## Facts

- Suprema Specialties, Inc. (Suprema) became a public company in 1991 and later conducted a secondary stock offering in 2000.
- Special Situations Fund, III, L.P. and Special Situations Cayman Fund, L.P. (the funds) purchased Suprema shares from lead underwriter Hobbs Melville Securities Corp. (Hobbes).
- After the offering, Suprema announced an investigation into its financial results and ultimately filed for bankruptcy.
- The funds sued Hobbes and alleged underwriting-syndicate members Girard Securities, Inc. (Girard), Oberweis.net (Oberweis), Paulson Investment Company Inc. (Paulson), Westminster Securities Corporation (Westminster), and Westport Investment Services, Inc. (Westport), alleging the funds bought shares based on false and misleading statements in Suprema’s public filings.
- The funds moved for partial summary judgment seeking a ruling that the alleged syndicate members were “underwriters.”
- Evidence offered by the funds included:
  - The offering prospectus listing the alleged syndicate members as underwriters and stating each agreed to purchase 75,000 shares subject to conditions.
  - An underwriting agreement stating Suprema would sell stock to underwriters named on a schedule and identifying Hobbes as representative for the underwriters.
  - “Agreement Among Underwriters” documents signed by representatives of Westport, Westminster, Oberweis, and Paulson.
  - Faxes reflecting participations of 75,000 shares for Westport, Westminster, Paulson, and Oberweis, along with “final retention” figures (including zero retention for Westport and Westminster and non-zero retentions for Paulson and Oberweis).
  - Letters from Hobbes directing Paulson and Oberweis to pay for specified share amounts.
  - Trade tickets, order confirmations, and related records showing Paulson and Oberweis purchased and sold Suprema shares.
  - Letters reflecting payments from Hobbes to Westport, Westminster, and Paulson.

## Issues

1. Whether the record established, as a matter of law, that each alleged syndicate member qualified as an “underwriter” under Securities Act § 2(11) in connection with Suprema’s 2000 secondary offering.
2. Whether underwriter liability for damages under Securities Act § 11 (including § 11(e)) is limited to the shares an underwriter personally sold or distributed, or instead can be tied to the underwriter’s underwriting commitment in the offering.

## Decision

- The court granted the funds’ motion in part and denied it in part.
- The court held that Paulson and Oberweis were “underwriters” as a matter of law based on evidence showing actual participation in the offering and distribution, including transactional records and payment documentation.
- The court denied summary judgment as to Girard, Westminster, and Westport because the record did not eliminate genuine disputes about whether those firms actually participated in the distribution in a way that met the statutory definition.
- On the scope of damages, the court rejected a narrow approach that would cap an underwriter’s § 11 exposure at the value or number of shares the underwriter personally sold, concluding that § 11(e) does not impose that personal-sales-only limit.

## Legal Principles

- Under Securities Act § 2(11), “underwriter” is defined broadly and can include persons who purchase from an issuer with a view to distribution, offer or sell for an issuer in connection with a distribution, or participate (directly or indirectly) in an underwriting or distribution.
- On summary judgment, the moving party must show there is no genuine dispute of material fact; when underwriter status turns on participation in the offering, naming a firm in documents may be insufficient without evidence of actual involvement.
- Documentary evidence bearing on underwriter status can include offering documents, underwriting agreements, agreements among underwriters, allocation/participation communications, payment records, and trade or confirmation records reflecting purchase-and-resale activity.
- Securities Act § 11 provides a damages framework that does not automatically limit an underwriter’s liability to only the shares it personally placed with investors; liability may extend beyond personal sales depending on the underwriter’s role and the statutory measure of damages.

## Conclusion

In this partial-summary-judgment decision arising from the Suprema secondary offering litigation, the court ruled that the evidentiary record established underwriter status for Paulson and Oberweis but did not justify the same ruling for Girard, Westminster, or Westport, and it also rejected the argument that § 11(e) confines an underwriter’s damages exposure to the shares the underwriter itself sold to the public.


Special Situations Fund, III, L.P. v. Cocchiola, Fed. Sec. L. Rep. ¶ 94459 (2007)