Broker-Dealer Litigation - Greenberg Traurig LLP

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Self v. Chase Bank, N.A., 2011 WL 3813106 (E.D. Cal. Aug. 25, 2011).
The court granted defendants’ motion to dismiss plaintiffs’ claims arising under Section
12(a) of the Securities Exchange Act of 1933. The plaintiffs alleged that defendants sold them
unregistered securities in violation of Section 12(a). The court took judicial notice of SEC
filings regarding the securities at issue and found that the securities were, in fact, registered at the
time of sale. The complaints were dismissed with prejudice.
Rafton v. Rydex Series Funds, 2011 WL 31114 (N.D. Cal. Jan. 5, 2011).
The court granted in part and denied in part the defendants’ motions to dismiss the
plaintiffs’ claims under Section 12(a) of the Securities Exchange Act of 1933. Plaintiffs, a
putative class who had invested in a certain mutual fund, sued two sets of defendants, both of
whom filed motions to dismiss. As to the first group (the entities responsible for issuing,
managing, and distributing shares of the fund) the court denied defendants’ motion, finding that
plaintiffs had adequately stated a claim under Section 12 in alleging that the defendants were
misleading in their disclosures regarding (1) an appropriate investor for the fund and (2) the
inherent risk of the mathematical compounding system used for tracking the fund. These
defendants failed to satisfy the “stringent showing” necessary to establish that the disclosures
and cautionary language were insufficient as a matter of law. As to the second group of
defendants (the independent trustees) the court found that the plaintiffs had adequately pled the
overwhelming majority of their claims. The court found that plaintiffs’ claims were not timebarred,
as defendants failed to overcome the “especially high hurdle” of establishing inquiry
notice—the contents of the prospectuses themselves did not, as defendants contended, clearly
give plaintiffs notice of the misrepresentations contained therein. The court also rejected
defendants’ argument that the plaintiffs had not suffered “compensable damages” (and thus
could not overcome defendants’ affirmative defense of loss causation), because plaintiffs had
alleged that their loss in the case was caused, or at least exacerbated by, the “materialization” of
undisclosed risks. Finally, the court found that plaintiffs did not have standing to sue for
representations made in a registration statement issued after their shares had already been
purchased. On the other hand, plaintiffs did have standing to sue for representations made as to
classes of shares they did not purchase, in which the representations were contained in the same
registration statements.
Charles Schwab Corp. v. J.P. Morgan Sec. Inc., 2011 WL 1642459 (N.D. Cal. May 2, 2011).
The court granted the plaintiff’s motion to remand its state and federal claims (including
its claim under Section 12 of the Securities Exchange Act of 1933) to state court. In determining
that equitable remand to state court was proper, the court stated that “claims under the Securities
Act first filed in state court are normally not removable.”\
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