Georgia District Court Grants Motion To Dismiss Class Action Against Investment Bank For Aiding And Abetting Fraud, Finding That Alleged Investments At Issue Were A "Covered Security" Under SLUSA

• Published date: 23 August 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On August 17, 2022, Judge Steven D. Grimberg of the United States District Court for the Northern District of Georgia granted a motion to dismiss a putative class action alleging an investment bank (the "Company"), certain of its advisors (the "Advisor Defendants"), and certain of its external accountants (the "Accounting Defendants") aided and abetted one of the Company's former advisors (the "Individual Defendant") in facilitating an alleged decade-long Ponzi scheme. 6694 Dawson Blvd, LLC v. Oppenheimer & Co., Inc., et al., 1:21-cv-03625. (N.D. Geo. Aug. 17, 2022). Plaintiffs alleged that defendants misrepresented or concealed material facts that, had plaintiffs known, would have caused them not to purchase allegedly "bogus" securities from the Individual Defendant.

According to the complaint, plaintiffs are victims of an alleged decade-long Ponzi scheme operated by the Individual Defendant, who allegedly persuaded clients to invest in the securities at issue from January 2003 to December 2016. Plaintiffs alleged that the Company aided the Individual Defendant from sometime in 2008 to December 31, 2016, after which the Company allegedly "took steps to conceal the Ponzi scheme from the regulators and investing public by permitting [the Individual Defendant] to quietly resign from the Bank without reporting the wrongdoing to regulators and the investing public." Plaintiffs also alleged that the Company aided the Individual Defendant even after he left the Company by concealing and misrepresenting on a FINRA form it filed for the Individual Defendant upon his termination the fact that the Individual Defendant had been accused of wrongdoing, on which plaintiffs allegedly relied in purchasing securities, and by failing to amend the form as the purported scheme continued.

Plaintiffs further alleged that the Advisor Defendants "violated a host of securities laws" and "breached fiduciary duties owed to all of their customers" by joining the sales team at the Individual Defendant's new company after he left the Company. With respect to the Accounting Defendants, plaintiffs alleged that they acted as agents involved in perpetuating the purported Ponzi scheme by, among other things, preparing fraudulent IRS forms. On August 20, 2021, the SEC brought a civil action against the Individual Defendant and related entities not named in plaintiffs' lawsuit, and plaintiffs filed their complaint just days later.

The Court began by addressing defendants' contention that...