Securities and Exchange Commission of the United States v. Laura
1:18-cv-05075
| E.D.N.Y | Mar 24, 2020Background
- The SEC sued Joseph M. Laura, Anthony Sichenzio, and Walter Gil de Rubio alleging they fraudulently solicited investments in Pristec America, Inc. (PAI) and misappropriated investor funds tied to commercialization of Pristec AG’s (PAG) "cold‑cracking" oil‑refining technology.
- Revenue‑sharing contracts circulated in 2013 represented that PAI owned exclusive rights and would begin production around April 1, 2014; PAI did not obtain a license until October 2014 according to the complaint.
- The complaint alleges Laura misappropriated at least $3.7 million of investor funds from May 2013–Jan 2017 for personal expenses and payments to Sichenzio, including deposits into personal accounts and concealment of records.
- Defendants moved to dismiss under Rule 12(b)(7) (failure to join PAG under Rule 19), and under Rule 12(b)(6) / Rule 9(b) arguing many allegations fall outside the five‑year limitations period and the fraud claims lack particularity and scienter.
- The court assumed tolling agreements for limitations purposes, accepted SEC allegations as true for the motion, and found sufficient timely allegations to proceed; discovery remained ongoing.
- The court denied the motion to dismiss: held Rule 19 is presumptively inapplicable to SEC enforcement actions absent a showing the SEC abdicated its enforcement discretion; also held the complaint was timely (or contained timely allegations) and met Rule 9(b) and scienter pleading requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Rule 19 / joinder of PAG | Rule 19 should not bar SEC enforcement; PAG is not necessary | PAG (and its CEO) must be joined; arbitration overlaps and PAG is indispensable | Rule 19 is presumptively inapplicable to SEC enforcement; defendants did not show agency abdication or that PAG is a necessary party; motion denied |
| Statute of limitations (28 U.S.C. § 2462) | Relief limited to post‑June 2, 2013 conduct but pre‑period acts may be background for scienter | Vast majority of alleged misconduct is time‑barred and should be struck | Court assumed tolling; complaint alleges extensive timely misconduct; court declined to strike pre‑period allegations now and allowed SEC to use pre‑period conduct as background if appropriate |
| Rule 9(b) specificity for fraud | Complaint identifies fraudulent statements, speakers, contexts, and explains falsity; gives fair notice | Complaint lacks precise dates/times and particularity; scienter not pleaded | Complaint satisfies Rule 9(b) and Twombly/Iqbal plausibility standards; particulars and contemporaneous documents support the allegations; motion denied |
| Scienter and misappropriation sufficiency | Allegations of large diversion of funds, contemporaneous documents, concealment, and continued fundraising support a strong inference of intent/recklessness | Transfers were legitimate (e.g., modest salary/working capital) and do not show fraud | Court rejects characterization of large diversions as "modest"; pleadings sufficiently allege scienter and misappropriation to survive dismissal |
Key Cases Cited
- Kokesh v. SEC, 137 S. Ct. 1635 (2017) (establishes five‑year limitations under 28 U.S.C. § 2462 for SEC disgorgement claims)
- Heckler v. Chaney, 470 U.S. 821 (1985) (agency prosecutorial‑discretion decisions are presumptively unreviewable)
- Morgan v. Nat’l R.R. Passenger Corp., 536 U.S. 101 (2002) (untimely acts may be considered as background evidence in certain claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard requires plausibility)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (scienter must give rise to a strong inference at least as compelling as opposing inferences)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (motive/opportunity or circumstantial evidence can establish scienter)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (elements and particularity requirements for securities fraud pleadings)
- Patane v. Clark, 508 F.3d 106 (2d Cir. 2007) (Rule 12(b)(6) tests legal sufficiency of complaint)
- Aaron v. SEC, 446 U.S. 680 (1980) (scienter not required for some § 17(a) claims)
- SEC v. Research Automation Corp., 585 F.2d 31 (2d Cir. 1978) (investors entitled to know if proceeds will be diverted to officers)
- SEC v. Power, 525 F. Supp. 2d 415 (S.D.N.Y. 2007) (discussion of pleading standards in SEC securities actions)