## Facts

- Vivine H. Wang opened a Bear Stearns brokerage account in early 2008; her husband, Roger Wang, placed trades for Bear Stearns common stock through that account.
- The account was governed by a customer agreement stating Bear Stearns was acting as a broker-dealer and did not assume the fiduciary duties of an investment adviser.
- Joey Zhou and Garrett Bland worked for Bear Stearns; Zhou had provided the Wangs with investment-related input, and Bland spoke with Roger about Bear Stearns stock during the week of the purchases.
- On March 6, 2008, Roger placed an order for Bear Stearns stock for Vivine’s account.
- During the following week, market rumors circulated that Bear Stearns faced liquidity problems.
- Roger placed additional orders on March 10 and March 11, 2008.
- Wang alleged that on March 11, 2008, Bland told Roger that Bear Stearns was a “sound investment,” that its stock “should be at least $85 per share,” and that it was a “great time to invest.”
- On March 14, 2008, Bear Stearns announced a $30 billion loan facility; the stock dropped sharply that day, and Roger placed a 200,000-share order, about half of which filled at approximately $34 per share.
- On March 16, 2008, JPMorgan announced an agreement to acquire Bear Stearns for consideration equivalent to about $2 per share, and the stock price collapsed.
- The Wangs refused to pay for the March 2008 purchases; Bear Stearns liquidated the account and pursued arbitration to recover the debit balance.
- Bear Stearns obtained an arbitration award (later confirmed by a federal court in California) for more than $3 million, plus fees and costs.
- Vivine Wang later sued (among others) Bear Stearns, Zhou, and Bland in the Southern District of New York, asserting federal securities fraud and state-law theories; Zhou and Bland moved to dismiss under Rules 9(b) and 12(b)(6).
- As to Zhou, Wang’s theory was that he should have advised against further purchases (especially on March 14) and that commissions gave him a reason to mislead.
- As to Bland, Wang’s theory was that his March 11 statements were fraudulent misrepresentations that induced continued purchases.

## Issues

1. Whether Wang plausibly pleaded securities fraud under Exchange Act § 10(b) and Rule 10b-5 against Zhou and Bland, including a material misstatement or actionable omission pleaded with particularity and facts supporting a strong inference of scienter.
2. Whether Bland’s alleged statements that Bear Stearns was a “sound investment,” “should be at least $85,” and was a “great time to invest” were actionable misrepresentations or non-actionable opinion/puffery.
3. Whether Zhou and Bland owed Wang fiduciary duties beyond those ordinarily owed by a broker executing trades in a non-discretionary account, given the customer agreement’s broker-dealer terms and disclaimer of investment-adviser duties.
4. Whether prior proceedings (including the arbitration award and related litigation involving the Wangs) barred or limited Wang’s claims against Zhou and Bland.

## Decision

- The court granted Zhou’s and Bland’s motion to dismiss under Rules 9(b) and 12(b)(6) and dismissed the complaint as to both individual defendants.
- The court held that Wang did not plead securities fraud with the specificity required for fraud-based claims and did not plead facts supporting a strong inference of scienter.
- As to Zhou, the court found no well-pleaded, specific misrepresentation or legally required disclosure; the allegations amounted to a claim that he failed to warn the Wangs away from Bear Stearns stock or failed to anticipate the collapse, which was not enough to state a Rule 10b-5 claim on the pleaded facts.
- The court rejected commission-based motive allegations as too general, without particularized facts showing intentional deception or reckless disregard of known contrary information.
- As to Bland, the court treated the challenged statements as optimistic assessments and valuation predictions rather than concrete, verifiable statements of present fact, and found no sufficient allegations that Bland spoke with fraudulent intent.
- The court dismissed the breach-of-fiduciary-duty and related state-law claims against Zhou and Bland because the pleadings did not show discretionary control or a special relationship creating broader duties than those of an ordinary broker in a non-discretionary account, especially in light of the account agreement.
- The court noted the existence of extensive prior proceedings involving the same trading losses, which informed the context for the claims, but the dismissal rested on pleading and duty defects as to Zhou and Bland.
- The court granted Wang leave to replead within 20 days.

## Legal Principles

- A § 10(b)/Rule 10b-5 claim must plead, with particularity, the alleged fraudulent statements or omissions, the speaker, when and where the statements were made, why they were fraudulent, and facts supporting the required state of mind.
- Under the PSLRA and Second Circuit standards, scienter must be supported by facts giving rise to a “strong inference” of intent to deceive or recklessness; generalized motives such as earning commissions, without more, are typically insufficient.
- Statements of corporate optimism, sales talk, and valuation predictions (e.g., a stock is a “sound investment,” it is a “great time to invest,” or it “should be” worth a stated price) are generally not actionable absent well-pleaded facts showing a materially false representation of present fact and fraudulent intent.
- A broker in a non-discretionary account generally owes limited duties (such as carrying out customer instructions); broader fiduciary obligations usually require discretionary authority or a special relationship, and contractual terms identifying the broker-dealer role may limit any claimed adviser-type duties.
- Prior arbitration awards and related litigation may affect later claims through preclusion doctrines, but a complaint still must independently satisfy federal pleading standards and must state a viable duty and misrepresentation theory against each defendant.

## Conclusion

The Southern District of New York dismissed Vivine Wang’s fraud and fiduciary-duty claims against Bear Stearns brokers Joey Zhou and Garrett Bland because the complaint did not plead an actionable misstatement or omission with the required specificity, did not allege facts creating a strong inference of scienter beyond generic commission motives, and did not plausibly establish any heightened fiduciary duty in a non-discretionary brokerage relationship governed by a broker-dealer customer agreement; the court allowed Wang a limited opportunity to amend.


Wang v. Bear Stearns Companies, LLC, 14 F. Supp. 3d 537 (2014)