Securities and Exchange Commission v. Hurgin, 484 F.Supp.3d 98

Background

Ability Computer & Software (Tel Aviv) was co‑owned by Anatoly Hurgin (CEO) and Alexander Aurovsky (CTO); in Dec. 2015 it merged with U.S. SPAC Cambridge to form publicly traded Ability, Inc.
Ability provided forecasts (Aug. 2015 spreadsheet) projecting large 2016 revenue; backlog listed $65.7M, ~80% (~$52M) allegedly from a single Latin American police agency.
Hurgin presented roadshows and proxy materials touting ULIN as Ability’s owned, "game‑changing" product and a three‑year deal with the police agency; ULIN in fact was sold under a reseller agreement (signed by Hurgin) giving the ULIN owner 50% of revenues and penalty provisions.
Two advisers reviewed Ability: Economics Partners found many backlog items lacked signed purchase orders and flagged concentration/risk; Prometheus did not do independent diligence and its report (included in the proxy) wrongly stated the backlog was supported by signed orders.
The proxy materials omitted the Economics Partners report, included the Prometheus report and roadshow materials, and were filed with the SEC; shareholders approved the merger; post‑merger disclosures revealed the ULIN reseller agreement and Ability, Inc. later suffered large revenue shortfalls.
SEC sued Hurgin and Aurovsky for securities and proxy violations; both moved to dismiss—Hurgin for failure to state claims; Aurovsky for lack of personal jurisdiction and failure to state claims. The court denied both motions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether SEC plausibly alleged securities and proxy claims against Hurgin (10(b)/10b‑5, 17(a), 14(a)/14a‑9)	Hurgin made material misstatements/omissions (ownership of ULIN, three‑year police deal, backlog supported by signed POs), signed proxy/rep documents, and concealed material facts	Statements were immaterial or nonactionable opinions; lack of scienter; one‑off/extemporaneous comments; some facts disclosed to advisers	Denied dismissal: allegations sufficiently plead material misstatements/omissions and, at pleading stage, scienter is a factual issue that survives 12(b)(6)
Personal jurisdiction over Aurovsky	Aurovsky signed the Merger Agreement and consented to use his name in the proxy filings; he was a 50% owner whose consent was necessary and who communicated with Hurgin—sufficient minimum contacts and foreseeability	Aurovsky is an Israeli resident, had limited involvement, initially denied signing key documents; mere board status insufficient	Denied: prima facie specific jurisdiction exists; signatures on SEC‑filed merger documents and consent clause/supporting facts establish minimum contacts; forum clause and consent weigh against finding jurisdiction unreasonable
Whether SEC plausibly alleged negligence‑based claims against Aurovsky (17(a)(2),(3); 14(a)/14a‑9) despite not personally drafting statements	Liability can attach where defendant obtained money by means of false statements prepared by others or negligently permitted use of his name; Aurovsky’s consent, ownership, and participation created a duty	He did not prepare or disseminate the proxy and owed no duty to review it; limited involvement	Denied dismissal: Janus “maker” rule does not bar 17(a); pleading alleges Aurovsky put his name/reputation at issue and was negligent in permitting misleading proxy materials
Whether scienter for Hurgin can be resolved on motion	SEC alleges concealment of reseller agreement, affirmative misrepresentations, signed rep letters to auditor—supports inference of intent or reckless disregard	Hurgin claims sincerely held beliefs, language barriers, lack of clairvoyance, and disclosures to advisers defeat scienter allegations	Denied: scienter is a fact‑intensive inquiry; allegations suffice to raise a strong inference of intent or recklessness at pleading stage

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausibility)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading framework)
Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135 (2011) (who “makes” a statement for Section 10(b))
Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality: total‑mix standard for investors)
Daimler AG v. Bauman, 571 U.S. 117 (2014) (minimum contacts for jurisdiction)
Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) (purposeful availment and foreseeability for specific jurisdiction)
Aaron v. SEC, 446 U.S. 680 (1980) (scienter requirement differs among 17(a) subsections)
Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161 (2d Cir. 2013) (jurisdictional prima facie showing and pleading stage standard)
S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009) (scienter: recklessness standard)
SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279 (2d Cir. 2013) (elements of Section 10(b)/Rule 10b‑5 claims)