Broker-Dealer Litigation - Greenberg Traurig LLP

experiencing large operating losses. Plaintiff had an agreement with defendants that the
company would disclose such founder sales to it. Defendants argued that this right to disclosure
could be waived by a vote of 60% of company shareholders and notice of this vote could in turn
be waived. Thus, plaintiff had no notice of the “fact that the right to notice itself was cancelled.”
Plaintiff argued that the parties’ agreement required that any waiver required a vote of investors
“voting together.” The court of appeals held this to be the “far more natural interpretation,” but
that in any event it was a fact question not subject to a motion to dismiss. As to the securities
claims, defendants argued that theirs was a plausible reading of the agreement and thus they did
not have the requisite scienter under the federal securities laws. The court of appeals rejected
defendants’ argument because the more plausible reading was that waiver could occur only after
all investors have had an opportunity to vote.
Findwhat Investor Group v. Findwhat.com, 658 F.3d 1282 (11th Cir. 2011).
C.1.d
Investors appealed district court dismissal of securities class action. Investors alleged
that defendant engaged in “click fraud”, i.e., the “practice of clicking on an Internet
advertisement for the sole purpose of forcing the advertiser to pay for the click.” This would
increase the defendant’s short term revenue but the practice was coming under increased
regulatory scrutiny. The company announced that, inter alia, it was taking measures to minimize
the effects of fraudulent clicks. Subsequent company announcements disclosed that click fraud
had been responsible for some of the company’s revenues and the company’s stock price
dropped 21% in a day. The cautionary language in the company’s prior disclosures was
actionable because it contained only general warnings about risks and nothing specific about
click fraud that had occurred.
Ledford v. Peeples, 657 F.3d 1222 (11th Cir. 2011).
C.1.d
Member of a limited liability company and its owners brought action against party which
financed the buyout of member’s interest in LLC alleging violations of federal securities laws.
The district court granted defendant’s motion for summary judgment. The Court of Appeals, en
banc, affirmed holding that the misrepresentation by an individual that had financed active
member buyout of another member’s one-half interest in a limited liability company, when he
falsely stated that he had no role in other member’s decision to buyout, played no causative role
in the other member’s decision to accept the buyout of its interest, and thus did not rise to level
of a fraud actionable under Rule 10b-5. Plaintiffs did not rely on the misrepresentations in
making their decision to accept buyout so they were unable to prove but for causation.
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