Sec. & Exch. Comm'n v. Strebinger

• Decision Date: 11 June 2015
• Docket Number: Civil Action No. 1:14–CV–03533–LMM.
• Citation: 114 F.Supp.3d 1321
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Bruce D. STREBINGER, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

114 F.Supp.3d 1321

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Bruce D. STREBINGER, et al., Defendants.

Civil Action No. 1:14–CV–03533–LMM.

United States District Court, N.D. Georgia, Atlanta Division.

Signed June 11, 2015.

Kristin Beth Wilhelm, Madison Graham Loomis, U.S. Securities and Exchange Commission, Atlanta, GA, for Plaintiff.

Amy Jo Eldridge, Jonathan N. Eisenberg, K & L Gates, Washington, DC, Michael J. Quinn, K & L Gates LLP, Los Angeles, CA, Brian Joel Levy, Ross A. Albert, Morris Manning & Martin, LLP, Atlanta, GA, for Defendants.

ORDER

LEIGH MARTIN MAY, District Judge.

This matter is before the Court on Defendants Bruce D. Strebinger's, Muskateer Investments, Inc.'s ("Muskateer"), Anne Strebinger's, and Furla Blue SpA's ("Furla") (collectively, "Defendants") Motion for Oral Argument [Doc. No. 20],¹ and Defendants' Motion to Dismiss [Doc. No. 12]. For the reasons explained in this order, Defendants' motions are DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

In May of 2009, Mr. Strebinger and Brent Howard Chapman began acquiring stock in Americas Energy Company–AECo ("Americas"), a United States public company with "penny" common stock [Doc. No. 1, 2].² At this time, Americas was a shell public company that had never earned revenues and possessed no material assets [id. at 8]. Ultimately, both Mr. Strebinger and Mr. Chapman each acquired more than 5% of Americas' stock [id. at 17]. However, neither Mr. Strebinger nor Mr. Chapman filed a Schedule 13D report with the SEC disclosing this amount of ownership in Americas' stock, as required by Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78a et seq. [id. ].³

While acquiring portions of Americas' stock, Mr. Strebinger began facilitating a reverse merger between Americas and an oil and gas exploration business based in Nashville, Tennessee [Doc. No. 1, 8]. Pursuant to this potential merger, Mr. Strebinger hired Daniel Breckenridge to write reports that promoted the value of Americas' stock [id. at 19]. Subsequently, Mr. Breckenridge hired Jarett Wollstein to write the promotional reports requested by Mr. Strebinger (the "Wollstein Reports") [id. ], and Mr. Strebinger directed the initial draft of the first of the Wollstein Reports [id. at 20]. In addition to directing this initial draft, Mr. Strebinger determined when the contents of the Wollstein Reports were final [id. at 24].

To further promote their stock with prospective investors, Mr. Strebinger and Mr. Chapman arranged for an independent research firm owned by D. Paul Cohen to create and distribute via email another report regarding Americas' stock (the "Cohen Report") [id. at 25]. While using a third party to author this report, both Mr. Strebinger and Mr. Chapman helped edit, and otherwise provided information for, the Cohen Report [id. at 25–26]. Ultimately, Mr. Strebinger and Mr. Chapman arranged and funded the dissemination of both the Wollstein Reports and the Cohen Report to prospective investors [id. at 28].

However, both the Wollstein Reports and the Cohen Report contained several materially false and otherwise misleading statements [id. at 29]. Specifically, the Wollstein Reports failed to disclose Mr. Strebinger's and Mr. Chapman's ownership interest in Americas, provided inaccurate information regarding their own distribution costs, and did not provide notice that Mr. Strebinger and Mr. Chapman were marketing and funding Americas' stock promotion [id. at 29–30]. In comparison, the Cohen Report also failed to reveal Mr. Strebinger's and Mr. Chapman's ownership interest in Americas, instead directing potential investors to review Schedule 13D reports filed with respect to Americas [id. at 32–33]. As Mr. Strebinger and Mr. Chapman had not filed their necessary Schedule 13D reports, such a directive did not reveal Mr. Strebinger's and Mr. Chapman's ownership interest in Americas.

Promotion of Americas' stock began through the release of the first of the Wollstein Reports in September of 2009 and continued through April 2010 [id. at 3, 20]. During this promotion, which included the release of the Cohen Report in November 2009, Americas' stock price rose significantly [id. at 3, 26]. Specifically, on September 14, 2009, the day the first of the Wollstein Reports was released, Americas' stock price closed at $.94 [id. at 37]. By February of 2010, Americas' stock price reached a closing high of $5.21 [id. at 38]. As the stock price rose due to this promotion, Mr. Strebinger and Mr. Chapman were able to sell their shares of Americas' stock on the public market for $17 million through offshore accounts [id. at 3]. Specifically, Mr. Strebinger was able to sell shares of Americas' stock through Muskateer, a Swiss financial institution that he beneficially owned [id. ]. Mr. Strebinger also sold stock through Furla, a Swiss financial institution beneficially owned by his wife, Ms. Strebinger [id. ]. Mr. Chapman sold Americas' stock during the aforementioned promotion through Lance Investments S.A. ("Lance"), a Swiss financial institution he beneficially owned [id. ].

Ultimately, as promotion decreased and Mr. Strebinger's and Mr. Chapman's shares were sold, the price of Americas' stock dropped significantly [id. at 43]. Specifically, on September 14, 2010, one year removed from the start of its promotional campaign, Americas' stock price closed at $0.67 [id. ]. By December 2011, Americas fell into bankruptcy and its stock became worthless [id. ].

The SEC initiated this action on November 3, 2014, asserting the following claims against Mr. Strebinger and Mr. Chapman: 1. Fraud under Section 17(a)(1) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77a et seq.; 2. Fraud under Sections 17(a)(2) and 17(a)(3) of the Securities Act; 3. Fraud under Section 10(b) of the Exchange Act, and Rule 10b–5 thereunder; 4. Liability under Section 20(b) of the Exchange Act; and 5. Corresponding Aiding and Abetting claims for violations of Section 10(b), 13(d), and 20(b) of the Exchange Act, and Rules 10b–5, 13d–1, and 13d–2(a) thereunder [id. at 43–51]. In support of these claims, the SEC alleges that Mr. Strebinger and Mr. Chapman promoted Americas' stock in a deceptive manner while simultaneously concealing their trades of Americas' stock through Swiss accounts [id. at 11–12]. The SEC also asserts a claim against Mr. Strebinger and Mr. Chapman, as well as Muskateer which also owned more than 5% of Americas' stock, for violating Section 13(d) of the Exchange Act and Rules 13d–1 and 13d–2(a) thereunder for failure to file Schedule 13D reports [id. at 47]. In addition to asserting these claims against Mr. Strebinger, Mr. Chapman, and Muskateer, the SEC's complaint also names Ms. Strebinger, Furla, and Lance as relief defendants [id. at 7].

In lieu of filing an answer to the SEC's complaint, Defendants have filed a motion to dismiss pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure [Doc. No. 12, 1]. In addition, Defendants have filed a separate motion requesting "that this Court hear oral argument on their Motion to Dismiss for failure to state a claim for relief" [Doc. No. 20, 1].

Below, as they are ripe for adjudication, the Court addresses the motions currently pending in this action.

II. DEFENDANTS' MOTION FOR ORAL ARGUMENT

Defendants request oral argument on their pending motion to dismiss. However, as their motion provides sufficient briefing on the issues presented in this action, the Court does not believe oral argument is necessary. See St. James Entm't LLC v. Crofts, 837 F.Supp.2d 1283, 1287 (N.D.Ga.2011) (holding oral argument on a particular motion is unwarranted when said motion is sufficiently briefed). Accordingly, for the sake of clarity in the record, Defendants' Motion for Oral Argument [Doc. No. 20] is hereby DENIED.

III. DEFENDANTS' MOTION TO DISMISS

A. Legal Standard

A complaint may be dismissed under a Rule 12(b)(6) motion to dismiss if the facts as pled do not state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (explaining "only a complaint that states a plausible claim for relief survives a motion to dismiss."); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561–62, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (retiring the prior Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), standard which provided that in reviewing the sufficiency of a complaint, the complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."). In Iqbal, the Supreme Court reiterated that although Rule 8 of the Federal Rules of Civil Procedure does not require detailed factual allegations, it does demand "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

In Twombly, the Supreme Court emphasized a complaint "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." 550 U.S. at 555, 127 S.Ct. 1955. Factual allegations in a complaint need not be detailed but "must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555, 127 S.Ct. 1955 (internal citations and emphasis omitted).

B. Discussion

In their motion to dismiss, Defendants make the following arguments: 1. All of the SEC's claims are time barred by the five year statute of limitations established under 28 U.S.C. § 2462 ; 2. The SEC fails to state a viable claim against Mr. Strebinger under Section 10(b) of the Exchange Act; 3. The SEC fails to state a viable claim against Mr. Strebinger under Section 17(a) of the Securities Act; 4. The SEC fails to state a viable aiding and abetting claim against Mr. Strebinger; and 5. The SEC fails to state a viable claim...