Broker-Dealer Litigation - Greenberg Traurig LLP

C. Liabilities under the Securities Exchange Act of 1934
1. Section 10(b) and Rule 10b-5
a. Churning
C.1.a
Goldenson v. Steffens, 802 F. Supp. 2d 240 (D. Me. Aug. 4, 2011).
The court denied defendants’ motion to dismiss except for count ten. Plaintiffs’ alleged
that defendants never revealed that plaintiffs’ investments in two hedge funds had been funneled
through a “feeder fund” for Madoff Securities instead being told that the funds employed a
unique proprietary investment strategy. Plaintiffs further alleged that defendants did not reveal
that the loses that occurred in the hedge funds went beyond the funds direct investments and
included loses sustained by other funds. The court held that the plaintiffs properly pleaded the
elements of a Section 10(b) and Rule 10b-5 claim to withstand a motion to dismiss. The court
found that plaintiffs’ common and derivative law claims also were properly pleaded to survive a
motion to dismiss.
Shammami v. Allos, 2011 WL 4805931 (E.D. Mich. Oct. 11, 2011).
C.1.a
The court granted defendants’ motion to dismiss. Plaintiff alleged that his investment
advisor, Alfred Allos (“Mr. Allos”), made hundreds of unauthorized trades in his account that
resulted in Mr. Allos receiving thousands of dollars in commissions and losses to the plaintiff.
Plaintiff further alleged that Mr. Allos changed his stated investment objectives to “trading
profits” and “speculation” despite informing defendants that his investment objectives were
“conservative capital preservation” and not “high risk or speculation.” The court held that the
plaintiff’s claim was barred under Section 10(b) of the Securities Exchange Act of 1934 by the
relevant two year statute of limitations argument. The court found that plaintiff failed to
properly state a Section 20(a) control liability claim and declined to exercise supplemental
jurisdiction over the Plaintiff’s state law claims.
Pipino v. Onuska, 2011 WL 1630134 (N.D. Ohio Apr. 29, 2011).
C.1.a
The court granted plaintiffs’ motion to remand their complaint to state court. First, the
defendants removed the action to federal court theorizing that the defendants had indirectly
invoked the protections of the federal securities laws to support their churning claim (as well as
their unsuitability claim). The plaintiffs alleged that despite their conservative risk tolerance,
defendants recommended unsuitable, risky investments and charged them excessive and
unreasonable fees. The court held that the plaintiffs’ complaint should be remanded to state
court because it did not contain a federal claim or give any other basis for federal jurisdiction.
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