ORDER
I. INTRODUCTION
THIS MATTER is before the Court on several motions to dismiss filed by Defendants. This is a class action brought under federal and state securities laws to recover damages resulting from a Ponzi scheme orchestrated by an entity known as Mantria Corporation (“Mantria”). In the Complaint, Plaintiff Touchstone alleges that Defendants materially participated in Mantria’s scheme to defraud investors comprising Plaintiffs class. Defendants argue that Plaintiff has failed to state a valid claim for relief, and several of the defendants argue that they should be dismissed for lack of personal jurisdiction.
Plaintiff alleges that the defendants materially participated in Mantria’s Ponzi scheme directly or through their agents while ostensibly providing professional services for Mantria. In 2007, Mantria contracted with Defendant Tatum, LLC (“Tatum”) to have Defendant Rink act as Mantria’s interim CFO. Tatum is a consulting firm that acts as a headhunter for companies seeking interim executive and financial officers. Plaintiff alleges that at all times relevant to this action, Rink was a consultant to Mantria and remained an employee or agent of Tatum. Compl., at ¶¶ 69-73.
In 2008, Defendant Granoff was named Mantria’s controller while remaining a partner of Krassenstein, Granoff & Unger. As Mantria’s controller, Granoff worked with and reported directly to CFO Rink.
In 2009, Defendant Flannery became Mantria’s Chief Legal Officer and General Counsel. At that time, Defendant Flannery remained employed by Defendant Astor Weiss.
Finally, Estill & Long was the law firm for Speed of Wealth, a company that advertised investment opportunities with Mantria.
On August 5, 2011, Judge Christine M. Arguello entered summary judgment against Mantria for various violations of securities laws. SEC v. Mantria Corp., et al., No 09-cv-02676 (D.Colo. Mar. 15, 2011).
Plaintiff alleges that while Defendants Rink, Granoff, and Flannery worked for Mantria, they made materially false statements to investors, otherwise aided Mantria in defrauding its investors, received fraudulently transferred assets from Mantria, and were, thereby, unjustly enriched. Plaintiff alleges that Defendants Tatum, Krassenstein, and Astor Weiss are liable for these acts based on their agency relationship with the individual defendants. Finally, Plaintiff alleges that Estill & Long also aided in Mantria’s fraud and were unjustly enriched as a result of receiving fraudulently transferred funds from Mantria.
III. ANALYSIS
A. Whether the Court Has Personal Jurisdiction Over the Defendants 1. Standard of Review
A plaintiff has the burden of showing that jurisdiction is appropriate. Dudnikov v. Chalk & Vermilion Fine Arts, Inc.,
My jurisdictional analysis is somewhat unusual in this case because Defendants Rink, Granoff, and Flannery are being sued under the Federal Securities Exchange Act, which provides for nationwide service of process.
However, it would be improper to apply this unique standard if Plaintiff failed to state a valid claim for relief under the Act, since it is the Act’s provision of nationwide service of process that warrants application of a unique jurisdictional analysis in the first place. Thus,' though I address the issue of personal jurisdiction first, my jurisdictional analysis turns in part on my subsequent determination of whether Plaintiff has stated a claim for relief under the Act against Defendants Rink, Flannery, or Granoff. Below, I find that Plaintiff states a valid claim for relief under the Act against Defendants Rink and Flannery, but not against Defendant Granoff. Accordingly, in addressing Rink and Flannery’s jurisdictional arguments, I apply the unique jurisdictional standard for claims brought under statutes that provide for nationwide service of process. In contrast, I apply the International Shoe’s traditional “minimum contacts” analysis to Defendant Granoff as well as the rest of the defendants pleading dismissal for lack of personal jurisdiction. I mention it here so that the reader is not confused why I first conclude that the Court lacks jurisdiction over Granoff and then evaluate whether Plaintiff has stated a federal securities law claim against Granoff.
2. Whether the Court Possesses Personal Jurisdiction Over Defendants Rink and Flannery
i. Legal Standard
“When the personal jurisdiction of a federal court is invoked based upon a federal statute providing for nationwide or worldwide service, the relevant inquiry is whether the respondent has had sufficient minimum contacts with the United States.” Knowles,
Under this analysis, “[t]he burden is on the defendant to show that the exercise of jurisdiction in the chosen forum will ‘make litigation so gravely difficult and inconvenient that [he] unfairly is at a severe disadvantage in comparison to his opponent.’ ” Id. The Tenth Circuit has recognized that “in this age of instant communication and modern transportation, the burdens of litigating in a distant form have lessened.” Id. at 1213. Accordingly, “it is only in highly unusual cases that inconvenience will rise to a level of constitutional concern.” ■ Id. at 1212.
The Tenth Circuit has set forth several factors to consider when assessing whether a defendant has met it’s burden “of establishing constitutionally significant inconvenience”: (1) the extent of the defendant’s .contacts with the place where the action was filed; (2) the inconvenience to
ii. Analysis
Defendants Rink and Flannery argue that they do.not possess sufficient contacts with Colorado to be subject to the personal jurisdiction of this court. Defendants rely primarily on inapposite cases that applied the International Shoe “minimum contacts” analysis. As noted, this analysis does not apply to these Defendants. Instead, where, as here, a party is sued under a federal statute providing for nationwide service of process, Peay’s multifactor analysis governs whether personal jurisdiction lies. Peay,
Notwithstanding their arguments about their lack of contacts with Colorado, I find that Defendants Rink and Flannery have failed to meet their burden of proving constitutionally significant inconvenience under Peay. First, though these Defendants’ contacts appear insufficient under International Shoe and Trierweiler, they have allegedly made some non-trivial contact'with the state. Plaintiff alleges that Rink Flannery participated in the preparation of fraudulent financial statements and false offerings that were then distributed to Colorado. In addition, Plaintiff alleges that these Defendants knew that Mantria was partnering with Speed of Wealth, a Colorado. investment club, to disseminate false information to investors. Finally, Plaintiff alleges that Flannery approved prospective Mantria investors from Colorado as accredited and that Rink communicated directly with Colorado investors.
Defendants argue that Plaintiffs latter allegations about their direct contacts with Colorado are. insignificant or based on inadmissible affidavit testimony lacking proper foundation. In addition, Defendants argue that personal jurisdiction cannot rest on Plaintiffs’ allegations that Rink and Flannery knew or should have known that their communication would be disseminated to Colorado investors. Specifically, Defendant Rink cites CGC Holding Co. for the proposition that “a defendant’s alleged knowledge that information may be used or misused by others is not sufficient to confer jurisdiction without some purposeful conduct directed at the forum by the defendant.” (ECF No. 118), at 8.
I disagree with Defendants’ assertions and further find that the authority they rely on actually undermines the arguments they advance here. In CGC Holding Co., Judge R. Brooke Jackson of this. Court
Moving on to the second Peay factor, Defendants Rink and Flannery have not shown considerable inconvenience arising from defending this action in Colorado. Rather, these Defendants provide only general claims that doing so would entail significant financial hardship and general inconvenience. I find this insufficient and note that these defendants have counsel in Colorado and can rely on their counsel to manage their defenses while they reside in Pennsylvania. See CGC Holding Co.,
With regard to the third and fourth factors of the Peay analysis, judicial economy favors this district. It would be most efficient to resolve all of these related disputes in one consolidated action in Colorado. This forum is the probable situs of a substantial portion of discovery proceedings since the Mantria documents and other items were shipped to Denver as part of the SEC action brought against Mantria.
Finally, personal jurisdiction over Rink and Flannery is supported by consideration of the final Peay factor — the nature of the regulated activity in question and the extent of impact that the defendant’s activities have beyond the borders of his state of residence or business. Defendants Rink and Flannery were allegedly primary participants in a broad interstate Ponzi scheme. Mantria’s scheme drew millions of dollars from dozens of Colorado investors. Under these circumstances, the Court’s exercise of personal jurisdiction over Rink and Flannery comports with due process.
3. Whether the Court Possesses Personal Jurisdiction Over Defendants Granoff, Krassenstein, and Astor Weiss
i. Legal Standard
Unlike Defendants Rink and Flannery, Defendants Granoff, Krassenstein, and Astor Weiss are not subject to viable claims under the Securities Exchange Act or any other federal statute that provides for nationwide service of process.
Once jurisdiction has been established, the court must determine that “the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice” in order to subject an out-of-state defendant to personal jurisdiction. Trierweiler,
ii. Analysis
I hold that this Court lacks personal jurisdiction over Defendants Granoff, Krassenstein, and Astor Weiss. As noted, because Plaintiff does not bring claims against these defendants under the Securities Exchange Act, Plaintiff must establish specific or general jurisdiction against them under International Shoe’s “minimum contacts” analysis. Plaintiff does not argue that either Granoff, Krassenstein or Astor Weiss is subject to the general jurisdiction of Colorado courts. Rather, Plaintiff cites Goettman v. North Fork Valley Restaurant,
I find that Granoffs contacts with Colorado are not sufficient to satisfy the International Shoe standard for specific jurisdiction, and accordingly, I dismiss Plaintiffs claims against both Granoff and his employer, Krassenstein, for lack of personal jurisdiction. Likewise, I dismiss Plaintiffs claims against Astor Weiss, which does not have sufficient contacts with Colorado individually or through its agent Flannery.
As noted, Plaintiff alleges contacts between Colorado and Granoff and Flannery based on these defendants’ (1) role in the preparation of false statements that were disseminated to Colorado investors; (2) knowledge of Mantria’s partnership with Speed of Wealth, a Colorado investment club, to attract investors from the state; and (3) specific contacts with Colorado investors, as Granoff allegedly communicated directly with Colorado investors (ECF No. 89, Exhibit B, at ¶ 20), and Flannery allegedly approved Colorado investors as accredited (ECF No. 1, at ¶¶ 85-86), which occasionally required telephoning Mantria’s Colorado law firm, Estill & Long. Plaintiff also alleges that Astor Weiss tunneled at least $4 million out of Colorado through Speed of Wealth. (ECF No. 1, at ¶ 21; ECF No. 89, Exhibit B, at ¶ 14.)
To establish specific jurisdiction, Plaintiff must show that Defendants Gra
As such, Plaintiffs allegations (1) and (2), listed above, are not sufficient to give rise to personal jurisdiction over Granoff, Krassenstein and Astor Weiss. Personal jurisdiction cannot be based on the foreseeability that statements prepared by these Defendants or their agents would be received in Colorado. Rather, Plaintiff must show that Granoff, Krassenstein, and Astor Weiss, directly or through their agents, purposefully availed themselves of the privilege of conducting activities in Colorado. Plaintiff fails to allege sufficient contacts under this standard. First, Plaintiffs allegation that Granoff communicated directly with Colorado investors is based on apparently equivocal affidavit testimony of Mantria’s Receiver, John Paul Anderson, despite the fact that this testimony was not based on1 Mr. Anderson’s personal knowledge. (ECF No. 89, at 13, Exhibit B, ¶ 20.) “Affidavits submitted in support of or in opposition to [a] motion to dismiss for lack of [personal] jurisdiction must comply with the requirements of Rule 56(e). Therefore, such affidavits must contain personal knowledge, admissible facts, and affirmative showing of competency.” Fairbrother v. American Monument Foundation, LLC,
Plaintiffs . allegations of Flannery’s and Astor Weiss’s direct contacts with Colorado are also insufficient to subject Astor Weiss to the jurisdiction of this Court. Plaintiffs allegation that Flannery approved Colorado Investors, who were presumably recruited by others, does not constitute “purposeful availment” required under International Shoe and its progeny. Likewise, Plaintiffs allegation that Astor Weiss received funds from the forum state is insufficient to establish purposeful availment but is rather a passive event triggered by a third party that cannot give rise to personal jurisdiction.
Accordingly, I dismiss Defendants Granoff, Krassenstein, and Astor Weiss from this action for lack of personal jurisdiction. However, I decline to do the same for Defendants Rink and Flannery since they are subject to valid claims for relief under the Federal Securities Exchange Act.
B. Whether Plaintiff Has 'Stated a Claim for Relief
Defendants argue that all claims brought against them are insufficient un
1. Standard of Review
“The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiffs complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc.,
Claims sounding in fraud are subject to Rule 9(b)’s heightened pleading standard, which requires the claimant to “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. Pro. 9(b). More specifically, “Rulé 9(b) requires that a plaintiff set forth the who, what, when, where and how of the alleged fraud.” U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah,
The PSLRA likewise requires that a plaintiff in a securities fraud action “shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l)(B). In addition, the plaintiff “shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind” for the fraud claim asserted. 15 U.S.C. § 78u-4(b)(2)(A).
2. .. Whether Plaintiff Has Stated a Claim for Relief for Violation of Section 10(b) of the Securities Exchange Act
Plaintiff alleges that the following defendants violated 10(b) of the Securities Exchange Act: Tatum, Rink, Granoff, and Flannery. Claims brought undér Section 10(b) are analyzed under the PSLRA’s heightened pleading standard. To state a valid claim under Section 10(b), a plaintiff must allege that: “(1) the defendant made an untrue or made an untrue or misleading statement of material fact, or failed to state a material fact necessary to make statements not misleading; (2) the statement complained of was made in connection with the purchase or sale of securities; (3) the defendant acted with scienter, that is, with intent to defraud or recklessness; (4) the plaintiff relied on the misleading statements; and (5) the plaintiff suffered damages as a result of his reliance.” Adams v. Kinder-Morgan, Inc.,
It is undisputed that Mantria made false financial statements to investors. However, Defendants argue that Plaintiff has not alleged false statements that can be attributed to them personally with sufficient particularity. Defendants also argue that Plaintiff has failed to sufficiently allege
i. Plaintiff’s Allegations of False Statements and Omissions
Plaintiff alleges many false statements in the Complaint. Though Plaintiff fails to specifically allege when and how several of these statements were made, Plaintiff alleges three statements with sufficient particularity as to time, place, and content:
First, Plaintiff alleges that promotional materials for Mantria’s 17% promissory notes offering, dated July 1, 2008, claimed that Mantria was able to pay such high returns because it made significant profits off of home site sales in Tennessee. (ECF No. 1, at ¶ 47(a).) However, Plaintiff alleges that Mantria home sales were mostly financed by one Mantria subsidiary, Mantria Financial, with investor funds purchased from another Mantria subsidiary, Mantria Realty Operational Group. (ECF No. 1, at ¶ 51.) In turn, Plaintiff alleges that Mantria ultimately generated only $138,647 and $55,999 from land sales in 2008 and 2009, respectively.
Second, Plaintiff alleges that a private placement memorandum for Mantria Industries, LLC 25% Profits Interest in Earthmate Waste Conversion System Sales, dated August 31, 2009, allegedly contained a false “Return on Investment Analysis Spreadsheet” that predicts returns of 450%. The memorandum explained that the returns were to be paid from, among other things, profits from Mantria’s sale of biochar production systems. However, Mantria never generated any biochar. Instead, it used millions in investor funds to build a nonfunctional biochar plant in Dunlap, Tennessee to lure additional investment.
Finally, Plaintiff alleges that Mantria offerings dated July 31, 2009, and August 31, 2009, included tables “which account for an allocation of 100% of the funds raised, but failed to disclose that Mantria used the funds to repay other investors.” (ECF No. 1, at ¶ 55.)
In addition to these false statements, Plaintiff alleges a number of material omissions. More specifically, Plaintiff alleges that investors were entitled to know: “(i) payments to investors were not from profits, but only from new investors’ investments (Compl. ¶¶ 51, 54, 55, 57, 68); (ii) in 2008 and 2009, Mantria only generated $138,647 and $55,999 from land sales, respectively (Id. ¶ 48); (iii) at the time of its August 31, 2009, offering that predicated investors returns on biochar sales, Mantria had not sold any biochar or had any operational biochar manufacturing systems (Id. ¶ 52); (iv) the principals of Speed of Wealth^ which advertised Mantria’s securities,] were not licensed broker-dealers and were being paid a 12.5% commission on all sales of Mantria securities, thus depleting the cash available to fund operations. [ Qld. ¶ 56.[) ]” (ECF No. 89, at 21-22.)
a. Plaintiffs Attribution of These Alleged False Statements and Omissions to Defendants Rink, Granoff, and Flannery
Plaintiff attributes at least one of the above statements to each of Defendants Rink, Granoff, and Flannery. First, Plaintiff alleges that Rink and Granoff prepared or were responsible for the materially misleading tables contained in Mantria’s offerings dated July 31, 2009 and August 31, 2009. (ECF No. 1, at ¶ 55.) Second, Plaintiff alleges that Flannery prepared or reviewed several of Mantria’s allegedly false securities offerings, including Mantria’s offering dated July 1, 2008, touting
Defendants Rink, Granoff, and Flannery argue that Plaintiff has failed to allege facts that sufficiently link them to the statements that they allegedly made. Specifically, these defendants argue that it is not sufficient for Plaintiff to allege that they prepared false statements without also alleging that they possessed authority over whether and how to communicate those statements. E.g., (ECF No. 118, at 13) (quoting Janus Capital Group, Inc. v. First Derivative Traders, — U.S. -,
Plaintiff responds with two arguments. First, Plaintiff claims that it was not required to allege more than that Defendants Rink, Granoff, and Flannery participated in the preparation of the alleged false statements, and that it sufficiently linked these Defendants to at least one of the above noted statements. (ECF No. 89, at 22). In the alternative, Plaintiff argues that under the “Group Publication Doctrine” it is not required to identify the individual sources of the alleged false statements because those statements appeared in “group-published documents.” (ECF No. 89, at 23) (quoting Schwartz v. Celestial Seasonings,
b. Requirement that Defendants “Made” a False Statement and the Group Publication Doctrine
To “make” a false statement in violation of Section 10(b), one must possess “ultimate authority over the statement, including its content and whether and how to communicate it.” Janus,
The Court in Janus analogized to Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.,
However, Janus does not address the “making” of statements that are pub
Moreover, Defendants are wrong to argue that Schwartz’s allowance of group pleadings in certain circumstances was overturned by the PSLRA. Defendants cite no cases in support of its argument, and the overwhelming majority of authority in this District holds that “[b]e-cause .the pleading standards of Rule 9(b) and the PSLRA are functionally the same, if not perfectly continuous, allegations of fraudulent group publications satisfy both sets of requirements.” See, e.g., Grubka v. WebAccess Intern., Inc.,
c. Application of Janus and Schwartz to the False Statements Alleged by Plaintiff
I find that under Janus and Schwartz, Plaintiff has stated a valid claim for relief under section 10(b) against Defendants Rink and Flannery, but not against Defendant Granoff. The complaint describes with particularity several false statements that Defendants Rink, Granoff, and Flannery allegedly prepared. Under Janus, the defendants must not only have prepared these statements, but also had ultimate authority over their content and their communication. I find that Plaintiff has failed to make these allegations against Granoff, who worked under Rink’s authority as Mantria’s Financial Controller. However, I find that Plaintiff has sufficiently alleged that Rink and Flannery had ultimate authority over the statements that they allegedly prepared. Rink and Flannery were Mantria’s Chief Financial Officer and Chief Legal Counsel, respectively. As such, it appears likely that they possessed ultimate authority over any statement that they prepared or for which . they were otherwise responsible,
Likewise, even if these statements were collectively published by. Mantria after Rink and Flannery prepared them, Rink and Flannery can still be held liable under the group publication doctrine as set forth in Schwartz and its progeny. Again, however, Granoffs position prevents him from being held liable under this doctrine, which applies only to corporate directors and officers.
Accordingly, I find that Plaintiff has sufficiently alleged that Defendants Rink and Flannery, but not Granoff, made false statements. Thus, I find that Plaintiff has failed to state a claim against Granoff under section 10(b) and continue my analysis of Plaintiffs claims against Rink and Flannery under that section.
ii. Plaintiffs Allegations of Scienter
In addition to the false statements themselves, Plaintiff must allege that the relevant defendants made these statements with scienter, “a mental state em
Plaintiff argues that scienter is established here by the pervasiveness of the alleged fraudulent statements and the fact that the relevant defendants possessed high-ranking positions at Mantria. Plaintiff reasons, “It is inconceivable that senior officers of a small company, who interacted daily at executive meetings, could be unaware of an all encompassing [sic] fraud.” (EOF No. 89, at 25) (citing No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp.,
In response to Plaintiffs first argument, Defendants Rink and Flannery cite City of Philadelphia v. Fleming Cos., Inc.,
I find that Plaintiff has sufficiently alleged scienter. Defendants mischaracterize Plaintiffs allegations as addressing only their positions; in fact, Plaintiff also relies on the magnitude of the alleged fraud. .The Tenth Circuit has found “the magnitude of the alleged falsity” to be a significant factor in assessing whether a plaintiff has sufficiently alleged scienter. Adams,
in. Whether Tatum May Be Held Vicariously Liable for Rink’s Alleged Violation of Section 10(b) and Other Tortious Conduct ■ :
Plaintiff alleges that Defendant Rink acted as an agent for Tatum in violat
Colorado law provides that an employer “is liable to third parties for the negligence of its employees ... while acting in the scope and course of employment.” Hamm v. Thompson,
I find Defendants arguments unavailing and conclude that Plaintiffs agency allegations are sufficient to state a claim for relief against Tatum based on Rink’s conduct at this stage in the proceedings. Tatum cites no authority in support of its proposition that Rink could not plausibly been acting within the scope and course of his employment while carrying out his duties as CFO at Mantria. Moreover, Tatum ignores Plaintiffs allegations that Tatum provided Rink to Mantria as an interim CFO and that Tatum advertised on its website that Rink “holds his current CFO role [with Mantria] while maintaining his Financial Leadership Partnership with Tatum.” Compl., at ¶ 71. Tatum also ignores Plaintiffs allegation that Tatum “hpids, itself out as a service provider to companies in need of a short-term CFO.” I find these undisputed allegations sufficient to establish an agency relationship between Tatum and Rink at this stage of the proceedings.
In addition, I reject Tatum’s argument that the adverse interest exception precludes vicarious liability in this case. Tatum fails to identify the way in which Rink’s conduct was adverse to its interests. Tatum cites In re Stat-Tech Securities Litigation,
3. Whether Plaintiff Has Stated a Claim for Relief Under Section 20(a)
Plaintiff alleges that the following defendants violated section 20(a) of the Securities Exchange Act: Tatum, Rink, Granoff, and Flannery. “[T]o state a prima facie case of .control person liability, the plaintiff must establish (1) a primary violation of the securities laws and (2) ‘control’ over the primary, violator by the alleged controlling person.” Adams,
The parties do not dispute that Plaintiff has alleged that Mantria committed several primary violations of securities laws by Mantria. However, Defendants argue that
i. Plaintiffs Allegations of Control
Plaintiff has made the following allegations pertaining to Rink’s control over Mantria: that Rink was the CFO of Mantria, Compl., at ¶¶ 15, 60, 62-68, 119-120; that misrepresentations at issue related to false financial information disseminated by Mantria, Compl., at ¶¶ 47, 48, 55-58; that Rink had control of Mantria’s cash management, documentation, internal controls and planning and analysis, Compl., at ¶ 120; and that Rink participated in weekly staff meetings and “meetings of the executive.” Compl., at ¶ 122.
Plaintiff has made the following allegations about Defendant Flannery’s control over Mantria: that Flannery was Mantria’s Chief Legal Officer & General Counsel, Compl., at ¶ 121; that Flannery was responsible to ensure Mantria’s compliance with applicable statutes and regulations, Compl., at ¶ 123; that Flannery participated in the weekly staff and executive meetings noted above, Compl., at ¶ 122; and that Flannery prepared several of Mantria’s private placement memorandums, reviewed the subscription agreements to ensure investors were properly accredited, and approved investor questionnaires at closing, Compl., at ¶ 80, 91-92.
Plaintiff has made the following allegations about Defendant Granoffs control over Mantria: that Granoff acted as Mantria’ Financial Controller, Compl., at ¶¶ 24, 98; that Granoff had access to all of Mantria’s financial information, Compl., at ¶¶ 24, 98; and that Granoff prepared false financial results included in Mantria offering memoranda, Compl., at ¶¶ 55,100. ii. Sufficiency of Plaintiffs Allegations
Plaintiff relies primarily on the Tenth Circuit’s decision in Adams in arguing that its pleadings are sufficient to state a claim for control person liability against Rink, Granoff, and Flannery. In Adams, the court held that it was reasonable to infer that a company’s CFO was a “control person” on the basis of his position where it was alleged that his employer engaged in fraudulent financial reporting. Adams,
In light of Adams and other relevant authority, I find that Plaintiff sufficiently alleges control person liability against Rink and Flannery, but not against Granoff. Like the defendant in Adams, Rink and Flannery are chief executives, and the actionable claims here pertain to statements that Rink and Flannery either prepared themselves, or had ultimate control over. Plaintiff alleges that Rink prepared or was responsible for the false financial information contained in Mantria’s offering statements dated July 31, 2009, and August 31, 2009. Compl., at ¶ 55. Plaintiff also alleges that Flannery prepared or reviewed several of Mantria’s allegedly false securities offerings, including Mantria’s offering dated July 1, 2008, touting high investor returns based on real estate sales. Compl, at ¶¶ 47(a), 81-83. Based on these allegations, I find that Plaintiff has stated a claim for relief against both Rink and Flannery under section 20(a).
In contrast, Plaintiff has failed to allege that Defendant Granoff possessed control over Mantria. Even assuming that Granoff helped to prepare false financial statements, he did so at the behest of Rink, to whom he reported. Unlike Rink, Granoff did not have control over the company’s cash management, documentation, internal controls, planning, ánd analysis.
Accordingly, I find that Plaintiff states valid claims for relief under section 20(a) against Defendants Rink and Flannery, but not against Defendant Granoff. In addition, for the reasons stated above, I find that Plaintiff has sufficiently stated a claim for vicarious liability against Tatum based on Rink’s alleged violation of section 20(a)
4. Whether Plaintiff States a Claim for Relief Under the Colorado Uniform Fraudulent Transfer Act (“CUFTA”) and the Pennsylvania Uniform Fraudulent Transfer Act (“PUFTA”)
Plaintiff claims that Mantria fraudulently transferred funds to all named defendants in violation of CUFTA, Colo.Rev.Stat. § 38-8-101 et seq., and PUFTA, 12 Pa. Con. Stat. § 5101 et seq., (Counts III and IV, respectively). Though these claims include allegations of fraud against the transferor, they are not subject to Rule 9’s heightened pleading standard where, as here, the alleged transferor is operating a Ponzi scheme. See Wing v. Horn,
Under that standard, I find that Plaintiff has stated claims for relief against all remaining defendants under both CUF-TA and PUFTA. Plaintiff alleges that Mantria’s transfer of funds were fraudulent under both the “actual” and “constructive fraud” provisions of each statute. 12 Pa. Con. Stat. § 5104(a)(1) — (2); Colo.Rev. Stat. § 38-8-105(l)(a)-(b). In both states, a debtor’s transfer of funds is actually fraudulent if it was made “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” Colo.Rev.Stat. § 38-8-105(l)(a); 12 Pa. Con. Stat. § 5104(a)(1). Also in both states, a debt- or’s transfer of funds is constructively fraudulent if it was made:
Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (I) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (II) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Colo.Rev.Stat. § 38 — 8—105(l)(b); 12 Pa. Con. Stat. § 5104(a)(2).
Defendants do not dispute that Mantria, as a Ponzi scheme, possessed the requisite intent to defraud its investors. Instead, Defendants argue that Plaintiff has failed to establish that they are “transferees” because, with the exception of certain transfers to Flannery and Astor Weiss (whom I will dismiss from this action), Plaintiff fails to allege transfers to the Defendants with specificity.
Notwithstanding Defendants’ arguments, I find that Plaintiffs allegations suffice to state claims for relief based on fraudulent transfer against the remaining Defendants. Plaintiff has alleged that
5. Whether Plaintiff Has Stated a Claim for Relief for Unjust Enrichment
Plaintiff also brings claims against all of the remaining Defendants for unjust enrichment. In Colorado, the elements of unjust enrichment are: (1) at the expense of a plaintiff; (2) a defendant received a benefit; (3) under circumstances making it unjust for the defendant to retain the benefit without paying for it. Harris Group, Inc. v. Robinson,
I dismiss Plaintiffs claim as duplicative of its UFTA claims. See id. at 1207 (holding unjust enrichment claim improper where there was adequate remedy at law). The benefits that Defendants allegedly received at Plaintiffs expense overlap with the funds that they allegedly received via Mantria’s fraudulent transfers. Plaintiff alleges that Mantria paid defendants investor funds and that it would be unjust to allow Defendants to retain these funds because Defendants allegedly participated in Mantria’s scheme to defraud the investors comprising Plaintiffs class. Though not identical to the allegations supporting Plaintiffs UFTA claims, these allegations put forth a similar theory of liability and are, thus, duplicative and improper. For these reasons, I dismiss Plaintiffs claims for unjust enrichment against all Defendants.
6. Whether Plaintiff Has Stated a Claim for Relief for Negligent Misrepresentation
Plaintiff brings claims for negligent misrepresentation against the following Defendants that have not already been dismissed from the action: Tatum, Rink, and Flannery. Unlike claims alleging fraud, claims for negligent misrepresentation are governed by Rule 8’s liberal pleading standard. Two Old Hippies, LLC v. Catch The Bus, LLC,
Both Colorado and Pennsylvania courts have adopted the elements for negligent misrepresentation set out in Restatements (Second) of Torts § 552(1): “(1) in the course of a business, profession, or employment, or.in any transaction in which the defendant has a pecuniary interest, (2) the defendant supplied false information (3) for the guidance of others in their business transactions (4) causing the plaintiff pecuniary loss, (5) the plaintiff justifiably relied on the information, and (6) the defendant failed to exercise reasonable care or competence in -supplying the information.” Agile Safety Variable Fund, L.P. v. RBS Citizens, N.A,
I find that Plaintiffs pleadings with regard to negligent misrepresentation satisfy Rule 8’s standard. I have already found that Plaintiff has sufficiently alleged misrepresentations and scienter against Rink and Flannery under the PSLRA’s heightened standard. Having alleged such misrepresentations and the defendant’s culpable mental state, I find plausible Plaintiffs allegations of reliance.
Finally, I find that Plaintiff has satisfied the “limited group” pleading requirement. Defendants argue that the alleged misrepresentations were disseminated to a wide audience, as Mantria promoted investment opportunities at widely attended seminars that were advertised via the internet, television, radio, and print media. However, the limited group requirement is assessed through a foreseeability analysis, and Mantria’s intentionally broad scope of communication made it foreseeable that a larger group of investors would be affected by its statements. See Walker v. Bloch,
Accordingly, I decline to dismiss Plaintiffs claims for negligent misrepresentation against Defendants Rink and Flannery. Moreover, for the reasons stated above, I find that Plaintiff has stated a sufficient claim for vicarious liability against Defendant Tatum based on Rink’s alleged negligent misrepresentation.
7. Whether Plaintiff States a Claim for Relief Under the Pennsylvania Securities Act
Of the remaining defendants, Plaintiff brings claims against Tatum, Rink, and Flannery for violation of the Pennsylvania Securities Act of 1972, 70 P.S. § 1-503(A). More specifically, Plaintiff claims that Defendants Tatum, Rink, and Flannery under 70 P.S. § l-503(a), which provides for joint and several liability against a defendant who materially aids in an act constituting a primary violation of the Act under 70 P.S. § 1-401.
Plaintiff alleges that Rink and Flannery are liable under 70 P.S. § l-503(a) because they aided Mantria’s fraudulent activity by preparing, reviewing, and approving false statements described above.
I find the interpretation of the court in Fox more faithful to the plain meaning of the statute’s language. The court’s holding in Klein is based on an understanding that the Pennsylvania Securities Act “grants a private remedy to a buyer only against his seller.” Klein,
In addition, I reject Defendant Rink’s argument that Plaintiff must first obtain an adjudication of primary liability against Mantria under section 501 prior to asserting a claim for secondary liability against the defendants in this case. Section 501 provides for a private right of action for a violation of section 1-401, which “is modeled after Rule 10b-5 of the federal securities laws, and requires virtually the same elements of proof.” Gilliland v. Hergert,
Because, as explained above, I find that Plaintiff adequately alleges that Defendants Rink and Flannery prepared false statements so as to materially aid in Mantria’s Ponzi scheme, I find that Plaintiff has stated a claim of secondary liability under 70 P.S. § 1-503.
8. Whether Plaintiff States a Claim for Relief Under the Colorado . Securities Act
Plaintiffs final claim is against Estill & Long for violation of Colo.Rev.Stat. § 11-51-604, which prohibits aiding and abetting of primary violations of Colorado securities law. That subsection provides:
Any person who knows that another person liable under subsection (3) or (4) of this section is engaged in conduct which constitutes a violation of section 11-51-501 and who gives substantial assistance to such conduct is jointly and severally liable to the same extent as such other person.
Colo.Rev.Stat. § 11-51-604. Plaintiff alleges that Estill & Long knowingly gave substantial assistance to Speed of Wealth and its officers in violating both federal and Colorado securities laws.
Estill & Long argue that Plaintiff has not sufficiently alleged a primary violation of Colorado securities law. I reject this argument for the same reasons I rejected
Regarding the remaining elements, I find plausible Plaintiffs allegations that Estill & Long knowingly and substantially assisted Speed of Wealth in its primary violation. Plaintiff alleges that Estill & Long acted as legal counsel to Speed of Wealth. Compl., at ¶ 192. Plaintiff alleges that, in its role as legal counsel, Estill & Long knew that Speed of Wealth’s officers were not registered broker-dealers despite engaging in general solicitation of potential investors. Id. at ¶¶ 193-94. In addition, Plaintiff alleges that Estill & Long reviewed investor questionnaires and, as a result, knew that investors were not properly accredited to invest in Speed of Wealth securities offerings. Id. at ¶ 195. Nonetheless, Estill and Long allegedly tunneled monies from non-accredited investors in furtherance of Mantria’s and Speed of Wealth’s fraudulent scheme. Id. at ¶ 196. I find these allegations sufficient to state a claim for relief for aider and abettor liability. Accordingly, I decline to dismiss Plaintiffs claim against Estill & Long under Colo.Rev.Stat. § 11 — 51— 501(5)(c).
IV. CONCLUSION
For the reasons stated, I find that the Court lacks personal jurisdiction over Defendants Steven Granoff; Krassenstein, Granoff & Unger, LLC; and Astor, Weiss, Kaplan & Mandell LLP, but possesses personal jurisdiction over the remaining defendants. In addition, I find that Plaintiff fails to state a claim for unjust enrichment (Count V). Accordingly, it is
ORDERED that Defendants Steven Granoff and Krassenstein, Granoff & Unger, LLC’s Motion to Dismiss (ECF No. 63) is GRANTED and that Defendants Tatum, LLC and SFN Group, Inc.’s Motion to Dismiss Counts I, II, III, IV, V, VI, and XI of Plaintiffs Complaint (ECF No. 29); Defendant Estill & Long’s Fed. R.Civ.P. 12(b)(6) Motion to Dismiss (ECF No. 60); Defendants Astor, Weiss, Kaplan & Mandel LLP’s and Christopher P. Flannery’s Motion to Dismiss (ECF No. 61); and Defendant Daniel J. Rink’s Motion to Dismiss Touchstone Group, LLC’s Class Action Complaint (ECF No. 62) are GRANTED IN PART. Defendants Granoff, Krassenstein, and Astor Weiss are DISMISSED from this action for lack of personal jurisdiction. In addition, Plaintiffs claim for unjust enrichment (Count V) against all remaining defendants is DISMISSED for failure to state a claim.
Notes
. Plaintiff also brings claims against Defendant Tatum under the Securities Exchange Act. However, I will not engage in jurisdictional analysis with respect to Tatum, which did not challenge personal jurisdiction in its motion to dismiss and, thus, waived its right to do so. Likewise, I will assume that the Court possesses personal jurisdiction over Es-
. As explained below, I find that Plaintiff has failed to allege sufficient facts to support its claim that Granoff violated sections 10(b) and 20(a) of the Securities Exchange Act. Plaintiff's claims against Krassenstein and Astor Weiss are for violation of the Pennsylvania Uniform Fraudulent Transfer Act (Count III), the Colorado Uniform Fraudulent Transfer Act (Count IV), and the Pennsylvania Securities Act of 1972 (Count XI); unjust enrichment (Count V); and vicarious liability for information negligently supplied for the guidance of others (Count VIII, X).
. In turn, it may be inferred that Plaintiff alleges Defendants Rink, Granoff, and Flannery, respectively, to have been responsible for the omissions detailed above that would have helped to cure the misleading nature of the statement that each defendant was alleged to have made.
. In its omnibus opposition, Plaintiffs argue that it has sufficiently stated a claim of secondary liability against Flannery based on allegations that he reviewed subscription documents and approved investors, accepted and took custody of investors’ funds following a sale, and funneled investors' money to Mantria. Compl. at ¶¶ 21, 90, 91; Resp. at 33. It is unnecessary to discuss these allegations in this order since I find Plaintiff’s allegations of Flannery’s preparation of false offering memoranda sufficient to give rise to secondary liability.