Broker-Dealer Litigation - Greenberg Traurig LLP

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Ashland Inc. v. Morgan Stanley & Co., Inc., 652 F.3d 333 (2d Cir. 2011).
Investors in auction rate securities (ARS) sued broker, asserting claims alleging securities
fraud. The Court of Appeals held that investors in auction rate securities backed by guaranteed
student loan obligations could not have reasonably relied upon broker’s alleged
misrepresentations regarding safety and liquidity of investment, including broker’s practice of
stepping in to place sufficient proprietary bids to prevent auction failure, as required to establish
§ 10(b) claim, despite their longstanding relationship with financial advisor employed by broker,
their repeated inquiries regarding investment’s liquidity, and fact that auction information was
not publicly available, where broker’s publicly-filed statement mandated by Securities and
Exchange Commission (SEC) explicitly disclosed very liquidity risks about which investors,
who admittedly were sophisticated investors, claimed to have been misled. Securities Exchange
Act of 1934 § 10(b), 15 U.S.C.A § 78j(b).
Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011).
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Shareholders brought putative class action against bank holding company and its
subsidiaries alleging claims of violations of the Securities Act in connection with hybrid
securities offering as a result of allegedly negligently false and misleading statements concerning
goodwill and loan loss reserves. The court found that plaintiff failed to sufficiently plead an
actionable securities fraud claim with respect to statements about goodwill and loan reserves.
The court determined that such statements are inherently subjective and will vary depending on a
variety of predictable and unpredictable circumstances. For plaintiff to have proven actionable
fraud, he must allege that defendant’s opinions were both false and not honestly believed when
made. Since the complaint did not plausibly allege subjective falsity, the complaint fails to state
a valid claim.
Litwin v. Blackstone Group, L.P., 634 F.3d 706 (2d Cir. 2011).
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Investors brought putative class action against an asset management company and
officers alleging violations of the Securities Act relating to a registration statement and
prospectus in connection with an initial public offering. The United States District Court for the
Southern District of New York dismissed the case. The Court of Appeals vacated the dismissal
and remanded the case. Plaintiffs were seeking remedies under §11, 12(a)(2) and 15 of the
Securities Act of 1933 for alleged material omissions from and misstatements in Blackstone’s
Registration and Prospectus. They found the district court erred in dismissing the case because
plaintiffs plausibly alleged that Blackstone omitted from its Registration Statement and
prospectus material information related to its investments in FGIC and Freescale that Blackstone
was required to disclose under item 303 of Regulation S-K. Moreover, plaintiffs plausibly
alleged that Blackstone both omitted material information that it was required to disclose under
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