Broker-Dealer Litigation - Greenberg Traurig LLP

Claimants requested compensatory damages in the amount of $58,000 at the close of the hearing
and that the present value of the hedge fund be returned to them. The panel found respondent
not liable and denied claimants’ claim in its entirety. The panel also held that claimants’
allegation that their financial advisor intentionally withheld information about the fund was
clearly erroneous. The panel reasoned that there was no evidence presented to support
claimants’ allegation that their financial advisor withheld information about the fund. Lastly, the
panel found that there was no evidence presented to show that claimants’ financial advisor had
access to information that was different than what was communicated to claimants.
c. Insider Trading
C.1.c
Matrixx Initiative, Inc. v. Siracusano, 131 S.Ct. 1309 (2011).
Respondent shareholders brought a securities fraud class action against Petitioner
pharmaceutical company and three of its executives alleging that Petitioners failed to disclose
reports of a possible link between its cold remedy product and loss of smell, rendering
petitioners’ public statements to the contrary misleading in an effort to maintain high prices for
its securities. The district court granted the motion to dismiss for failure to properly allege
materiality or scienter. The Court of Appeals reversed, holding that the omitted information
would have been significant to a reasonable investor and that omission of reports of loss of smell
gave rise to a strong inference of scienter. The Supreme Court affirmed, holding that
(1) respondents adequately pleaded materiality because reports of loss of smell, although not in
statistically significant numbers, would have been viewed as material by a reasonable investor in
light of petitioner’s statements that its revenues were going to increase and that third party
reports of loss of smell were “completely unfounded and misleading;” and (2) respondents
adequately pleaded scienter because petitioner’s denial of third party reports of loss of smell and
false claims that it had conducted its own studies gave rise to an inference that petitioner did not
disclose the reports of loss of smell because of their likely effect on the market.
d. Misrepresentations/Omissions
Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179 (U.S. 2011).
C.1.d
The sole issue before the Court was whether investors need to show loss causation for
class certification. The Court held they did not. Courts below had required a showing of loss
causation in order to satisfy the requirement that class members “establish that reliance was
capable of resolution on a common, class-wide basis.” The Supreme Court rejected this
requirement as misplaced. Loss causation requires a showing that “a misrepresentation that
affected the integrity of the market also caused a subsequent economic loss.” In sum, “loss
causation has no logical connection to the facts necessary to establish the efficient market
predicate to the fraud-on-market theory.”
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