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.

Babin v. Shchekin

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

January 30, 2017

VLADIMIR BABIN, an Individual, and ALEKSEY BABIN, an Individual, Plaintiffs,
v.
ALEXANDR SHCHEKIN a/k/a ALEXANDRE SHCHEKIN, an Individual, and EKETARINA ROMAS an Individual Defendants.

          MEMORANDUM OPINION AND ORDER [1]

          SIDNEY I. SCHENKIER, United States Magistrate Judge.

         Plaintiffs Vladimir Babin ("Vladimir") and Aleksey Babin ("Aleksey") (collectively "plaintiffs"), have filed a four-count complaint against defendants Alexander Shchekin ("Mr. Shchekin") and Eketarina Romas ("Ms. Romas") (collectively "defendants").[2] The complaint alleges that defendants violated Section 12(a)(2) of the Securities Act of 1933 (Count I), Section 10(b)(5) of the Securities Act of 1934 (Count II), the Illinois Securities Law Act of 1953 (Count III), and committed common law fraud (Count IV) (doc. # 1: Compl.). Counts I and II are brought against only Mr. Shchekin, and Counts III and IV are against both defendants (Id.). Presently before the Court are Mr. Shchekin's and Ms. Romas' separately filed motions to dismiss the complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) (doc. # 22: Shchekin's Mot.; doc. # 19: Ms. Romas' Mot.). Plaintiffs filed a response to Mr. Shchekin's motion (doc. #34), but not to Ms. Romas' motion. The motions are now fully briefed, and for the reasons set forth below, the Court grants defendants' motions to dismiss.

         I.

         In ruling on a Rule 12(b)(6) motion to dismiss, we accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiffs. White v. Keely, 814 F.3d 883, 887-88 (7th Cir. 2016). Defendant Mr. Shchekin attached copies of a September 2015 Business Plan (the "Business Plan") and a Confidential Private Placement Memorandum (the "Private Placement Memorandum") to his motion to dismiss (doc. # 12-1: Shchekin Mem., Exhibits (a)(1) and (a)(2)). Because the complaint refers to both documents and plaintiffs concede the documents are central to their claims and generally concede their authenticity, we consider them as part of the pleadings for purposes of the motion to dismiss. See Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009) (holding that it was within district court's discretion to consider, on motion to dismiss, documents to which complaint referred that were concededly authentic and central to the plaintiffs claim).[3] We summarize the relevant, well-pleaded facts below.

         This case arises from Vladimir's $25, 000.00 payment and Aleksey's $5, 000.00 payment to defendants to invest in ReadOz, LLC ("ReadOz"). ReadOz is an Illinois limited liability company incorporated on June 19, 2007 that digitally publishes magazines and newspapers (doc. # 1, Compl. ¶¶ 9-10). Mr. Shchekin is an owner and manager of ReadOz and Ms. Romas is the company's secretary (Id. ¶¶ 11, 13). Mr. Shchekin filed a Notice of Sale of Securities on behalf of ReadOz pursuant to Regulation D of the Securities Act of 1933 in August 2007, that expired on April 30, 2008, and no further notices of sale were filed (Id. ¶¶ 14, 15). In the ReadOz Regulation D filing in August 2007, Mr. Shchekin stated that ReadOz did not intend to sell securities to non-accredited investors and that the minimum investment that would be accepted from any one individual was $50, 001.00 (Id. ¶¶ 16, 17).

         Plaintiffs allege that Vladimir first met Mr. Shchekin at Lifetime Fitness in Vernon Hills in January 2015 (Compl. ¶ 18). During their first meeting, Mr. Shchekin told Vladimir that he was a former pilot, that he had developed a computer program that he licensed to Boeing Company and was licensing to Blue Cross Blue Shield, and that his annual income was between $30-40 million because of his licensing deals (Id. ¶¶ 19-21). At this same meeting, Vladimir verbally advised Mr. Shchekin that he was a life insurance policy salesman and requested another meeting with Mr. Shchekin to discuss Mr. Shchekin's purchase of a life insurance policy (W.¶22).

         In May 2015, Vladimir, Mr. Shchekin and Vladimir's supervising agent met and Mr. Shchekin agreed to purchase a $10 million life insurance policy from Vladimir's employer (Compl. at ¶ 23). Vladimir received a $15, 000.00 commission from his employer for the sale of the life insurance policy to Mr. Shchekin (Id. at ¶ 26).

         In September 2015, Mr. Shchekin began to solicit funds from Aleksey as an investment in ReadOz (Compl. ¶¶ 40-42). Mr. Shchekin advised Aleksey that Mr. Shchekin made $30-40 million a year and that ReadOz was going to make tens of millions of dollars in a matter of years (Id. ¶ 41). Mr. Shchekin presented Vladimir and Aleksey with the Business Plan (Id. ¶¶ 27, 42). Plaintiffs allege the Business Plan contains the following fraudulent misrepresentations: (1) as of September 2015, the initial ReadOz platform contained 16 million files of content and the initial ReadOz website averaged 700, 000 page views per month; (2) ReadOz was formed in June 2008; (3) ReadOz expanded to generating $4 million in revenue over six years between 2009 and 2015; (4) ReadOz v.2 will be promoted via digital advertising channels including a YouTube channel featuring ReadOz screenshot tutorials, a blog and a social media strategy synchronized across Google Ad Words, Facebook, Linkedln, Pinterest, and Twitter; (5) the user base will grow 50% per month starting in September 2015 and culminating with 32.6 million users in December 2016; (6) ReadOz is projected to generate $38 million in revenue in 2016; (7) ReadOz generated 720, 000 total ad views in September 2015 and is projected to generate 1, 357, 639, 769 total ad views in December 2016 alone; and, (8) ReadOz generated 110, 000 total number of visits in September 2015 and is projected to generate 193, 948, 538 total number of visits in December 2016 alone (Id. at ¶¶ 28(a)-(i)). The Business Plan also includes a "Legal Disclosure" page that contains the following statements:

Neither the author nor company ... makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this Document or in any other written or oral communication transmitted or made available to a recipient. Each of such parties expressly disclaims any and all liability relating to or resulting from the use of this Document or such communications by a recipient .... Only those specific, express representations, and warranties, if any, which may be made to a recipient in one or more definitive written agreements when, as and if executed, and subject to all such limitations and restrictions as may be specified in such definitive written agreements, may be relied on by a recipient or have any legal effect whatsoever.
Material portions of the information presented in this Business Plan constitute "forward-looking statements" which can be identified by the use of forward-looking terminology such as "may", "will", "expect", "anticipate", "estimate", "plan", or "continue" or the negative form thereof or other variations thereon or comparable terminology. Such forward-looking statements represent the subjective views of the management of the company, and management's current estimates of future performance are based on assumptions which management believes are reasonable but which may or may not prove to be correct. There can be no assurance that management's views are accurate or that management's estimates will be realized, and nothing contained herein is or should be relied on as a representation, warranty or promise as to the future performance or condition of the company. Industry experts may disagree with these assumptions and with management's view of the market and the prospects of the company.
The sole purpose of the Business Plan is to assist a recipient in deciding whether to proceed with further investigation but this Business Plan does not purport to contain all material information that an interested party might consider in investigating the company. A recipient should conduct his or her own independent analysis and investigation,, ..
THIS BUSINESS PLAN IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.

(Shchekin Mem., Exhibit (a)(1): Business Plan at PageID # 69).

         Also in September 2015, Mr. Shchekin provided Vladimir and Aleksey with a Private Placement Memorandum (Compl. ¶¶ 32, 42). Plaintiffs allege the Private Placement Memorandum contains the following fraudulent misrepresentations: (1) ReadOz generates more than 750, 000 visitors and 10 million page views per month; (2) ReadOz's platform allows one-click posting to 35 social networking platforms; (3) Intergam Online Research Services, Inc. ("Intergam") - Mr. Shchekin's other company - generates $12 million in revenue annually; (4) ReadOz split off from Intergam in 2008; (5) ReadOz is developing relationships with the Tribune Company and U.S. Suburban Press, Inc.; (6) ReadOz generated $2, 047, 621.56 in revenue in 2015; and, (7) ReadOz projects to host 6, 047, 098, 537 files by the end of 2016 (Id., ¶ 33 (a)-(g)). The first page of the Private Placement Memorandum states in part the following:

The securities offered hereby have not been registered under the Securities Act of 1933 (the "Act") or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said Act and such laws. ...
This Offer Is Limited To Accredited Investors Who Are Person Described In Rule 501(a) Of Regulation D. See "Investor Suitability Requirements." These Securities Are Speculative And An Investment In The Securities Involves A High Degree Of Risk. See "Risk Factors."[4]
This Confidential Private Placement Memorandum ("Memorandum") relates to the private offer and sale ("Offering") by ReadOz, LLC, an Illinois limited liability company ("Company, " and also referred herein as "we" or "our") of Class A Membership Units representing membership interests in the Company ("Units"). The purchasers of Units are sometimes referred to herein as "Members." Each Unit is offered at a price of $1.50 in cash. Up to____ Units shall be sold. Prior to this offering____ Class A Units have been issued by the Company. The Company reserves the right in its sole discretion to modify the terms and conditions of acceptance and to accept or decline any offer to purchase Units. No public market exists for any of the Units and no public market is expected to develop in connection with this offering. ...
* * *
THIS MEMORANDUM ... INCLUDES OR MAY INCLUDE CERTAIN STATEMENTS, ESTIMATES AND FORWARD-LOOKING FORECASTS WITH RESPECT TO OUR ANTICIPATED FUTURE PERFORMANCE. SUCH STATEMENTS, ESTIMATES AND FORWARD-LOOKING FORECASTS REFLECT VARIOUS ASSUMPTIONS OF OUR MANAGEMENT THAT MAY OR MAY NOT PROVE TO BE CORRECT AND INVOLVE VARIOUS RISKS AND UNCERTAINTIES. IN SOME CASES, FORWARD-LOOKING STATEMENTS CAN BE INDICATED BY TERMINOLOGY SUCH AS "MAY, " "WILL, " "SHOULD, " "COULD, " "EXPECTS, " "PLANS, " "ANTICIPATES, " "BELIEVES, " "ESTIMATES, " "PREDICTS, " "POTENTIAL, " OR "CONTINUE" OR THE NEGATIVE OF SUCH TERMS OR OTHER TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF OPERATIONS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS.

(Shchekin Mem., Exhibit (a)(2): Private Placement Memorandum at pp. i-ii (emphasis in original)).

         The Private Placement Memorandum also includes more than three pages of "Risk Factors" (Shchekin Mem., Exhibit (a)(2), at 28-31). This section list thirteen risk factors, and provides a paragraph or more of information explaining each factor. The first factor states that the "Company has limited operating history; the related business has a limited operating history" (Id. at 28) (emphasis in original). The explanation following this heading begins by stating "[a]s the Company is in the formative stage, we do not have long operating history upon which prospective Members may judge its performance and prospects. Our operations and business are subject to the risks of an early stage company with no current revenues" (Id.). The other risk factors include:

The success of the Company may depend upon its ability to obtain additional equity financing
The success of the Company will be affected by the ability of the Manager to operate the business profitably and gain ...

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.