Broker-Dealer Litigation - Greenberg Traurig LLP

fiduciary duty and negligent misrepresentation counts are not preempted by the Martin Act; 7)
the Term Sheet was a binding preliminary agreement; 8) properly pled defendants’ breach of the
Term Sheet; 9) allegations concerning the covenant of good faith are duplicative of the breach of
contract claims; 10) fraud counts are not identical to their breach of contract claims; 11) alleged
sufficient damages; and 12) state law claims are not subject to dismissal.
SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147 (S.D.N.Y. 2011).
C.1.d
Defendant failed to disclose to investors that it had permitted a short investor to help
select the reference portfolio of a collateralized debt obligation (“CDO”). Instead of making this
disclosure, defendant engaged a “portfolio selection agent,” which was not informed of the short
investor’s short position, and whose role in the transaction was alleged to reassure other
investors in the CDO. Defendant settled with the SEC. Defendant’s employee, Fabrice Tourre,
filed motions to dismiss the counts against him. Tourre argued, inter alia, that there was no
extraterritorial application of the federal securities laws but the court held that he had
participated in phone calls and sent emails from New York City and that section 17(a) of the
Securities Act applies to both sales and offers to sell, making a complete transaction unnecessary
to impose liability.
C.1.d
City of Roseville Employees’ Ret. Sys. v. EnergySolutions, Inc., No. 09-8633, 2011 WL 4527328
(S.D.N.Y. Sept. 30, 2011).
Plaintiffs sued EnergySolutions (“ES”), its officers and directors, and its former owner,
ENV Holdings, Inc. (“ENV”), under sections 10(b) and 20(a) of the Securities Exchange Act of
1934, based on alleged misstatements and omissions in a registration statement as part of an IPO
and subsequent sale of stock. The court held that ENV was responsible for statements made in
ES’s registration statements, distinguishing the Supreme Court’s holding in Janus Capital
Group, Inc. v. First Derivative Traders. At the time of the IPO, ENV was the sole shareholder
of ES, and was a majority shareholder at the time of the later sale. Despite the fact that the
prospectuses and registration statements were issued by ES, the court concluded that ENV
“made” the allegedly misleading statements because it had ultimate authority over the
statements, including their content and whether and how to communicate it. The court
distinguished this case from Janus because, unlike Janus, the registration statements made it
plain that (1) ENV was a majority shareholder and seller in both transactions; (2) ENV’s owners
controlled ES through ENV; and (3) ES agreed to indemnify ENV for any material
misstatements or omissions in the registration statements. Based on these facts, the court found
that ENV’s position enabled it to control all of ES’s corporate actions. Furthermore, the court
rejected ENV’s argument that the registration statements were attributed to ES, reasoning that
attribution to ES did not preclude attribution to ENV also, particularly in light of the indicia of
control in the registration statements. Therefore, plaintiffs were able to state a claim against
ENV.
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