Broker-Dealer Litigation - Greenberg Traurig LLP

permitted to draw adverse inference against owner of company, for purposes of establishing
scienter, based on his invocation of Fifth Amendment privilege at deposition; 5) Chief Operating
Officer (“COO”) was liable as a primary violator since he had caused the misstatements to be
made and knew the statements were calculated to reach investors; and 6) COO was liable for
aiding and abetting company with filing of false reports to SEC.
Patel v. Patel, 761 F. Supp. 2d 1375 (N.D. Ga. 2011).
C.1.d
Investors brought action alleging that bank’s officers and directors concealed bank’s true
financial condition and business operations, in violation of the Securities Exchange Act.
Defendants moved to dismiss for failure to sufficiently allege scienter, loss causation, and
materiality. The court granted defendants’ motion to dismiss, holding that the defendants alleged
motive to maintain a dividend stream is insufficient to show scienter as it is analogous to the
desire to sustain a company’s stock price, and that alleged “excessively risky” lending practices
were also insufficient to show scienter. The court also held the investors failed to allege loss
causation because the allegation that the FDIC was taking over the defendant bank, resulting in
loss in value of stock, did not necessarily establish the alleged misrepresentations and omissions
caused the investors’ loss.
SEC v. Morgan Keegan & Co., Inc., 806 F. Supp. 2d 1253 (N.D. Ga. 2011).
C.1.d
The Securities and Exchange Commission brought an enforcement action alleging that
the defendant investment firm misled investors concerning risks associated with auction rate
securities (ARS) in violation of § 10(b) of Rule 10b-5. Investment firm moved for summary
judgment, asserting that it prepared several written disclosures for its customers warning of the
risks associated with auction rates securities. The SEC contended the written disclosures were
rendered ineffective and inadequate because brokers did not adequately direct its customers to
them and that its brokers made oral misrepresentations. The court granted the investment firm’s
motion for summary judgment, holding that four alleged statements made to investors by the
investment’ firms brokers were insufficient, by themselves, to alter the total mix of information
made available to the public and customers regarding the liquidity risks of auction rate securities
products.
SEC v Mannion, 789 F. Supp. 2d 1321 (N.D. Ga. 2011).
C.1.d
SEC brought civil enforcement action against principals of master and feeder hedge funds
and advisors alleging misrepresentations of net asset values, misuse of fund assets and fraud on
private equity. Under the SEA, to plead securities fraud, a party must allege 1) material
representations or material misleading omissions, 2) in connection with the purchase or sale of a
security, and 3) made with scienter. Materiality is sufficiently plead when shown that the
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