Eleventh Circuit Issues Important Decision for Prime Brokerage Industry

March 25, 2010

In an important decision for prime brokers, on March 25, 2010, a panel of the Eleventh Circuit Court of Appeals affirmed the district court’s dismissal with prejudice of a complaint against our client, Banc of America Securities LLC, in SFM Holdings, Ltd. v. Banc of America Securities, LLC, ---- F.3d -----, 2010 WL 1068230 (11th Cir. 2010). Partner Robert J. Anello was lead counsel before the district court and argued the Eleventh Circuit appeal on behalf of Banc of America. The appellant, SFM Holdings, Ltd., was one of nearly 200 hundred investors defrauded by corrupt investment advisors at Shoreland Trading; as part of its arrangement with Shoreland, SFM had opened a prime brokerage account with Banc of America. A central issue on appeal was SFM's claim that Banc of America owed (and breached) a fiduciary duty to SFM based on the agreements entered into by SFM to open its account and Banc of America's role as a prime broker. Accepting our arguments, the panel affirmed the district court's judgment, holding that the governing account documents specifically precluded imposition of a fiduciary duty on the bank. Notably, the majority also explained that traditionally, it is the introducing brokers—those brokers who have a relationship with and provide investment advice to the client—that assume a fiduciary duty to the client; the prime or executing broker—the broker who merely executes securities transactions at the direction of the client or introducing broker—normally does not owe such a duty.