Broker-Dealer Litigation - Greenberg Traurig LLP

Genesee County Employees’ Retirement Sys. v. Thornburg Mortg. Sec. Trust 2006-3, 2011 WL
5840482 (D.N.M. Nov. 12, 2011).
The court granted in part and denied in part defendants’ motion to dismiss plaintiffs’
securities class action complaint alleging violations of, among other things, Section 12(a)(2) of
the Securities Act of 1933. Plaintiffs alleged that defendants made misrepresentations as to the
true risk of several investment offerings of mortgage-backed securities in violation of Section 12.
Defendants moved to dismiss plaintiffs’ securities class action complaint on multiple grounds.
Defendants argued that plaintiffs did not adequately plead economic loss where the offering
documents stated there would be no secondary market; plaintiffs countered that they alleged a
decline in value in the mortgage-backed certificates, and the court agreed that plaintiffs
sufficiently alleged economic loss. Defendants argued that early disclosures advising plaintiffs
of occasional deviation from underwriting policies undercut plaintiffs’ argument that
misrepresentations were material; the court rejected defendants’ argument because while the
disclosures provided notice of some deviations, they did not warn investors of the systematic
abandonment of underwriting policies. The court addressed and rejected similar arguments as to
early disclosures concerning appraisals and credit ratings. The court found that plaintiffs
sufficiently alleged material misrepresentations or omissions regarding defendants’ abandonment
of underwriting guidelines. The court also found sufficient plaintiffs’ allegations concerning
defendants’ use of improper appraisal practices, inflated LTV values, and inaccurate credit
ratings in the offering documents for some, but not all, of the offerings but granted leave to
amend the deficient allegations. The court also held the following: that plaintiffs have no
obligation to plead that a material number of non-complying loans exist to establish materiality;
that plaintiffs have no obligation to plead that defendants failed to cure non-complying loans;
and that in the context of a securities class action, the issue of statutory standing is better
addressed at the class-certification or summary-judgment stage rather than on a motion to
dismiss.
Campbell v. Castle Stone Homes, Inc., No. 2:09–CV–250 TS, 2011 WL 902637 (D. Utah Mar.
15, 2011).
The court denied defendants’ motion to dismiss plaintiffs’ claim under Section 12 of the
Securities Act of 1933. Plaintiffs alleged defendants sold them unregistered securities in
violation of Section 12. The investment involved using plaintiffs’ good credit to fund
defendants’ construction of new homes and splitting the profit when the homes were sold.
Defendants argued that this was not a “security” under Section 12. The court disagreed, noting
that the definition of security was “flexible.” The key is “whether or not the investment was for
profit.” Since the contracts spoke of “Guaranteed Client Profit,” the court found that plaintiffs
had plausibly alleged the existence of a “security.” The court then rejected defendants’ argument
for summary judgment on loss causation and statute of limitations grounds without substantial
discussion and denied the motion.
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