Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Meyer v. Ward

United States District Court, N.D. Illinois, Eastern Division

September 27, 2016

DAVID MEYER, Plaintiff,
v.
KRISTA WARD and CALHOUN ASSET MANAGEMENT LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          MARY M. ROWLAND United States Magistrate Judge.

         This case arises from an alleged violation of the federal securities laws, the sale of unsuitable securities, violation of the antifraud provisions of the Illinois Securities Act, breach of contract, common law fraud, and breach of fiduciary duty. (Dkt. 24 at 1). Before this Court is Defendants' motion for summary judgment. (Dkt. 100). This Court has jurisdiction pursuant to the Securities Exchange Act of 1934, 15 U.S.C. § 78aa; 28 U.S.C. § 1331. This Court has supplemental jurisdiction over Plaintiff's state and common law claims pursuant to 28 U.S.C. § 1367. The parties have consented to proceed before a magistrate judge pursuant to 28 U.S.C. § 636(c)(1). For the reasons set forth below, Defendants' motion is granted in part and denied in part.

         I. SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Spurling v. C & M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014); Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In determining whether a genuine issue of material fact exists, this Court must construe all facts and reasonable inferences in the light most favorable to the nonmoving party. See CTL ex rel. Trebatoski v. Ashland School District, 743 F.3d 524, 528 (7th Cir. 2014).

         II. BACKGROUND FACTS

         Defendant Calhoun Asset Management LLC (Calhoun) was an Illinois limited liability company registered with the Securities and Exchange Commission as an investment adviser from August 31, 2007, until April 22, 2010. (Am. Compl., Dkt. 24, ¶ 5). Calhoun was the investment adviser to several offshore funds including the Calhoun Market Neutral Fund (Calhoun Fund), a Cayman Islands company. (Id.). Defendant Krista Ward was the sole member, owner, and only full time employee of Calhoun at all relevant times. (Id. ¶ 6). Plaintiff David Meyer is the trustee of his Individual Retirement Account; Centennial Bank originally held the funds owned by Plaintiff's IRA. (Stmt. of Facts ¶¶ 16-17).[1] On February 26, 2007, Plaintiff instructed Centennial Bank to purchase 134, 825 shares in the Calhoun Fund for $134, 825.06. (Id. ¶ 18). On June 27, 2007, Plaintiff instructed Centennial Bank to purchase an additional 75, 000 shares in the Calhoun Fund for $75, 000 for a total investment of $209, 825.06. (Id. ¶ 19).

         It is undisputed that Ward provided a Due Diligence Questionnaire (DDQ) to Plaintiff. (Stmt. of Facts ¶ 17). Plaintiff testified that the DDQ improperly reflected that Defendant Ward had a ten-year history of successful investing and growth of assets dating back to 1997; Plaintiff relied on the information contained in the DDQ and on Ward's representations of her professional investment track record when deciding to invest in the Calhoun Fund. (Id. ¶¶ 25-27).[2] Plaintiff disputes these allegations. (Id.). It is undisputed that Defendant Ward filed a personal bankruptcy petition in 2002. (Stmt. of Add. Facts ¶ 5). It is also undisputed that Plaintiff was not advised, prior to investing with Defendants, that Ward had filed a personal bankruptcy action. (Id. ¶ 7).

         In terms of damages from the misrepresentations, it is undisputed that Plaintiff has no evidence that Ward's alleged misrepresentations about her past performance or assets under her management caused his losses. (Stmt. of Facts ¶ 39). Plaintiff has since transferred his IRA funds to Millennium Trust and has received $142, 213.33, plus $2, 110.91, of his funds back. (Id. ¶¶ 20-21). As of September 10, 2015, approximately 72% of Plaintiff's funds have been returned. (Id. ¶ 23). Further, the S&P 500 index lost approximately 40% from the high point in 2008 to the low point in 2009. (Id. ¶ 48). Plaintiff's account suffered losses less than 40% from the high point in 2008 to the low point in 2009. (Id. ¶ 49).

         On February 14, 2014, Plaintiff filed an eight-count amended complaint. (Dkt. 24). Count one seeks damages suffered by Plaintiff through the purchase of unregistered securities from Defendants (Stmt. of Facts ¶ 6); count two seeks damages suffered by Plaintiff through Defendants' violation of the anti-fraud provisions of Section 10(b)(5) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (id. ¶ 7); count three alleges violations of the anti-fraud provisions of the Illinois Securities Law of 1953 (id. ¶ 8); count five alleges common law fraud through material mis-statements of fact and omissions of material facts (id. ¶ 9); count seven seeks rescission due to Defendants' lack of registration as investment advisors and the unregistered nature of the securities sold to Plaintiff (id. ¶ 10); and count eight alleges unjust enrichment (id. ¶ 11). On June 18, 2014, the Court dismissed counts four (breach of fiduciary duty) and six (breach of contract) and ordered Defendants to answer the remaining six counts of the amended complaint by July 9, 2014. (Dkt. 38). On November 5, 2015, Defendants filed an Answer and Affirmative Defenses to the Amended Complaint contemporaneously with the instant motion for summary judgment. (Dkt. 100-102).[3]

         III. DISCUSSION

         A. Sales of Unregistered Securities (Counts I and VII)

         Plaintiff alleges that the shares in the Calhoun Fund were not properly registered under the United States securities law. Count I alleges a violation of Section 12(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(1), resulting from the sale of unregistered securities. (Dkt. 24, ¶ 43). Plaintiff asserts that each of the securities sold to him were not registered or exempt from registration pursuant to Section 5 of the Securities Act, 15 U.S.C. § 77e. (Id. ¶¶ 43-45). The related Count VII asserts Plaintiff is entitled to rescission because Defendants were not properly licensed to sell securities and the Calhoun Fund was not properly registered as a security or exempt from registration. (Id. ¶ 91); see 15 U.S.C. § 77l(a) (The remedy for selling unregistered securities is “the consideration paid for such security with interest thereon, less the amount of any income received thereon.”).

         While the Securities Act of 1933 generally prohibits the sale of an unregistered security, 15 U.S.C. § 77e, it creates an exemption for “transactions by an issuer not involving any public offering, ” id. § 77d(a)(2); see Marks v. CDW Computer Centers, Inc., 901 F.Supp. 1302, 1311 (N.D. Ill. 1995) (“The 1933 Act's registration requirements are to ensure that investors have adequate information upon which to base their investment decisions. Federal securities laws exempt from registration requirements certain private placements by the issuer and other ‘downstream investors.'”) (citations omitted). The Supreme Court has determined that this private placement exemption applies in “[a]n offering to those who are shown to be able to fend for themselves.” SEC v. Ralston Purina Co., 346 U.S. 119, 125 (1953). Further, the party asserting the private placement exemption bears the burden of proof on the issue. Id. at 126.

         The Calhoun Fund is a Cayman Island Exempted Limited Company. (Dkt. 101, Ex. 1). Defendants contend that the offering memorandum of the Calhoun Fund states that it is exempt from registration. (Id. at 3). While that is accurate, this statement is insufficient to establish the private placement exemption. Instead, “courts have relied on four factors in determining whether an offering is a private placement: (1) the number of offerees and their relationship to the issuer; (2) the number of units offered; (3) the size of the offering; and (4) the manner of the offering.” ABN AMRO, Inc. v. Capital Int'l Ltd., 595 F.Supp.2d 805, 833 (N.D. Ill. 2008); accord Feldman v. Concord Equity Partners, LLC, 2010 WL 1993831, at *3 (S.D.N.Y. May 19, 2010). Defendants have failed to offer any evidence on these factors.[4]

         Defendants also argue that the securities sold to Plaintiff were exempt from registration because they were issued by a foreign private entity. (Dkt. 101 at 3-4). Securities registered by a “foreign private issuer” are exempt from the registration requirements of the United States securities laws. 17 C.F.R. § 240.3a12-3. However, the term “foreign private issuer” does not include a “foreign issuer” where “[t]he ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.