Broker-Dealer Litigation - Greenberg Traurig LLP

Section 12(a)(2) required the court to award damages based on the statutory interest rate and not
the higher interest rate originally promised to plaintiffs by defendants in the underlying offering.
City of New Orleans Employee’s Retirement Sys. v. PrivateBancCorp, Inc., No. 10c 6826, 2011
WL 5374095 (N.D. Ill. Nov. 3, 2011).
The court granted bank defendants’ motion to dismiss for failure to state a claim under
Fed. R. Civ. P. 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15
U.S.C. § 78u-4(b)(3)(A). The dispute arose over defendants’ writing off of certain risky loans
after putative class action plaintiffs had bought stock in defendants and asserted that the banks
defrauded them by delaying to make the write-off until after they invested. Plaintiffs alleged that
Defendants had made false or misleading statements in registration statements and prospectus
supplements by failing to disclose the deteriorating credit quality problems in certain loan
portfolios in violation of Section 12(a)(2) of the Securities Exchange Act of 1933. Additionally,
Plaintiffs alleged that the documents defendants filed with the SEC were misleading because
they failed to maintain an allowance for loan losses that were sufficient to absorb the credit
losses inherent in the loan portfolio. However, the court ruled the defendants did make
disclosures in quarterly reports showing increases in non-performing loans and growth in
outstanding loans. Further, the plaintiffs failed to allege that the defendants did not actually
believe that loan loss allowances were adequate. Plaintiffs’ conclusory allegations that
incorporated documents were “false” by failing to disclose the high-risk loans originating under
defendant’s growth plan were insufficient.
San Francisco Residence Club, Inc. v. Amado, 773 F. Supp. 2d 822 (N.D.Cal. 2011).
The court denied defendants’ motion for summary judgment of plaintiffs’ claim under
Section 12 of the Securities Act of 1933. Defendants failed to introduce facts precluding the
conclusion that plaintiffs expected profits on the investment solely from the efforts of third
parties. Thus, the court held summary judgment was improper on the issue of whether the
interest in real estate was a statutory “security.” Next, defendants alleged that they were not
statutory “sellers.” The court rejected this argument as to each defendant. As to the investmentadviser-defendant,
the court noted that he was paid for his role in the transaction, and plaintiffs
presented facts that indicated he was intricately involved in the investment. The court thus
rejected his argument that he merely referred a client to the true sellers. As to the real estate
company-defendants, there was a fact issue as to whether the investment adviser acted with its
apparent authority. Finally, the court rejected defendants’ arguments that the investment was
exempt from the Securities Act’s registration requirements because defendants failed to produce
any evidence of the number of offerees.
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