25 F.4th 1341
11th Cir.2022Background
- BitConnect operated a Ponzi/pyramid scheme promising guaranteed high returns via a “staking” and “lending” program; earlier investors were paid with funds from later investors.
- Glenn Arcaro was the national promoter for BitConnect in the U.S., leading a team that produced thousands of online marketing materials (websites and YouTube videos) and used referral links to recruit investors.
- Plaintiffs—investors who lost money—sued Arcaro and regional promoters under Section 12 of the Securities Act, alleging they offered or sold unregistered securities via these public online solicitations.
- The district court dismissed the Section 12 claims, holding that the Securities Act requires a solicitation to be a personal/individualized communication rather than a mass/public one; it also dismissed state-law claims for lack of jurisdiction.
- Plaintiffs amended to add purchasers who signed up via promoters’ referral links; the district court again dismissed for alleged lack of “personal solicitation.” Plaintiffs appealed.
- The Eleventh Circuit reversed the Section 12 dismissal (holding mass communications can be solicitations), vacated the dismissal of state-law claims tied to jurisdiction, affirmed dismissal of other defendants/claims, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a mass or publicly disseminated communication (e.g., internet videos) can be a "solicitation" under the Securities Act | Mass communications that urge purchase are solicitations; online videos are covered by the Act | A solicitation must be directed to a particular prospective buyer; mass/public communications cannot trigger Section 12 liability | Mass/public communications can constitute a solicitation under the Act; reversed dismissal of Section 12 claims |
| Whether plaintiffs adequately alleged that purchases occurred “as a result of” the promoters’ solicitations | Plaintiffs alleged they bought via promoters’ referral links and because of recruitment efforts | Promoters argued plaintiffs failed to plead causation tied to personal solicitation | Court found district relied on the absence of personal solicitation (not lack of causation) and did not affirm dismissal on a causation ground |
| Whether state-law claims should remain after dismissal of federal securities claims (personal jurisdiction premise) | State-law claims should proceed because Section 12 claim survives, supporting jurisdiction | If no viable Section 12 claim, federal jurisdiction basis collapses and state claims fall | Because Section 12 dismissal was erroneous, the dismissal of state-law claims for lack of jurisdiction was vacated and remanded |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (1988) (discusses intent/result required for Section 12 liability)
- Ryder Int’l Corp. v. First Am. Nat’l Bank, 943 F.2d 1521 (11th Cir. 1991) (solicitation requires urging or persuading another to buy a particular security)
- Cochran v. United States, 41 F.2d 193 (8th Cir. 1930) (historical recognition that newspaper ads can be solicitations)
- Horwitz v. United States, 63 F.2d 706 (5th Cir. 1933) (radio communications can be solicitations)
- Godelia v. Doe 1, 881 F.3d 1309 (11th Cir. 2018) (standard of review for dismissal under Rule 12(b)(6))