Judge delivers wins to both sides in former Ditto Trade CEO Simons' battle vs. online brokerage over dismissal, defamation
A former chief executive officer of Chicago-based social brokerage firm Ditto Trade has secured a victory – mostly –over claims made against him in an ongoing legal battle with his former employers, who have alleged the former CEO worked to “undermine” the company after he was fired just nine months into his tenure.
U.S. District Judge Harry D. Leinenweber dismissed and struck some of the claims for breach of duty against Paul Simons brought by Ditto Trade and Joseph Fox, CEO of Ditto Trade’s parent company, Ditto Holdings.
Leinenweber, however, allowed a claim for defamation to proceed against Simon, noting the company should be allowed to prove whether Simons falsely reported to the Professional Golfers’ Association that Ditto Trade was illegally using the PGA’s likeness and misrepresenting their relationship with the PGA to promote Ditto’s business, among other allegations.
The case arose in September 2013 when Simons was fired as Ditto Trade’s CEO.
In January 2013, Paul Simons was named chief executive officer of Ditto Trade, an online brokerage firm specializing in allowing customers to essentially copy the trading activities of certain other equities traders.
According to Simons, he sent a letter to Ditto's senior officers about nine months later, on Sept. 9, 2013, expressing concerns about possible wrongful conduct by Fox. That same day, Simons had his attorney communicate allegations of Fox' misconduct to the U.S. Securities and Exchange Commission. The attorney did so via email, attaching the letter Simons sent to the senior officers.
Simons was fired Sept. 10, and sent a letter the next day to Ditto's investors and shareholders, repeating his suspicions.
Simons filed a 14-count lawsuit in January 2014 in federal court in Chicago against Ditto Trade and Fox, saying he was fired because of his whistle blowing.
Ditto Trade and Fox filed counterclaims, including ones alleging breach of fiduciary duty, breach of employment agreement and defamation.
Simons responded by filing a motion to dismiss these counterclaims and to strike portions of pleadings made by the defendants.
Ditto Trade and Fox argued Simons breached his fiduciary duty by disseminating the letter about possible misconduct and authorizing his attorney to contact the SEC, which constituted a “false and misleading disclosure” that injured the corporation or individual stockholders. Judge Harry D. Leinenweber tossed this count, saying there was nothing in Simons’ letter and communication that cast “reasonable doubt” on Simons’ business judgment or contained “false information.”
Leinenweber likewise dismissed the claim Simons breached his employment agreement by not obtaining a Series 24 license, which qualifies a person as a general securities principal. Leinenweber did not find Simons was bound to secure the license.
Going against Simons, Leinenweber allowed the defamation claims to proceed.
One claim accused Simons of putting false labels on a spreadsheet of Fox’s alleged expenses that Simons disclosed to others. Another claim said Simons falsely told the Professional Golfers’ Association that Ditto and Fox were using the PGA’s likeness illegally and misrepresenting their relationship with the PGA. Leinenweber ruled these allegations are sufficient to state a claim.
Simons won a final victory from Leinenweber, when it came to Simons’ motion to strike portions of the counterclaims that alleged Simons developed an “extraordinarily close” and inappropriate relationship with interim Chief Financial Officer Jeremy Mann. Leinenweber ruled these allegations were immaterial to the counterclaims, both those that survive and those dismissed.
Ditto and Fox described Simons and Mann as “confederates in their plan to benefit themselves at the expense of” Ditto Holdings and its shareholders, with Mann tipping off Simons that Simons was about to be fired. Armed with this information, Simons then worked to “undermine” Ditto, according to Ditto and Fox.
A status hearing was set for May 21.
Simons is represented by the firms of Locke Lord and Schopf & Weiss, both of Chicago.
The Chicago firm of Chuhak & Tecson is representing Ditto and Fox.