Broker-Dealer Litigation - Greenberg Traurig LLP

Gibbons v. Nat’l Real Estate Investors, LC, No. 2:07–cv–0990–CW, 2011 WL 1086364 (D. Utah
Mar. 23, 2011).
The court granted plaintiffs’ motion for summary judgment on its claim under Section 12
of the Securities Exchange Act of 1933 for selling an unregistered security. Plaintiffs alleged
that defendant sold them an unregistered security in violation Section 5, which is made part of
Section 12 in subsection (a)(1). Defendant had sold plaintiffs membership interests in a limited
liability company. Defendant argued that these interests did not qualify as “securities” under the
Securities Act based on the definition of that term given by a Utah statute. Rejecting this
argument, the court found Utah’s code wholly inapposite to Section 12. No registration of the
security was ever filed and the use of interstate commerce was not seriously contested.
Therefore, there was no genuine issue as to any material fact, and the court granted plaintiffs’
motion for summary judgment.
Morgan Keegan & Co. v. Shadburn, 2011 WL 5244696 (M.D. Ala. Nov. 3, 2011).
The court granted plaintiff’s motion for preliminary injunction seeking to enjoin FINRA
arbitration initiated by defendant. Plaintiff was an underwriter of an investment fund, and
defendant was an investor who purchased shares of the fund through a third party broker (where
he maintained an account). In the arbitration proceeding, defendant alleged violations of Section
12(a)(2) of the Securities Exchange Act of 1933. The claims under Section 12(a)(2) were for
material misstatements or misleading omissions in marketing materials that the underwriter had
put in a description of the fund on its website. Defendant reviewed these materials in deciding
whether to invest in the fund via the third party broker. In order to properly seek arbitration on
these claims under the FINRA rules, the court noted that defendant must be a customer of
plaintiff. In granting plaintiff’s motion for preliminary injunction, the court ruled that plaintiff
showed a substantial likelihood of success on the merits because defendant had no relationship
with plaintiff, but rather with the third party brokerage firm. His contact with plaintiff was thus
insufficient to create a “customer” relationship under the FINRA arbitration rules. Finding that
plaintiff met the other requirements for preliminary injunction, the court granted the motion.
Costa v. Carambola Partners, LLC, 2011 WL 397949 (M.D. Fla. Feb. 4, 2011).
The court denied plaintiffs’ motion to enter a proposed default judgment filed after the
court granted default judgment against defendants. The court stated that an interest rate of .28%
on plaintiffs’ damages from the date of service of the summons and complaint through the
anticipated date of entry of judgment was not unreasonable. The court stated that Section 12(a)
of the Securities Exchange Act of 1933 allows a successful plaintiff to recover the consideration
paid for the security at issue “with interest thereon,” but does not prescribe a specific rate.
However, the court denied the proposed default judgment because plaintiff failed to show
entitlement to the amount of costs claimed.
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