court, however, has never embraced a strict privity requirement for § 12(2). In fact, in Ambling v. Blackstone Cattle Co., Inc., 658 F. Supp. 1459 (N.D. Ill. 1987), this court expressed reservations about whether § 12(2) really requires strict privity between the plaintiff-purchaser and the defendant-seller and doubted whether the Seventh Circuit would adopt such an approach when called upon to actually decide the issue. Id. at 1465-66.
Subsequent to Ambling, in Pinter v. Dahl, 486 U.S. 622, 100 L. Ed. 2d 658, 108 S. Ct. 2063 (1988), the Supreme Court refused to adopt a strict privity requirement for cases alleging violations of § 12(1) of the 1933 Act. The Seventh Circuit then stated, in Schlifke, "The language in Pinter v. Dahl, coupled with prevailing case law in other circuits, seems to undermine the continuing viability of the strict privity concept under section 12(2)." 866 F.2d at 940. The Schlifke court, however, refused to adopt a specific test for determining who can be a "seller" or "offeror" under § 12(2). Instead, the court found that under any of the various tests employed for determining who is a "seller" under § 12(2) -- including the "proximate cause" test and "substantial factor test"
-- the defendant in Schlifke was not a "seller" of securities. 866 F.2d at 940-41.
As in Schlifke, this court need not determine the precise parameters of the "offers or sells" language in § 12(2), for under any reasonable definition of "offeror" or "seller," Craig's claim that Bitler is liable for a direct violation of § 12(2) as a seller of securities must fail. The complaint does not allege that Bitler participated in soliciting Craig's purchase of securities or that Bitler even communicated with Craig before he purchased securities. Nor does the complaint allege that Bitler took any action at First American to facilitate Craig's securities transactions. The only action allegedly taken by Bitler in connection with Craig's transactions was his misrepresentations concerning the reversal of certain trades; those misrepresentations were allegedly made by Bitler sometime after Craig's securities transactions had already been completed. Therefore, in no way can Bitler be considered a proximate cause or a "substantial factor" in causing Craig's transactions to take place. See Beck v. Cantor, Fitzgerald & Co., Inc., 621 F. Supp. 1547, 1561-62 (N.D. Ill. 1985) ("There is no question that under any stretch of the term, 'strict privity' does not apply to [defendant] whose conduct did not occur until well after the plaintiff bought his . . . stock. . . . Indeed, . . . even under the 'substantial factor' and 'transaction causation' tests enunciated by other circuits which have not required 'strict privity' under Section 12(2), [defendant] did not have both prior and significant involvement in the events leading to and causing the sales transaction.") As a result, Bitler is not liable as a direct seller of securities under § 12(2).
B. Aiding and Abetting
In addition to questioning "the continuing viability of the strict privity concept," the Schlifke court spoke disapprovingly of the doctrine of aiding and abetting liability under § 12(2). Noting that this circuit has never recognized aiding and abetting liability under § 12(2), the court stated: "Notions of aiding and abetting liability would be inconsistent with the intent and language of the statutory provision which expressly limits to offerors and sellers the categories of persons who may be sued." 866 F.2d at 942.
Craig correctly points out that Schlifke did not totally foreclose the possibility of aiding and abetting liability. The Schlifke court narrowly tailored its holding to the facts of that case, stating, "In the absence of a showing that the [defendant] Bank acted with scienter, we see no reason at this time to imply a right of action for aiding and abetting under section 12(2)." Id. However, in light of the Seventh Circuit's recognition that aiding and abetting liability is discordant with the language and intent of § 12(2), this court is not persuaded to retreat from its prior ruling in Ambling rejecting the notion of aider and abettor liability under § 12(2). See 658 F. Supp. at 1467.
Moreover, even if it were appropriate to recognize aider and abettor liability in some circumstances, this case would not be one of them. As noted above, Craig's complaint does not contain any allegations that Bitler facilitated the offer or sale of a security; Bitler did not even have any involvement with Craig until after Craig's securities purchased had already been effectuated through Anthony. Accordingly, Bitler cannot be liable as an aider or abetter under § 12(2).
Craig's final theory under § 12(2) is that Bitler was part of a conspiracy. However, in order to state a claim for conspiracy, "a plaintiff must allege the agreement of each defendant to the operation of the conspiracy." First Interstate Bank of Nevada v. Chapman and Cutler, 837 F.2d 775, 780 (7th Cir. 1988). Craig has not alleged that Bitler entered into any agreement to violate § 12(2); nor has he alleged any facts from which such an agreement may be inferred. He merely claims that at all times relevant to this action Bitler was an officer and director of First American and that by virtue of that position Bitler either knew or should have known of Anthony's misrepresentations and unauthorized transactions. These allegations, even when read in the light most favorable to Craig, are simply insufficient to state a claim for conspiracy. See Maloney v. Washington, 584 F. Supp. 1263, 1266 (N.D. Ill. 1984) (allegations of conspiracy must be supported by facts and cannot withstand motion to dismiss if they are merely conclusory). Accordingly, Craig's § 12(2) conspiracy claim against Bitler, as well as his claims against Bitler for a direct violation of § 12(2) and aiding and abetting under § 12(2), must be dismissed.
II. Count II: Violation of § 10b of the 1934 Act and Rule 10b-5
Section 10(b) and Rule 10b-5 make it unlawful for any person to make an untrue statement of material fact or to omit a statement of material fact in connection with the purchase or sale of a security.
Craig asserts that Bitler violated § 10(b) and Rule 10b-5 in the same three ways that Bitler allegedly violated § 12(2): as a direct violator, as an aider or abettor, and as a conspirator.
A. Direct Violation
To satisfy the "in connection with" language of § 10(b) and Rule 10b-5, a plaintiff must show a causal connection between his decision to buy or sell securities and the defendant's fraudulent conduct. See Schlifke, 866 F.2d at 943; Rowe v. Maremont Corp., 850 F.2d 1226, 1233 (7th Cir. 1988). As this court has already discussed, in the instant case Bitler's statements to Craig did not occur until after Anthony had executed Craig's securities transactions. Therefore, in no way can Bitler's representations be construed as a cause of Craig's purchases of securities through First American.
Craig argues that Bitler's statements are actionable even though they occurred after the securities purchases. Citing Securities and Exchange Commission v. Holschuh, 694 F.2d 130 (7th Cir. 1982), Craig claims that "post-purchase representations may still be actionable if they are part of an overall scheme to defraud by concealing the fraud and preventing its detection." Holschuh, however, does not stand for that proposition. In fact, the Holschuh court suggested that post-purchase representations are not actionable. The court stated:
[Defendant's argument] that a violation of the securities laws may not be based on events occurring after a sale has been completed, because such events could not have influenced the decisions of investors and cannot satisfy the requirement of being "in connection with the purchase or sale of any security[,]" . . . might have merit were it true that the district court predicated its finding of fraud solely upon [defendant's] post-sale activities.