Pastore Wins Jury Trial for Hedge Fund Executives in Multimillion-dollar Securities Fraud Case Brought by Billionaire Family Office

Pastore & Dailey successfully concluded a contentious, multi-year litigation, defeating claims of fraudulent inducement and securities fraud brought against two hedge fund executives by a billionaire family office special purpose investment vehicle. The billionaire family office, the heirs to and founders of a well-known apparel store, had invested in the fund’s General Partner limited liability company.

In 2018, The United States District Court for the District of Connecticut granted a summary judgment in favor of the defendants. The summary judgment was subsequently appealed up to the United States Court of Appeals for the 2nd Circuit, before being remanded back to, and concluding with, a jury trial in the United States District Court for the District of Connecticut in New Haven, Connecticut. Pastore & Dailey was hired for the trial. After two weeks of evidence and 7 hours of jury deliberation, Pastore & Dailey was able to secure a favorable jury verdict for the clients.

FINRA Fine and Suspension for Former CEO Dismissed

Pastore attorneys successfully represented the former CEO of a broker dealer in a regulatory dispute with FINRA. When Pastore was retained, FINRA was seeking a multi-month suspension, thousands of dollars in fines, and was days away from serving a complaint.  In the space of a few months, Pastore convinced FINRA to close the case without levying a dollar in fines or a single day of suspension.

Pastore Successfully Obtains a Dismissal of a Large Investment Bank Case in Delaware District Court

Pastore & Dailey won a complex securities and M&A action in the United States District Court for the District of Delaware arising from a derivative rights holder agreement and related investment banking engagement agreements. This is the latest iteration in the saga between the Defendant, Pastore & Dailey’s client, and the Plaintiff, a representative of the shareholders to a company seeking to invalidate investment banking fees owed following a series of complex insurance corporate mergers.

After Pastore & Dailey successfully defended its client in the United States District Court for the District of Nebraska and then successfully defended its client in the appeal before the Eight Circuit that followed the District of Nebraska decision, its Motion to Dismiss was granted in the District of Delaware. In its Memorandum Opinion, the District Court agreed that Plaintiff’s claims were batted by the doctrine of res judicata and that the Plaintiff lacked standing to assert its claims.

Pastore & Dailey attorneys have vast experience arguing and defending matters in various federal courts across the country and are well-situated to handle similar claims involving complex contractual and investment banking issues.

Pastore Obtains an Injunction Requiring Return of PPP Funds in National Matter

Pastore & Dailey successfully represented its client, a Registered Investment Adviser, in a preliminary injunction hearing against a national bank on an issue regarding a Paycheck Protection Program (“PPP”) loan. The hearing was held virtually in the Supreme Court of New York. The bank had taken out PPP loan money from Pastore & Dailey’s client’s account and provided default notices to the client. Pastore & Dailey filed for injunction on behalf of its client and the Court agreed with Pastore & Dailey that the bank had interfered with its client’s ability to apply for forgiveness. The Court directed the bank to put the money in an escrow account and allow the client’s application for forgiveness to proceed through the proper channels. If the loan is forgiven, the money will be released to its client.

Pastore Defeats Another Billionaire Motion to Dismiss

Pastore & Dailey successfully defeated a Motion to Dismiss in a case against a billionaire and an AM Law 200 firm in a case in front of the Complex Litigation Docket in Stamford. The case involves complex direct and derivative shareholder claims in which the claim for damages is more than $65 million. Pastore & Dailey’s client is one of the shareholders of a two-shareholder company and defendant billionaire is the other shareholder. The Motion to Dismiss sought to dismiss certain counts of the complaint for lack of subject matter jurisdiction. The Court, however, agreed with Pastore & Dailey’s contention that a shareholder in a two-shareholder action can bring a derivative action against the other shareholder and denied the Motion to Dismiss.

Pastore Representing a Large Investment Bank Wins at the Eighth Circuit

Pastore & Dailey won a complex securities and M&A appeal taken to the United States Court of Appeals for the Eighth Circuit arising from a derivative rights holder agreement and related investment banking engagement agreements. This matter was an appeal filed by Plaintiff-Appellant after Pastore & Dailey successfully defended this case in the United States District Court for the District of Nebraska.

Plaintiff-Appellants, who were shareholders to a company, brought suit against Pastore & Dailey’s client in the District Court seeking to invalidate investment banking fees owed to Pastore & Dailey’s client following a series of complex insurance corporate mergers, in which the company was acquired and merged with another company. In its appeal to the Eighth Circuit, Plaintiff-Appellants argued that the District Court erred in denying certain Post-Judgment motions made by Plaintiffs arguing their lack of standing. The Eighth Circuit affirmed the District Court ruling in Pastore & Dailey’s favor that Plaintiff-Appellants lacked standing.

Pastore & Dailey attorneys have vast experience arguing and defending matters in various federal courts across the country and are well-situated to handle similar claims involving complex contractual and investment banking issues.

Pastore Advises Clients on Accredited Investors

Recently, Pastore & Dailey advised clients on a unique issue related to accredited investors.  The client, an SEC registered investment advisor, asked Pastore & Dailey whether the death of an accredited investor had any legal implications for the funds it manages when the accredited investor bequeathed his investment to a non-accredited investor.  The simple answer is no.

Under the securities laws, the term “sale” is defined as to include every contract of sale or disposition of a security or interest in a security, for value. Additionally, the term “offer to sell”, “offer for sale”, or “offer” is defined to include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.  15 U.S.C. § 77b(a)(3).

Thus, an involuntary transfer by operation of law, such as a divestment of an investment upon death to beneficiaries will not be considered a “sale” or an “offer to sell.”  Therefore, the recipient is not required to be an accredited investor.

Special Rule for Family Offices

Pastore & Dailey also advised the client on the legal implications of this unique circumstance when the accredited investor is a family office.

An accredited investor now includes any family office as defined in Rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (“Advisers Act”): (i) with assets under management in excess of $5,000,000, (ii) that is not formed for the specific purpose of acquiring the securities offered, and (iii) whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment.  17 C.F.R. § 230.51(a)(12).

The accredited investor definition was also expanded to include a family client, as defined in Rule 202(a)(11)(G)-1 under the Advisers Act.  A family client as defined in Rule 202(a)(11)(G)-1 is: (i) Any family member; (ii) Any former family member; or (vi) Any estate of a family member, former family member or key employee.  17 C.F.R. § 275.202(a)(11)(G)-1(d)(4).

In the Adoption Release, the SEC explained that it is not excluding from the accredited investor definition a beneficiary that temporarily qualifies as a family client under the family office rule.  Thus, a beneficiary who receives the stocks from the decedent will be considered a family client for purposes of the accredited investor definition for exactly one year.  SEC Release No. 33-10824, August 26, 2020.

There are limitations to this rule.  Although a beneficiary would not be required to unwind any of the securities received in an involuntary transfer, the beneficiary would not be considered an accredited investor in connection with the purchase of additional securities, unless the beneficiary qualified as an accredited investor on another basis.[1]

In conclusion, the requirement that an offering or sale of restricted securities be made to an accredited investor applies at the “time of sale of the securities to that person.” Thus, an involuntary transfer such as a divestment of shares to a beneficiary upon death of the accredited investor should not pose a problem for a testator and their funds.


As the requirement that an offering or sale of restricted securities be made to an accredited investor applies at the “time of sale of the securities to that person,” a involuntary transfer, such as a divestment of shares to a beneficiary upon death of the accredited investor should not pose a problem for an RIA and its funds.


[1] SEC Expands the “Accredited Investor” and “QIB” Definitions and the Permitted Scope of “Testing the Waters.” Proskauer. September 9, 2020.

SPACs Have Grown Up

In 2010, only $500 million of the IPO market was generated through special-purpose acquisition company (“SPAC”). SPACs have evolved from being an ignored strategy in reaching the public markets to becoming an attractive method to take a company public, pursue merger opportunities, and to create liquidity for existing shareholders.

As of October 16, 2020, there have been 143 SPAC IPO transactions in 2020. According to Dealogic, SPAC IPOs have raised $53 billion this year. SPACs have raised more money in 2020 than in the last ten years combined. Melissa Karsh & Crystal Tse, SPACs Have Raised More in 2020 Than the Last 10 Years Combined, Bloomberg (Sept. 24, 2020),

Historically, Pastore & Dailey LLC has worked on SPAC offerings, litigation, and regulatory proceedings. SPACs have become popular in comparison to a traditional IPO because SPACs are cost-efficient and less time-consuming, and they face fewer amounts of due diligence and disclosure requirements than a traditional IPO. In the past, SPACs were generally used by small companies, but now small, mid-size, and large companies are using SPACs to become a public company and raise capital. While historically SPACs had a connotation of a back door method of taking a less than pristine company public, this is no longer the case.

A SPAC is a publicly traded company that raises capital with the intention of using that capital to acquire a private company. Through the acquisition, the SPAC takes the private company public. Many well-known companies have entered the public markets through a SPAC IPO, such as: DraftKings; Virgin Galactic; Nikola; and Opendoor, a real estate technology company.

Until a SPAC acquires a private company, the SPAC is just a company that holds cash. The cash is generally held in an escrow account until the SPAC acquires a private company. SPACs typically have a deadline of two years to acquire a private company. Andrew Ross Sorkin et al., SPACs Are Just Getting Started, N.Y. Times (Sept. 16, 2020), If the SPAC does not acquire a private company in the two-year deadline, the SPAC is required to return the cash to its shareholders.

While SPACs are gaining a lot of momentum, they have historically had less success then traditional IPOs. From the start of 2015 through July 2020, 223 SPAC IPOs had been conducted; but 89 of the 223 SPACs have managed to take a company public. Ciara Linnane, 2020 Is the Year of the SPAC – Yet Traditional IPOs Offer Better Returns, Report Finds, MarketWatch (Sept. 16, 2020), Just 26 of those 89 companies that went public through a SPAC acquisition generated positive returns, and the shares of those companies had an average loss of 18.8%.

This current year, however, has proved to be a different story. SPACs in 2020 have generated a rate of return of 35%, significantly higher than the S&P 500’s year-to-date return of approximately 6%. Many of the large banks are starting to work on SPACs, as Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse, and Deutsche Bank have all conducted underwriting for SPAC IPOs. Richard Henderson et al., The Spac Race: Wall St Banks Jostle to Get In On Hot New Trend, Financial Times (Aug. 11, 2020),

Over the past ten years, the IPO market has significantly diversified. Direct listings gained a lot of momentum, and now SPACs are adding another strategic option in the IPO market.

PPP Flexibility Act of 2020 Update

As of June 17, 2020, the Small Business Association (SBA), along with the Department of Treasury, has passed revisions to the loan forgiveness application under the Paycheck Protection Program (PPP) Flexibility Act of 2020 that was signed into law by President Trump on June 5, 2020. 

The newly issued application forms and instructions are available in both a full and an EZ version. The EZ application is less intensive and requires fewer calculations and documentation for borrowers. If an applicant wants to use the EZ form, it must be able to answer at least one of the three questions on the face of the EZ Instructions in the affirmative. Both applications offer borrowers the choice to use the 8-week covered period if their loan was made before June 5, 2020, or an extended covered period of 24 weeks. 

It is particularly important that eligible applicants for PPP loan forgiveness have available all the necessary documentation at the time of application. Late submission of documentation will disqualify an applicant for forgiveness.

These changes were made with the intention of increasing the efficiency and availability of full loan forgiveness for businesses. 

Can Broker Dealers and Funds Claim Trading Losses Due to the COVID-19 Governmental Shutdowns Under Business Interruption Policies or Contingent Business Interruption Policies

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be explicitly named, or the coverage may apply to all customers and suppliers.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments are many, and those arguments will be the subject of litigation over the coming years.

Most business first-party property insurance policies include coverage not only for the property damage but also for loss in profits resulting from that damage.

The coverage for profits often covers loss resulting from:

  • Damage to the policyholder’s own property (business interruption)
  • Damage to the property of a customer or supplier or a supplier’s supplier (contingent business interruption)
  • Government action such as evacuation orders (order of civil authority)
  • Damage to properties that attract customers to the policyholder’s business (leader property)

The event that triggers any of these coverages is property damage — without which there will be no coverage for lost profits under a first-party property policy.

In Gregory Packing, Inc. v. Travelers Property Cas. Co. of America, a federal court in New Jersey found in 2014 that covered property damage had occurred when ammonia was accidentally released into a facility, rendering the building unsafe until it could be aired out and cleaned.

In reaching its decision, the court stated that “property can sustain physical damage without experiencing structural alteration.” Similar subsequent decisions in Oregon and New Hampshire have found property damage in the absence of structural damage.

Thus, many may argue that property damage has occurred in places where the virus is present.

Closures of public gathering places and all nonessential business activity in major cities worldwide may trigger coverage for “order of civil or military authority” — that is, for loss due to the prohibition of access to a business’s premises if caused by property damage within a specified distance of the insured property, such as one or five miles. Arguably, these closures have caused economic collapse and significant losses, particularly for companies that make their money trading securities.

That poses the question as to whether securities firms can use business interruption insurance to claim losses from the collapse of markets. Certainly, a more direct correlation arises from losses suffered because the trading firm physically shut down. While of course insurance companies will defend such claims on multiple grounds, these claims are much more direct.

But, what about trading losses or lost banking deals caused by the market meltdown arising from the pandemic, and related governmental shutdowns? While less direct, an answer could lie in the banks of the Mississippi River.

In the summer of 1993, the Mississippi and its tributaries experienced unprecedented flooding that affected nine Midwestern states. Twenty million acres of farmland were damaged, resulting in $6.5 billion in crop damage (See Doc. 35, Tab 28 at A172) (The Great Flood of 1993 Post-Flood Report U.S. Army Corps of Engineers September 1994). Total damage from the flood is estimated to be between $15 and $20 billion. Id. River, road, and rail transportation systems were disrupted on a large scale. Id.

Archer Daniels Midland Company and its subsidiaries (collectively, “ADM”) process farm products for domestic and international consumption. As a result of the Great Flood of 1993, ADM incurred substantial extra expenses and losses of income because of increases in both transportation costs and the cost of raw materials. ADM submitted claims to its insurance providers, who paid ADM approximately $11 million for losses sustained from the flooding. (See Compl., Doc. 1, Exhs). The insurance companies denied approximately $44 million in additional claims submitted by ADM. ADM brought suit, under multiple policies in the Southern District of Illinois, and the insurance companies defended.

According to the Southern District of Illinois, business interruption insurance is insurance under which the insured is protected in the “earnings which insured would have enjoyed had there been no interruption of business.” Archer-Daniels-Midland Co. v. Phoenix Assurance Co. 975 F. Supp. 1124 (S.D. Ill. 1997). In other words, business interruption insurance protects earnings that are lost or diminished because of a business interruption. ADM prevailed at the District Court.

On a related appeal, the 8th Circuit took up the issue. Archer-Daniels-Midland Co. v. Aon Risk Services. 356 F.3d 850 (8th Cir. 2004). The insurance companies argued that ADM could not recover because it did not suffer any business interruptions as a result of the flood. The insurance companies argued that Archer had actually continued production at its plants.

The 8th Circuit stated that “interruption of business” did not require ADM to show that its corn processing plants stopped or slowed down. “An interruption of business means some harm to the insured’s business” but the damage could have been caused to the property of a supplier. Most hedge funds, broker-dealers, and RIAs continued to trade during the governmental shutdowns, but the interruption to their business through the market meltdown, other than those hedged on short, was significant.

Under the ADM decision,  coverage may be available, even where the policyholder incurred lost income or losses unrelated to the shutdown of its premises. While these issues are complicated, the flood of the Mississippi may provide securities trading firms with arguments that the shutdown of the economy is damage done to a supplier, above and beyond losses incurred from the physical closing of any offices. Thus, the trading losses caused by the government shutdown arising from COVID-19 could be seen as “harm to the insured’s business.” Of course, these issues will develop once the crisis subsides, but a battle looms on the scope of the insurance and the economic losses covered, including trading and securities losses.