Broker-Dealer Litigation - Greenberg Traurig LLP

C.1.d
Akamai Tech., Inc. v. Deutsche Bank AG, 764 F. Supp. 2d 263 (D. Mass. 2011).
Plaintiff sued defendant as a control person under section 20(a) of the Securities
Exchange Act of 1934, based on the alleged fraudulent conduct of defendant’s wholly owned
subsidiary, Deutsch Bank Securities (“DBS”), which was Plaintiff’s securities broker and
investment advisor. Plaintiff alleged that it had a discretionary account with DBS and instructed
DBS to purchase only safe, liquid securities. DBS, however, purchased auction rate securities
(“ARS”), which it represented to plaintiff were highly liquid and safe investments. DBS
allegedly failed to inform plaintiff that demand for ARS had been declining, that auctions were
being supported by financial institutions, and that DBS was reducing its own exposure to ARS at
the same time it continued to increase plaintiff’s ARS holdings. Plaintiff filed suit after the ARS
market collapsed in February 2008 and defendant moved to dismiss under Fed. R. Civ. P.
12(b)(6) and section 9(a) of the Private Securities Litigation Reform Act (“PSLRA’). The
district court held that plaintiff’s stated a claim for control-person liability. To state a claim for
control-person liability under section 20(a), plaintiff had to plead (1) an underlying violation of
the securities laws, and (2) that the defendant controlled the primary violator with culpable
participation. The district court found that plaintiff adequately pleaded material omissions by
DBS in failing to disclose facts about the ARS market despite owing plaintiff a fiduciary duty
based on plaintiff’s discretionary account and DBS’s status as an investment advisor. The court
also found that plaintiff merely needed to meet the pleading standard of Fed. R. Civ. P. 9(b), and
did not have to satisfy the PSLRA’s standard for pleading scienter, because PSLRA’s standard
only applied where the plaintiff’s recovery depended on the defendant acting with a particular
state of mind. Plaintiff further pleaded reliance in that it relied on DBS to purchase securities
consistent with its instruction to purchase only safe and liquid securities. Finally, plaintiff
pleaded loss causation because it would not have owned ARS but for DBS’s misconduct. The
court concluded that defendant’s control over DBS presented a question of fact that could not be
decided at the pleading stage, and denied defendant’s motion to dismiss.
C.1.d
Special Situations Fund III, L.P. v. American Dental Partners, Inc., 775 F. Supp. 2d 227 (D.
Mass. 2011).
Defendant was a company which provided administrative services to dental practices.
Plaintiff claimed the defendant misrepresented its economic performance by failing to disclose
that it was based on wrongful conduct that violated defendant’s agreements with dental practices.
Defendant had stated, inter alia, that there had been no change in how it had conducted its
business with respect to its largest dental client. The court did not find this plausible in light
especially of the pending lawsuit against defendant brought by its largest client. Defendant’s
statement was also held to be at least reckless as to the likelihood of misleading investors.
72