The opinion of the court was delivered by: Austin, District Judge.
MEMORANDUM OPINION AND ORDER
In this case plaintiff seeks damages under state and federal
securities laws from two broker-dealer defendants and two
issurers of securities, Automated Marketing Systems, Inc.
("Automated") and Monterey Life Systems, Inc. ("Monterey").
The broker-dealer defendants have filed a motion to dismiss
certain portions of the complaint for failure to state a
claim. To the extent and for the reasons indicated below, that
motion to dismiss shall be granted and plaintiff is given
leave to file an amended complaint in accordance with the
provisions of this opinion within twenty days.
I. The Sale of Unregistered Securities
Paragraph 6 of both Count I and Count II allege that these
securities were sold at a time when they were not the subject
of an effective registration statement, as required by § 5 of
the `33 Act.*fn1 The defendant broker-dealers*fn2 assert that
the exclusive remedy for a violation of § 5 is an action under
§ 12(1) of the Act, which is governed by the one-year
limitations period of § 13. Since plaintiff's purchases
occurred more than one year prior to the filing of this suit,
they claim that the sale of an unregistered security no longer
is actionable. In reply, plaintiff asserts that the sale of an
unregistered security also violates the antifraud provisions of
§ 10(b) of the '34 Act and Rule 10b-5, 17 C.F.R. § 240.10b-5,
which is governed by a three-year statute of limitations in
this circuit. Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123
(7th Cir. 1972). He claims that the remedies afforded by each
Act are cumulative and not mutually exclusive and that
therefore the sale of an unregistered security is actionable
under either statute. Jordan Building Corp. v. Doyle, O'Connor
& Co., 401 F.2d 47 (7th Cir. 1968); Schaefer v. First National
Bank of Lincolnwood, 326 F. Supp. 1186 (N.D.Ill. 1970).
In considering whether the sale of unregistered stock is
actionable under § 10(b) of the '34 Act, it must be remembered
that this is not a case where plaintiff asks the court to imply
a private right of action for the breach of a statutory
duty.*fn4 Here, the remedy is clearly defined in the statute
itself. Nor do Paragraphs 6 of each Count allege a right to
recovery based upon the wrongful concealment of the issuer's
failure to register the stock*fn5 or upon the broker-dealer's
recommendation of a stock without an adequate basis for the
recommendation or, alternatively, upon his failure to disclose
the absence of reliable information about the issuer.*fn6
Rather, plaintiff asserts that the mere sale of unregistered
stock itself falls within the antifraud provisions of the '34
Act. With this I cannot agree.
Section 10(b) of the '34 Act makes it unlawful to employ
"any manipulative or deceptive device or contrivance" in
connection with the sale of any security. Rule 10b-5 broadly
defines three categories of abuse that come within the scope
of § 10(b). The sale of an unregistered security does not fall
within Rule 10b-5(a) or (c) because, unlike market rigging or
manipulative practices, the sale itself defrauds or deceives no
one. Nor do Paragraphs 6 of each Count predicate liability on
defendants' failure to advise plaintiff that the securities
were unregistered, which would clearly be an omission of a
material fact within the scope of Rule 10b-5(b). Rather,
plaintiff's position is tantamount to asserting not only that
every violation of the securities laws gives rise to a private
right of action, whether that right is expressly authorized by
the statute or not, but also that every violation of the
securities laws is actionable under the antifraud provisions of
the '34 Act. Such a theory is supported neither by the statute
or its rule nor by the cases interpreting them. See generally 2
CCH Fed.Sec.L.Rep. ¶ 22,781 (1970) and the cases cited therein.
Therefore, to the extent that they purport to state a claim for
relief under § 12(1) of the '33 Act or § 10(b) and Rule 10b-5
of the '34 Act, Paragraphs 6 of each Count are dismissed for
failure to state a claim.
II. The Illinois Securities Law of 1953
Paragraphs 6 and 7 of Counts I and II allege that the
subject securities were sold in violation of the Illinois
Securities Law of 1953, the remedy for which is contained in
Ill.Rev.Stat., Ch. 121 1/2, § 137.13 (Smith-Hurd Supp. 1972).
Under that section, the prerequisites for recovery are (1)
"tender to the seller or into court of the securities sold or,
where the securities were not received, of any contract made in
respect of such sale" and (2) notice of election to rescind.
Not only has plaintiff failed
to allege tender and notice, but he has also alleged that he
sold all of the subject securities, thereby rendering
impossible his compliance with the statutory prerequisites of
recovery. Defendants properly point out that, unlike the
federal rule, the exclusive remedy for a violation of the
Illinois Securities Law is recision. Glen v. Dodson, 347 Ill. 473,
180 N.E. 393 (1932); Weisbrod v. Lowitz, 282 Ill. App. 252
(1935); Weber v. Rupp, 235 Ill. App. 132 (1932). Hence, they
move to dismiss Paragraphs 6 and 7 of each Count for failure
to state a claim under state law.
In reply, plaintiff first asks this court to imply a remedy
for damages under the Illinois Securities Law of 1953 similar
to that available under § 10(b) of the federal Securities
Exchange Act of 1934 and then argues that the above-cited
authorities to the contrary are obsolete because they predate
the 1953 Law. Neither argument is convincing. Illinois has had
a blue sky law since 1917 and not once in all those years have
the courts of Illinois ever implied the type of remedy which
plaintiff seeks in this case. Rather, they have interpreted the
recision remedy of the predecessors of § 137.13 as exclusive
and have denied relief absent the requisite notice and tender.
Glen v. Dodson, supra. Therefore, Paragraphs 6 and 7 of each
Count are dismissed to the extent that they purport to state a
claim under the Illinois Securities Law of 1953.
III. The Claim That Certain Allegations Constitute
Puffing and Are Not Actionable
Defendants assert that certain of the allegations contained
in Paragraphs 7 of each Count are mere puffing and not
actionable under § 12 of the '33 Act and Rule 10b-5 of the '34
Act. Bowman v. Hartig, 334 F. Supp. 1323, 1328 (S.D.N.Y. 1971).
The court agrees that the statements that the stock of
defendant Monterey was a red hot stock and plaintiff could not
lose on an investment in Monterey, that plaintiff would make a
bundle of money on the stock of defendant Automated, and that
it was impossible to lose money in an investment in Automated
are mere puffing and are not actionable under either the
federal or state securities laws. However, the statements that
the stock of defendant Automated would go up and that it would
reach $30 per share are actionable to the extent that they were
unfounded representations or predictions of future performance,
for which the broker-dealer defendants lacked reliable
information. Sec. Release No. 34-9239 and 33-5168, July 1,
1971; Sec. Release No. 34-6721 and 33-443, February 2, 1962.
IV. Failure to Deliver a Prospectus
Paragraphs 7 of Counts I and II allege that the
broker-dealer defendants violated § 12(2) of the '33 Act, Rule
10b-5 of the '34 Act, and § 12 of the Illinois Securities Act
of 1953 because they failed to deliver a prospectus in
connection with the subject transactions. Plaintiff's theory
here is similar to that asserted in connection with his
allegation that the sale of an unregistered security alone is
sufficient to state a claim under the antifraud provisions of
the '34 Act and of § 12 of the Illinois Securities Law of 1953.
See Part I, supra. Similarly, the court finds that the failure
to deliver a prospectus is not actionable under Illinois law
because it is impossible for plaintiff to comply with the
notice and tender requirements of that statute. Nor does the
failure to deliver a prospectus in itself state a cause of
action under Rule 10b-5 of the '34 Act or § 12(2) of the '33
Act because such conduct is not inherently fraudulent or
deceitful. It is only when ...