Broker-Dealer Litigation - Greenberg Traurig LLP

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SEC v. Woodruff, 778 F. Supp. 2d 1073 (D. Colo. March 31, 2011).
In this action against former employees of Qwest Communications International, the SEC
alleged that the defendants engaged in various schemes to conceal the “true nature and source”
of Qwest’s revenue between 1999 and 2002. The court granted in part and denied in part the
defendants’ summary judgment motions. The issues on which the court granted the defendants’
summary judgment motions centered on whether certain defendants, members of Qwest’s
financial reporting department, “caused” the company to make misleading statements. The court
concluded that where the defendant did not himself sign or otherwise issue any of Qwest’s public
statements and the defendant was simply “familiar with the contents” of the public statements,
this evidence was insufficient to demonstrate that the defendant either “caused” Qwest to issue
misleading statements or that he aided and abetted another person in issuing such statements.
Additionally, the court concluded that because the SEC did not provide any specific
evidence regarding the defendants’ involvement in the “review” of the earnings releases or
preparation of materials for investor conference calls, the defendants did not “cause” or provide
“substantial assistance” to another’s issuance of misleading statements. The court stated that the
mere fact that certain defendants commented, in unknown ways, about conference call scripts
and press releases reveals nothing about whether the defendants’ comments concerned Qwest’s
alleged failure to disclose material facts about its revenues. The court also concluded that where
defendants were involved in drafting a 10-K statement that did not contain an allegedly
misleading statement or omission, but were subsequently directed by a superior to make edits to
the statement that allegedly rendered the statement materially misleading (and it is undisputed
that the defendants lacked the authority to disregard those directives), the defendant did not
“cause” the allegedly misleading statement to be made. Rather, the court concluded that the
defendants discharged their duties by supplying the CFO with a draft 10-K that was not
materially misleading and made appropriate disclosures and that their subsequent, ministerial
involvement in the CFO’s decision to remove certain disclosure language was not a meaningful
“cause” of Qwest ultimately making an allegedly misleading statement.
SEC v. Monterosso, 768 F. Supp. 2d 1244 (S.D. Fla. 2011).
In this action alleging that former executives of wholesale telecommunications
companies violated Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act,
among other violations, both parties moved for summary judgment. The court concluded that the
overstatements of revenue were so obviously important to an investor that there were no genuine
issues of fact concerning the issue of materiality, especially in light of the staggering magnitude
of the overstatement and the subsequent restatements. The court also noted that the movement
(or lack thereof) of a company’s stock price is not dispositive of whether a given statement is
material, but rather, is simply a factor that might be relevant to materiality. The court further
concluded that the defendants were primarily liable for violations of Section 10(b) of the
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