United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
HONORABLE THOMAS M. DURKIN UNITED STATES DISTRICT JUDGE.
the Court in this enforcement action by the United States
Securities and Exchange Commission (“SEC”) is
defendants River North Equity, LLC (“River
North”) and Edward M. Liceaga's partial motion to
dismiss, and defendant Michael A. Chavez's motion to
dismiss (River North, Liceaga and Chavez together,
“Defendants”). R. 36; R. 40. For the following
reasons, the Court denies both motions.
12(b)(6) motion challenges the “sufficiency of the
complaint.” Berger v. Nat. Collegiate Athletic
Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint
must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief, ”
Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with
“fair notice” of the claim and the basis for it.
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007). This standard “demands more than an unadorned,
the-defendant-unlawfully- harmed-me accusation.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While
“detailed factual allegations” are not required,
“labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555. The complaint must
“contain sufficient factual matter, accepted as true,
to ‘state a claim to relief that is plausible on its
face.'” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 570). “‘A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct
alleged.'” Boucher v. Fin. Sys. of Green Bay,
Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting
Iqbal, 556 U.S. at 678). In applying this standard,
the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party.
Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir.
case involves the stock distribution of two microcap
companies under the control of David Foley: NTEK and NTGL.
According to the complaint and of relevance here, Foley
caused those companies to issue him over 1 billion shares of
stock. He and his wife Lisa Foley then orchestrated the sale
of those shares at discounted prices to defendant River North
in dozens of transactions through River North's Director
of Business Development, Chavez. River North's president
and sole manager Liceaga then quickly resold the stock to
investors in unregistered transactions, paying some of the
proceeds back to the Foleys. The SEC brought a nine-count
complaint against the Defendants, the Foleys, and others
regarding this and related conduct. R. 1. River North and
Liceaga then filed a partial motion to dismiss certain of the
claims against them, R. 36, and Chavez filed a separate
motion seeking dismissal of all claims against him, R. 40.
The following counts are at issue for purposes of resolving
those motions: Count VII, alleging that River North acted as
an unregistered dealer and Chavez as an unregistered broker
in violation of Section 15(a) of the Securities Exchange Act
of 1934 (the “Exchange Act”), 15 U.S.C. §
78o(a)(1), in connection with those transactions; Count VIII,
alleging that Liceaga and Chavez aided and abetted River
North's Section 15(a) violations; and Count IX, alleging
that Liceaga is liable in the alternative as a control person
for River North's violations.
considerations underlie the Court's decision. First, and
as the parties acknowledged, there is no binding authority
construing either “dealer” or
“broker” under Section 15(a). And the majority of
the decisions the parties cite were on summary judgment or
following a bench trial. In fact, only one decision, SEC
v. Mapp, 240 F.Supp.3d 569 (E.D. Tex. 2017), granted a
motion to dismiss a Section 15(a) claim, and the Court views
it as an outlier.
while the parties agree that the Court should consider all of
the circumstances surrounding the transactions in question in
making its determinations on those issues, and that certain
factors-discussed later-are relevant to its analysis, they
also agree that no factor controls, and that the SEC need not
plausibly allege the presence of each factor, so long as it
has alleged some. SEC v. Benger, 697 F.Supp.2d 932,
945 (N.D. Ill. 2010). Indeed, the presence of even a single
factor may be enough.
although Defendants contend that many of the SEC's
allegations are conclusory, in so arguing, Defendants ignore
that the Seventh Circuit allows a plaintiff to supplement
allegations in responding to a Rule 12(b)(6) motion, provided
the supplemental allegations are consistent with the
complaint. Geinosky v. City of Chi., 675 F.3d 743,
745-46 n.1 (7th Cir. 2012); Forseth v. Vill. of
Sussex, 199 F.3d 363, 368 (7th Cir. 2000). Here, the
SEC's response is consistent with its complaint in all
relevant respects, so the Court considers the allegations
there in ruling on Defendants' motions.
and as the Court stated at oral argument, although Defendants
are correct that the SEC is not entitled to any leniency for
pleading deficiencies, the fact that it conducted a pre-suit
investigation does not mean that a higher pleading standard
applies either. Instead, like any plaintiff, to survive
Defendants' motions, the SEC need only satisfy the
standard outlined above. The Court now turns to the merits of
Defendants' respective motions, beginning with River
North and Liceaga's.
North and Liceaga's Motion.
North argues that it acted as a trader, not a dealer, so
Section 15(a)'s registration requirement did not apply.
Liceaga argues by extension that it could not be liable for
aiding and abetting River North, or for control person
liability, because there was no Section 15(a) violation to
begin with. Accordingly, the Court first ...