Академический Документы
Профессиональный Документы
Культура Документы
13
14
15
16
Plaintiff,
17
vs.
18
19
Defendants.
20
21
22
23
1 an order (1) dismissing the SECs First, Second, Fourth, and Eighth Claims for
2 Relief; (2) partially dismissing the SECs Fifth and Sixth Claims for Relief; and (3)
3 dismissing the SECs claims for penalties and disgorgement to the extent those
4 claims rely on conduct occurring before March 1, 2011.
This Motion is based on this Notice of Motion, the following Memorandum
6 of Points and Authorities, the pleadings and papers of record, and such other
7 evidence and argument as may be presented to the Court at or before the hearing of
8 this Motion.
This motion is made following the conference of counsel pursuant to
12
13
Respectfully Submitted,
/s/Jeffrey R. Thomas
Jeffrey R. Thomas
THOMAS LAW LLC
14
15
16
Mark D. Hunter
HUNTER TAUBMAN FISCHER LLC
17
18
19
20
21
22
23
24
25
26
27
28
TABLE OF CONTENTS
1
2
I.
INTRODUCTION...............................................................................................................................5
II.
ARGUMENT...................................................................................................................................7
B. The Fourth Claim Should Be Dismissed Because the SEC Impermissibly Alleges a Scheme
as a Back Door into Primary Liability..............................................................................................7
7
8
C. The Second Claim Should Be Dismissed Because It (1) Impermissibly Alleges Scheme
Liability and (2) Is Barred by Janus.....................................................................................................9
D. The Fifth and Sixth Claims Should Be Dismissed to the Extent They Impermissibly Allege
Secondary Scheme Liability under Sections 17(a)(1) and (3) and Rule 10b-5(a) and (c)...........11
10
11
E. The Fourth and Sixth Claims Should Be Dismissed to the Extent They Rely on Purportedly
Fraudulent Statements by Companies Other Than New Image, Health Directory, or Movie
Trailer....................................................................................................................................................12
12
13
F. The First Claim Should Be Dismissed Because Registration Statements Were in Effect and
Mr. Jaclin Cannot Be Liable as a Participant................................................................................13
14
G.
The Eighth Claim Should Be Dismissed Because the SEC Does Not Plead Facts Sufficient
to Show Substantial Assistance........................................................................................................16
15
16
H.
Any Claims for Penalties and Disgorgement Should Be Dismissed as Time Barred to the
Extent They Rely on Conduct Occurring Before March 1, 2011......................................................16
17
18
III.
19
CONCLUSION.............................................................................................................................18
20
21
22
23
24
25
26
27
28
3
TABLE OF AUTHORITIES
2 Cases
3 Ashcroft v. Iqbal, 556 U.S. 662 (2009).........................................................................................................7
4
5
6
7
8
9
10
11
12
13
14 Statutes
15
16
17
15 U.S.C. 77d(a)(2)..................................................................................................................................13
15 U.S.C. 77e...........................................................................................................................................13
15 U.S.C. 77q(a)......................................................................................................................................10
28 U.S.C. 2462...................................................................................................................................16,17
18 Rules
19
20
17 C.F.R. 240.10b-5...................................................................................................................................8
F.R.C.P. 12(b)(6)..........................................................................................................................................7
21
22
23
24
25
26
27
28
4
I.
INTRODUCTION
The SEC alleges that Imran Husain was an undisclosed control person and
17
18 Fourth, and Eighth Claims on the ground that those Claims fail to state a claim on
19 which relief can be granted. The SECs Fourth Claim for fraud under Section
20 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder should be
21 dismissed because the SEC impermissibly attempts to impose back door liability
22 by casting a misstatement case as a scheme case and because the SEC fails to
23 adequately plead the in connection with requirement with respect to allegedly
24 fraudulent statements pertaining to all but three of the Companies. The SECs
25 Second Claim for fraud under Section 17(a) of the Securities Act of 1933 should
26 be dismissed because it impermissibly attempts to impose scheme liability and
27 because it is barred by the U.S. Supreme Courts decision in Janus Capital Group,
28 Inc. v. First Derivative Traders and its progeny. The SECs First Claim for
5
14
15 penalties and disgorgement to the extent those requests rely on conduct occurring
16 before March 1, 2011.
17
18
19
20
21
22
23
24
25
26
27
28
6
II.
ARGUMENT
2 A.
4 plausible on its face to survive dismissal under F.R.C.P. 12(b)(6). Bell Atl. Corp.
5 v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the
6 plaintiff pleads factual content that allows the court to draw the reasonable
7 inference that the defendant is liable for the misconduct alleged. Ashcroft v.
8 Iqbal, 556 U.S. 662, 678 (2009). Facts that are merely consistent with unlawful
9 conduct are not sufficient, and the complaints allegations must permit the court to
10 infer more than the mere possibility of misconduct. Id. Moreover, the complaints
11 factual allegations must be sufficient to raise a right to relief above the speculative
12 level. Twombly, 550 U.S. at 555. [A] plaintiffs obligation to provide the
13 grounds of his entitle[ment] to relief requires more than labels and conclusions,
14 and a formulaic recitation of the elements of a cause of action will not do. Id.
15 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)) (alterations in original).
16 Finally, while a court must accept all allegations in a complaint as true, that is not
17 the case with legal conclusions. Iqbal, 556 U.S. at 678. That is, [t]hreadbare
18 recitals of the elements of a cause of action, supported by mere conclusory
19 statements, do not suffice. Id.
20 B.
21
22
Rule 10b-5 under the Securities Exchange Act of 1934 (Exchange Act)
23 states that [i]t shall be unlawful for any person [in connection with the purchase
24 or sale of any security]
25
(a)
26
(b)
27
28
made, in the light of the circumstances under which they were made,
not misleading, or
(c)
person.
6 17 C.F.R. 240.10b-5.
The SEC does not allege that Mr. Jaclin is primarily liable under subsection
8 (b) of Rule 10b-5, apparently acknowledging that Janus Capital Group, Inc. v.
9 First Derivative Traders, 564 U.S. 135 (2011) and its progeny preclude such
10 liability. Instead, the SEC asserts a claim for scheme liability under subsections
11 (a) and (c) of Rule 10b-5. To prevail on a claim for scheme liability under Rule
12 10b-5(a) or (c), the SEC must prove that Mr. Jaclin: (1) committed a deceptive or
13 manipulative act, (2) in furtherance of an alleged scheme to defraud, (3) with
14 scienter. SEC v. Lucent Techs., Inc., 610 F. Supp. 2d 342, 350 (D.N.J. 2009).
Scheme liability under subsections (a) and (c) of Rule 10b-5 hinges on the
15
25
26 courts. See, e.g., SEC v. St. Anselm Exploration Co., 936 F. Supp. 2d 1281, 129827 99 (D. Colo. 2013) (liability does not arise simply by virtue of repackaging a
28 fraudulent misrepresentation a scheme to defraud Rather scheme liability
8
12
13 is plainly a misstatement case. The sole bases for the SECs Fourth Claim for
14 scheme liability under Rule 10b-5(a) and (c) are alleged misrepresentations in SEC
15 filings made by the Companies i.e., the alleged failure to disclose (a) Husain as a
16 control person or promoter and (b) pending deals concerning two of the Companies
17 Movie Trailer and Health Directory. Such allegations do not give rise to scheme
18 liability and, for that reason, the SECs Fourth Claim should be dismissed.
19 C.
20
21
Section 17(a) of the Securities Act of 1933 (Securities Act) states that [i]t
22 shall be unlawful for any person in the offer or sale of any securities
23
(1)
24
(2)
25
26
27
28
9
(3)
purchaser.
4 15 U.S.C. 77q(a).
5
1.
As with Rule 10b5, subsections (1) and (3) of Section 17(a) apply
2.
14
As stated, Rule 10b-5(b) provides that it is unlawful for any person [t]o
15 make any untrue statement of a material fact in connection with the purchase or
16 sale of a security. In Janus Capital Group, Inc. v. First Derivative Traders, the
17 U.S. Supreme Court addressed claims under Section 10(b) and Rule 10b-5(b)
18 based on misstatements in prospectus materials issued by Janus Investment Fund.
19 The plaintiffs alleged that Janus Capital Management, the funds investment
20 adviser and administrator, violated Rule 10b-5(b) because it had been significantly
21 involved in the creation of the allegedly misleading statements. The plaintiffs
22 alleged that the adviser had a close relationship with the fund, exercised significant
23 influence over the fund and its prospectus disclosures, and was understood by
24 investors to be the maker of disclosures issued by the fund. The Supreme Court
25 held that the adviser did not make the allegedly false statements within the
26 meaning of Rule 10b-5(b) and therefore could not be primarily liable. In so doing,
27 the Supreme Court stated, the maker of a statement is the person or entity with
28
10
1 ultimate authority over the statement, including its content and whether and how to
2 communicate it. Janus Capital Group, Inc., 564 U.S. at 142.
This Court has held that Januss requirement that a primary violator under
4 Rule 10b-5(b) be the maker of the fraudulent statement applies to claims under
5 Section 17(a)(2) as well. See SEC v. Perry, No. CV-11-1309 R, 2012 WL
6 1959566, at *8 (C.D. Cal. May 31, 2012) ([t]his requirement applies to claims
7 under both Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b5
8 promulgated thereunder, and Section 17(a) of the Securities Act of 1933) (citing
9 SEC v. Global Express Capital Real Estate Inv. Fund, I, LLC, 289 F. Appx 183,
10 186 (9th Cir. 2008) and SEC v. Dain Rauscher, Inc., 254 F.3d 852, 85556 (9th Cir.
11 2001)). Other courts are in accord. See, e.g., Kelly, 817 F. Supp. 2d at 345 ([t]o
12 succeed on a misstatement claim under either Rule 10b5(b) or Section 17(a)(2),
13 the SEC must prove that the defendant made materially false statements or
14 omissions) (emphasis in original).
Like its Rule 10b-5 claim, the SECs Section 17(a)(2) claim is based solely
15
16 on allegations that SEC filings made by the Companies failed to disclose (a)
17 Husain as a control person or promoter and (b) pending deals concerning two of
18 the Companies. And there is no dispute that the statements at issue were made by
19 the Companies, and not by Mr. Jaclin or his law firm. See, e.g., Complaint at
20 14-22, 61, 78, 156. Under these circumstances, Janus and its progeny, including
21 pronouncements by this very Court, preclude liability under Rule 17(a)(2).
22 D.
The Fifth and Sixth Claims Should Be Dismissed to the Extent They
23
24
25
26 laws, the SEC must prove: (1) the existence of a securities law violation by
27 the primary (as opposed to the aiding and abetting) party; (2) knowledge of
28 this violation on the part of the aider and abettor; and (3) substantial
11
The Fourth and Sixth Claims Should Be Dismissed to the Extent They
10
11
12
To establish liability under Section 10(b) and Rule 10b-5, the SEC must
13 show that a fraudulent statement or omission was made in connection with the
14 purchase or sale of a security. See 17 C.F.R. 240.10b-5; SEC v. Zandford, 535
15 U.S. 813, 819 (2002). Here, the SEC alleges that only three of the Companies
16 New Image, Health Directory, and Movie Trailer were publicly traded before
17 being sold to the shell company purchasers. See Complaint at 92. Accordingly,
18 for the other six Companies, the in connection with requirement can be satisfied
19 only by (1) sales to the shell company purchasers or (2) sales in the public markets
20 after the Companies were sold to the shell company purchasers.
Two of the Companies Comp Services and Counseling International
21
22 were never sold to shell company purchasers because the SEC issued stop orders
23 suspending the effectiveness of their registration statements before any such sales
24 occurred. See Complaint at 21(d), 22(c). Indeed, the SEC does not allege that
25 any sales of stock of these two Companies occurred after the initial registration
26 statements were filed. Compare 21 and 22 with 14-21.
For the other four Companies PR Complete, Ciglarette, Resume in
27
28 Minutes, and Rapid Holdings the SEC cannot plausibly claim that any allegedly
12
10
15
16
Securities Act Section 5 prohibits (1) the offering of a security for sale
17 unless a registration statement has been filed (Section 5(c)) and (2) the selling of a
18 security unless a registration statement is in effect. (Section 5(a)). See 15 U.S.C.
19 77e. These prohibitions are subject to numerous exemptions, including
20 exemptions for transactions by an issuer not involving any public offering
21 otherwise known as the private offering exemption. Securities Act Section 4(2),
22 15 U.S.C. 77d(a)(2).
In its First Claim, the SEC contends that Mr. Jaclin committed direct
23
24 violations of Sections 5(a) and (c) in connection with the offers or sales of stock of
25 six of the Companies. The SEC does not allege that Mr. Jaclin offered or sold
26 stock. See Complaint at 132, 133 (stating that the offers and sales upon which
27 the SEC relies were offers and sales of stock (1) by defendant Husain of [the]
28 shell companies (Complaint at 133) and (2) by the shell company purchasers
13
19
20 132), were far too attenuated from any actions by Mr. Jaclin for participant
21 liability to attach. For participant liability to attach, a person must be both a
22 necessary participant and substantial factor in the sales transaction. SEC v.
23 Murphy, 626 F.2d 633, 650 (9th Cir. 1980). The necessary participant test is
24 equivalent to the first prong of [a] proximate cause analysis, asking whether, but
25 for the defendants participation, the sale transaction would not have taken place.
26 Id. at 651.
27
28
The SEC alleges that, [f]or each of the six offerings, Husain was the issuer.
14
The substantial factor test, however, requires more than a finding of but
2 for causation:
3
pass the instrument to another person. Both would satisfy a but for
causation test, but these acts nonetheless do not render the defendants
10
11
12 Id. at 650.
Here, any offers or sales occurring after each Companys reverse
13
14 merger were too remote in time and otherwise far too attenuated from any
15 legal work that Mr. Jaclin or his firm may have done to establish participant
16 liability. The SEC does not allege that Mr. Jaclin sold stock or had any role
17 in effecting sales transactions for others. Further, the post-merger sales
18 typically occurred many months after the registration statement and other
19 documents at issue were filed (see Complaint at 106) and after the
20 Company with its new business, new shareholders, and new officers and
21 directors had filed a Super 8-K disclosing all of the material information
22 required in a registration statement. (See Complaint at 91). Under these
23 circumstances, Mr. Jaclin cannot plausibly be deemed a substantial factor
24 in any post-merger offers or sales.
25
26
27
28
15
1 G.
The Eighth Claim Should Be Dismissed Because the SEC Does Not
In its Eighth Claim, the SEC alleges that Mr. Jaclin aided and abetted
13
14
March 1, 2011.
15
28 U.S.C. 2462 states that an action ... for the enforcement of any civil
16 fine, penalty, or forfeiture ... shall not be entertained unless commenced within five
17 years from the date when the claim first accrued. Section 2462 bars any SEC
18 action for penalties brought more than five years after the allegedly fraudulent
19 conduct occurred. Gabelli v. SEC, 133 S. Ct. 1216, 1224 (2013). Accordingly,
20 any claim for penalties based on conduct occurring on or before March 1, 2011 is
21 time-barred and should be dismissed.2
Similarly, Section 2462 bars any SEC action for disgorgement brought more
22
23 than five years after the allegedly fraudulent conduct occurred. SEC v. Graham,
24 823 F.3d 1357, 1363-64 (11th Cir. 2016). In Graham, the Eleventh Circuit ruled
25
26
The SEC filed this action on May 12, 2016, but Mr. Jaclin and the SEC entered into a tolling
27 agreement that tolled the running of any applicable statutes of limitation from March 1, 2016
through May 12, 2016.
28
16
1 that for the purposes of 2462 forfeiture and disgorgement are effectively
2 synonyms; 2462s statute of limitations applies to disgorgement. We find no
3 meaningful difference in the definitions of disgorgement and forfeiture. Id. at
4 1363. On that basis, the Graham court held that the SEC is time-barred from
5 proceeding with its claims for declaratory relief and disgorgement because, under
6 the plain meaning of 28 U.S.C. 2462, these remedies are a penalty and a
7 forfeiture, respectively. Id. at 1364. Based on that reasoning, any claim for
8 disgorgement based on conduct occurring on or before March 1, 2016 is time9 barred and should be dismissed.3
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
While the Ninth Circuit in SEC v. Rind, 991 F.2d 1486 (9th Cir. 1993) concluded that the SEC
was not bound by a statute of limitations, that court did not consider the applicability of Section
2462.
17
III.
CONCLUSION
Based on the foregoing, Mr. Jaclin respectfully requests that the Court grant
3 his Motion to Dismiss without leave to amend. Specifically, Mr. Jaclin requests
4 that the Court:
1.
Dismiss the SECs First, Second, Fourth, and Eighth Claims for
6 Relief;
2.
Dismiss the SECs Fifth Claim for Relief to the extent it alleges
Dismiss the SECs Sixth Claim for Relief to the extent it (a) alleges
12
Dismiss the SECs claims for penalties and disgorgement to the extent
16
Respectfully Submitted,
/s/Jeffrey R. Thomas
Jeffrey R. Thomas
THOMAS LAW LLC
17
18
19
Mark D. Hunter
HUNTER TAUBMAN FISCHER LLC
20
21
22
23
24
25
26
27
28
18
PROOF OF SERVICE
I hereby certify that, on August 10, 2016, I electronically filed the foregoing
17
18
19
20
21
22
23
24
25
26
27
28
19