Broker-Dealer Litigation - Greenberg Traurig LLP

held that the statute of limitations begins to run at the point which plaintiff was on “inquiry
notice” of the fraud. However, the court recognized the new inquiry notice standard, as
recognized in the U.S. Supreme Court case Merck & Co. v. Reynolds, 130 S.Ct. 1784 (2010),
which focused on when a reasonable investor would have actually uncovered the facts
constituting the fraud. The court found plaintiff’s complaint was not time barred because, based
on the allegations in the complaint, nothing indicated the plaintiff should have discovered the
fraud.
In re STEC Inc. Securities Litigation, 2011 WL 2669217 (C.D. Cal. June 17, 2011).
C.1.f
Plaintiffs brought a class action suit against defendants alleging defendants made false
statements and omissions that inflated the company’s stock price and ultimately caused the price
to collapse when the truth was disclosed. In particular, plaintiffs alleged that defendants falsely
represented its business prospects, including falsely stating that a particular purchase contract by
defendants’ largest customer would be continually renewed, when in fact it would not.
Defendants moved to dismiss the claim for failure to state a claim and that Plaintiffs had not
sufficiently alleged the existence of a false statement in the registration statement or prospectus.
Defendants also asserted the affirmative defense of the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”), and the bespeaks caution doctrine. The
court found that the bespeaks caution doctrine provides a mechanism by which a court can rule
as a matter of law that defendants’ forward-looking representations contained enough cautionary
language or risk disclosure to protect a defendant against claims of securities fraud. However,
the court held that the statements made by defendants were not meaningfully cautionary because
they did not relate directly to the forward-looking statements at issue. Specifically, the
cautionary statements were not of sufficient similar significance to the recurring nature of the
purchase contract to indicate it was a “one-off” contract. Accordingly, the court denied
defendants’ motion to dismiss.
In re Verifone Holdings Inc. Securities Litigation, 2011 WL 1045120 (N.D. Cal. Mar. 22, 2011).
C.1.f
This case represents the consolidation of nine securities fraud class actions filed against
defendants, including officers of defendant corporation, relating to the corporation’s public
announcement that it had to restate its quarterly financial statements for at least the previous
three quarters to correct errors that overstated previously reported profits. In particular, plaintiffs
alleged that several of the corporate officers committed insider trading in violation of the
Securities Exchange Act of 1934 by trading company stock on this information prior to the
public announcement. On defendants’ motion to dismiss, several of the defendants claimed that
Rule 10b5-1 acted as an affirmative defense to the insider trading claim. Rule 10b5-1 permits an
insider with inside information to trade in stock so long as the trades were pursuant to a contract,
instructions given to another or a written plan that did not permit the person to exercise any
influence over the purchase or sale of stock after learning the inside information. Accordingly,
the court found that so long as defendants executed the purchase or sale of defendants’ stock
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