J.P. Morgan Securities, LLC v. Geveran Investments Ltd.
224 So. 3d 316
| Fla. Dist. Ct. App. | 2017Background
- Geveran (a Cyprus investment firm) purchased 6,250,000 shares of Lighting Science Group (LSG) for $25 million in a Regulation S subscription; Halvorsen negotiated and performed due diligence for Geveran.
- LSG’s 2010 Form 10-K originally classified certain obsolete inventory as R&D rather than cost of goods sold; the SEC sent comment letters questioning that treatment for 2008–2009, and LSG later restated those years’ financials in an 8-K.
- J.P. Morgan served as placement agent/underwriter for LSG; employees Namburi and Schreck assisted in soliciting Geveran and received copies of the SEC letters; Halvorsen did not receive the SEC letters and J.P. Morgan deleted unfavorable margin figures from an email to Halvorsen.
- Geveran sued under the Florida Securities and Investor Protection Act (FSIPA), § 517.301 et seq., seeking rescission and damages based on omissions/misrepresentations (failure to disclose SEC letters and GAAP-compliance of prior financials).
- Trial court granted summary final judgment for Geveran awarding roughly $36.7M; defendants appealed arguing genuine issues of material fact as to materiality and reliance, and J.P. Morgan challenged claims against its employees Namburi and Schreck for failure to plead agency.
- The Fifth District reversed: it held summary judgment inappropriate because materiality and reliance present genuine factual disputes; it also directed dismissal of claims against Namburi and Schreck for failure to plead they were agents of LSG.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were LSG’s omissions/misrepresentations (SEC letters, non-GAAP past statements) material under FSIPA? | Omission of SEC comment letters and misstatement of GAAP compliance were material to a reasonable investor and to Geveran. | Restatement was not material given expert/SAB 99 analyses and business model changes making 2008–09 less relevant. | Reversed summary judgment — materiality is a jury question; genuine issues of fact exist. |
| Did Geveran actually rely on the omissions/misrepresentations? | Halvorsen relied on LSG’s GAAP assurances and SEC/10-K disclosures in deciding to invest. | Halvorsen conducted independent due diligence and relied on other information; he did not see SEC letters and may not have relied on the contested items. | Reversed summary judgment — reliance is disputed and for the jury; genuine issues of fact exist. |
| Do agents (Namburi, Schreck) incur FSIPA liability as "agents of the seller"? | They solicited the sale and therefore are liable as agents/subagents of LSG. | They were J.P. Morgan employees, lacked personal pecuniary interest or alleged actual/apparent agency with LSG. | Reversed denial of motion to dismiss as to those employees; complaint fails to plead actual or apparent agency — claims against them dismissed. |
| Is Pegasus (controlling shareholder) liable as a "seller" under § 517.211? | Pegasus solicited the investment and had a pecuniary interest as controlling shareholder, making it a seller. | Pegasus argued a privity requirement and absence of direct seller status. | Denial of Pegasus’s summary judgment affirmed as fact questions exist whether Pegasus solicited and benefited — remand. |
Key Cases Cited
- E.F. Hutton & Co. v. Rousseff, 537 So. 2d 978 (Fla. 1989) (FSIPA rescission claims analogized to Securities Act §12; reliance and direct involvement required)
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality standard: substantial likelihood that misrepresentation alters the total mix of information)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (U.S. 1976) (reasonable investor/materiality standard adopted)
- Pinter v. Dahl, 486 U.S. 622 (U.S. 1988) (who qualifies as a "seller" under Securities Act §12—solicitation motivated by financial interest)
- Gochnauer v. A.G. Edwards & Sons, Inc., 810 F.2d 1042 (11th Cir. 1987) (FSIPA liability may be premised on negligence standard)
- Grippo v. Perazzo, 357 F.3d 1218 (11th Cir. 2004) (noting similarity between FSIPA claims and Rule 10b-5 elements)
- Rubin v. Gabay, 979 So. 2d 988 (Fla. 4th DCA 2008) (agency defined in FSIPA context; elements of actual/apparent agency)
- Butler v. Yusem, 44 So. 3d 102 (Fla. 2010) (distinguishing justifiable reliance for negligent vs. fraudulent misrepresentation)