Broker-Dealer Litigation - Greenberg Traurig LLP

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O.5 Moomjy v. HQ Sustainable Maritime Indus., Inc., 2011 WL 4048792 (W.D. Wash. Sept. 12, 2011). Corporate and individual defendants moved for a stay of discovery in a pending state court derivative action, claiming that permitting such discovery would violate the Private Securities <strong>Litigation</strong> Reform Act of 1995. The court granted the motions, holding that all three pertinent factors--(1) the risk of federal plaintiffs obtaining the state plaintiff’s discovery; (2) the extent of factual and legal overlap between the state and federal actions; and (3) the burden of state court discovery on the defendants---weighed in favor of imposing a stay. P. Failure to Supervise 1. SEC Enforcement Actions P.1 In re Investment Placement Group, Admin. Proc. File No. 3-14677, SEC Release No. 34-66055, 2011 SEC LEXIS 4547 (Dec. 23, 2011). Respondent Gonzolez-Rubio, the Chief Operating Officer (“COO”) of IPG, the respondent broker-dealer, was responsible for supervising the trading room, including overseeing the activities of a trader who engaged in a fraudulent interpositioning scheme involving a Mexican investment advisor and a separate Mexican brokerage firm. The trader was found to have violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, to the detriment of for Mexican pension funds that were institutional clients of the Mexican brokerage firm. As a result of the trader’s fraud, the pension funds overpaid for certain credit-linked notes by approximately $65 million. The firm and the trader each earned more than $6 million as part of the scheme. The SEC alleged that the scheme went undetected by the firm because the firm failed to establish adequate policies and procedures and a system for implementation that would reasonably be expected to prevent and detect interpositioning. The firms written procedures merely listed interpositioning as a prohibited activity, but had no procedures for reviewing transactions to monitory them for suspicious activity. The COO delegated supervisory responsibility for the trading to the trader, which effectively resulted in the trader supervising himself. In addition, the COO failed to respond to red flags regarding the scheme, including what the SEC order referred to as a “dramatic” rise in revenue resulting from the interpositioned transactions. The COO also failed to follow-up on his discovery that the Mexican brokerage firm who played a part in the scheme had been receiving 78% of the markups in the firm’s proprietary trading account generated from trades executed on behalf of the Mexican brokerage firm’s clients. The firm and the COO consented to findings that they failed reasonably to supervise the trader with a view to detecting and preventing his violations. As a result, the firm consented to a 378
censure, a civil money penalty of $260,000, disgorgement of over $3.8 million, including prejudgment interest, and agreed to comply with an undertaking to review its policies, procedures and systems regarding the detection and prevention of interpositioning violations, to submit a report to the SEC regarding the review and conclusions and changes made as a result of the review, and to certify that it has established procedures, and a system for applying the procedures, which are reasonably expected to prevent and detect, insofar as practicable, the violations described in the SEC’s order. The firm also agreed to provide cooperation in connection with the SEC’s ongoing investigation and/or litigation relating to the underlying conduct. The COO consented to a three-month suspension from association with a broker, dealer, investment advisor, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization. Matter of Clifton, Admin. Proc. File No. 3-14266, SEC Init. Dec. Release No. 443, 2011 SEC LEXIS 4185 (Nov. 29, 2011). The SEC alleged that Clifton, the president and principal of MPG Financial, a registered broker-dealer, made material misrepresentations and omissions relating to an oil-and-gas well project while he possessed material and materially adverse information pertinent to potential investors. The SEC also alleged that Clifton failed to implement day-to-day supervision over MPG Financial sales representatives and sales practices, that he failed to draft and approve written supervisory procedures, and otherwise failed to supervise the sales activity. After a hearing, ALJ Mahony found that MPG Financial’s written supervisory procedures (“WSPs”) clearly designated Clifton as the designated supervisor of the salesmen and gave him responsibility for reviewing and approving written and electronic correspondence drafted by them. Clifton contended, however, that despite the WSPs, he delegated the task of reviewing electronic correspondence to the firm’s chief compliance officer (“CCO”). The CCO however, testified that the responsibility for correspondence review was primarily Clifton’s and in any event he was a part-time employee charged with numerous other compliance responsibilities. Moreover, the CCO pointed out that his supervisory duties were limited to “associated persons not involved in sales,” and had agreed with Clifton that he would only conduct keyword search reviews of electronic communications, not a review of individual e-mails. The ALJ also found Clifton did not implement any formal tracking system or procedure for documenting the correspondence review process, noting that both Clifton and the CCO testified that there were “no formal policies or procedures in place to ensure that electronic communications were being regularly reviewed.” The ALJ found that Clifton failed to conduct regular and systematic reviews of e-mail correspondence sent to investors or prospective investors, and concluded that Clifton violated Section 15(b) of the Exchange Act by failing reasonably supervise the sales representatives. The ALJ rejected Clifton’s attempt to establish an affirmative defense based on compliance with the firm’s written supervisory procedures because he concluded that he did not fulfill the duties charged to him thereunder. P.1 379
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Broker-Dealer Litigation 2011 Annua
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Rocky Pozza Miller, Canfield, Paddo
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3. Safe Harbor/Bespeaks Caution Def
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(iii) Falsification of Documents...
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SECURITIES LITIGATION A. Definition
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Purvis v. Arizona Corp. Comm’n, N
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allegation of fraud. The complaint
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Silverstrand Investments v. AMAG Ph
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complaint lacked named plaintiffs w
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egarding loan-to-value ratios repor
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appraisers’ alleged acceptance of
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that statutes of repose are not sus
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Pension Trust Fund for Operating En
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Securities Exchange Act of 1934. Th
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authorities versus those reported i
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In re Oppenheimer Rochester Funds G
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claims as to the appraisal standard
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under Section 12 and declined to ex
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however, the court found that the s
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that a mutual fund’s share price
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allege a material misrepresentation
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over common questions, given the nu
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lending practices; and its solvenci
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partnership and worked to obtain in
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Section 12(a)(2) required the court
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initially inflated the company’s
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B.2 Self v. Chase Bank, N.A., 2011
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“associated with,” or “acted
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Gibbons v. Nat’l Real Estate Inve
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avoid ambiguous, potentially mislea
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B.3 SEC v. Kelly, 2011 WL 44331161
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B.3 SEC v. Woodruff, 778 F. Supp. 2
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C. Liabilities under the Securities
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easonable juror could conclude that
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Claimants requested compensatory da
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C.1.d Ashland Inc. v. Morgan Stanle
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C.1.d AnchorBank, FSB v. Hofer, 649
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experiencing large operating losses
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C.1.d Resnik v. Woertz, 744 F. Supp
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substantial likelihood that disclos
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C.1.d In re Evergreen Ultra Short O
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In re Merrill Lynch Auction Rate Se
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fiduciary duty and negligent misrep
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corporation’s earnings forecasts
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C.1.e In re Bank of America Corp. S
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f. Affirmative Defenses Wilson v. M
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that the complaint failed to allege
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immaterial; or (3) made without act
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of the Private Securities Litigatio
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held that the statute of limitation
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C.1.f In re Novatel Wireless Securi
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parent company liable for statement
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C.1.g SEC v. Tecumseh Holdings Corp
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C.1.g Fishman v. Morgan Keegan & Co
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C.2 Litwin v. Oceanfreight, Inc., 2
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Hysong v. Encore Energy Partners LP
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and created an uncertainty that KBR
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consented to the entry of a final j
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3. Section 15(c) C.3 SEC v. Ficeto,
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SEC v. Stifel, Nicolaus & Co., Inc.
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settled with the SEC prior to the c
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equity interests in real estate ass
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noted that the SEC had “merely re
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ing such court actions (the “1990
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D. Liabilities under the Securities
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its’ liquidity problems and plans
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few of defendant’s employees were
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D.1 Dronsejko v. Thornton, 632 F.3d
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In re Smith & Wesson Holding Corp.
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particularized as materially mislea
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D.1 Stephenson v. Pricewaterhouseco
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D.1 Russo v. Bruce, 777 F. Supp. 2d
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D.1 Jacquemyns v. Spartan Mullen Et
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granted the defendants’ motion to
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D.1 Egan v. Tradingscreen, Inc., 20
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City of Roseville Employees’ Reti
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D.1 Solow v. Citigroup, Inc., 2011
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Local 731 I.B. of T. Excavators and
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D.1 Love v. Alfacell Corp., 2011 WL
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disregarded and resulted in omissio
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dismiss finding that plaintiff’s
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from a decline of defendant’s sto
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plaintiffs failed to (i) create str
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D.1 In re St. Jude Med., Inc. Sec.
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D.1 Scala v. Citicorp Inc., 2011 WL
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granted defendants’ motion to dis
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improperly recognized revenue on sa
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D.1 Henning v. Orient Paper, Inc.,
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plaintiffs alleged that defendants
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in various contracts of the company
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D.1 In re Crocs, Inc. Securities Li
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Phila. Fin. Mgmt. of S.F., LLC v. D
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Waterford Twp. Police & Fire Ret. S
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Group met the requirements of Fed.
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appointed a lead plaintiff. The cou
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IBEW Local 90 Pension Fund v. Deuts
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D.2 Vandevelde v. China Natural Gas
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typicality.” Accordingly, the cou
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D.2 Sparano v. Lief, 2011 WL 830109
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argument was irrelevant because the
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issue, and therefore qualified for
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was not available. Moreover, the co
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misstatements were shielded from li
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D.3 Hopson v. MetroPCS Commc’ns,
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D.3 In re St. Jude Med., Inc. Sec.
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D.3 Curry v. Hansen Med., Inc., 201
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D.3 In re Coinstar Sec. Litig., 201
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Plumbers and Pipefitters Local Unio
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E. Backus v. Conn. Cmty. Bank, N.A.
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Securities Litigation Uniform Stand
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willfully ignored numerous red flag
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material facts “relating to” th
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E. Northstar Fin. Advisors, Inc. v.
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precluded or removable under SLUSA.
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circumvent SLUSA, the Court of Appe
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of defendant purchased ARS bonds fr
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2. Consumer Protection and Other St
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F.3 Borsellino v. Putnam, 2011 WL 6
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F.4 Haase v. GunnAllen Fin., Inc.,
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that the complaint failed to allege
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eing directed to return improperly
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H.1 U.S. v. Reyes, 660 F.3d 454 (9t
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to dismiss the complaint pursuant t
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Act of 1934 alleging it made false
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and Rule 10b-5 of the Securities Ex
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exert control over the content of c
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H.2 In re Sanofi-Aventis Sec. Litig
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Camofi Master LDC v. Riptide Worldw
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solvency. The district court held t
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(1) the investment corporations’
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held that, in taking plaintiffs’
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Rule 10b-5 claims were pleaded with
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to judgment as a matter of law beca
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H.2 Rafton v. Rydex Series Funds, 2
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those reasons, the court granted th
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Genesee County Employees Ret. Sys.
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Fernea v. Merrill Lynch, Pierce, Fe
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3. Aiding & Abetting H.3 Janus Capi
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of trades by defendants did not amo
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violation of securities laws. To st
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H.3 Merkin v. Gabriel Capital, L.P.
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allegedly illegal fundraising at de
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to any of the claims except the “
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mere suspicion that the broker-deal
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H.4 U.S. v. Speer, 419 F. App’x 5
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equirements of Federal Rule of Civi
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compliance officer testified as a r
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In re Torrey Pines Sec. Inc., Relea
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In re Torrey Pines Sec. Inc., Relea
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or nationally-recognized statistica
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activity, including activity in the
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timely and complete information upd
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J. RICO J. MLSMK Inv. Co. v. JP Mor
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J. In re Refco Inc. Sec. Litig., 20
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Beaman v. Barth, 2011 Bankr. LEXIS
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General Retirement System of City o
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K. Damages and Other Relief in Priv
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K.2 U.S. v. Gushlak, 2011 WL 315917
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K.2 Elipas v. Jedynak, 2011 WL 1706
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are wanton and reckless when done i
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settlement agreement constituted an
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The court held that the trustee was
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L. Contribution, Indemnification L.
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L. MBIA Ins. Corp. v. Credit Suisse
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warranted under these circumstances
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1933. In opposition to the motions,
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M.1 SEC v. Wyly, 788 F. Supp. 2d 92
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Page 343 and 344: ecause it overlapped with and was p
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Page 347 and 348: the legislature did not intend the
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Page 359 and 360: S.Ct. 1784 (2010). Prior to Merck,
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Page 363 and 364: defendants had misrepresented the n
Page 365 and 366: allegations did not reference parti
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Page 369 and 370: improper attempt to file the Third
Page 371 and 372: O.3 In re Evergreen Ultra Short Opp
Page 373 and 374: would primarily focus on establishi
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Page 381 and 382: anyway because the connection to ba
Page 383 and 384: 5. Discovery O.5 Mori v. Saito, 802
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Page 389 and 390: anch office, which did not have any
Page 391 and 392: In re Application of Kaminski, Admi
Page 393 and 394: prejudgment interest. The payment w
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Page 397 and 398: In re Pagliarini, Admin. Proc.File
Page 399 and 400: firm settled charges that it violat
Page 401 and 402: capacities. The NAC cited the fact
Page 403 and 404: maintain and enforce a system of su
Page 405 and 406: The hearing panel found respondents
Page 407 and 408: firm also consented to findings tha
Page 409 and 410: In re Keybanc Capital Markets, Inc.
Page 411 and 412: $30,000 civil fine, disgorgement of
Page 413 and 414: The Commission’s complaint allege
Page 415 and 416: Commission, a federal district cour
Page 417 and 418: (ii) Misrepresentation Q.1.c.(ii) I
Page 419 and 420: Q.1.c(ii) In re Chiaese, Release No
Page 421 and 422: The Commission censured the Firm. A
Page 423 and 424: particular, CSIM and CS&Co. markete
Page 425 and 426: Q.1.e.(i) SEC v. Devlin, Litig. Rel
Page 427 and 428: clearance trades without being a re
Page 429 and 430: Q.1.e(ii) In re Huntleigh Sec. Corp
Page 431 and 432: assisted in the Firm’s creation o
Page 433 and 434: Q.1.e(iii) In re Schaefer, Release
Page 435 and 436: and hedge fund accounts, to the det
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f. Failure to Supervise Q.1.f In re
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Firm policy disallowing wires from
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The Commission alleged that Lopez-T
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suspension concerning his complianc
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Commission barred LeBouef from asso
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Direct Edge ECN LLC, doing business
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(ii) Falsification of Documents . N
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unavailable, Gizankis and FINRA agr
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j. Procedural Issues (i) Evidence N
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FINRA Rule 2010 by submitting an an
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R. Broker-Dealer Employment Litigat
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discovery responses was also meritl
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R. Frankel v. McDonough, 2011 WL 50
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must not have ruled on that defense
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FINRA award was entitled to full fa
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Lorbietzki v. Merrill Lynch, Pierce
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failed to show that it was prejudic
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Antelis v. Freeman, 2011 WL 6009609
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Berman v. Morgan Keegan & Co., 2011
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Citigroup Smith Barney v. Henderson
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Department of Enforcement v. Hedge
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FINRA Department of Enforcement v.
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Grecco v. Local.Com Corp., 806 F. S
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IAC/InterActiveCorp v. O’Brien, 2
Page 485 and 486:
In re Cell Therapeutics, Inc. Class
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In re Franklin Bank Corp. Sec. Liti
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In re Kim, Release No. 64862, 2011
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In re Mutascio, Release No. 65351,
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In re Shankar, Release No. 64714, 2
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In re Wash. Mut. Mortgage-Backed Se
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KeyBank, N.A. v. Bingo, Coast Guard
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Marini v. Adamo, 2011 WL 4442710 (E
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McCafferty v. A.G. Edwards & Sons,
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Murray v. Citigroup Global Mkts., I
Page 505 and 506:
Picard v. Madoff (In re Bernard L.
Page 507 and 508:
Rafton v. Rydex Series Funds, 2011
Page 509 and 510:
SEC v. Aragon Capital Advisors, LLC
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SEC v. N. Am. Clearing, Inc., Litig
Page 513 and 514:
Solow v. Citigroup, Inc. , 2011 WL
Page 515 and 516:
U.S. Bank N.A. v. Cold Spring Grani
Page 517:
West Va. Laborers Trust Fund v. STE
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Broker-Dealer Litigation - Greenberg Traurig LLP

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