Securities & Investor Protection Law Firm Headquartered in New York City

Justin is an accomplished securities litigator who has been honored with many awards, including, without limitation, by Lawyers of Distinction® in securities law and by Super Lawyers® as a Rising Star in securities law.

Prior to launching Nematzadeh PLLC, and while practicing at some of the most prestigious plaintiffs-focused law firms in the world, Justin had played roles in over a dozen class actions that resulted in total recoveries amounting to over $3.53 billion for plaintiffs.

Justin was a core member of the team in the In re Petrobras Securities Litigation (S.D.N.Y.), arising from a multi-billion-dollar bribery and price-fixing scheme. In 2018, he helped the team achieve a historic $3 billion settlement for the class, as well as precedent-setting legal rulings. At that time, this was the largest securities class action settlement in a decade, the largest securities class action settlement ever involving a foreign issuer, the largest securities class action settlement ever achieved by a foreign lead plaintiff, the largest securities class action settlement ever that did not involve a restatement of financial statements, and the fifth-largest class action settlement ever achieved in the United States. In praising the lawyers who worked on this historic class action, the Honorable Judge Jed S. Rakoff of the United States District Court for the Southern District of New York stated that the “lawyers in this case [are] some of the best lawyers in the United States, if not in the world.”

Justin had played roles in other actions that resulted in total recoveries amounting to over $530 million for plaintiffs. For example:

• In re Altair Nanotechnologies Securities Litigation (S.D.N.Y.), recovery of approximately $1.5 million;
• Carmack, et al. v. Amaya Inc., et al. (D.N.J.), recovery of approximately $5.75 million;
• Calfo, et al. v. Messina, et al. (S.D.N.Y.), recovery of approximately $1.65 million;
• Kaplan, et al. v. S.A.C. Capital Advisors, L.P., et al. (S.D.N.Y.), recovery of approximately $135 million;
• Maleef, et al. v. B Communications Ltd., et al. (S.D.N.Y.), recovery of approximately $1.2 million; 
• Mauss, et al. v. NuVasive, Inc., et al. (S.D. Cal.), recovery of approximately $7.9 million;
• In re MF Global Holdings Limited Securities Litigation (S.D.N.Y.), recovery of over $230 million;
• In re OSG Securities Litigation (S.D.N.Y.), recovery of over $30 million;
• Perez, et al. v. Higher One Holdings, Inc., et al. (D. Conn.), recovery of approximately $7.5 million;
• In re Retrophin, Inc. Securities Litigation (S.D.N.Y.), recovery of approximately $3 million;
• Springer, et al. v. Code Rebel Corporation, et al. (S.D.N.Y.), recovery of approximately $1 million;
• Waterford Township Police & Fire Retirement Sys., et al. v. Smithtown Bancorp, Inc., et al. (E.D.N.Y.), recovery of over $1.9 million; and
• In re Yahoo! Inc. Securities Litigation (N.D. Cal.), recovery of approximately $80 million.

While practicing at Gibson, Dunn & Crutcher LLP and representing defendants in bet-the-company securities litigation, Justin played a role in representing defendants in Garofalo, et al. v. Revlon, Inc., et al. (D. Del.). And Justin played a role on the trial team in iBasis Inc.’s lawsuit against Koninklijke KPN NV in connection with an alleged inadequate tender offer, which settled during trial in 2009 before the Delaware Court of Chancery.

Justin’s understanding of accounting, business, corporate strategy, economics, and finance equips him with a lens that separates him from the pack. He brings this understanding to bear in representing plaintiffs or defendants. These experiences have heavily influenced Justin to represent entities or investors as lead plaintiffs in class actions, individual plaintiffs, or defendants and have equipped him with a perspective that many clients have appreciated and admired. His ability to decipher business operations, financial information, and elaborate securities disclosures and filings have enabled him to possess savviness in dealing with experts, economists, and accountants. He is able to distill complicated facts into captivating stories in advocating before judges, juries, arbitrators, mediators, and adversaries.

Here you will find a wealth of information about the several bodies of law addressing misrepresentations, omissions, manipulation (for example, spoofing), insider trading, self-dealing, or other types of alleged wrongdoing in connection with securities, commodities, financial instruments, or other types of investments and answers to commonly asked questions. Because class actions are often an effective, efficient means for victims of harm to seek relief, questions and answers are included here concerning them.

General examples of securities fraud include the following:

• Failing to register securities, including digital tokens and other crypto assets;
• False or misleading disclosures regarding a company’s financial results or condition, its products, or its business risks;
• Improper securities trading practices, including insider trading;
• Market manipulation;
• Charging hidden fees to investors;
• Ponzi schemes; or
• Bribery of foreign officials.

There are two basic objectives of the Securities Act of 1933 (“Securities Act”): investors must receive financial and other material information concerning securities being offered for public sale; and deceit, misrepresentations, and other types of fraud in the sale of securities must be prohibited. To accomplish these objectives, securities sold in the U.S. generally must be registered through filings with the U.S. Securities and Exchange Commission (“SEC”), and these filings are often available on the EDGAR database (Electronic Data Gathering, Analysis, and Retrieval) and the reporting companies’ websites. Companies must at minimum often disclose the following bodies of information: a description of the company’s properties and business; a description of the securities offered for sale; information about the company’s management; and financial statements certified by independent accountants.

There are exemptions from the registration of securities. Examples of these exemptions are companies that are making private offerings to a limited number of investors, offerings of limited size, intrastate offerings, and securities of municipal, state, or federal governments. Plaintiffs may still have claims in connection with such exempted offerings.

Claims under the Securities Act face relatively lower thresholds and are often referred to as “strict liability” because certain elements, such as scienter, reliance, and loss causation, are not required elements to be demonstrated by plaintiffs.

The sale of unregistered securities can trigger a private right of action under the Securities Act.

Through the Securities Exchange Act of 1934 (“Exchange Act”), Congress created the SEC, which is empowered to require periodic reporting of information by companies with publicly traded securities and prohibits certain types of conduct in the markets. The SEC also has powers to register, regulate, and oversee brokerage firms, transfer agents, clearing agencies, and the country’s self-regulatory organizations (“SRO”). The New York Stock Exchange, NASDAQ Stock Market, Chicago Board of Options, and other various securities exchanges are examples of SROs. The Financial Industry Regulatory Authority (“FINRA”) is another SRO. SROs must create rules, ensure market integrity and investor protection, and allow for disciplining members for improper conduct.

The Exchange Act is designed to prohibit acts or practices that are deceptive or manipulative. Under SEC Rule 10b-5, “it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) to employ any device, scheme, or artifice to defraud; (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

Private lawsuits—whether they are class actions, mass actions, multi-district litigation, individual actions, or arbitrations—are powerful tools for the enforcement of securities laws, protecting the integrity of investment exchanges and markets, and enabling investors to make informed investment decisions. There are generally six elements for a cause of action for securities fraud:

1. A material misstatement or omission made by the defendant, the materiality of which often depends on whether a reasonable investor would have considered the information important in determining whether to buy or sell stock;
2. Scienter (the requisite state of mind), often requiring more than negligence or poor business decisions;
3. A connection between the misrepresentation or omission and the purchase or sale of a security;
4. Reliance upon the misrepresentation or omission, often being presumed in an open and efficient market where publicly available information is incorporated into the security’s price;
5. Economic loss; and
6. Loss causation.

Proxy Solicitations: The Exchange Act governs the disclosure of materials used to solicit shareholders’ votes in annual or special meetings held for the election of directors and the approval of other corporate actions. Information contained in proxy materials must be filed with the SEC in advance of solicitation to ensure compliance with disclosure rules. Whether by management or shareholder groups, solicitations must disclose material information concerning the issues upon which securities holders are asked to vote.

Tender Offers: The Exchange Act requires disclosure of material information by anyone seeking to acquire more than 5 percent of a company’s securities by direct purchase or tender offer.

Insider Trading: Fraudulent activities in connection with the offer, purchase, or sale of securities are prohibited. Litigation often spurs from fraudulent activity, including, without limitation, insider trading. Insider trading is unlawful when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.

The Investment Company Act of 1940 (“Investment Company Act”) regulates the organization of companies, including, without limitation, mutual funds, that engage primarily in investing, reinvesting, and trading in securities and whose own securities are offered to the public. One of the purposes of the Investment Company Act is to disclose to the public information about the fund, its investment objectives, and the investment company’s structure and operations. These companies must disclose their financial condition and investment policies to investors when stock is initially sold and then continued on a regular basis. Another purpose is to minimize conflicts of interest.

The Investment Advisers Act of 1940 (“Investment Advisers Act”) regulates investment advisers. Generally (with exceptions), firms or sole practitioners who are compensated for advising others about securities investments must register with the SEC and follow regulations designed to protect investors. Registered investment advisors and member firms must comply with rules and regulations established by FINRA. If an investor suffers losses due to a securities violation, a claim may be redressed through an arbitration proceeding before FINRA or otherwise resolved through other mechanisms.

Whether litigated under the Investment Advisers Act or otherwise, there are several types of actions that could trigger liability.

Breach of Contract: A breach of contract occurs when a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance, bad faith, or interference with the other party’s performance.

Breach of Fiduciary Duty: Broker-dealers and investment advisors have fiduciary duties to act in reasonable and prudent manners when making recommendations to investors and to put their clients’ best interests first. A fiduciary duty is a legal term that describes the relationship between two parties that obligates one to act solely in the interest of the other. The fiduciary (for example, broker) owes the legal duty to a principal (for example, customer), and strict care is taken to ensure no conflict of interest arises between the fiduciary and the principal. A fiduciary duty exists whenever the relationship with the client or customer involves a special trust, confidence, or reliance on the fiduciary to exercise discretion or expertise in acting for the client or customer. The fiduciary must knowingly accept that trust and confidence to exercise expertise and discretion to act on the client or customer’s behalf.

Churning: Brokers or advisors are not permitted to make frequent trades in customers’ accounts primarily to generate commissions, without regard to clients’ investment objectives. Churning violates SEC rules and other securities laws. In addition, registered representatives or brokers must exercise control over the investment decisions in accounts, either through formal written discretionary agreements or otherwise, such as through customers routinely accepting brokers’ recommendations.

Reverse Churning: Reverse churning is where brokers, registered representatives, or investment advisors move under-traded accounts from commission-based to fee-based compensation structures for the purpose of generating revenue from the accounts or by failing to make trades in accounts that would have otherwise been made had the accounts been commission-based instead of fee-based.

Fraud: Fraud is an intentionally deceptive action designed to provide the fraudster with an unlawful gain or deny a right to a victim. The general contours of fraud are a misrepresentation or material omission, an intention by the maker that the recipient will thereby be induced to act, justifiable reliance by the recipient upon the misrepresentation or material omission, and damages to the recipient as the proximate result.

Selling Away: Selling away is the inappropriate practice of investment professionals who sell or solicit the sale of securities not held or offered by the brokerage firms with which they are associated. Selling away often involves investment securities that are in the form of private placements or other non-public investments.

Unsuitable Investments: Brokers or advisors have duties to know their customers and make recommendations that suit each customer’s financial situation, age, experience, investment objectives, and risk tolerance. A FINRA member firm, brokerage, or registered representative must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities are suitable for the client. This should be based on the information obtained through the reasonable diligence of the member firm or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, without limitation, the client’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation. Registered representatives must have a firm understanding of both the product and the client or customer; the lack of such an understanding itself violates the suitability rule.

Unauthorized Trading: Trades cannot be made without a client’s knowledge or consent, unless the broker or advisor has been given trading authorization by the client.

Failure to Supervise: Firms have a duty to supervise their brokers and advisors and to ensure that investment recommendations comply with laws, rules, and policies. If a broker or advisor is negligent or otherwise acts in an unlawful manner, the employing firm can be held liable for an investor’s loss. A broker-dealer owes a duty to all of its customers under FINRA Rule 3010. FINRA Rule 3010 (a) specifically states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative, registered principal, and another associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD Rules. Final responsibility for proper supervision shall rest with the member.”

The Trust Indenture Act of 1939 (“Trust Indenture Act”) applies to debt securities that are offered for public sale, including, without limitation, bonds, debentures, and notes. Even though debt securities may be registered under the Securities Act, they may not be offered for sale to the public, unless a formal agreement is filed and publicly available between the issuer of the debt securities, the debt securities holders, and often an indenture trustee. The indenture trustee is responsible for monitoring the issuer’s compliance with the terms of the documents binding the debt securities. The formal agreement must conform to the standards of the Trust Indenture Act. The indenture trustee may be liable to the debt securities holders for violating the terms of the formal agreement or the Trust Indenture Act.

Victims of fraud, manipulative trading (for example, spoofing), or other types of unlawful transacting affecting commodities, derivatives, futures, options, or commodities exchanges have rights to sue under the Commodities Exchange Act of 1936. These victims often include individual traders, entrepreneurs, asset managers, energy firms, financial institutions, government entities, public or private institutional investors, and precious-metals traders. Whistleblowers are also protected in reporting violations to the U.S. Commodity Futures Trading Commission (“CFTC”), and they can receive meaningful incentive awards.

The Employee Retirement Income Security Act of 1974 (“ERISA”) is a federal law that sets minimum standards for voluntarily established retirement and health plans: it governs the conduct of companies and other fiduciaries that sponsor, administer, manage, and oversee employee benefit plans. ERISA strictly requires that retirement plan fiduciaries administer plans prudently and in the best interests of those covered. These plans often include investments in 401(k) plans, pension plans, or employee stock ownership plans (ESOPs). Generally, ERISA requires plans to provide participants with plan information, including, without limitation, important information about plan features, funding, investment options, investment performance, and fees. Those who manage and control plan assets owe fiduciary duties to plan beneficiaries.

Employees or other types of plan participants who suffer losses in their investments—their retirement assets—resulting from breaches of fiduciary duties, excessive fees, misrepresentations, self-dealing, or waste can bring class actions, mass actions, multi-district litigation, individual actions, or arbitrations against plan administrators and the companies that they represent. Examples of violations include employees being misled into purchasing overvalued employer stock through 401(k) retirement plans, 401(k) plan fiduciaries recommending imprudent investment options, or employers violating their fiduciary duties to their employees by allowing excessive, unreasonable, or undisclosed fees in their retirement plans. Persons involved in managing plans and controlling assets must act in the best interest of the employees covered by the plan and their beneficiaries, not in the employer’s interests.

Under ERISA, pensioners, healthcare plan participants, unions, employers, and providers can also litigate actions related to the breach of fiduciary duty or fraud in the administration and management of employer group healthcare plans, whether self-funded or fully insured. Claims include, without limitation, cross-plan offsetting, which occurs when a third-party administrator, most often a large healthcare insurer acting under an “Administrative Services Only” agreement for a self-funded plan, uses the assets from one employee’s healthcare plan to recoup financial losses incurred in another healthcare plan. Other claims regarding the administration of healthcare plans include, without limitation, addressing ERISA violations resulting from hidden fees charged by third-party administrators, the dissemination of proprietary information without permission, the withholding of plan data (that is a plan asset) from plan sponsors when asked to provide the information, systemic underpayment of claims, automatic denial of claims, algorithm-produced overpayments, failing to secure confidential information, and lack of oversight of third-party re-pricing companies.

Claims for fraud or other alleged unlawful behavior have been rampant in connection with Special Purpose Acquisition Companies (“SPACs”), which are often called “blank check companies.” These entities often have no commercial operations and are formed specifically to raise capital from investors for the purpose of acquiring existing companies. Once acquisition targets are selected, SPACs and targets will enter into business combinations, which are also known as de-SPACs transactions, through which targets become publicly traded companies. Although SPACs have been around for decades, capital raised through them has experienced explosive growth during the past few years. Incidents of fraud or other alleged unlawful behavior have grown in tandem with this growth.

SPACs sponsors are highly incentivized to complete de-SPACs transactions. Typically, if a SPAC does not acquire a company within two years, its sponsors—often professional investors or Wall Street bankers—have to return the cash that they raised. This could create conflicts by incentivizing sponsors to acquire unproven businesses based on inadequate due diligence. In addition to the potential for conflicts of interest, sponsors and companies are also able to avoid regulatory scrutiny by using the SPAC mechanism rather than conducting a traditional initial public offering. Indeed, federal securities laws require companies, their directors, and the underwriters of traditional offerings to verify the accuracy of the disclosures in offering documents. With SPACs, there are often no offering documents filed in connection with de-SPACs transactions, making these securities law protections inapplicable and leaving public investors increasingly vulnerable to abuse and misconduct.

“Blue Sky” state securities laws, including, without limitation, the Martin Act in New York (New York General Business Law Article 23-A, Sections 352–353), are designed to protect investors. Although these laws vary by state, they generally require sellers of new issues to register securities offerings and provide disclosures about them.

Securities arbitration refers to legal disputes between investors and their financial professionals, such as brokers, registered representatives, or investment advisers. These disputes are often litigated in arbitration forums because financial professionals include mandatory arbitration clauses in investor account documents. Legal disputes between investors or customers and their brokers, registered representatives, or investment advisers are often litigated in FINRA Dispute Resolution. Disputes may be litigated in non-FINRA arbitration forums, if advisory agreements executed between the parties contain arbitration clauses that specify other forums.

The general stages of a FINRA dispute resolution or other type of arbitration follow:

• Stage one: The claimant files a “Statement of Claim,” which is similar to a complaint.
• Stage two: Typically within 45 days, the respondent responds with an answer, which may include affirmative defenses or counter-claims.
• Stage three: The claimant and respondent select an arbitrator.
• Stage four: The parties schedule an initial pre-hearing conference, during which the claimant, respondent, and arbitrator discuss preliminary and procedural issues, such as discovery deadlines, motions and briefing deadlines, the scheduling of the evidentiary hearing, and the possibility of settlement and mediation.
• Discovery then takes place, and information is exchanged.
• An arbitration evidentiary hearing ultimately takes place.
• An arbitration decision is written and served.

There are powerful incentives for securities fraud whistleblowers or other types of confidential informants to report alleged violations to the SEC, CFTC, or other government regulators. For example, as part of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241) and Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (12 USC Ch. 53), the whistleblower program was strengthened with an incentive program under which whistleblowers could receive from 10 to 30 percent of the proceeds from the recoveries or settlements of litigation. And procedures are in place to protect the confidentiality of whistleblowers or informants.

Financial fraud claims are typically brought under the SEC Whistleblower Reward Program. The integrity of the securities and financial markets is critical to the growth of U.S. business and the welfare of the U.S. economy. Whistleblowers play an important role in reporting fraud to the SEC to assist in their important mission of protecting investors and regulating the U.S. financial markets. The SEC has broad jurisdiction over the U.S. financial markets and regularly brings enforcement actions against public and private companies, banks, investment advisers, asset managers, and individuals.

The SEC enforces the federal securities laws, primarily contained in the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act, and the Dodd-Frank Act.

Whistleblowers also play important roles in reporting fraud to the CFTC under the CFTC Whistleblower Reward Program to assist in their important mission of protecting investors and regulating the commodities markets. The CFTC enforces the Commodity Exchange Act, the primary federal law regulating transactions in commodities, such as oil, gas, agricultural products, and metals. The CFTC also has jurisdiction over financial derivatives, such as commodity futures and certain types of option or swap agreements. The CFTC frequently brings enforcement actions against commodity market participants for fraudulent disclosure, market manipulation, and trading violations. Whistleblowers are protected in reporting violations to the CFTC, and they can receive meaningful incentive awards.

A wealth of information about class actions—one of the most effective mechanisms to pursue securities litigation—can be found on our website under the Class Actions tab, including, without limitation, a summary of the benefits and procedures for pursuing a class action.

Our monitoring system oversees domestic and international markets, business news services, breaking news of corporate developments, and filed class actions and related litigation. Clients and potential clients’ potential damages are estimated. We analyze potential claims, defenses, and the probability of recovery. Then, we present case evaluations to the client or potential client’s decision-makers when damages meet the client or potential client’s threshold and other criteria. We advise clients or potential clients on whether to participate in a class action, file a claim, opt-out and file an individual action, or not pursue litigation. And we track settled class actions to help clients and potential clients collect on their claims.

For institutional investors—public or private pension funds, Taft Hartley funds, sovereign funds, mutual funds, hedge funds, endowments, family offices, asset managers, or other types of investment funds—and individual investors, we provide free, confidential, sophisticated, and individualized portfolio monitoring services and tools. Our personalized approach to portfolio monitoring identifies potential recoverable losses. By keeping our clients informed of their rights and recoverable losses, we enable them to be proactive in assessing their strategies and remedies, whether it be to file a class action, move for lead plaintiff, file an individual action or arbitration, or just being an unnamed class member and file a proof of claim out of any recovery. We are dedicated to the rights of our shareholder clients, many of them being guardians of their beneficiaries’ retirement funds. We welcome any questions about our free monitoring services and tools.

Our role is not only protecting your business. We strive to enable it. Possessing the unique blend of prior experience in representing plaintiffs and defendants equips us to craft compliance programs for effectiveness, efficiency, and innovation. Businesses and financial institutions often learn that having an effective, efficient, and innovative legal-monitoring system in place regularly leads to compliance and avoiding legal actions. We provide streamlined and robust monitoring solutions that dramatically cut legal costs. And the Firm provides a lower-cost solution for reviewing documents and data that must be produced during litigation.

• In re Altair Nanotechnologies Securities Litigation (S.D.N.Y.)
• Calfo, et al. v. Messina, et al. (S.D.N.Y.)
• Carmack, et al. v. Amaya Inc., et al. (D.N.J.)
• Garofalo, et al. v. Revlon, Inc., et al. (D. Del.)
• iBasis Inc. v. Koninklijke KPN NV (Del. Ch.)
• Kaplan, et al. v. S.A.C. Capital Advisors, L.P., et al. (S.D.N.Y.)
• Maleef, et al. v. B Communications Ltd., et al. (S.D.N.Y.)
• Mauss, et al. v. NuVasive, Inc., et al. (S.D. Cal.)
• In re MF Global Holdings Limited Securities Litigation (S.D.N.Y.)
• In re Petrobras Securities Litigation (S.D.N.Y.)
• In re OSG Securities Litigation (S.D.N.Y.)
• Perez, et al. v. Higher One Holdings, Inc., et al. (D. Conn.)
• In re Retrophin, Inc. Securities Litigation (S.D.N.Y.)
• Springer, et al. v. Code Rebel Corporation, et al. (S.D.N.Y.)
• Waterford Township Police & Fire Retirement Sys., et al. v. Smithtown Bancorp, Inc., et al. (E.D.N.Y.)
• In re Yahoo! Inc. Securities Litigation (N.D. Cal.)

• Practicing Law Institute, Securities Litigation, A Practitioner’s Guide (Contributor)
• Delaware Business Court Insider, “Lead Plaintiffs’ Shareholdings Draw Chancery Review,” May 22, 2013 (Co-Author)
• Knowledge Group’s Conference, “Latest Trends and Developments in Federal Securities Investigation: What to Expect in 2015 and Beyond,” October 20, 2015 (Speaker and Presenter)

Contact Nematzadeh PLLC by calling (646) 799-6729 or emailing lawyer@nematlawyers.com for a confidential, free consultation. The Firm can creatively formulate hybrid legal fees, including, without limitation, contingency fees, hourly fees, fixed fees, phased fees, success fees, and a combination thereof, to best align and partner long-term with our clients.