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WHEATEN v. MATTHEWS HOLMQUIST & ASSOCS.

July 12, 1994

KEN WHEATEN and PETER ALBANESE, Plaintiffs,
v.
MATTHEWS HOLMQUIST & ASSOCIATES, INC., PETER MATTHEWS, PAUL HOLMQUIST, SCOTT FLYNN, TOM A. CALISE, FINANCIAL CORPORATION OF AMERICA, INC., AND TAC & ASSOCIATES, INC., Defendants.


NORDBERG


The opinion of the court was delivered by: JOHN A. NORDBERG

Before the Court is Defendant Financial Corporation of America, Inc.'s ("FCA") Motion for Summary Judgement. FCA asserts that it is entitled to judgement as a matter of law on Counts I, II and IV of the Complaint which are the only counts directed against FCA.

 FACTUAL BACKGROUND

 In their Complaint, Plaintiffs allege that on or about April 2, 1993, Defendant Tom Calise, a registered representative with Defendant Matthews Holmquist & Associates Inc., contacted Plaintiff Peter Albanese to sell Albanese a block of 14,000 shares of insider Excalibur Stock. (Complaint at P 14.) Calise allegedly told Albanese that the prior owner of the stock was a corporate insider who had defaulted on a loan to a bank and that the insider had given the bank the stock in lieu of a payment on the loan. Id. Additionally, Calise told Albanese that even though the stock was restricted, it would become unrestricted and trade freely on the over-the-counter market no later than October 15, 1993. Id. According to the Complaint, the block of 14,000 shares of insider Excalibur stock was being offered by Defendant Scott Flynn, an officer and director of Matthews Holmquist, and FCA. Id. at P 15. On April 2, 1993, Albanese, per Calise's instructions, wired $ 77,000 to an account, in an Arkansas bank in the name of "Financial Corporation of America," as payment for insider Excalibur stock. Id. at P 16. Albanese never received a prospectus for the stock, a confirmation of his purchase or the stock certificates evidencing ownership. Id. at P 17.

 Based on the above facts, Count I alleges that FCA violated Section 12(1) of the Securities Act of 1933, 15 U.S.C. § 77(1) when it sold insider Excalibur stock to Albanese, by use of the means of interstate commerce and the mails, in violation of the registration and prospectus delivery requirements of Section 5 of the Securities Act (15 U.S.C 77(e)). Id. at PP 30-31.) In Count II, Plaintiffs assert that FCA violated Section 12(2) of the Securities Act, 15 U.S.C. § 77(1)(2), which affords a private right of action to a purchaser against his seller where the purchaser acquired the securities by means of a prospectus or oral communication which contained a material misstatement or omission. Id. at PP 36-38. Finally, Count IV alleges that FCA violated Section 12(F) and (G) of the Illinois Securities Act of 1953, 815 ILCS 5/12, when FCA (1) engaged in a transaction, practice or course of business in connection with the sale or purchase of securities which works or tends to work a fraud or deceit upon the purchaser thereof, and (2) obtained money through the sale of securities by means of an untrue statement of material fact, and omissions of material fact necessary in order to make the statements made, in the light of the circumstances, not misleading. Id. at P 51.

 In support of its Motion for Summary Judgement, FCA relies on the Section 4(1) Exemption of the Securities Act of 1933. FCA asserts that, as it is not an issuer, underwriter or dealer as defined in the Securities Act of 1933, FCA's purchase and sale of the Excalibur stock was exempt from the requirements of Section 12(1) and Section 12(2) of the Securities Act of 1933.

 ANALYSIS

 Summary judgement is appropriate if the pleadings, answers to interrogatories, affidavits and other materials show "that there is no genuine issue as to any material fact and the parties are entitled to judgement as a matter of law." Fed. R. Civ. P. 56(c). Summary judgement shall be entered against a party who "fails to make a showing sufficient to establish the existence of an essential element to that party's case and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 321, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The showing made by the non-moving party must be more than merely colorable. Summary judgement is appropriate "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 Plaintiffs argue first that FCA is not entitled to summary judgement because it did not comply with Local Rule 12(m). Local Rule 12(m) requires movants for summary judgement to "serve and file in addition to the affidavits (if any) and other materials referred to in Rule 56(e) and a supporting memorandum of law, a statement of the material facts as to which the moving party contends there is no genuine issue and that entitle the moving party to a judgement as a matter of law . . . ." Local Rule 12(m). "If the moving party does not comply, the motion may be lost: 'Failure to submit such a statement constitutes grounds for denial of the motion.'" Schulz v. Serfilco, Ltd., 965 F.2d 516, 517 (7th Cir. 1992) (citing Local Rule 12(m)). As FCA has failed to submit a statement of material facts as to which FCA contends there is no genuine issue and which entitle FCA to judgement as a matter of law, this Court agrees with Plaintiffs that FCA is not entitled to summary judgement. Additionally, this Court notes that FCA has not filed a memorandum of law in support of its Motion for Summary Judgement nor a brief in reply to Plaintiff's response. FCA does not cite a single case in its Motion for Summary Judgement and its only reference to any legal authority is its citation to Section 4(1) of the Security Act of 1933.

 FCA argues that this Court should grant FCA judgement as a matter of law on Counts I and II of the Complaint because FCA is not an issuer, underwriter or dealer and thus, under Section 4(1), exempt from the requirements of Sections 12(1) and 12(2) of the Securities Act of 1933. Section 4(1) of the Securities Act of 1933 provides that, "The provisions of section 77e of this title shall not apply to transactions by any person other than an issuer, underwriter or dealer." 15 U.S.C. § 77(d)(1). Thus, Section 4 exempts certain transactions, by a person other than an issuer, underwriter or dealer, from the requirement that a registration statement be effective before selling securities. Pacific Dunlop Holdings Inc. v. Allen & Co. Inc., 993 F.2d 578, 585 (7th Cir. 1993), cert. granted, 114 S. Ct. 907 (1994), cert. dismissed, 127 L. Ed. 2d 454, 114 S. Ct. 1146 (1994).

 Sections 12(1) and (2) of the Securities Act of 1933 state in relevant part,

 Any person who

 
(1) offers or sells a security in violation of section 77e of this title or
 
(2) offers or sells a security . . . by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the ...

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