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Leslie J. Weiss, As Receiver For the Nutmeg Group, LLC v. Harvey Altholtz

September 29, 2011


The opinion of the court was delivered by: Judge Edmond E. Chang


Plaintiff Leslie Weiss, a federally appointed receiver for The Nutmeg Group, alleges that Defendants Harvey Altholtz, Wealth Strategy Partners, and Altholtz Family Limited Partnership are liable for the finder's fees Nutmeg paid to Altholtz. Weiss's second amended complaint asserts claims under the Securities and Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78a et seq., the Florida Securities Act, F.S.A. § 517.01 et seq., and unjust enrichment.*fn1 R. 46. Defendant has moved to dismiss [R.51] all claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court grants the motion to dismiss with prejudice.


In September 2003, Nutmeg and Harvey Altholtz entered into a letter agreement whereby Altholtz would find prospective investors for Nutmeg's investment funds in exchange for a set percentage fee. R. 46 ¶ 19.*fn2 Altholtz was the general partner, principal equity holder, and operator of both Wealth Strategy Partners, LLP (Wealth Strategy), and the Altholtz Family Limited Partnership (AF Partnership). Id. ¶¶ 2-3. Neither Altholtz nor the partnerships he controlled were registered broker-dealers with the Securities and Exchange Commission (SEC) or the Florida Securities Commission. Id. ¶¶ 16-17. Between 2006 and 2008, Nutmeg paid Altholtz a total of $125,995.65 in finder's fees based on the letter agreement. Id. ¶ 21.

In March 2009, the SEC filed suit against Nutmeg and the two individuals -- Randall and David Goulding -- who had controlled Nutmeg up until then. Id. ¶ 11. Five months later, the judge assigned to the SEC suit appointed Leslie Weiss as the receiver for Nutmeg. Id. ¶ 1. As a court-appointed receiver, Weiss is authorized to oversee all aspects of Nutmeg's business. Id. ¶ 11.

In April 2010, Weiss filed this suit against Altholtz, based on the Exchange Act of 1934, the Florida Securities Act, and Illinois state law. R.1. After Altholtz moved to dismiss, R.27, Weiss amended the complaint twice. R. 43, R.46. Altholtz has filed a motion to dismiss the Second Amended Complaint, R.51, and that motion is now fully briefed.


Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007). The Seventh Circuit has explained that this rule "reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007); McGowan v. Hulick, 612 F.3d 636 (7th Cir. 2010) (courts accept factual allegations as true and draw all reasonable inferences in plaintiff's favor). A "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'"


A. Exchange Act

1. Statute of Limitations

As a threshold matter, the Court addresses whether the Exchange Act claims meet the statute of limitations. The Exchange Act provides a number of express causes of action, and with one exception,*fn3 all provide the same statute of limitations period: 1 year after discovery and 3 years after the violation. And although Section 29(b) does not set out a specific statutory limitations period, the Supreme Court instructs that the applicable limitations period should be determined from the most analogous federal statute. Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 362 (1991). Courts in this district have held that the 1-and-3-year statutory periods apply to Section 29(b) claims arising from violations of Section 15(a). E.g., Celsion Corp v. Stearns Mgt. Corp, 157 F.Supp. 2d 942, 947 (N.D. Ill. 2001). And those limitations periods, as relatively short as they are, were chosen by Congress specifically for securities cases. "The statute of limitations in securities fraud cases serves, as we have emphasized in other opinions, important public purposes." Law v. Medco Research, Inc., 113 F.3d 781, 786 (7th Cir. 1997). "Congress wrote inquiry notice into the one-year statute of limitations in that section. Three years is an age in the stock market. If the suspicious investor had a wide choice of times at which to sue within a three-year period rather than being required to sue no more than one year after the earliest possible date, the opportunistic use of federal securities law to protect investors against market risk would be magnified." Tregenza v. Great American Communications Co., 12 F.3d 717, 722 (7th Cir. 1993).

Altholtz argues that the statute of limitations precludes the Section 29(b) claims for two reasons. First, he argues that some of the purported illegal sales -- stretching from 2006 to 2008, according to Weiss -- were made over three years before the filing of the complaint. R. 51 at 9. Second, Altholtz's failure to register with the SEC was easily discoverable by looking at the Financial Industry Regulatory Authority's (FINRA) website, which Weiss could have done more than a year before the complaint was filed. Because the discovery rule starts the clock based on "facts a reasonably diligent plaintiff would ...

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