Broker-Dealer Litigation - Greenberg Traurig LLP

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Russo v. Bruce, 777 F. Supp. 2d 505 (S.D.N.Y. 2011).
Shareholder filed putative securities fraud action against gold mining company and its
officers alleging that the company made fraudulent misrepresentations regarding status of, and
the likelihood that it would obtain environmental permit necessary to mine gold in Venezuela.
The defendants moved to dismiss and the court granted the motion. Plaintiffs alleged violations
of §10(b) of the Securities Exchange Act in that defendants, with knowledge of or reckless
disregard for the truth, disseminated or approved during the class period false and misleading
statements. Plaintiffs also contend that defendants violated Section 20 of the Securities
Exchange Act by trading securities while in possession of material, non public information.
Lastly, plaintiffs alleged that the defendants were liable as control persons over the wrongful
conduct of Crystallex. Defendants argued that plaintiffs failed to adequately and specifically
allege falsity and scienter in the complaint. Further, they contended that all of the supposed
misstatements were forward looking and immune from liability under the safe harbor of the
PSLRA, 15 USC 78u-5(c). Additionally, defendants argued there was no causation between the
statements and any damages sustained by plaintiffs. The court held that plaintiffs’ complaint
was devoid of particularized facts and circumstances to adequately and sufficiently plead a fraud
case actionable under the Securities Act. Further, the court found that plaintiffs failed to plead
the requisite scienter and that the reasonable inferences for scienter were not as compelling as
those opposing inferences of executive’s non-fraudulent intent. The court allowed plaintiffs to
file an amended complaint but only if they have a good faith basis to do so.
Sawabeh Information Services, Co. v. Brody, 2011 WL 6382701 (S.D.N.Y. Dec. 16, 2011).
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Sawabeh Information Services Company and its wholly owned subsidiary Edcomm, Inc.
brought an action against former Edcomm officers and shareholders, arising from the sale of all
outstanding shares of Edcomm from defendants to plaintiffs. Plaintiffs allege defendants
committed federal securities fraud as well as common law fraud. Defendants moved to dismiss
on the following grounds: 1) the fraud counts - because defendants made no false
representations; plaintiffs have failed to plead facts giving rise to a strong inference that
defendants acted with scienter; plaintiffs could not have reasonably relied on the alleged
misrepresentations; the alleged misrepresentations caused no losses; and the alleged
misrepresentations occurred after the execution of the Term Sheet; 2) the state securities law
claims – because they are preempted by the Martin Act; 3) the contract claims - because the
Term Sheet was not a binding contract; 4) the fraud counts - to the extent that they arise out of
the same facts as plaintiffs’ breach of contract claims; 5) the breach of fiduciary duty - because
plaintiffs fail to allege any damages caused by the alleged breach of fiduciary duty; and 6) the
remaining counts - because the court should decline to exercise supplemental jurisdiction over
these state law claims after dismissing the federal securities claims. In denying in part and
granting in part defendants’ motion, the court held plaintiff’s: 1) alleged material
misrepresentations; 2) properly alleged scienter under Tellabs; 3) properly pled reasonable
reliance; 4) do not need to allege damages with specificity; 5) adequately alleged causation; 6)
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