617 Pension and Welfare Funds v. Apollo Group, Inc., 2011 WL 1253250 (D.
Ariz. Mar. 31, 2011).
Plaintiffs brought a securities fraud action against defendant Apollo Group, Inc., and a
group of its officers and directors, accusing the defendants of improperly backdating stock option
grants. The district court had previously dismissed with leave to amend, and after the plaintiffs
filed their Second Amended Complaint, the defendants again moved to dismiss, arguing that the
complaint failed to plead backdating with the particularity required by Rule 9(b). The court
agreed, finding that no reasonable inference of backdating could be drawn as to those grants that
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