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J.P. Morgan Securities Inc. v. Vigilant Ins. Co.

Court of Appeals of New York

June 11, 2013

J.P. MORGAN SECURITIES INC. et al., Appellants,
v.
VIGILANT INSURANCE COMPANY et al., Respondents.

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[970 N.Y.S.2d 734] Proskauer Rose LLP, New York City (John H. Gross, Steven E. Obus, Seth B. Schafler, Francis D. Landrey and Matthew J. Morris of counsel), for appellants.

DLA Piper LLP (US), New York City (Joseph G. Finnerty III, Megan Shea Harwick, Eric S. Connuck and Miles D. Norton of counsel), Kaufman Borgeest & Ryan LLP (Scott A. Schechter and Sergio Alves of counsel), D'Amato & Lynch, LLP (Luke D. Lynch, Jr., Richard F. Russell and Liza A. Chafiian of counsel), Drinker Biddle & Reath LLP (Marsha J. Indych, Douglas M. Mangel and David F. Abernethy of counsel), Clyde & Co. U.S. LLP (Edward J. Kirk and Allison M. Calkins of counsel), Landman Corsi Ballaine & Ford P.C. (Michael L. Gioia of counsel) and Bates Carey Nicolaides LLP, Chicago, Illinois (Ommid C. Farashahi, Kristi S. Nolley and R. Patrick Bedell of counsel), for respondents.

Melito & Adolfsen PC, New York City (S. Dwight Stephens of counsel), and Wiley Rein LLP, Washington, D.C. (Daniel J. Standish and Cara Tseng Duffield of counsel), for American Insurance Association, amicus curiae.

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[970 N.Y.S.2d 735] [992 N.E.2d 1078] OPINION

GRAFFEO, J.

In this insurance dispute arising from the insured's monetary settlement of a Securities and Exchange Commission (SEC) proceeding and related private litigation predicated on the insured's violations of federal securities laws, we conclude that the insurers are not entitled to a CPLR 3211 dismissal of the insured's coverage claims. We therefore reverse and reinstate the insured's complaint.

In 2003, the SEC and other regulatory entities undertook an investigation of Bear Stearns & Co., Inc., a broker-dealer, and Bear Stearns Securities Corp., a clearing firm, for allegedly facilitating late trading and deceptive market timing on behalf of certain customers (predominately large hedge funds) for the purchase and sale of shares in mutual funds.[1] During the course of the investigation, the SEC notified Bear Stearns of its intention to commence a civil proceeding charging Bear Stearns with violations of federal securities laws and seeking injunctive relief and sanctions of $720 million. Bear Stearns disputed the proposed charges in a " Wells Submission" in which it claimed that, as a clearing broker that processed transactions initiated by others, it did not knowingly violate any ...


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