Securities Fraud Case: Summary Judgment Granted

On January 27, 2015, the Los Angeles Superior Court granted my client’s, Shattuck Hammond Partners, motion for summary judgment.

In 2003, Asset Real Estate & Investment Co. created structured transactions to acquire senior assisted living facilities. AREI planned to finance these acquisitions by raising equity through the sale of tenant-in-common interests to investors and by raising debt from institutional lenders. In 2004, AREI retained Shattuck Hammond to help solicit and obtain debt financing from institutional lenders.

Between 2008 and 2010, TIC investors in five AREI properties filed five separate lawsuits against AREI and others involved in the transactions, including broker-dealers, law firms, lenders, title insurance companies, and Shattuck Hammond. In all five cases, Plaintiffs’ central allegation was that the private placement memoranda on which they relied in making their investment decision failed to disclose material information about AREI and about the transaction. Plaintiffs alleged that AREI was a Ponzi scheme and that the defendants had conspired with AREI to defraud Plaintiffs.

Earlier in 2015, Shattuck Hammond settled with the plaintiffs in four of the five cases, but plaintiffs in the Roseville case persisted. The Roseville Plaintiffs asserted three causes of action against Shattuck Hammond. First, material assistance in a securities violation under Cal. Corps. Code 25504.1, second, conspiracy to commit fraud, and third, fraudulent nondisclosure.

After more than a year of discovery, Plaintiffs were unable to present any evidence that created a triable issue of fact that Shattuck Hammond knew of the alleged omissions from the PPM, that it had any intent to defraud, or that it had agreed with AREI to defraud. The court agreed that the evidence established that the debt and equity sides of the transaction were separate, that Shattuck Hammond did not owe a duty of disclosure to Plaintiffs, that Shattuck Hammond did not materially assist in the alleged securities violation, and that Shattuck Hammond did not conspire with AREI to defraud the TIC investors.

I led the litigation team in this matter.

Neal Marder Quoted in the Daily Journal

On January 29, 2015, the Daily Journal published an article titled “Judge Tosses Charges Against Investment Bank.” I was quoted in this article regarding my representation of Shattuck Hammond Partners.

The article discusses a Superior Court judge’s decision to dismiss charges against my client, an investment bank, for their alleged role in a Ponzi scheme that duped dozens of investors into buying $200 million in securities for senior housing facilities.

The plaintiff investors accused the investment bank of assisting Asset Real Estate and Investment Company in sales of tenant-in-common (TIC) interests in 34 properties.

I am quoted in the article stating: “We had no involvement on the equity side in an attempt to raise money on these TIC interests. The court agreed with us.”

Shattuck Hammond had no involvement in the private placement memorandum – a document in the sales process of securities – that formed the basis for the investors’ investments.

A Summary of the RICO Law

Neal Marder has earned widespread recognition as a leading white-collar defense attorney with a focus on class action litigation and securities fraud cases. He has successfully defended numerous clients, including China-based corporations and individuals. Among his areas of practice, Marder has gained experience in cases involving the well-known RICO law.

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In 1970, the U.S. Congress passed the Racketeer Influenced and Corrupt Organizations Act, designed to fight the operations of alleged organized crime syndicates. The law permits prosecution, as well as the levying of civil penalties, for any type of racketeering operation conducted in the course of an ongoing set of criminal activities. The racketeering charges may stem from alleged involvement in counterfeiting, money laundering, bribery, unlawful gambling, and a variety of other actions.
Since its origins as a Mafia-fighting tool for law enforcement, RICO has broadened in practice to include prosecution of a number of non-organized crime operations and organizations, including motorcycle gangs, corporations accused of environmental pollution, and protest groups focused on social issues.
To obtain a RICO conviction, the government agency plaintiff must demonstrate that the defendant was involved in at least two instances of racketeering activity and additionally maintained direct involvement in one or more criminal actions touching on foreign or domestic interstate commerce.

What Happens in a Class Action Lawsuit?

A class action lawsuit brings together a set of plaintiffs claiming to have received a similar injury from the same business or organization from which they seek to obtain damages. Class action suits take place in the realm of civil, as opposed to criminal, law. Any class action suit must still follow the established rules of civil law in its procedure, even though it may represent hundreds or thousands of plaintiffs.

An attorney may file a class action suit under federal or state law, as applicable. Class action suits must receive certification, with a judge determining whether the case meets the requirements. After certification, defendants may raise objections, and potential plaintiffs may decide to opt out to pursue individual lawsuits. If the parties reach a settlement agreement before trial, they must inform the public of the agreement’s provisions. When class action suits do go to trial, the litigation can proceed for years.

Los Angeles-based attorney Neal Marder has successfully defended numerous corporations in this area of litigation. Among his recent cases is George v. China Automotive Systems Inc., in which he obtained a denial of class certification. That decision received widespread attention due to its status as one of the first-ever securities fraud cases involving a Chinese firm that entered the market in the United States due to a reverse merger transaction.

St. Thomas More Law Honor Society: Celebrating Service and Scholarship

Since its founding at Loyola Law School, in Los Angeles, the St. Thomas More Law Honor Society has sought to recognize academic excellence, bring attention to important moral and ethical issues related to legal topics, and share the expertise of its student members and alumni with the school. The society invites students ranking in the top 15 percent of their class to become members between their second and fourth years at the school. It provides everything from forums devoted to the current state of legal affairs to tutoring services for first-year law students; it also proffers the Medallion Award, an honor recognizing exemplary contributions to the legal community.

Like other similarly named organizations throughout the country, the St. Thomas More Law Honor Society takes its title from the English lawyer and humanist Sir Thomas More, who was sainted in 1935. As a secular figure, he was called to the bar in 1502; he joined parliament only two years later and served as an advisor to King Henry VIII and as chancellor. However, his Roman Catholic faith created conflict with King Henry, and before the end of the Reformation, he had been martyred.

Companies Advised to Be Cautious in “Green” Product Descriptions

Winston & Strawn partner Neal Marder, an attorney with extensive experience defending groups against class action lawsuits, notes that “greenwashing” is an upcoming trend as more and more companies make false or misleading claims about their products’ environmental friendliness. As companies attempt to capitalize on consumers’ growing interest in earth-friendly products and services, Neal Marder advises businesses to be careful in choosing words and symbols to describe their products that will not mislead consumers and prompt a successful class-action lawsuit.

Two recent cases litigated in California illustrate the importance of properly representing a product’s “green” features. In Koh v. SC Johnson & Son, Inc., a judge concluded that a “seal of approval” label with a green background highlighting “Greenlist ingredients” on Windex products could lead a consumer to believe the cleaners were endorsed by a third party. The plaintiff has been certified for a class action lawsuit. In another case involving Fiji bottled water, a judge ruled that a plain “green drop” symbol on water bottles was not enough to suggest that an outside group approved the product’s environmentally friendly features.

Plaintiffs Denied Class Certification in Chinese Automotive Lawsuit

A team of attorneys, including Neal Marder of Winston & Strawn, successfully defended China Automotive Systems against a two-part lawsuit challenging its accounting practices. The efforts of Neal Marder and his team led to the judge denying shareholders’ class certification in their lawsuit, signaling a setback for a slew of similar lawsuits against Chinese reverse-merger companies. US District Court Judge Katherine Forrest stated that the plaintiffs, three purchasers of China Automotive securities, did not effectively show that they were entitled to a class-action lawsuit.

The case stemmed from a complaint that China Automotive Systems released false and misleading accounting statements that were later revealed to be the product of accounting fraud. When the company announced that it would restate its finances, its stock price dropped and the plaintiffs who sued wanted their lawsuit to represent all American investors who bought stock in China Automotive Systems during that time period. China Automotive was one of many Chinese companies that entered the US stock market through a reverse merger during this time, and its victory in this lawsuit was widely lauded as one of the first of its kind.