SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. AHMED ALOMARI and MCM CONSULTING, Defendants.
C.A. No. 24-cv-172-JJM-LDA
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND
December 20, 2024
The Securities and Exchange Commission (“SEC“) filed suit against Ahmed Alomari and MCM Consulting (“MCM“) for violating the Securities and Exchange Act while promoting stocks. SEC alleges that Mr. Alomari and MCM, the entity through which he operates his business and holds his personal investments, fraudulently recommended stocks while selling the same stocks without adequately disclosing the intent to sell, and committed other fraudulent acts related to his stock promotion services. Defendants move to dismiss Counts I (for violating Section 17(a)), II (for violating Section 10(b)), and V (for violating Section 20(b)) of the Amended Complaint. ECF No. 19. Because the Court finds that the SEC has stated claims for relief, it DENIES Defendants’ motion.
I. BACKGROUND
Mr. Alomari is a marketer with millions of followers on social media. Some microcap companies pay stock promoters to recommend or “tout” stock in unsolicited electronic communications, such as emails, texts, social media posts, or internet
Mr. Alomari began promoting stocks in 2019, using his social media accounts on Twitter, Instagram, and Facebook, message boards such as Investors Underground, and third-party text messaging service. He conducted his business activities under MCM, of which he was a 100% owner. His wife was the sole officer and director of MCM even though she was not involved in the business. Mr. Alomari purported to be just an “authorized signer” for his wife‘s entity, but he actually controlled all MCM‘s operations and transactions.
Five companies hired Mr. Alomari to promote their stocks, although only three, Soliton, Inc., Volcon, and EBET, Inc., are relevant to the SEC‘s motion. Kevan Casey and Adrian James, who knew Mr. Alomari and were involved with the companies, arranged these deals. Mr. Alomari was paid cash or issued company securities through a written contract in exchange for his promotional services. When he promoted the stocks on these various platforms, he did not disclose or fully disclose that he was compensated for that work.
EBET hired Mr. Alomari to promote its stock for six months and paid him 50,000 restricted1 shares. In exchange, Mr. Alomari posted on various social media
Another company, Volcon paid Mr. Alomari 75,000 shares to promote its stock. It also provided him the ability to purchase 7,752 Volcon shares for $0.01 in exchange for his promotional services six-months post-IPO. On his own, Mr. Alomari paid $720,000 to subscribe to 130,909 shares in the Volcon IPO. He again vigorously promoted Volcon stock leading up to the IPO, told his followers that he was going to invest in Volcon when he separately communicated that he only planned to hold the stock for one to five days. For the two weeks following the IPO, while he continued to promote Volcon stock as a good buy, Mr. Alomari sold all his shares for a $478,000 profit. He did not disclose that he intended to and did sell his own stock.
Soliton engaged Mr. Alomari to promote its stock in exchange for 25,000 shares. Because those shares came directly from Soliton, they were restricted securities subject to holding period requirements, i.e., they could not be sold for six months to a year. Mr. Alomari needed the funds immediately, however, so he
Mr. Casey, on Soliton‘s behalf, approached Mr. Alomari for additional promotion work two months later. Mr. Alomari sought additional compensation; he wanted the 25,000 restricted shares back from Messrs. Casey and James and they agreed. Mr. Alomari promoted the Soliton stock for a few months and then decided that he wanted to deposit and publicly sell the 25,000 shares. They were still restricted so Mr. Alomari needed to provide the transfer agent a letter indicating that the shares were eligible for public trading. Mr. Alomari applied his wife‘s signature to four shareholder representation letters that falsely stated that the shares were fully paid and at least six months elapsed since they were acquired. Soliton released the shares; Mr. Alomari deposited them in an MCM brokerage account and immediately sold them.
SEC brings five2 claims against Defendants but only three are the subject of Defendants’ motion to dismiss. They are for securities fraud in violation of
II. STANDARD OF REVIEW
To survive a motion to dismiss for failure to state a claim under
To state a plausible claim, a complaint need not detail factual allegations, but must recite facts sufficient at least to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation omitted). A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” cannot suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Id. (alteration in original) (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 557); see also Soto-Torres v. Fraticelli, 654 F.3d 153, 159 (1st Cir. 2011) (internal quotation marks
III. DISCUSSION
The
The three Counts involved in Mr. Alomari‘s motion relate to SEC‘s allegations about his promotion of EBET and Volcon IPOs with intent to sell without appropriate disclosure, his promotion of Soliton and ultimate evasion of the regulations on selling restricted securities, and his use of deceptive devices (letters signed by his wife) to induce the improper issuance of restricted securities. All three involve violations of
A. Counts I & II – Violation of Section 17(a), Section 10(b), and Rule 10-5
Counts I and II are brought under
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
A. Public Promotion of the Purchase of Stock While Failing to Adequately Disclose Selling and Intent to Sell the Same Stock
In moving to dismiss Counts I and II, Mr. Alomari argues that the SEC‘s allegations do not establish that he had a duty to investors, the SEC does not allege the required element of scienter, and even if the Amended Complaint was adequate as to the former, the omissions the SEC alleges were not material. The SEC counters that in his promotion of the EBET and Volcon IPOs, Mr. Alomari intended to and did sell huge quantities of shares during or immediately after the IPOs generating huge profits without adequately disclosing his intent to sell. The SEC argues that he orchestrated deceptive letters through his wife‘s signature and then used those letters to evade the legal requirements of restricted stock.
The SEC alleges that none of Mr. Alomari‘s promotions of EBET or Volcon disclosed his compensation or any relationship he had with the company. ECF No. 17 ¶ 46. Mr. Alomari attempted to convince investors that the share prices for the stocks he was promoting were going to increase and doubled down on this assertion by telling them that he was also investing in the stock. For example, on the first day of
SEC also alleges that Mr. Alomari violated
In the face of these plausible allegations of securities fraud, Mr. Alomari argues that the Amended Complaint fails to allege he had a fiduciary-like relationship with investors such that a duty would attach. And he further asserts that because he had a generic disclaimer on Twitter, “Make your own trading decisions. I could be buying or selling any stocks mentioned,” anyone who came upon his posts would know he could potentially be invested in the stocks he promoted. But “[w]hen a corporation does make a disclosure—whether it be voluntary or required—there is a duty to make it complete and accurate.” Roeder v. Alpha Indus., Inc., 814 F.2d 22, 26 (1st Cir. 1987). And the SEC has effectively alleged that Mr. Alomari had a duty to disclose that he intended to profit by selling the stocks he promoted and that he failed to do so. This is information that investors would want to know before they invested in the same stocks a promoter was promoting.
Mr. Alomari also argues that the SEC‘s claims fail because it did not adequately plead scienter. To show scienter, the plaintiff must show that the defendants acted with a high degree of recklessness or consciously intended to defraud. SEC v. Ficken, 546 F.3d 45, 47 (1st Cir. 2008). “Recklessness is ‘a highly
As to scienter, SEC alleges Mr. Alomari‘s intent to deceive is evident from the timing of his selling during or immediately following their promotions. See SEC v. Recycle Tech, Inc., 2013 WL 12063952, at *6 (S.D. Fla. Sept. 26, 2013) (scienter is found where a defendant sells stock when it recommends that investors buy it). The timing of his promotion of and intention to purchase Volcon stock, the Volcon IPO, and his private email on the day before the Volcon IPO that he was not in on Volcon for the duration and intended to sell the shares within one to five days, ECF No. 17 ¶¶ 57, 60, strongly suggest Mr. Alomari‘s alleged intent to sell his IPO shares, which he did, and knowledge of wrongdoing.
The Court also finds that the SEC‘s allegations satisfy
B. Count V – Violation of Section 20(b)
The SEC claims that Mr. Alomari violated
In interpreting a statute, the Court begins with the text. In re BankVest Cap. Corp., 360 F.3d 291, 296 (1st Cir. 2004). The Court “assume[s] that the words Congress chose, if not specially defined, carry their plain and ordinary meaning.” In re Hill, 562 F.3d 29, 32 (1st Cir. 2009) (citing Boivin v. Black, 225 F.3d 36, 40 (1st Cir. 2000)). “If that meaning produces a plausible (though not inevitable) result, that is generally the end of the matter.” In re Hill, 562 F.3d at 32 (citing Plumley v. S. Container, Inc., 303 F.3d 364, 369 (1st Cir. 2002)). The Court now turns to the statutory section at hand.
IV. CONCLUSION
For the reasons stated in this Order, the Court finds that the SEC‘s Amended Complaint states claims under Sections
IT IS SO ORDERED.
John J. McConnell, Jr.
Chief United States District Judge
December 20, 2024