United States District Court, N.D. Illinois, Eastern Division
VLADIMIR BABIN, an Individual, and ALEKSEY BABIN, an Individual, Plaintiffs,
ALEXANDR SHCHEKIN a/k/a ALEXANDRE SHCHEKIN, an Individual, and EKETARINA ROMAS an Individual Defendants.
MEMORANDUM OPINION AND ORDER 
I. SCHENKIER, United States Magistrate Judge.
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"). 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.
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). We summarize the relevant,
well-pleaded facts below.
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).
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).
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).
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
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 #
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
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
* * *
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)).
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
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