Haddad v. Halabi, 1:22-cv-01906

Background

Haddad met Victor Halabi through a mutual acquaintance and, at Soly Halabi’s introduction, agreed to fund allegedly “pre‑negotiated” electronics deals run through B & H Cellular Wholesale, with a promised 50/50 profit split.
Haddad alleges he fronted repeated sums (approximately $4,000,000 over the course of dealings) and received occasional returns that were often just his own money recycled into new “deals.”
Victor pressured Haddad to keep funding transactions, limited Haddad’s access to full accounting, and briefly allowed joint access to a bank account that was then closed; Victor later used Haddad’s AmEx for purchases.
On December 29, 2019, Victor allegedly confessed the deals were fake, there was no Dubai forwarder, and the funds were misused.
Procedurally, Soly moved to dismiss under Rule 12(b)(6), but the court raised subject‑matter jurisdiction sua sponte and considered whether the alleged transactions implicated a “security” under the Securities Exchange Act, since §1331 jurisdiction rests on that claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the alleged fraud was “in connection with” the purchase or sale of a security under §10(b)	Haddad contends the funded deals were investment arrangements/securities subject to §10(b)	Defendants argue the transactions were private, negotiated deals (commercial loans/financing), not securities	Held: No — the transactions were not securities; §10(b) does not apply and federal jurisdiction lacking
Whether the transactions meet the Howey investment‑contract test (common enterprise, profits from others’ efforts)	Haddad asserts he invested money expecting profits from the Halabis’ efforts	Defendants point to one‑on‑one negotiation, single investor structure, and Haddad’s access/control as indicia of private financing	Held: No — no common enterprise or pooling; Howey factors not satisfied
Whether the arrangements were public offerings or instruments designed for trading	Haddad emphasizes use of “investor” language and promised returns	Defendants emphasize absence of prospectus, no secondary market, unique private deals, and Haddad’s negotiated control	Held: Not public — the facts resemble isolated commercial financing, not a tradable security
Disposition of pendent state‑law claims if federal claims fail	Haddad seeks relief on related state claims	Defendants seek dismissal of federal claim (and overall case)	Held: Federal claim dismissed for lack of jurisdiction; pendent state claims dismissed without prejudice; case closed

Key Cases Cited

SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (establishes investment‑contract test for what constitutes a “security”)
Reves v. Ernst & Young, 494 U.S. 56 (1990) (interprets "note" as a security using an economic realities test)
Marine Bank v. Weaver, 455 U.S. 551 (1982) (courts should not extend securities laws to every fraud; focus on substance/economic reality)
Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, Inc., 552 U.S. 148 (2008) (limits private §10(b) actions and rejects broad incorporation of common‑law fraud)
S.E.C. v. Zandford, 535 U.S. 813 (2002) (emphasizes investor protection and purpose of securities laws)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (explains §10(b) and materiality principles)
United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975) (advises courts to consider economic reality over formal labels when defining securities)
Tcherepnin v. Knight, 389 U.S. 332 (1967) (form should be disregarded and emphasis placed on economic reality)
Revak v. SEC Realty Corp., 18 F.3d 81 (2d Cir. 1994) (discusses horizontal pooling and common‑enterprise requirement)
Arbaugh v. Y & H Corp., 546 U.S. 500 (2006) (subject‑matter jurisdiction may be raised anytime and cannot be waived)
Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428 (2011) (courts have independent duty to ensure they do not exceed jurisdiction)