Special Situations Fund, III, L.P. v. Cocchiola

Suprema Specialties, Inc. (Suprema), which went public in 1991, made a secondary stock offering in 2000. Special Situations Fund, III, L.P., and Special Situations Cayman Fund, L.P. (the funds) (plaintiffs) purchased shares from lead underwriter Hobbes Melville Securities Corp. (Hobbes) (defendant). Suprema announced a financial-results investigation and 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) (defendants), alleging that the funds purchased shares based on false and misleading statements in Suprema’s public filings. The funds moved for partial summary judgment that the alleged syndicate members were underwriters. In support, the funds introduced the prospectus, which listed the alleged syndicate members as underwriters who each agreed to purchase 75,000 Suprema shares subject to conditions; the underwriting agreement, which stated that Suprema would sell stock to the underwriters named in a schedule that identified Hobbes as the underwriters’ representative; documents entitled “Agreement Among Underwriters” signed by a Westport vice president, the Westminster and Oberweis presidents, and a Paulson representative; faxes indicating that Westport and Westminster’s underwriting participations were 75,000 shares and final retentions zero shares, and that Paulson and Oberweis’s participations were 75,000 shares and respective final retentions of 35,000 and 70,000 shares; letters from Hobbes stating that Paulson was to pay for 35,000 shares and Oberweis for 70,000 shares; trade tickets, order confirmations, and other documents demonstrating that Paulson and Oberweis purchased and sold shares; and letters from Hobbes showing that Westport, Westminster, and Paulson each received $2,350 from Hobbes.