Broker-Dealer Litigation - Greenberg Traurig LLP

C.1.d
AnchorBank, FSB v. Hofer, 649 F.3d 610 (7th Cir. 2011).
Plaintiffs sued Hofer, an employee of AnchorBank, for engaging in a collusive trading
scheme in violation of sections 9(b) and 10(b) of the Securities Exchange Act of 1934. Hofer
moved to dismiss under Fed. R. Civ. P. 8(a), 9(b), and 12(b)(6), and the Private Securities
Litigation Reform Act (“PSLRA”). The district court granted Hofer’s motion and plaintiffs
appealed. The Seventh Circuit reversed the district court and held that plaintiffs stated a claim
under sections 9(a) and 10(b) of the Exchange Act. To show a violation of section 9(a) of the
Exchange Act, plaintiffs had to plead and prove (1) a series of transactions in a security created
actual or apparent trading in that security or raised or depressed the market price of that security;
(2) the transactions were carried out with scienter; (3) the purpose of the transactions was to
induce the security’s sale or purchase by others; (4) the plaintiffs relied on the transactions; and
(5) the transactions affected the plaintiff’s purchase or selling price. Plaintiffs’ second amended
complaint alleged that Hofer and two other employees coordinated purchases and sales of units
of the AnchorBank Unitized Fund (“the Fund”) in order to artificially inflate or deflate the unit
price. As an AnchorBank employee, Hofer was permitted to invest in the Fund. He also knew
that the Fund was required to maintain a specific ratio of cash to equities and was required to buy
and sell AnchorBank stock on the open market at specific times and in specific amounts to
maintain the required ratio. Hofer’s coordinated trading activity allowed him to impact the price
of fund units to his benefit and the Fund’s detriment. The court found that the inference of
scienter was strong in comparison to Hofer’s contention that he was simply buying low and
selling high. The court also rejected Hofer’s argument that plaintiffs did not plead loss
causation, finding that Hofer’s activities caused the Fund’s unit price to decline, even though
some of the decline might eventually be attributed to the general economic downturn.
McCann v. Hy-Vee, Inc., 663 F.3d 926 (7th Cir. 2011).
C.1.d
Spouse of stock owner filed action against corporation alleging misrepresentations in
connection with her receipt and sale of stock. The district court dismissed the action on the
ground that it was time-barred. Plaintiff appealed alleging that the period in which a private suit
for a federal securities violation begins is on the date of injury, rather than the date the fraud first
occurs. The Supreme Court has thus far declined to answer the question. The Court of Appeals,
in affirming the dismissal, held that: 1) wife’s surrender of demand for other concessions in
divorce decree, such as longer period of alimony, which enabled her to “hold” stock until
husband, as owner of that stock, decided to sell, constituted purchase of stock; and 2) five year
deadline for action involving securities claim of “fraud, deceit, manipulation, or contrivance”
was statute of repose, than statute of limitation, that ran from date of fraud rather than date of the
injury.
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