Broker-Dealer Litigation - Greenberg Traurig LLP

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and a former registered representative of the Firm, permanently enjoining him from future violations of the securities and broker-dealer registration and antifraud provisions of the federal securities laws, and barring him from association. Keating had conducted an unregistered private securities offering outside the scope of his employment with the Firm. The Commission’s complaint alleged that Smith failed to establish reasonable policies and procedures to adequately supervise Keating. It further alleged that Smith failed to establish systems to implement and enforce policies for supervisors and the Firm’s compliance department, and failed to monitor registered representatives’ outside business activities and to follow up on activities that might signal selling away. The Commission suspended Smith from supervision for nine months and ordered him to pay a $25,000 civil penalty. In re TD Ameritrade, Inc., Release No. 63829, 2011 SEC LEXIS 389 (Feb. 3, 2011). Q.1.f The Commission accepted an offer of settlement from TD Ameritrade, Inc., a registered broker-dealer. The Commission’s complaint alleged that the Firm violated Section 15(b)(4)(E) of the Securities Exchange Act of 1934 by failing to reasonably supervise its registered representatives to prevent violations of Section 17(a)(2) of the Securities Act of 1933 in connection with their offer and sale of a mutual fund (the “Fund”). According to the Commission’s complaint, from January 2007 to September 2008, the Firm failed to ensure that trainings mandated by its policies and procedures occurred or that the materials used in the trainings that did occur were the ones the Firm had prepared. The Firm subsequently implemented a computer-based system designed to generate reports to assist managers in conducting a suitability review of transactions in the Fund. However, the Commission’s complaint alleged that the system was not reasonably designed to prevent violations of Section 17(a)(2) because it did not assist managers in determining whether registered representatives were making proper disclosures about the Fund to customers. As a result of these failures, registered representatives mischaracterized the Fund as a money market fund, overstated its safety and liquidity and failed to disclose its risks, in violation of Section 17(a)(2) of the Securities Act. In its offer of settlement, the Firm undertook to distribute $0.012 per share to each customer who purchased Fund shares at the Firm during the relevant period and who continued to hold such shares as of the date of the order. The distribution was expected to amount to approximately $10 million. The Commission also censured the Firm. In re Pagliarini, Release No. 63964, 2011 SEC LEXIS 682 (Feb. 24, 2011). Q.1.f The Commission accepted an offer of settlement from Pagliarini, CCO and anti-money laundering compliance officer of a former registered broker-dealer (the “Firm”). The Commission’s complaint alleged that Pagliarini failed reasonably to supervise Ahn, a registered representative and primary trader for the broker-dealer who engaged in market manipulation. Specifically, the Commission’s complaint alleged that Pagliarini failed to follow up on the red flags posed by Ahn’s trading activity, and failed to cause the broker-dealer to file suspicious activity reports concerning Ahn’s wash transactions, suspicious cash transfers to and from the brokerage account of a co-owner of the broker-dealer, and $4 million wire transfer that violated 430
Firm policy disallowing wires from customer accounts to third parties. The Commission ordered Pagliarini to pay a $20,000 civil penalty and to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder, and suspended her from serving in a supervisory capacity for twelve months. In re Torrey Pines Sec., Inc, Release No. 64317, 2011 SEC LEXIS 1394 (Apr. 20, 2011). Q.1.f The Commission accepted an offer of settlement from Torrey Pines Securities, Inc., (the “Firm”) a registered broker-dealer. The Commission alleged that the Firm failed to supervise reasonably one of its brokers, a part-owner of the Firm, because the Firm did not establish reasonable policies and procedures to assign responsibility for supervising that broker. The Commission also alleged that the Firm failed to develop systems to implement its procedures regarding selling away and outside business activities. The Commission alleged that without these and other failures, including failing to follow-up on oral and written investor complaints, the Firm would have likely detected the broker’s outside sale of a $17 million private, unregistered offering of securities. The Commission censured the Firm but did not impose a penalty based on the Firm’s sworn statement of financial condition. As part of the settlement, the Firm agreed to retain an independent consultant to review its procedures regarding the supervision of registered representatives and the outside business activities of associated persons. In re Huntleigh Sec. Corp., Release No. 64336, 2011 SEC LEXIS 1439 (Apr. 25, 2011) Q.1.f The Commission accepted an offer of settlement from Huntleigh Securities Corp., a registered broker-dealer, and Jeffrey Christanell, a registered representative. The Commission alleged that Christanell executed a series of “marking the close” trades at the request of a third party SEC-registered investment adviser. The Commission further alleged that Huntleigh failed to supervise Christanell by failing to establish procedures, or implement existing policies and procedures designed to prevent and detect such unlawful trading. The Commission ordered Christanell to cease and desist from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, barred him from association with the right to reapply after one year and ordered him to pay a $15,000 civil penalty. The Commission censored Huntleigh and ordered it to comply with undertaking to implement improved compliance procedures. Based on its representation regarding its inability to pay, the Commission did not impose a civil penalty. In re Divine Capital Mkts., LLC, Release No. 64998, 2011 SEC LEXIS 2609 (Aug. 1, 2011). Q.1.f The Commission accepted an offer of settlement from Divine Capital Markets, LLC (the “Firm”), a registered broker-dealer, and Hughes, who held a controlling interest in the Firm and served as the Firm’s CEO and General Securities Principal. The Commission alleged that Hughes failed reasonably to supervise a registered representative who sold unregistered shares of a penny stock. In particular, Hughes failed to respond to red flags, such as the large volume of 431
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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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as barred by the statute of repose
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equitable estoppel did not apply as
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support the FINRA arbitration as pr
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N.1 Citibank, N.A. v. Franco, 2011
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ecause it overlapped with and was p
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2. Eligibility/Limitations N.2 Yuan
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the legislature did not intend the
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Plaintiff in fact derived a direct
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arbitrator the right to determine w
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and ordering of all parties into ar
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impeachment upon proof of changed c
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N.4.c Aviles v. Charles Schwab & Co
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S.Ct. 1784 (2010). Prior to Merck,
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market sector downturn rendered the
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defendants had misrepresented the n
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allegations did not reference parti
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were disclosed by the timely filing
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improper attempt to file the Third
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O.3 In re Evergreen Ultra Short Opp
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would primarily focus on establishi
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the power of a sovereign.” It was
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the admission by the investment man
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permit exercise of personal jurisdi
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anyway because the connection to ba
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5. Discovery O.5 Mori v. Saito, 802
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O.5 Davis v. Duncan Energy Partners
Page 387 and 388: censure, a civil money penalty of $
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Page 391 and 392: In re Application of Kaminski, Admi
Page 393 and 394: prejudgment interest. The payment w
Page 395 and 396: Specifically, the firm’s procedur
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
Page 437: f. Failure to Supervise Q.1.f In re
Page 441 and 442: The Commission alleged that Lopez-T
Page 443 and 444: suspension concerning his complianc
Page 445 and 446: Commission barred LeBouef from asso
Page 447 and 448: Direct Edge ECN LLC, doing business
Page 449 and 450: (ii) Falsification of Documents . N
Page 451 and 452: unavailable, Gizankis and FINRA agr
Page 453 and 454: j. Procedural Issues (i) Evidence N
Page 455 and 456: FINRA Rule 2010 by submitting an an
Page 457 and 458: R. Broker-Dealer Employment Litigat
Page 459 and 460: discovery responses was also meritl
Page 461 and 462: R. Frankel v. McDonough, 2011 WL 50
Page 463 and 464: must not have ruled on that defense
Page 465 and 466: FINRA award was entitled to full fa
Page 467 and 468: Lorbietzki v. Merrill Lynch, Pierce
Page 469 and 470: failed to show that it was prejudic
Page 471 and 472: Antelis v. Freeman, 2011 WL 6009609
Page 473 and 474: Berman v. Morgan Keegan & Co., 2011
Page 475 and 476: Citigroup Smith Barney v. Henderson
Page 477 and 478: Department of Enforcement v. Hedge
Page 479 and 480: FINRA Department of Enforcement v.
Page 481 and 482: Grecco v. Local.Com Corp., 806 F. S
Page 483 and 484: IAC/InterActiveCorp v. O’Brien, 2
Page 485 and 486: In re Cell Therapeutics, Inc. Class
Page 487 and 488: In re Franklin Bank Corp. Sec. Liti
Page 489 and 490:
In re Kim, Release No. 64862, 2011
Page 491 and 492:
In re Mutascio, Release No. 65351,
Page 493 and 494:
In re Shankar, Release No. 64714, 2
Page 495 and 496:
In re Wash. Mut. Mortgage-Backed Se
Page 497 and 498:
KeyBank, N.A. v. Bingo, Coast Guard
Page 499 and 500:
Marini v. Adamo, 2011 WL 4442710 (E
Page 501 and 502:
McCafferty v. A.G. Edwards & Sons,
Page 503 and 504:
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
Page 511 and 512:
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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