The opinion of the court was delivered by: Judge Joan H. Lefkow
Plaintiff, United States Securities and Exchange Commission ("SEC"), brought this action to enforce the Securities Act of 1933 ("Securities Act"), codified at 15 U.S.C. §§ 77a et seq., and the Securities Exchange Act of 1934 ("Exchange Act"), codified at 15 U.S.C. §§ 78a et seq., and for equitable relief in connection with allegedly fraudulent Regulation S securities offerings.*fn1 The SEC's complaint categorizes the defendants into two primary categories: (1) the Distribution Agents -- Stefan H. Benger ("Benger"), SHB Capital, Inc. ("SHB Capital"), Jason B. Meyers ("Meyers"), International Capital Financial Resources, LLC ("International Capital") -- who are alleged to have masterminded the alleged fraud; and (2) the Escrow Agents -- Philip T. Powers ("Powers"), Handler, Thayer & Duggan, LLC ("Handler Thayer"), Frank I. Reinschreiber, and Global Financial Management, LLC ("Global Financial") -- who are alleged to have assisted the Distribution Agents. Powers, one of the Escrow Agents, now moves to dismiss Counts IV and V of the complaint under Federal Rule of Civil Procedure 12(b)(6). Also before the court is the SEC's motion to strike a portion of Powers's reply brief. For the reasons set forth below, Powers's motion to dismiss counts IV and V of the complaint  is denied, and the SEC's motion to strike a portion of Powers's reply brief  is denied as moot.
This opinion assumes familiarity with the facts of this case as set forth in this court's June 29, 2009 Opinion and Order (Docket No. 144). Only the facts relevant to the current motion will be discussed.
I. The Alleged "Boiler Room" Scheme
The alleged scheme began when the Distribution Agents entered into agreements with various issuers of Regulation S securities.*fn2 Under the distribution agreements, the Distribution Agents were to receive commissions in excess of sixty percent of the investors' proceeds for sales of securities, which the SEC characterizes as "penny stocks."*fn3 The Escrow Agents assisted the Distribution Agents pursuant to escrow agreements that corresponded to the distribution agreements at issue and outlined the role of the Escrow Agents in the offering. The Escrow Agents were responsible for collecting the investors' share purchase agreements and their payments and then distributing the proceeds of the sales. The escrow agreements provided that the specified escrow agent was to be compensated in an amount equal to the greater of one percent of the gross proceeds from the sale of all shares or $5,000. See, e.g., Escrow Agreement ¶ 6, attached as Ex. 2 to Powers Mem. in Supp.
In order to generate sales of the penny stocks, the Distribution Agents employed sales agents, whom the SEC refers to as "boiler room agents," located outside the United States. The boiler room agents solicited foreign investors by making cold calls to elderly British and European citizens, using high-pressure sales tactics to encourage investment. During these cold calls, the sales agents also made numerous misrepresentations and omissions by failing to disclose that commissions in excess of sixty percent of the investor's consideration would be charged or by telling prospective investors that only nominal transaction fees would be charged.
After prospective investors agreed to purchase shares, they received a Share Purchase Agreement ("SPA") in the mail. The SPA instructed the investors to wire payment to the designated Escrow Agent and informed them that the Escrow Agent would transmit the share certificates to the investor after the Escrow Agent transferred the total consideration paid by the investor to the Issuer. Specifically, the SPA used in the offering of China Voice Holding Corp. ("China Voice") stock, attached to Powers' memorandum in support of his motion to dismiss, provides under Article 1, "Purchase, Sale and Terms of Shares":
2) Closing and Closing Agreements. The Buyer has caused the Purchase Price denominated in dollars to be transferred to the Escrow Agent by wire transfer together with this Agreement, properly executed. The offer to purchase contained in this Agreement once submitted to the Escrow Agent will become irrevocable and binding subject only to acceptance by the company. A certificate representing the Shares will be issued by the Company with 21 days of acceptance of this Agreement and will be deposited with the Escrow Agent for transmittal to the Buyer upon transfer of the Total Consideration to the Company.
Art. I ¶ 2, SPA, attached as Ex. 3 to Powers' Mem. in Supp. (emphasis added). The SPA's did not disclose that the commission charged exceeds sixty percent of the total consideration paid by the investors. Rather, they represented that the only fee charged the investor was "a nominal fee of $50 or 1% of cost of shares to cover certificate and mailing costs." Compl. ¶ 32. For instance, "Total Consideration," as represented in the China Voice SPA is the sum of the Purchase Price for the shares bought and the $50.00 "Transaction fee to cover certificate and mailing costs." Art. I ¶ 2, SPA, attached as Ex. 3 to Powers' Mem. in Supp.
II. Powers' Role in the Alleged Scheme
Powers is an attorney and holds the position of senior counsel at Handler, Thayer.
Powers practices "business, corporate, and securities law with an emphasis on domestic and international private equity formation and related transactions." Compl. ¶ 14. His previous experience included acting as "general counsel to broker-dealers and other financial services firms, focusing on domestic regulatory compliance." Id. Powers, through Handler, Thayer, agreed to act as the Escrow Agent for many of the penny stock transactions that are the basis of this litigation. In addition to his law practice, Powers also serves as a principal of Global Financial, a finance management company that offers a complete line of escrow services.
Global Financial served as an escrow agent for some of the Regulation S offerings at issue.
Handler, Thayer was the escrow agent designated in several of the distribution agreements between the Distribution Agents and Issuers, including that between SHB Capital and China Voice. Pursuant to those distribution agreements where Handler, Thayer was the Escrow Agent, Powers was designated as the firm's authorized agent, and as such, maintained control of the bank and brokerage accounts to which investors wired their funds ("Escrow Accounts"). Powers received the signed SPAs and the investment money from the foreign investors and distributed the monies according to the relevant escrow agreement. This resulted in more than sixty percent of the investors' funds being paid as sales commissions to the designated Distribution Agent, and less than forty percent going to the designated Issuer. Powers deposited most of these commissions into bank accounts located in countries known for strong bank secrecy laws, such as Switzerland and Cyprus. Powers was also responsible for sending the share certificates to the foreign investors. He often sent an accompanying letter with the share certificate written on Handler, Thayer stationery and signed by Powers as "Escrow Agent." The letter stated the amount of shares purchased by ...