Broker-Dealer Litigation - Greenberg Traurig LLP

a holder of securities, even though it did not purchase or sell the securities. The court rejected
this argument because the Supreme Court has specifically announced that there is no holder
claim under the federal securities laws.
In re Smith Barney Transfer Agent Litigation, 765 F. Supp. 2d 391 (S.D.N.Y. 2011).
C.1.e
Investors in mutual funds brought class action against funds’ investment advisors and
their affiliates, alleging securities fraud in violation of the Securities Exchange Act of 1934.
Defendants moved to dismiss plaintiffs’ claims under Section 10(b) of the Exchange Act for lack
of standing on three separate grounds: (1) the claims must be pled as derivative rather than direct
claims; (2) plaintiffs purchased shares in only three of the 105 funds at issue; and (3) claims by
mere holders of the fund are barred because they neither purchased nor sold shares during the
class period. As to the first issue, the court noted the lack of case law on pleading a Section
10(b) claim derivatively. Nonetheless, the court found that the plaintiffs suffered individual
injuries distinct from the injury to the corporation. Accordingly, direct claim was sufficient and
not required to be plead derivatively. Next, the court held that plaintiffs lacked standing to the
extent that they did not purchase the funds at issue. The court reasoned that although a lead
plaintiff need not satisfy all the elements of standing, at least one named plaintiff must.
Accordingly, plaintiffs’ claims as to each fund not held by a named plaintiff were dismissed.
Finally, the court dismissed any “holder” claims, claims in which plaintiffs merely held the stock
rather than purchase or sell it, brought by plaintiffs because the courts do not recognize holder
claims under the Exchange Act.
Scottrade, Inc. v. Broco Investments, 774 F. Supp. 2d 573 (S.D.N.Y. 2011).
C.1.e
Online securities broker brought action against investment broker and alleged hackers,
seeking to recover funds it paid to its customers to reimburse them for money customers lost in
securities fraud scheme. Defendant moved to dismiss. The court found that this action presented
a question of first impression. Ultimately, the court concluded that plaintiff lacked standing to
pursue claims under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934
because it did not purchase or sell any securities. Instead, plaintiff merely provided the interface
and systems by which defendant’s purchases and sales occurred. The court further reasoned that
although plaintiff “effected” customer trades, as the broker, it did not itself initiate, order or have
any input on any trades or decisions to place orders. Accordingly, the court granted defendants’
motion to dismiss.
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